ATSG reported a moderately good first quarter, but the big news was two new leasing contracts.
US-based Air Transport Services Group (ATSG) reported first-quarter net income down 20.8% y-o-y to $7 million. The decline came despite a slight (0.2%) increase in net revenue from customers to $144 million, but ATSG nonetheless maintained a reasonably healthy 4.7% net margin. The chart at right shows more of the financial details of the report, but the financial results were overshadowed by the announcement of lease agreements for four 767 freighters with two airline customers – deals that should boost ATSG’s results for many quarters to come.
As we previously reported, US-based Amerijet signed an agreement with ATSG’s leasing arm Cargo Aircraft Management (CAM) to lease two 767-300Fs for a term of six years, beginning in the third quarter of this year. Amerijet currently leases three 767-200Fs from CAM, and one of those will be returned early as part of the agreement, while the leases on the other two were extended by eighteen months, through 2019.
In a separate deal, Canada-based Cargojet agreed to lease two 767-200Fs from CAM. You can click here for the note we published on this yesterday, but what is particularly interesting about it is that ATSG said the term of the leases was “up to three years.” Interesting for two reasons: First, three years is a relatively short term, particularly given that Cargojet’s win of the Canada Post/Purolator contract means it will need more aircraft for the long term. Which brings up the second point, that “up to three years” implies that the term of the lease not fixed, and is dependent on some other variable. What might that variable be? One possibility is that Cargojet really wants 767-300Fs, not -200Fs, and that ATSG will now be looking to acquire some.
Plenty of food for thought here. Other than the big three integrators, ATSG is by far the largest owner/operator of medium widebody freighters in the world, with forty 767-200Fs and nine 767-300Fs. As ATSG says in its quarterly report, demand for medium widebody lift is growing. But the company’s 767-200F fleet is aging, and it will be interesting to see whether ATSG moves to add more -300Fs. Or even A330 freighters.
Turning back to matters financial, we note that along with the first-quarter results and the new lease agreements, ATSG also announced that it had executed an amendment to its senior secured credit facility which includes a term loan of $127.5 million, and access to a revolving credit facility of up to $275 million, of which the Company has drawn $188.0 million. Key features of the amendment include:
- Extended the maturity of the term loan and revolving credit facility from July 2017 to May 6, 2019.
- Reduced EBITDA-based pricing by approximately 25 basis points.
- An accordion feature which would allow ATSG to expand the revolver capacity from $275 million to $325 million, subject to lenders’ consent.
- Allows for stock buybacks and dividends when the debt-to-EBITDA ratio is below 2.5 times after giving effect of the buyback or dividend (the previous requirement was under 2.0 times).