- Results Reflect Global Demand for Airfreight and Impacts of COVID-19 Pandemic
- Reported Net Income Increased to $23.4 Million
- Adjusted EBITDA Grew to $121.2 Million and Adjusted Net Income to $29.9 Million
- Expects 2Q20 Earnings Growth
PURCHASE, N.Y., May 7, 2020 – Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced first-quarter 2020 net income of $23.4 million, or $0.90 per diluted share, compared with a reported loss of $29.7 million, or $1.15 per diluted share, in the first quarter of 2019.
Reported results in the first quarter of 2020 included an unrealized gain on outstanding warrants of $0.9 million, compared with an unrealized loss on outstanding warrants of $46.6 million in the year-ago period.
On an adjusted basis, EBITDA totaled $121.2 million in the first quarter this year compared with $120.4 million in the first quarter of 2019. Adjusted net income in the first quarter of 2020 totaled $29.9 million, or $1.15 per diluted share, compared with $27.3 million, or $0.98 per diluted share, in the prior-year period.
“Our thoughts are with everyone who has been affected by the COVID-19 pandemic. I would like to thank all of our employees and the frontline responders around the world for their tremendous efforts to combat this crisis,” said Atlas Air Worldwide President and Chief Executive Officer John W. Dietrich.
“As always, safety is our top priority, and we are focused on supporting our pilots and ground staff through this challenging time. We are very fortunate to be able to continue to carry the goods that the world needs.
“We are taking extensive precautions to safeguard all of our employees and working in close partnership with our pilots and their union leadership to ensure that our operations continue safely.
“We are deep cleaning our aircraft and facilities on a frequent basis, providing safety kits for our ground staff and crewmembers, and implementing many other safety procedures to protect our team, customers and service providers. We are also adjusting routes and schedules to limit exposure to regions that have been more significantly impacted by the pandemic. We have also put in place significant social distancing and other precautionary measures in our offices, including having all employees who can work remotely from home do so.
“We are also pleased to have announced earlier today that, at the company’s offering, we reached an agreement with our pilot unions at Atlas Air and Southern Air for an interim pay increase of 10%, effective May 1. This recognizes the outstanding efforts that our pilots provide every day, and especially in this challenging operating environment. We also remain focused on completing the joint collective bargaining agreement we have been pursuing in connection with our merger between Atlas Air and Southern Air.”
Mr. Dietrich added: “After a slow start, and despite the continual and varying operational challenges and uncertainties related to COVID-19, we ended the quarter with results that exceeded our expectations.
“Our results reflected increased charter cargo demand and higher airfreight yields in March. They also reflect the vital role that Atlas plays in supporting the global economy and our customers by keeping goods moving.
“From parts and components used in manufacturing processes to finished products, food, pharmaceuticals, supplies and other cargo, businesses and individuals count on Atlas.
“And we are grateful to be able to provide relief to businesses and communities in the fight against COVID-19. In addition to our commercial operations, we donated services to transport critical personal protective equipment and other necessary supplies to affected areas. We have also made several charitable contributions to organizations that help those in need.
“The strong demand for airfreight has carried into the second quarter. To meet that demand, we reactivated three of our 747 converted freighters that had been parked, and began operating a 777F that was previously in our dry-leasing business.
“At the same time, we are mindful of the evolving and uncertain environment and the importance of prudent financial management. We are taking actions to reduce costs and enhance liquidity, including significantly reducing discretionary spending, limiting our hiring for certain positions and selling nonessential assets.”
Mr. Dietrich continued: “With an exceptionally talented team of employees, a strong balance sheet, and a diversified portfolio of assets and services, Atlas continues to be well-positioned to adjust to market conditions, navigate through the current pandemic, and leverage the scale of our operations to further capitalize on business opportunities.
“We expect the positive trends that we are currently experiencing to continue throughout the remainder of the year, and we expect a majority of our earnings to occur in the second half of this year. The evolving and uncertain environment related to COVID-19 makes it difficult to accurately predict the future impact on our results. As such, we are providing an outlook for the second quarter of 2020, but our full-year 2020 guidance provided on February 20 of this year no longer applies, and we will provide updates as the year progresses.
“We expect to fly approximately 80,000 block hours in the second quarter of 2020, with revenue of approximately $770 million, and adjusted EBITDA of about $165 million. Excluding the benefit from a refund of excess aircraft rent paid in previous years of approximately $25.0 million, after tax, we anticipate adjusted net income to grow approximately 40% to 50% compared with adjusted net income of $29.9 million in the first quarter of 2020.
“Including the benefit from a refund of excess aircraft rent paid in previous years, we anticipate adjusted net income to more than double compared with the first quarter of this year.”*
First-Quarter Results
Volumes in the first quarter of 2020 totaled 73,247 block hours compared with 77,061 in the first quarter of 2019, with revenue of $643.5 million compared with $679.7 million in the prior-year period.
Lower ACMI segment revenue in the first quarter of 2020 reflected a decrease in flying, primarily driven by the redeployment of 747-400 aircraft to the Charter segment as well as customer flight cancellations caused by the COVID-19 pandemic, partially offset by an increase in 777, 737 and 747-400 CMI flying.
Higher ACMI segment contribution was primarily due to an increase in CMI flying and a reduction in aircraft rent and depreciation, partially offset by the redeployment of 747-400 aircraft to the Charter segment. In addition, segment contribution was negatively impacted by the COVID-19 pandemic, which resulted in customers canceling flights and increased operating costs for us, including premium pay for crews operating in certain areas significantly impacted by the virus.
