AAW Reports Second-Quarter Earnings
By Pritha Dey
Atlas Air Worldwide Holdings, Inc., a leading global provider of outsourced aircraft and aviation operating services, announced earnings for the second quarter of 2012 and reaffirmed guidance for full-year earnings in excess of $5.10 per diluted share on both a reported and adjusted basis.
For the three months ended June 30, 2012, adjusted net income attributable to common stockholders totaled $31.2 million, or $1.18 per diluted share, compared with $26.0 million, or $0.98 per diluted share, for the three months ended June 30, 2011.
On a reported basis, second-quarter 2012 net income attributable to common stockholders totaled $30.9 million, or $1.16 per diluted share, compared with $23.8 million, or $0.90 per diluted share, in the second quarter of 2011.
Revenues totaled $424.7 million in the second quarter of 2012 and $349.6 million in the second quarter of 2011.
“Earnings in the second quarter of 2012 were driven by the strength and resilience of our business model as well as our ability to leverage the scale and efficiencies inherent in our operations,” said William J. Flynn, President and Chief Executive Officer. “We also saw an increase in contributions from the investments we’ve made to diversify and grow our revenue and earnings streams.
“Our new 747-8F aircraft, which are providing efficient, wide-body, long-haul cargo service for our customers, supported volumes and profitability in our core ACMI business during the quarter. ACMI customers flew more than 4 percent above contractual minimums during the period, and CMI flying for Boeing and DHL Express continued to ramp up.
“In AMC Charter, volumes and profitability increased as strong growth in our military passenger service outweighed a moderation in AMC cargo demand. And in Commercial Charter, higher volumes and profitability reflected the scale and flexibility of our operations. We deployed an additional 747-400 aircraft to support increased demand in South America, and we responded to relatively solid demand in other markets, particularly from the high-tech and automotive industries, with two 747-400 cargo aircraft that were available during their ACMI remarketing periods. These aircraft returned to ACMI service in June and July 2012, demonstrating the strong interest in our 747-400 aircraft.”
During the second quarter, an average of 1.1 Dreamlifter large cargo freighters were in CMI service for Boeing, up from 0.7 last year. CMI cargo service for DHL increased to three 767 freighters at the end of the quarter from none last year and one at the end of the first quarter. A fourth 767 freighter entered service in July, and a fifth is expected to enter service in October 2012.
Earnings in the second quarter of 2012 also reflected a reduction in maintenance expense, primarily due to the retirement of 747-200 aircraft. Results in each segment, however, were partially offset by increased crew costs and other volume-driven operating expenses compared with the second quarter of 2011. In addition, AMC Charter and Commercial Charter incurred higher aircraft ownership costs related to the deployment of 747-400 aircraft in each segment in lieu of 747-200 aircraft.
Adjusted results in the second quarter of 2012 exclude incremental costs related to the retirement of the company’s 747-200 fleet, costs incurred to refinance certain debt, and a gain on the disposal of aircraft. Adjusted results in the second quarter of 2011 exclude pre-operating expenses for the introduction of new aircraft types, including incremental costs incurred as a result of aircraft delivery delays, as well as a gain on the disposal of aircraft.
For the six months ended June 30, 2012, adjusted net income attributable to common stockholders totaled $44.9 million, or $1.69 per diluted share, compared with $38.7 million, or $1.47 per diluted share, for the six months ended June 30, 2011.
On a reported basis, first-half 2012 net income attributable to common stockholders totaled $43.7 million, or $1.65 per diluted share, compared with $34.4 million, or $1.30 per diluted share, in the first half of 2011.
Revenues totaled $784.0 million in the first six months of 2012 and $647.2 million in the first six months of 2011.
“During the past several years,” Mr. Flynn noted, “we have significantly transformed our business model. We have aggressively managed and modernized our existing fleet, developed and grown our express network ACMI service for DHL Express, and added our new 747-8F aircraft.
“In addition, we are driving improved operating efficiencies, and implementing a growth strategy that leverages our core competencies. And we are capitalizing on new organizational capabilities such as our AMC passenger flying, CMI operations and 767 service.
