Lower leasing demand takes the shine off ATSG earnings
27 / 02 / 2024
Credit: tratong/ Shutterstock
Reduced demand for aircraft leasing, passenger operations and flying for the US military combined to pull down revenue at ATSG (Air Transport Services Group), said the company in its fourth quarter 2023 results.
Wilmington, Ohio-based ATSG, which is the world’s largest owner and operator of converted Boeing 767 freighter aircraft, said that having fewer leased Boeing 767-200 freighters in service continued to affect its results, published on February 26.
Revenue for the fourth quarter was down 3%, at $517m, while the pre-tax loss from continuing operations was $15.6m, although this included a $24.4m settlement for partial termination of a pension plan.
For the full year in 2023, revenues were up 1% to $2.1bn, while earnings per share from continuing operations $0.87, down $1.80 on the previous year. Pre-tax earnings from continuing operations were $84.2m, including the pension settlement.
Chairman and chief executive, Joe Hete said that the lower results in the fourth quarter were expected, with reduced leasing demand and fewer leased Boeing 767-200 freighters in service.
But he added: “Despite challenges in the second half of 2023, we converted and leased 13 aircraft, including our first three Airbus A321-200 freighters. We have substantially reduced our capital spending plans, and now expect to generate positive cash flow in 2024.”
During 2023, ATSG signed ten more dry leases for newly converted Boeing 767-300 freighters, and three for converted A321-200 freighters. One of the 767-300Fs is being operated by one of ATSG’s own cargo airlines under a crew, maintenance and insurance (CMI) agreement.
Three more customer-provided 767-300Fs were subleased to and operated by an ATSG cargo airline during 2023, giving a total of 16 such aircraft in the fleet by the end of the year.
Increased revenue of £25m, to $2.1bn in 2023, was due primarily to a full year of contributions from six new leases of 767-300s made in 2022, as well as partial-year contributions from 2023 leases of the ten converted 767-300Fs and three A321-200Fs.
However, weaker performance in ATSG’s airline operations and lower leasing results from the 767-200F fleet more than offset this, leading to a decline in earnings from freighter leases of about $33m.
ATSG’s Cargo Aircraft Management (CAM) arm reported that 23 aircraft were being converted or were awaiting conversion to freighters at the end of 2023, one more than at the end of 2022. This included fourteen 767s, six A321s, and three A330s.
Pre-tax losses at ACMI (aircraft, crew, maintenance, and insurance) services were $2m in the fourth quarter, versus gains of $26m in 2022. This was due to fewer hours being flown for the US military, and lower overall margins on cargo.
Projected capital spending for 2024 is $410m versus $574m in 2023, reflecting fewer aircraft conversions and feedstock purchases.
Hete said: “Our reduced spending outlook for 2024 greatly improves our cash generation expectations this year, even with lower expected earnings, leading to our goal of positive free cash flow for the year.
“Our growth investments have positioned us to deploy more freighters rapidly as market conditions improve. Our outlook for 2025 is for continued improvement in our cash flow based on an increase in [earnings] and an even lower capex spend.”
Following soft air cargo demand seen throughout last year, ATSG said in November that it would not undertake any additional 767-300 freighter conversions this year, beyond the seven already underway.
