After the Amazon fillip, Atlas Air reports a mixed bag

The shares of Atlas Air skyrocketed on 5 May, rising about 50% soon after the US-based air cargo operator announced a new partnership with e-commerce platform Amazon, along with a quarterly trading update, which was much less impressive than the Amazon deal.

President and chief executive William Flynn said the new “agreements with Amazon to provide and to operate 20 Boeing 767-300 converted freighters are expected to be meaningfully accretive to our future earnings and cash flows”.

“We expect this service to begin in the second half of this year, become accretive starting in 2017, and scale up to full service and full accretive benefits through 2018,” he added.

However, Atlas Air shares have since given up most of these gains, and its subdued quarterly update is partly responsible for that fall on the stock market, with its shares currently changing hands at around $43.5 after hitting a multi-year high of $59.4 on the day of the announcement, when they closed at $48.66.

Its quarterly adjusted net income for the three months ended 31 March came in at $7.7m, or $0.31 per diluted share, against $25.8m, or $1.03 per diluted share, one year earlier. Adjusted earnings per share were in line with expectations, but on a reported basis, net income in the first quarter totalled $500,000, or $0.02 per diluted share, compared with $29.2m, or $1.17 per diluted share, in the year-ago quarter.

Atlas Air operates three units: ACMI, Charter and Dry Leasing.

ACMI saw a drop in revenue, down 3.7% to $182m, and revenue per block hour, mainly related to “an increase in CMI flying in 2016 and the impact of payments received in 2015 on the return of an aircraft”. Rising crew training costs were partially offset by a reduction in heavy maintenance expenses, but continued to weigh on performance.

Charter had seen a “very strong demand for air freight” in the first half of 2015, which was driven by the cargo congestion seen at US west coast ports, but this too was also affected by the increase in crew training costs, which were only partially offset by an increase in block-hour volumes from higher military passenger and cargo demand. Unit revenues fell 8.1% to $202m.

Finally, Dry Leasing also reported lower quarterly revenues, down 12% to $28m year-on-year, which was attributed to a decrease in sales “from maintenance payments related to the scheduled return of a passenger aircraft, partially offset by revenue from the placement of 767 freighter aircraft in December 2015 and February 2016”.

At the end of the first quarter of 2016, cash and cash equivalents fell to $335m from $444m at the end of 2015.

Source: Transport Intelligence, 25th May 2016

Author: Alessandro Pasetti