“Together, our transformed business model and our initiatives are enabling us to generate additional earnings and cash flow while maintaining a solid balance sheet.
“As a result, we continue to expect strong earnings growth in 2012. Demonstrating our operating leverage, we anticipate that reported and adjusted fully diluted earnings will increase approximately 24% compared with adjusted 2011 EPS, to more than $5.10 per share, as our block hours increase approximately 17 percent.”
In reaffirming guidance for 2012, the company continues to expect further sequential improvement in its third- and fourth-quarter results, with third-quarter earnings to be moderately higher than the second quarter and fourth-quarter earnings to be substantially higher than the third quarter.
Anticipated airfreight market growth during the second half will be led by high-tech product launches and supported by current low inventory levels.
While our outlook acknowledges near-term uncertainties about the global economy and the impact that may have on airfreight demand, we have seen and continue to expect increasing contributions in 2012 from the investments we have made in our business.
Our new 747-8 and our 747-400 cargo aircraft are driving growth and profitability in our ACMI business. We have taken delivery of our fourth and fifth 747-8Fs and placed them into service for Panalpina. We also began flying for a new customer, Etihad Airways, in June and placed a ninth -400F with DHL Express in July. These placements show the growing interest in 747-8Fs and the continuing attractiveness of factory-built 747-400 freighters.
Volumes in our AMC Charter business, including our new 767 operations, should total approximately 20,000 block hours in 2012, with passenger block hours likely to contribute more than 50% of that level.
Maintenance expense in 2012 is expected to total approximately $175 million. Line maintenance, which is based on block hours operated, should account for about 57 percent of these expenditures in 2012. As block hours are expected to increase over 2011 levels, line maintenance will grow accordingly. Approximately 38 percent of maintenance expense should be for heavy airframe checks and engine maintenance, with the balance for non-heavy maintenance. From a timing perspective, about 55 percent of total maintenance expense in 2012 occurred in the first and second quarters, with approximately 24 percent expected in the third quarter and 21 percent in the fourth quarter.
Mr. Flynn concluded: “We have built a resilient business model, and we are executing on an exciting strategic growth plan. With our modern, efficient fleet, business mix and solid balance sheet, we are positioned to do well in all economic conditions and to drive our revenues and earnings to higher sustained levels over the next several years and beyond.”
2Q12 Performance versus 2Q11
Operating revenues of $424.7 million in the second quarter of 2012 increased $75.1 million, or 21 percent, compared with the first quarter of 2011. Revenues in the second quarter primarily reflected strong growth in our military passenger service and higher volumes in our Commercial Charter operations.
Total block hours increased 9 percent (37,742 block hours versus 34,541) compared with the second quarter of 2011, while average operating aircraft, excluding Dry Leasing aircraft, increased 14% (35.7 compared with 31.3). Average utilization of operating aircraft, excluding Dry Leasing aircraft, totaled approximately 11.6 hours per aircraft per day during the quarter compared with 12.1 in the second quarter of 2011, primarily due to the introduction into service in 2012 of 767 cargo and passenger aircraft that typically fly fewer block hours than our 747 cargo aircraft.
In ACMI, revenues of $160.4 million compared with revenues of $160.4 million in the second quarter of 2011. Revenues in the latest period reflected an increase in average ACMI revenue per block hour ($6,233 versus $6,127) offset by a modest decline in block-hour volumes (25,737 versus 26,188).
The increase in ACMI revenue per block hour during the quarter was primarily driven by higher rates for our 747-8F aircraft. The decrease in block-hour volumes largely reflected the return of two 747-400 ACMI cargo aircraft during the period, one of which was subsequently placed in ACMI service with a new customer, Etihad Airways, in June 2012 and one of which entered express network ACMI service for DHL Express in July 2012. Partially offsetting the decrease in block-hour volumes, we began CMI flying of 767 cargo aircraft for DHL beginning in March 2012. On average, our ACMI customers flew 4.1% above contractual minimums during the quarter.
For the quarter, an average of 22.0 aircraft (21.0 cargo aircraft and 1.0 passenger aircraft) directly supported our ACMI operations, compared with an average of 22.1 aircraft (21.1 cargo aircraft and 1.0 passenger aircraft) in the second quarter of 2011.
