ATSG raises 2024 financial outlook; Q12024 net earnings down 57%

Air Transport Services Group (ATSG), the leading provider of medium wide-body freighter aircraft leasing and related services, reported a 57 percent decline in net earnings at $8.6 million for the first quarter of 2024 compared to $20.1 million in Q12023.

Revenue declined three percent to $486 million compared to $501 million in Q12023, says an official release.

"I am proud of the focus and execution of the entire ATSG team as we continue to navigate a challenging market," says Joe Hete, Chairman and Chief Executive Officer, ATSG. "The changes to our Amazon arrangement announced earlier today are a testament to the high quality of service we provide to our customers. Our priorities remain safe operations, customer satisfaction, cost control and disciplined capital allocation. We completed the conversion and delivery of four 767-300 freighters to customers in the quarter. Additionally, we have customer interest in other aircraft we have available for lease. We are focused on generating positive cash flow in 2024 and are off to a strong start in the first quarter, having generated $15 million in free cash flow."

Segment results
Cargo Aircraft Management (CAM): Aircraft leasing and related revenues decreased seven percent for the first quarter, reflecting the benefit of revenues from fifteen additional freighter leases including twelve additional 767-300s and three Airbus A321-200s since the end of March 2023, the release added.

"These leases were more than offset by the returns of twelve 767-200 freighters and four 767-300 freighters over that same period. Revenue reductions associated with the 767-200 fleet include the effect of fewer cycles operated by lessees under our 767-200 engine power programme. Excluding the revenues from that programme, segment revenues would have been flat versus the prior-year quarter.

"CAM’s first quarter pretax earnings decreased $21 million, or 61 percent, to $13 million versus the prior-year quarter. CAM deployed four newly converted 767-300 freighters to external lessees during the quarter. Three 767-200 freighters and one 767-300 freighter were returned upon lease expiration with the 767-300 and one of the 767-200s subsequently leased to ABX Air. At the end of the first quarter, ninety CAM-owned freighter aircraft were leased to external customers, two fewer than a year ago.

"Twenty-four CAM-owned aircraft were in or awaiting conversion to freighters at the end of the first quarter, three fewer than at the end of the prior-year quarter. This included thirteen 767s, six A321s, and five A330s."

ACMI services pretax loss was $3 million in the first quarter versus a loss of $2 million in the first quarter of 2023. "Revenue block hours for ATSG's airlines decreased three percent versus the prior-year quarter. The decrease included three fewer aircraft in service than a year ago. Cargo block hours decreased three percent for the first quarter, driven by a mix of routes that included more domestic and less international flying than a year ago. Passenger block hours were flat in the quarter as more charter flying hours for Omni Air International offset fewer flying hours for the military versus the prior-year quarter."

2024 outlook improves
Taking into account the flying opportunities from ten more Amazon 767 freighters, ATSG expects adjusted EBITDA of approximately $516 million in 2024, an increase of $10 million from the outlook provided in February 2024, the update added. "This forecast excludes any contribution from additional aircraft leases or flying opportunities not currently under contractual commitment. This projection assumes the startup of all ten Amazon-provided 767-300s prior to December 1, 2024, and costs associated with bringing them into service and adding over 50 additional pilots at ABX Air.

"Capital spending expectations for 2024 remain unchanged at $410 million, down $380 million from 2023. ATSG's total projected capital spend includes growth capital of $245 million."

Hete says: “We have made significant progress toward achieving positive free cash flow in 2024. The expansion of our flying agreement with Amazon should only help reach that goal. Our amended agreement also provides opportunity for a combination of up to ten lease extensions and/or additional assigned aircraft, beyond the initial ten we will bring into service this year. Furthermore, CAM is well-positioned to lease additional freighters to other customers with minimal incremental capital investment as market demand improves. We look forward to further cash flow improvement next year with increased adjusted EBITDA and even lower capex."