ATSG Q3 revenue flat, net earnings decline 67%

Air Transport Services Group (ATSG) reported a flat revenue growth (up one percent) at $523 million for the third quarter ended September 30, 2023 even as it revised its 2023 outlook to reflect the current operating environment.

Net earnings dropped 67 percent to $17 million from $51 million in Q32022, says an official release.

Share repurchases since September 2022 have reached 9.4 million including 5.4 million shares bought back in the third quarter.

“The third quarter started out on track with our expectations, carrying solid second-quarter momentum from our passenger airline operations into the summer," says Joe Hete, Chief Executive Officer, ATSG. "We leased seven newly converted freighters in July and early August including five 767-300s and our first two A321-200s. However, both macro and operational pressures throughout the latter part of the quarter materially affected our results. Particularly in September, our passenger airline operations experienced service-related issues that drove significant unplanned travel and flight crew costs. In our CAM leasing operations, we realised lower revenues from 767-200 aircraft sales and associated engine power than forecasted during the quarter.”

CAM business
Cargo Aircraft Management (CAM) leasing and related revenues in the third quarter were down one percent compared with the prior year quarter "due to 11 fewer leased 767-200 aircraft and lower power-by-cycle (PBC) engine revenue associated with 767-200s, partially offset by higher average lease rates as nine more 767-300s and two initial A321-200s have been deployed since September 2022."

For the full year 2023, CAM now expects to deploy 16 newly converted leased freighter aircraft including 12 767-300s and four A321-200s. Six of the 16 are due to be deployed in the fourth quarter.

"Twenty aircraft are currently in or awaiting conversion to freighters. That total includes seven A321 aircraft and 13 767-300s. One 767-200 is currently staging for lease. The company is scheduled to purchase three Airbus A330 feedstock aircraft in the fourth quarter for planned freighter conversion and deployment in 2024."

ACMI services
Revenue block hours for ATSG's cargo airlines were down four percent for the third quarter while operating one fewer Boeing 767 freighter compared with the prior-year period. Cargo block hours were affected by fewer longer-haul international routes compared to the prior-year period.

"Pre-tax earnings were $12 million in the third quarter, down 51 percent versus the prior-year quarter. The reduction stemmed from unfavourable revenue mix impacts in both cargo and passenger operations, inflation, and service challenges in our passenger operations, which impacted travel and payroll costs in September."

2023 outlook
ATSG has revised its 2023 outlook downwards to an adjusted EBITDA of $560-580 million from prior estimate of $610-620 million. Adjusted EPS is now seen at $1.50-1.70 as against the earlier estimate of $1.85-2.00.

"ATSG expects the conflict in Israel to affect Omni's customer requirements in the near-term. In addition, the company expects fewer 767-200 aircraft sales and lower engine revenues versus our plan for this year. ATSG's domestic air express operations, in support of the e-commerce networks of DHL and Amazon, are on track with earlier expectations."

Hete says: “We've demonstrated our flexibility to pull back on growth capital investments when conditions warrant, and accordingly, we expect meaningful capital expenditure declines in both 2024 and 2025 as we continue to optimise our capital allocation strategy. The reduction in our capex requirements for 2024 will accelerate our realisation of positive free cash flow versus the timetable we communicated in September.”

ATSG is still projecting $785 million in total capex spend for 2023 including $545 million for growth and $240 million in sustaining capex. "However, ATSG now expects to further reduce its 2024 capex plan to $505 million, down $100 million in growth capex from the plan communicated at the September Investor Day event. This reduction takes into account fewer conversions and feedstock purchases due to softening demand."

ATSG expects to provide updated 2024 adjusted EBITDA guidance in February 2024.