ATSG Q4 earnings down 69%, 2023 earnings down 44%

Nasdaq-listed Air Transport Services Group (ATSG), the leading provider of medium wide-body freighter aircraft leasing, contracted air transportation and related services, reported a 69 percent decline in adjusted pre-tax earnings at $19.8 million for the fourth quarter ended December 31, 2023 on three percent decline in revenue at $517 million.

"As expected, the fourth quarter saw lower demand in our leasing segment and reduced demand in our passenger airline operations," says Joe Hete, Chairman and Chief Executive Officer, ATSG. "Flying for the U.S. military decreased throughout the quarter, and fewer leased Boeing 767-200 freighters in service continued to affect results at our leasing segment. Despite challenges in the second half of 2023, we converted and leased thirteen aircraft, including our first three Airbus A321-200 freighters. We have substantially reduced our capital spending plans, and now expect to generate positive cash flow in 2024."

For the full year 2023, revenue was up one percent at $2.1 billion "due primarily to a full year of contributions from six new leases of 767-300s made in 2022 as well as partial-year contributions from 2023 leases of the ten newly converted 767-300 freighters and three newly converted A321-200 freighters." Adjusted pre-tax earnings declined 44 percent to $147 million while adjusted EBITDA was down 12 percent at $562 million.

Segment results
Cargo Aircraft Management (CAM): Aircraft leasing and related revenues increased 15 percent for the fourth quarter and five for the year, "reflecting the 2023 benefit of a full year of revenues from six 767-300 freighters leased during 2022, plus partial-year revenues from ten additional 767-300s and three A321-200s leased in 2023."

CAM’s fourth-quarter pretax earnings decreased $11 million, or 34 percent, to $21 million, and was down $34 million, or 23 percent, to $109 million for the full year.

ACMI services: Pre Tax losses were $2 million in the fourth quarter versus gains of $26 million in 2022, the release added. "Full-year pretax earnings were $32 million for 2023 and $95 million in 2022. The reductions stemmed from fewer block hours flown for the U.S. military, and lower overall margins on our cargo revenues. Revenue block hours for ATSG's airlines decreased four percent for the fourth quarter and one percent for 2023 over 2022. The decrease for 2023 included one fewer aircraft in service than a year ago. Cargo block hours decreased two percent for the fourth quarter and were flat for the year."

2024 outlook
ATSG expects adjusted EBITDA of approximately $506 million in 2024, down $56 million from 2023, the release added. Total projected capital spend of $410 million for 2024 includes growth capital of $245 million versus $574 million in 2023, "and reflects fewer aircraft conversions and feedstock purchases. The expected $50 million reduction in sustaining capital expenditures to $165 million is driven by fewer expected engine overhauls."

Hete says: “Our reduced spending outlook for 2024 greatly improves our cash generation expectations this year even with lower expected earnings, leading to our goal of positive free cash flow for the year. Our growth investments have positioned us to deploy more freighters rapidly as market conditions improve. Our outlook for 2025 is for continued improvement in our cash flow based on an increase in adjusted EBITDA and an even lower capex spend."