ATSG Q3 revenues on the rise and expects a 'good' peak season

02 / 11 / 2018

US freighter lessor Air Transport Services Group (ATSG) saw 2018 third quarter revenues increase 13% to $204.9m and expects “a good peak season” for air cargo.

ATSG, which provides Boeing 767 freighter uplift for Amazon’s US domestic overnight parcel network, saw adjusted EBITDA up 13 percent to $74.3m.

Joe Hete, ATSG president and chief executive, said: “In the third quarter, we continued to grow revenues and deliver increases in adjusted EBITDA. Our airline businesses performed well and are expecting a good peak season.

“We intend to add five more B767-300 freighters, including three more external dry leases, to our in-service fleet by the end of the year, or all ten of the B767s we planned to deliver in 2018.”

Hete continued: “Additionally, we expect to dry lease two B767-200 freighter aircraft, currently on lease to our airline affiliate, to external customers by year-end. That does not include the thirteen B767 and B777 passenger aircraft we expect to add in November when we complete our all-cash purchase of Omni Air International.”

ATSG announced in October that it is to acquire Oklahoma-based Omni Air, a passenger and charter services provider, for $845m.

ATSG’s leasing subsidiary, Cargo Aircraft Management (CAM), recorded “flat” third-quarter revenues versus a year ago, net of warrant-related lease incentives, at $58.8m.

It said: “Higher revenues from additional aircraft in service were offset by revenue loss from transitioning aircraft, fewer aircraft engine leases, and lower revenues for maintenance services for lease customers.”

CAM acquired one B767 aircraft during the third quarter for freighter conversion and redeployment in 2019. CAM currently expects to acquire four additional B767s in the fourth quarter for conversion and lease to third-party customers in 2019. This is in addition to aircraft operated by Omni Air International.

ATSG’s aircraft, crew, maintenance and insurance (ACMI) revenues, excluding revenues from reimbursed expenses in 2017, increased four percent to $116.2m in the third quarter. Pre-tax earnings were flat versus a year ago at break-even levels.

Other activities for ATSG, which include logistics services, postal center sorting services and equipment maintenance, saw total revenues increase 32% to $22.6m.

The company stated: “The increase in external revenue excluding reimbursables was driven by additional mail volumes, higher contractual rates and additional gateway services provided to Amazon, including cargo handling and related ground support services provided directly at Amazon's gateway location in Tampa.

“Pre-tax earnings of $3.1m increased from a year ago. The gain is attributable to better results from our minority interest in West Atlantic, and improvement in our postal and gateway operations.

“Contracts to manage five US Postal Service facilities expired in September. Those contracts generated $28.9m in revenues for ATSG through the first nine months of 2018.”

Hete added: “Our outlook for the fourth quarter remains very positive, with five newly converted B767-300 freighters set to enter service, including three that will be deployed under long-term external leases and two that will support peak season ACMI demand.

“We are focused on providing our customers with excellent service during what we anticipate to be a very busy fourth quarter.”

ATSG expects to purchase four B767-300s in the fourth quarter for freighter modifications during 2019, and now projects that 2018 capital expenditures will total about $280m.

ATSG projects Adjusted EBITDA for the fourth quarter of 2018 to be in a range of $80m to $85m, reflecting the expiration of package sorting operations for the USPS and excluding adjusted EBITDA from Omni Air.