Higher Charter segment revenue during the period was primarily driven by increased flying, partially offset by a decrease in the average rate per block hour. Block-hour volume growth primarily reflected the strong demand for commercial cargo, driven by a reduction of available capacity in the market and the disruption of global supply chains due to the COVID-19 pandemic, and the redeployment of 747-400 aircraft from the ACMI segment. This was partially offset by lower AMC passenger flying as the military took precautionary measures to limit the movement of personnel. The lower average rate per block hour was primarily related to a reduction in Charter capacity purchased from ACMI customers that had no associated Charter block hours and lower fuel prices, partially offset by an increase in commercial cargo yields (excluding fuel).
Higher Charter segment contribution was primarily driven by an increase in commercial cargo yields (excluding fuel), reflecting a reduction of available capacity in the market and the disruption of global supply chains due to the COVID-19 pandemic. Segment contribution also benefited from lower aircraft rent and depreciation, and the redeployment of 747-400 aircraft from the ACMI segment. These improvements were partially offset by lower AMC passenger demand and increased operating costs, including premium pay for crews operating in certain areas impacted by COVID-19.
In Dry Leasing, lower segment revenue and contribution in the first quarter of 2020 primarily reflected that the prior-year quarter included $22.3 million ($17.9 million after tax) of revenue from maintenance payments related to the scheduled return of a 777 freighter.
Higher unallocated income and expenses, net, during the quarter primarily reflected an insurance recovery in the first quarter of 2019 and increased amortization of a customer incentive asset.
Reported earnings in the first quarter of 2020 also included an effective income tax expense rate of 27.4%, due mainly to tax expense from the vesting of share-based compensation. On an adjusted basis, our results reflected an effective income tax rate of 24.2%.
Cash and Short-Term Investments
At March 31, 2020, our cash and cash equivalents, short-term investments and restricted cash totaled $235.6 million, compared with $114.3 million at December 31, 2019.
The change in position resulted from cash provided by operating, investing and financing activities.
Net cash provided by investing activities during the first quarter of 2020 primarily related to proceeds from the disposal of aircraft, partially offset by capital expenditures and payments for flight equipment and modifications, including spare engines and GEnx engine performance upgrade kits.
Net cash provided by financing activities during the period primarily related to proceeds from debt refinancing and from our revolving credit facility, partially offset by payments on debt obligations. In March 2020, as a precautionary measure due to the uncertainty from the COVID-19 pandemic, we drew $75.0 million under our revolving credit facility and had $19.8 million of unused availability as of March 31, 2020.
Our ability to continue to service our debt and meet our lease and other obligations as they come due is dependent on our continued ability to generate earnings and cash flows. To mitigate the impact of any continuation or worsening of the COVID-19 pandemic disruptions, we have significantly reduced nonessential employee travel, reduced the use of contractors, limited ground staff hiring, implemented a number of other cost-reduction initiatives and taken other actions, such as the sale of certain nonessential assets. We believe we will generate sufficient liquidity to satisfy our obligations over at least the next twelve months.
Updating Outlook*
We expect the positive trends that we are currently experiencing to continue throughout the remainder of the year, and expect a majority of our earnings to occur in the second half of this year. The evolving and uncertain environment related to COVID-19 makes it difficult to accurately predict the future impact on our results. As such, we are providing an outlook for the second quarter of 2020, but our full-year 2020 guidance provided on February 20 of this year no longer applies, and we will provide updates as the year progresses.
We expect to fly approximately 80,000 block hours in the second quarter of 2020, with revenue of approximately $770 million, and adjusted EBITDA of about $165 million. Excluding the benefit from a refund of excess aircraft rent paid in previous years of approximately $25.0 million (after tax), we anticipate adjusted net income to grow approximately 40% to 50% compared with adjusted net income of $29.9 million in the first quarter of 2020. Including the benefit from a refund of excess aircraft rent paid in previous years, we anticipate adjusted net income to more than double compared with the first quarter of 2020.*
We expect that earnings in the second quarter will benefit from continued charter demand, including several long-term charter programs at higher yields, driven by a reduction of airfreight capacity, increased demand for transporting goods and the disruption of global supply chains related to COVID-19; a refund of excess aircraft rent paid in previous years; flying the incremental CMI aircraft added to our fleet during 2019; and improved operating efficiencies and cost savings.
We also expect these benefits to be partially offset by higher heavy maintenance expense; lower AMC demand driven by the military’s stop-movement order related to COVID-19; additional costs driven by COVID-19, including crew premium pay; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates resulting from our recent interim agreement with the pilots.
In addition, the availability of hotels and restaurants, evolving COVID-19-related travel restrictions and health screenings, and cancellations of passenger flights by other airlines or airport closures could further impact our ability to position pilots to operate our aircraft.
The second-quarter outlook also reflects the reactivation of three of our 747 converted freighters that had been previously parked, and our operation of a 777F that was previously in our dry-leasing business driven by the continued strong airfreight demand.
While we are not providing an earnings outlook for the full year of 2020 at this time, we expect a majority of our earnings to occur in the second half of the year. Aircraft maintenance expense in 2020 is expected to total approximately $390 million. Depreciation and amortization is expected to total about $250 million. In addition, core capital expenditures, which exclude aircraft and engine purchases, are projected to total approximately $85 to $95 million, mainly for parts and components for our fleet.
We also expect our full-year 2020 adjusted effective income tax rate to be approximately 22.0%.
We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, the effects of our outstanding warrant liability and other items that could be material to our reported results.*