A bad quarter? Hardly.
As was the case with Atlas Air Worldwide Holdings, the main cause of the reported loss was a change in the value of warrants issued to Amazon as part of the agreement under which ATSG leases twenty 767 freighters to Amazon, and operates them for the e-commerce giant on a CMI basis. The success of that agreement has driven up ATSG’s share price, and, therefore, the value of the warrants. Adjusting for this mark-to-market re-evaluation (and a one-time non-cash pension settlement charge), ATSG’s net income was up 71.8% over 3Q16 to $15 million.
Details of the company’s financial performance in the quarter and for the first nine months of 2017 can be seen in the chart at right, but there are a couple of things not shown that are worth pointing out.
- While ATSG’s leasing arm (Cargo Aircraft Management, or CAM) and other activities, including MRO and logistics services, have been steadily profitable, the ACMI segment has not. But, in the third quarter, after adjusting for the one-off charges, that changed. And in a call discussing the results, ATSG executives said they expected the ACMI business to report a full-year profit, and remain profitable in the future.
- Demand for 767 freighters (the mainstay of ATSG’s fleet) has increased dramatically in the last two years, and looks set to continue increasing for at least several years to come. At the Cargo Facts Symposium in Miami last month, Rich Corrado, ATSG’s Chief Operating Offic, said that even as ATSG was nearing completion on its 20-freighter commitment to Amazon, it was confident enough to have acquired many more 767-300ERs and secured conversion slots for them. Three of those converted freighters were recently redelivered and are now entering service with dry-lease customers, and the company has commitments for (at last count) four of the six 767-300s currently in or awaiting conversion.
- Amazon is now, by a considerable margin, ATSG biggest customer, accounting for 45% of revenue in the third quarter of 2017. DHL, which accounted for 98% of revenue when ABX Air was spun out as a standalone company in 2003, now accounts for 25%, while the US Military accounts for 7%. The remaining 23% is split among a variety of other customers (both leasing customers, and customers of ATSG’s MRO and logistics services).