Atlas Air Offers Optimistic Outlook Despite 4Q Operating Loss

Air cargo service provider Atlas Air Worldwide AAWW said Thursday it took a $616 million fourth-quarter charge on its fleet of Boeing 747-400 freighters, which inflated earnings by lowering rent and depreciation expense and is expected to help boost future profits.

The Purchase, New York, company also said it has idled four less-efficient 747-400 converted freighters since the beginning of 2020, plans to return an additional -400 freighter to its lessor in the first half of the year, sold a Boeing 757 freighter, and expects to sell a Boeing 777 freighter and a Boeing 737 passenger jet.

Investors liked the news, pushing its stock price up 11.93%, or 3.54 points, to $33.22 at Thursday's close. 

The write-down of aircraft and fleet optimization in line with weak market conditions are expected to increase adjusted earnings before interest, taxes, depreciation and amortization by roughly 14-16% this year, compared with an 8.4% decrease to $504.8 million in 2019, Atlas said. It also expects adjusted net income to increase by 37-43% compared with a 31.7% drop to $139.6 million in fiscal year 2019.

The fleet changes signal that Atlas is attempting to focus on its most profitable customers, according to analysts.

Atlas said its outlook also reflects an expected refund of excess aircraft rent paid in previous years, increased amortization of deferred maintenance and other cost-saving measures.

The parent company of Atlas Air, Southern Air and leasing company Titan Aviation, reported adjusted earnings per share of $3.80 for the quarter compared to the Wall Street consensus estimate of $2.99. Adjusted earnings, excluding financial considerations, were $205 million compared to analyst estimates of $184 million and $196 million for the same period a year ago.

Atlas said total revenue slipped 2.3% to $747 million, contributing to an operating loss of $410.2 million. Atlas attributed the revenue slip to global tariffs and trade tensions, as well as service disruptions caused by disaffected pilots unhappy with the progress of negotiations for a new contract. Results benefited from lower heavy maintenance expense and an increase in military passenger and cargo flying, as well as peak-season business for express customers. Atlas is the majority owner in Polar Air Cargo, which hauls for DHL.

"Our focus remains on express, e-commerce, the U.S. military and faster-growing markets, where the demand for our aircraft and services is solid," new CEO John Deitrich said in a statement. "As the global supply chain rebalances, we will continue to leverage our significant commercial charter business to capitalize on customer demand. Looking ahead, we anticipate that our financial performance in 2020 will be an improvement over 2019."

He declined to speculate on how severe the impact from the coronavirus would be but noted that the company is flying dedicated charters for customers and expects to benefit from a surge in volume once manufacturing resumes in China. The dedicated charters are making up for some of the lost traffic from canceled scheduled services.