AMC Charter revenues of $138.0 million increased $25.5 million, or 23 percent, in the latest quarter. The increase was primarily driven by $63.3 million of incremental revenue from passenger charter flying, which we began in May 2011. Block-hour volumes increased due to the flying of 3,389 passenger block hours compared with 177 in the second quarter of 2011, partially offset by a decrease of 2,067 cargo block hours (2,680 versus 4,747) compared with the second quarter of 2011. AMC Charter cargo block-hour rates increased 15% ($25,783 versus $22,515), primarily due to premiums earned on flying more 747-400 cargo aircraft during the quarter, partially offset by a decrease in the average “pegged” fuel price paid by the U.S. military ($3.61 versus $3.66). AMC Charter passenger block-hour rates averaged $20,335 during the quarter. The AMC passenger business has a lower rate per block hour than cargo service, reflecting the type of flying performed and the type of aircraft flown.
An average of 7.4 aircraft (2.9 cargo aircraft and 4.5 passenger aircraft) supported our AMC Charter operations during the quarter, compared with an average of 6.0 aircraft (5.5 cargo aircraft and 0.5 passenger aircraft) in the second quarter of 2011.
In Commercial Charter, revenues of $120.8 million were $49.8 million, or 70 percent, higher than the second quarter of 2011. Revenues were driven by an increase in block-hour volumes (5,739 versus 3,213), partially offset by a reduction in block-hour rates ($21,054 versus $22,119). Block-hour volumes primarily reflected the redeployment of a second 747-400 cargo aircraft to support increased demand in South America as well as the redeployment of 747-400 cargo aircraft from ACMI operations during remarketing periods. Block-hour rates reflected the impact of lower fuel costs and lower yields on commercial charter capacity during the quarter compared with the second quarter of 2011.
For the quarter, an average of 6.3 aircraft (6.0 cargo aircraft and 0.3 passenger aircraft) supported our Commercial Charter operations, compared with an average of 3.2 aircraft (3.2 cargo aircraft and zero passenger aircraft) in the second quarter of 2011.
Operating expenses in the second quarter of 2012 totaled $368.6 million, an increase of $56.6 million, or 18 percent, compared with the same quarter in 2011, primarily due to increases in aircraft fuel, labor expense, passenger and ground handling services, depreciation and amortization, and other operating expenses.
Aircraft fuel expense of $117.6 million increased $17.2 million, or 17%, compared with the second quarter of 2011. Fuel expense during the quarter rose approximately $21.8 million due to an increase in fuel consumption, partially offset by a reduction of $4.6 million related to a decline in fuel prices. In Commercial Charter, fuel consumption increased by 6.7 million gallons, driven by an increase in block-hour volumes, while the average price per gallon declined to $3.31 compared with $3.48 in the second quarter of 2011. In AMC Charter, consumption decreased by 0.6 million gallons, reflecting the use of more efficient 747-400 and 767-300 aircraft compared with less efficient 747-200 aircraft, partially offset by an increase in block hours flown.
Labor expense of $73.4 million during the quarter increased $11.9 million, or 19 percent, primarily due to an increase in wages for crewmembers; an increase in total block hours flown; and the hiring of additional employees to support new aircraft.
Passenger and ground handling services totaled $18.6 million during the second quarter of 2012, an increase of $11.3 million, or 156 percent. Both passenger catering and contract services for flight attendants have been reclassified to this line item from Other operating expenses for the periods presented.
Depreciation and amortization of $13.9 million increased $5.1 million, or 58 percent, compared with the second quarter of 2011, reflecting the introduction of additional aircraft to the company’s fleet.
Other operating expenses totaled $29.5 million during the quarter, an increase of $6.2 million, or 27 percent. The increase was primarily due to an increase in commissions related to the growth in AMC Charter revenue; an increase in insurance expense reflecting our larger fleet; and an increase in flight simulator training for our pilots.
Maintenance expense of $43.4 million decreased $3.5 million, or 7 percent, during the quarter, driven by an $8.9 million reduction in maintenance for 747-200 aircraft partially offset by increases of $2.0 million for 747-400 aircraft and $3.4 million for other aircraft.
