Increased Flying for Amazon Air helps ATSG to Record Q3

Credit the strong e-commerce demand and an industry shortage of cargo capacity.

ATSG, a Wilmington, Ohio-based company, beat analysts’ consensus expectations Thursday with revenue of $466 million, up 15 percent from 2020, and adjusted earnings per share of 60 cents, a 46 percent increase.

Management raised its full-year outlook because of the strong quarter, saying it expected adjusted earnings before interest, taxes, depreciation, and amortization to be at least $535 million, a $10 million increase from prior guidance.

ATSG revenue growth accelerated into the third quarter from $410 million last quarter. For the first nine months of the year, revenues grew 107 percent to $1.25 billion. Adjusted free cash flow totaled $297.7 million for the three quarters after deducting capital expenditures for airframe and engine maintenance, and nearly all of that amount was invested to purchase passenger aircraft and convert them into freighters.

On Wednesday, Boeing announced that ATSG has contracted with it for the first time to convert four used 767-300s to a full cargo configuration. It previously sent all of its conversion work to Israel Aircraft Industries in Tel Aviv. The move is designed to speed up the pace of conversions.

ATSG has 105 Boeing freighters in service, including: 93 767s, plus 15 767-300s and one Airbus A321 narrowbody waiting to be converted.

Of those freighters, 35 are leased to other airlines, 47 are owned and leased to customers that contract with one of ATSG’s airlines to fly them, and 19 are turnkey lease-to-operate charter arrangements.

The major driver of revenue growth for the past decade has been the hybrid leasing model pioneered by ATSG, which splits the lease and the operating agreement to fly the aircraft into two separate transactions. That gives the customer flexibility if it eventually wants to fly the aircraft itself or move crew, maintenance and insurance to another operator.

Revenue from aircraft leasing increased $19.7 million, or 38 percent, from 13 more leases of Boeing 767 freighters than at the end of the third quarter of 2020. The company expects to have 15 new leases under its belt by the end of the year, plus follow-on leases for four 767-200 freighters.

Aircraft utilization at cargo airlines ABX Air and Air Transport International, principally for express-network customers such as Amazon and DHL, increased 20 percent during the third quarter of 2020.

The cargo fleet will end the year with 14 more 767 freighters than last year. The company said it expects to operate 46 such aircraft for Amazon by the end of the year, 13 more than last December.

ATSG said a planned lease of one freighter this year has been postponed by supply chain disruptions that prevented delivery of needed parts for a conversion job.

Omni Air International, its charter passenger subsidiary, has been slowed by the downturn in travel that has afflicted other airlines. But business improved during the third quarter because of its contribution to Operation Allies Refuge, the U.S. military’s evacuation of Americans and at-risk civilians from Afghanistan. Omni completed 79 flights and transported more than 20,000 passengers in the effort, officials said.