Atlas Air’s Q1 net income down, but Amazon deal raises spirits

Soon after announcing its blockbuster 20 freighter/20 percent stake deal today with Amazon, Atlas Air Worldwide Holdings (AAWW) released its first-quarter results for 2016, showing a drastic dip in net income from US$25.8 million in Q1 2015 to just $7.7 million in three months ended March 31, 2016.

CEO William Flynn, however, remained upbeat, saying that earnings per share were in line with expectations and that the Amazon deal, involving the operating a twenty 767-300 freighters for the online retailer, will herald a “new era of significant business growth and development” for Atlas. “We expect this service to begin in the second half of this year,” Flynn said, adding that the deal would begin bearing financial fruit in terms of earnings by 2017, while full service and benefits won’t be seen until 2018.

Flynn also cited the completion of the acquisition of Southern Air as a major milestone that “will provide a broader array of services for customers and new avenues of business growth for us” via Southern’s fleet of 777 or 737 aircraft.

For the Q1 results, however, Atlas Air saw revenue dips in its ACMI (aircraft, crew, maintenance and insurance), Charter and Dry Leasing segments. The drop from $189 million to $182.7 million in ACMI business reflected a reduction in revenue per block hour and an increase in crew training costs, which were partially offset by a reduction in heavy maintenance spending. Charter revenue, dropping from $220.1 million in Q1 ’15 to $202.3 million in Q1 ’16, also reflect the effects of the unusual demand for airfreight during the U.S. West Coast port slowdown last year.

“For the full year, we continue to expect total block hours, including Southern Air, to increase more than 20 percent, compared with 2015, with about 75 percent of our 2016 hours in ACMI and the balance in Charter,” he said.

Flynn said the new service for Amazon would incur start-up expenses, including the acquisition and conversion of the aircraft and spare engines, plus the hiring and training of more pilots and maintenance personnel, so he warned that earnings per share in 2016 “will be a few percentage points lower” than in 2015. He also predicted that 2016 would be a “typical year” in that earnings will rise in the second half, unlike the fluke of 2015, when the first quarter led all others due to the port congestion.

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