Atlas Air swings back to black in 2016 despite quarterly losses

The air cargo services provider posted a net income of $41.5 million for the full year in 2016 after reporting losses in two consecutive quarters as expenses related to a deal with e-commerce giant Amazon dragged on earnings.    Atlas Air Worldwide Holdings Inc. saw its net income soar from $7.3 million for the full year in 2015 to $41.5 million in 2016, despite reporting consecutive quarterly losses in the second and third quarter, according to the company’s most recent financial statements.
   The cargo aircraft operator and outsourced services provider posted earnings per diluted share (EPS) of $1.65 for the year compared with $0.29 per share in 2015. Revenues were relatively stable, ticking up just 0.9 percent year-over-year to $1.84 billion.
   Earnings in the second and third quarter were dragged down by nondeductible expenses related to vested warrants granted to e-commerce giant Amazon.com Inc.
   The company in May agreed to dry lease and operate 20 B767-300 freighter aircraft on behalf of Amazon. Under the agreements, Atlas Air operates the converted freighters for Amazon on a crew, maintenance and insurance (CMI) basis on a seven-year term and provides dry leasing through its Titan Aviation leasing unit on a 10-year term.
   Amazon was also granted vested warrants to purchase up to 20 percent (after the issuance) of Atlas Air Worldwide’s common shares for $37.50 per share over a period of five years, and additional warrants to purchase up to another 10 percent over seven years at the same exercise price, which resulted in a $26.2 million one-time expense, which included “accelerated compensation for certain restricted and performance share and cash awards” of $11.6 million.
   In addition, Atlas in 2016 completed its acquisition of Southern Air Holdings, valued at about $110 million.
   Following the deal, Atlas had been looking for buyers for Southern Air’s Florida West subsidiary, but after finding none, the company has decided to shutter operations instead, according to its annual 10-K filing with the U.S. Securities and Exchange Commission (SEC).
   “As part of integrating Southern Air, management decided and committed to pursue a plan to sell Florida West,” Atlas said. “In February 2017, management determined that a sale was no longer likely to occur and committed to a plan to wind down the Florida West operations. The wind-down of operations is expected to be completed during the first quarter of 2017.”
   Looking ahead to 2017, Atlas is projecting adjusted income from continuing operations, net of taxes, to grow in the mid-single digit to low double digit percentage range compared with 2016, and aircraft maintenance expense to total $240 million core capital expenditures, which exclude aircraft and engine purchases, to range from $55 million to $65 million, primarily for aircraft parts and components.
   Total block hours are expected to increase 20 percent year-over-year, thanks primarily to the Amazon deal, the Southern Air integration, and new services for Asiana Cargo and Nippon Cargo Airlines. Atlas also signed a five-year agreement last year with FedEx Express to provide five 747-400 freighters during peak shipping season beginning in 2017.
   “We believe the current demand, the initial accretion from our Amazon operations, and the first full-year of contribution from Southern Air provide a strong foundation for earnings growth this year,” the company said.
  “2016 was a historic year for Atlas, and we finished it on a strong note,” Atlas Air President and Chief Executive Officer William J. Flynn said of the results. “We acquired Southern Air, expanding the array of aircraft and services that we provide, especially to the fast-growing express market. We entered into strategic, long-term agreements with Amazon to serve its rapidly growing e-commerce business. And we generated strong sequential and year-over-year improvements in our block-hour volumes, revenue, profitability and margins in the fourth quarter. In addition to record revenues in the quarter, we delivered a significant increase in reported earnings and record adjusted earnings for the period.
   “Our performance in the fourth quarter was driven by the additional seasonal flying we did for express operators, growing e-commerce demand, and a lower level of maintenance expense,” he added. “It also reflected a solid peak season and a seasonal improvement in commercial airfreight yields.”