Lower first-half profits, labor unrest belie positive outlook at Atlas

Atlas Air has wrapped up its second quarter figures, which president and CEO William Flynn called “one of the most important in the company’s history,” following the acquisition of Southern Air and the game-changing deal with Amazon to lease and operate twenty 767-300 freighters.

It was also a rough quarter, with income from continuing operations, net of taxes, falling 26 percent, year-over-year, from US$28.4 million in Q215 to $20.9 million for the three months ending June 30, 2016. The latest numbers fill out Atlas’s half year, ending June 30, 2016, and underscore the impact of the Amazon deal. Income from continuing operations during this period totaled $21.4 million – a 63 percent plunge, y-o-y, from the same period last year.

Atlas also suffered a loss of $0.24 per diluted share after the impact of warrant accounting – options issued by Atlas that give Amazon the right to buy stock from the company at a specified price within a certain designated time period Amazon, that are factored into current accounting – and transaction-related expenses such as jets, conversion slots, and staffing are taken into account. These costs reflect a sizable difference from last year’s $2.29 per diluted share, for the six months ended June 30, 2015.

On an adjusted basis, first-half 2016 income from continuing operations totaled $27.9 million, or $1.11 per diluted share, compared with $55.2 million, or $2.20 per diluted share, in the first half of 2015.

The carrier’s segment revenues showed some interesting variation in the first half of 2016, with ACMI leasing (including aircraft, crew, maintenance and insurance) outpacing Atlas’ Charter division to the tune of $211.7 million and $202.5 million, respectively. The relationship was inverted, y-o-y, with Charter outpacing ACMI by $46.1 million in the first half of 2015. Higher ACMI revenues and block hours in Q216 were “driven by our acquisition of Southern Air and an increase in 747-400 flying, partially offset by the temporary redeployment of 747-8F aircraft to our Charter segment,” the carrier reported.

Atlas Air sunset-crop_Gathany

Segment contribution in Charter was relatively unchanged. Atlas noted that, “the impact of the U.S. West Coast port disruption in 2015 and increases in crew costs associated with our fleet growth initiatives were partially offset by increased military cargo and passenger demand and the temporary deployment of 747-8F aircraft to Charter.” In addition, a reduction in fuel prices this year drove revenue per block hour down, as did higher rates “related to the U.S. West Coast port disruption in 2015.”

In Dry Leasing, lower revenue and segment contribution stemmed from decreased maintenance payments, although these were partially offset by revenue from new placements of 767 freighter aircraft into service for Amazon in late 2015 and early 2016.

Atlas took the opportunity to underscore their commitment to the e-commerce and express segments, best illustrated by their pioneering deal with Amazon. “The ongoing development of our strategic platform is expanding our business base, moving us more deeply into the faster-growing express and e-commerce markets, and driving long-term growth opportunities. In an otherwise challenging environment during the quarter, these historic transactions stand out,” explained Flynn.

However, Daniel Wells, President of Teamsters Local 1224 cautioned that Atlas executives were “delaying contract negotiations with pilots and putting the business at risk.” The carrier and its pilot’s union have been at loggerheads for years over contract negotiation. A recent report published in The Loadstar warned that the recent deal with Amazon strongly favored the e-retailer. In an SEC filing, it was revealed that that Amazon has the right to cancel the aircraft CMI deal agreed with Atlas Air with just 180 days’ notice.

In addition, the SEC filing said, Atlas shareholders could be forced to either pay the company’s executives millions of dollars in bonuses, or be liable a $9.5 million “breakup fee” to Amazon when they are asked to approve the Amazon agreements, the Wells said. “We urge Atlas Air executives to refocus on the long-term health of the company and do right by its pilots, customers and shareholders,” he added.  “Securing a fair contract with the pilots at Atlas is a crucial step in successfully executing on the company’s strategic goals.”

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