ATSG full-year profits down due to Amazon start-up costs

Aircraft lessor ATSG reported a double-digit percentage improvement in revenues last year but profits took a hit as it was affected by the start-up of its Amazon contract and pilot strikes.
The Wilmington-based airline saw revenues for 2016 increase by 24% year on year to $768.9m, while earnings from continuing operations dropped to $21m last year from $39m in 2015.
ATSG president and chief executive Joe Hete said: “In 2016, we completed a major set of long-term agreements with Amazon in support of its new dedicated air network, and by year-end began leasing 14 of the contracted 20 Boeing 767s for that network.
“A 15th Boeing 767 was leased to Amazon in early January 2017. Our aircraft leasing, maintenance, and logistics businesses met aggressive targets from Amazon and other customers while generating good margins.
“However, our airline operations, particularly those at ABX Air, incurred significant pilot training and premium pay related to expanded CMI operations, along with lower revenues due to a November ABX pilot work stoppage.
“Taken together, these factors reduced our second-half 2016 pre-tax earnings by approximately $20m.
“After first quarter 2017, we anticipate costs at our airlines to be normalised. That, along with minimal non-cash pension expense in 2017, is projected to result in a profitable year for our ACMI Services segment."
2016 was an important year for ATSG as it expanded its freighter fleet as five Boeing 767-300s entered service, entered into agreements with Amazon and acquired conversion and MRO firm Pemco.
Looking ahead, Hete said: “ATSG’s business model continues to emphasize the supply of leased aircraft and operating services to express and other regional air cargo networks throughout the world.
"With the majority of our 2017 growth already under contract, we are well positioned to continue benefiting from the powerful trends driving e-commerce investments for faster connections between manufacturers, distributors, and end users.
“2017 will be another year in which our fleet investments significantly expand our position in this key global growth market."
ATSG currently projects 2017 capital expenditures of approximately $355m, of which $285m will be related to fleet expansion, and the remainder principally to maintain ATSG’s current fleet.
The 2017 fleet expansion spending will include costs to complete modification of eleven B767-300 aircraft, nearly all of which are committed to customers for deployment in 2017, including five for Amazon.
It will also include the purchase, modification and deployment of additional Boeing aircraft for other customers, including B737s for the China market.
The company expects to end 2017 with six more B767s in modification for 2018 deployment.