What was behind ATSG’s leadership shakeup?

Choppy financial performance, in part, because the company became laden with unleased 767-200s, appears to have led Air Transport Services Group to change its leadership this month, sources tell Cargo Facts . The ATSG board replaced Rich Corrado with Joe Hete as chief executive this month in a move to improve the company’s revenue and stock performance. Hete previously served as CEO. [caption id="attachment_56866111" align="aligncenter" width="2560"] ATSG just started its A330P2F conversions. (Photo/Airbus)[/caption] The group's transition from Rich Corrado to Joe Hete was made public Nov. 6 during the company’s third-quarter earnings call, but some industry sources said ATSG had decided months ago to remove Corrado. Neither Corrado, Hete nor ATSG replied to requests for comment by press time. The 767s appear to have been a key reason for the change. ATSG halted its remaining 767 freighter conversions, making this news public last week as part of the company’s earnings announcement, and committed resources to the A330F. "ATSG wants to preserve cash, which is why they halted the 767 conversions,” one industry insider told Cargo Facts. Amazon’s leases with Cargo Aircraft Management, ATSG’s leasing arm, for twelve of 767-200BDSFs expired this year and eight were not renewed. Instead, Amazon is shifting to the A330-300P2F. Amazon in May assigned its A330P2Fs to Hawaiian Airlines, a new CMI partner which has twenty-four, Trent-powered A330-200s in its passenger fleet. A source said Corrado was more focused on the operations than strategy at ATSG, and Hete’s previous experience and success as chief financial officer and CEO made him the board’s preferred option, said the executive, who asked not to be named. Substantial maintenance issues with ATSG passenger airline subsidiary Omni Air International were another concern, Helane Becker, managing director of industrials and airlines, airfreight and aircraft leasing at TD Cowen, told Cargo Facts . Most of the maintenance occurrences took place in September and no one at ATSG even knew about them, she said. “We believe if there haven’t been any management changes made at Omni, there should be,” Becker said. Corrado hinted that his leadership role was coming to an end during a speaking engagement in January this year at the Wings Club Foundation in New York, an industry executive who attended the event told Cargo Facts . With Hete at the helm, ATSG will focus on rebuilding the value of its stock prices and increasing shareholder returns, another source told Cargo Facts . ‘Still positive’ growth At Corrado’s last public appearance, at the Cargo Facts Symposium last month, the then-CEO of ATSG said that e-commerce growth will continue to be a driving force for many freighter operators. “E-commerce demand is not negative; it’s still positive,” Corrado said at the time. “The rate of growth may have been reduced by a few points, but it will continue to get stronger.” The ATSG stock price per share has plummeted 43.6% YoY at market close today from $28.18 in November 2022. The company has a market share of $1.04 billion. “The stock is a bit broken owing to the miss that occurred after reaffirming guidance so close to the end of the quarter,” Cowen’s Becker said. “Joe [Hete] has a track record of success at the company, but we expect it will trade in a narrow range until they report some wins.” The drop in ATSG stock was a result of various factors, said Quint Turner, ATSG's chief financial officer, during the earnings call. These include: ATSG leasing subsidiary CAM being unable to sell or place the eleven 767-200Fs returned off lease starting in September 2022 back into service; The company falling short of its projected Q3 earnings; and the maintenance costs incurred by its passenger service carrier. Operating cash flows decreased by $30 million to $118 million for and were $600 million for the trailing 12 months, while adjusted free cash flow was $400 million over the last 12 months, Turner said during the Nov. 6 quarterly earnings call. “ When stocks go down because of a management issue, it generally takes at least six months to improve,” Becker told Cargo Facts . Headwinds New CEO Hete has his work cut out for him. ATSG is operating in a dynamic and challenging market environment and the company recognizes that its recent financial results need to improve, Hete said during the earnings call. Revenue increased year over year by $6 million, driven by growth in ACMI services, but the earnings were offset by a $9 million loss in revenue from the leasing segment, Turner said on the call. The return of two 767-200Fs off lease in the third quarter lowered the power-by-cycle engine revenue when compared to last year, while the remaining types that are still in service are flying reduced hours for customers, the CFO noted. In addition to stabilizing ATSG’s operations, Hete also faces a potential strike from the Air Line Pilots Association (ALPA). More than 98% of the pilot union members participated in a recent vote and 99.7% of the voters chose to authorize their union leaders to call a strike, ALPA said in a Nov. 14 press release.

What was behind ATSG’s leadership shakeup?

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