Air Transport Services Group replaces Corrado, names Hete CEO

Global demand for air cargo transportation is about 5% lower this year than in 2022 and is at the bottom of an 18-month down cycle.

The headwinds led ATSG to lower full-year guidance, with adjusted EBITDA going from $615 million to a range of $560 million to $580 million.

Hete, who will continue as chairman, served as CEO of ATSG from 2003 to 2020. He previously held various senior management roles at ABX Air Inc., the predecessor to ATSG that had its roots in the former Airborne Express. 

ATSG’s two cargo airlines, ABX Air and Air Transport International, are contract carriers for Amazon air and DHL Express. They also provide charter service on as needed basis for a multitude of customers. Subsidiary Omni Air provides passenger charter service for the U.S. military, airlines and others.

“After careful consideration by the board, we determined that Joe is the right leader to accelerate our strategy and capitalize on the long-term opportunities ahead. … Joe has extensive knowledge of our business and its competitive position within the industry. He is uniquely qualified to step into this role to optimize our current performance and position ATSG for the future,” said Randy Rademacher, lead independent director, in a news release.

“Under Joe’s leadership, we believe the company will be well-positioned to continue building on its strong foundation, solidifying its market-leading position, and working to deliver meaningful value for our shareholders.”

The leadership change comes one month after Tim Strauss left as CEO of Amerijet. He also was terminated without notice, according to sources with close ties to the cargo airline.

Investors have punished ATSG’s stock this year because of worries the company is committing too much capital toward fleet expansion when airfreight demand has plummeted for more than a year. In August, management scaled back projected spending for used passenger aircraft and freighter conversion work by $65 million in 2023, for a total of $785 million, to improve cash flow. On Monday, the company said weaker demand for cargo aircraft prompted it to cut 2024 capital expenditures to $505 million, $100 million less than communicated in September and $280 million less than this year.

Executives insist that express carriers and other operators around the world continue to need converted freighters to replenish aging fleets and for growth, especially as e-commerce continues to place a premium on fast delivery. They argue that lease revenue from those planes will begin to make a material impact on the bottom line in the next couple of years.

ATSG said leasing revenue from its Cargo Aircraft Management unit dipped 1% versus the third quarter of 2022 due to 11 older 767-200s returned after their leases expired and lower power-by-the hour engine maintenance contributions from those aircraft, partially offset by higher average lease rates with 11 other freighters leased since then. Two 767-200s were returned in the third quarter. Leasing income fell from $37 million to $23 million.

Income for the bundled transportation business, which includes providing crews and maintenance for leased aircraft, was more than halved to $12 million due to lower aircraft utilization on long-haul international routes for customers. Cargo flight hours decreased 4%.

The company said it plans to deliver 16 converted freighters to lease customers for the full year – three fewer than projected in August. Guidance now calls for deployment of a dozen Boeing 767-300s passenger-to-freighter aircraft (two less than before) and four Airbus A321s (one less than previously stated). The first two A321 conversions managed by ATSG were leased last summer to Raya Airways, an all-cargo carrier in Malaysia.

ATSG has 20 used passenger aircraft currently in or awaiting to be retrofitted, including seven A321s. It is a partner in a company that is producing A321 conversions. The aviation firm said it plans to purchase three Airbus A330 widebody aircraft in the fourth quarter as feedstock for conversion and delivery in 2024. It expects to deploy 11 more converted freighters next year, including six B767-300s and five A321s.

ATSG’s stock finished the day 1.8% lower at $20.25 per share, down from $22.97 on Aug. 4. and $29.05 a year ago.

Click here for more FreightWaves stories by Eric Kulisch.

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