Ramp-up for the Amazon contract hits an otherwise strong quarter for Atlas

aaww-3q16-chart-v2As expected, Atlas Air Worldwide Holdings (AAWW) reported a third-quarter loss, the result of expenses related to the company’s agreement to operate a twenty-unit 767-300F fleet for Amazon. As can be seen in the chart at right, AAWW reported a loss of $7.9 million in the quarter, as revenue was almost flat (down 0.4%) with 3Q15.

In a conference call discussing the results, the company said that operations not related to the Amazon deal – that is, ACMI, CMI, and charter service for existing customers – performed strongly. AAWW CEO Bill Flynn said the company felt the beginnings of what appears to be a strong peak season in the latter part of the Quarter, not just in one or two specific markets, but across the entire customer base, and across almost all regions. In addition, the acquisition of Southern Air in April was immediately accretive.

During the third quarter, revenue from the Amazon agreement came from the operation of one freighter, which entered service in late August. However, during the period Atlas continued to hire and train flight crews, acquire 767-300 feedstock aircraft, secure conversion slots, and pay for the first conversion. In addition, since the agreement allows Amazon to acquire up to 30% of AAWW’s common shares, the company underwent a “change in control”, which triggered “accelerated compensation expense.” In other words, expenses were vastly greater than revenue.

The negative impact of the Amazon agreement will continue through the fourth quarter (Atlas said it would not put the next 767 freighter into service for Amazon until next year), and well into 2017. But at some point in 2017, the deal will become accretive to earnings, and then increasingly more accretive over the following years.

Regarding the Amazon fleet, AAWW said it had already acquired eighteen of the remaining nineteen feedstock aircraft, and secured conversion slots for all nineteen. The company did not provide an exact schedule of service entry for the nineteen converted freighters, but said all would be in service by the end of 2018, with service entry roughly evenly spaced during 2017 and 2018.

Looking ahead, Mr Flynn said that the strengthening demand seen in the third quarter had accelerated in October. The strength continued to be general, rather than driven by a particular product introduction or by a particular trade lane. Geographically, Mr Flynn said the Asia/Pacific-to-Europe lane saw the strongest growth, that demand ex-Europe was good to all regions, and that, contrary to what the region’s own carriers are reporting, Atlas saw strong growth in its Latin American operations. And, to add one more positive note, he added that not only was demand increasing, but yields were rising as well.

If there is a negative on the horizon, it is that AAWW, like US-based competitors Air Transport Services Group and Kallita Air, is in the midst of fairly tense contract negotiations with its pilots. As might be expected, company executives had no comment on the progress of those negotiations.

  Like This Post