747-400 aircraft heavy maintenance expense during the quarter increased approximately $1.5 million due to an increase in maintenance expense on engines, partially offset by a reduction in C and D Check expense compared with the year-ago period. Non-heavy maintenance expense decreased $1.3 million due to the timing of non-heavy maintenance events compared with the second quarter of 2011, and line maintenance expense increased $1.8 million driven by an increase in block-hour volumes.
Reflecting an increase in block hours flown, line maintenance expense for 747-8F and 767 aircraft increased $3.4 million.
Due to the retirement of the 747-200 fleet during the first quarter of 2012, heavy maintenance expense on 747-200 aircraft decreased approximately $5.5 million and line maintenance decreased $3.4 million.
Heavy maintenance activity during the quarter included two C Checks on 747-400 aircraft compared with three 747-400 C Checks, one 747-400 D Check, and two 747-200 C Checks in the second quarter of 2011. In addition, there were six engine overhauls during the period compared with three in the second quarter of 2011.
Net Interest And Other Non-Operating Expenses
Net interest expense of $4.8 million during the quarter compared with net interest income of $1.4 million in the second quarter of 2011, primarily reflecting an increase in average debt balances related to the financing of four 747-8F aircraft.
Second-quarter results included an income tax expense of $18.9 million compared with an income tax expense of $14.9 million in the second quarter of 2011, resulting in an effective income tax rate of 37.7 percent versus a rate of 37.9 percent.
Our effective income tax rates differ from the U.S. federal statutory rate primarily due to the income tax impact of global operations, U.S. state income taxes, and the non-deductibility of certain items for tax purposes.
Cash, Cash Equivalents and Short-Term Investments
At June 30, 2012, our cash, cash equivalents and short-term investments totaled $244.2 million, compared with $195.2 million at December 31, 2011.
The change in cash, cash equivalents and short-term investments in the first half of 2012 was driven by net cash of $85.9 million provided by operating activities and net cash of $134.7 million provided by financing activities, partially offset by net cash of $174.7 million used for investing activities.
Net cash used for investing activities primarily related to the purchase of our fourth 747-8F cargo aircraft for our ACMI operations and a third 767-300ER passenger aircraft for our AMC Charter and Commercial Charter operations.
Net cash provided by financing activities primarily reflected proceeds from the issuance of debt in connection with the delivery of our fourth 747-8F that were partially offset by payments on debt obligations and debt issuance costs. Both the proceeds from our issuance of debt and the payments on our debt obligations reflect the refinancing of a $142.0 million floating-rate term loan with fixed-rate notes issued in the capital markets.
At June 30, 2012, our balance sheet debt totaled $899.9 million, including the impact of $49.4 million of unamortized discount.
The face value of our debt obligations at June 30, 2012 totaled $949.3 million, compared with $801.9 million on December 31, 2011.
Adjusted EBITDAR and Adjusted EBITDA
Adjusted EBITDAR, which reflects adjustments for fleet retirement costs, pre-operating expenses, loss on early extinguishment of debt, and gains on disposal of aircraft, totaled $113.2 million in the second quarter of 2012 compared with $91.7 million in the second quarter of 2011. For the first six months of 2012, Adjusted EBITDAR totaled $188.8 million compared with $158.5 million in 2011.
Adjusted EBITDA, which reflects adjustments for fleet retirement costs, pre-operating expenses, loss on early extinguishment of debt, and gains on disposal of aircraft, totaled $70.5 million in the latest reporting period compared with $50.2 million in the second quarter of 2011. Adjusted EBITDA for the first six months of 2012 was $106.6 million compared with $78.6 million for the prior-year period.
About Non-GAAP Financial Measures
To supplement our financial statements presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”), we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP measures include Adjusted EBITDAR and EBITDA; Direct Contribution; Adjusted Pretax Income; Adjusted Net Income Attributable to Common Stockholders; and Adjusted Diluted EPS, which exclude certain items that impact year-over-year comparisons of our results.
These non-GAAP measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.
We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. We believe that these adjusted measures provide meaningful information to assist investors and analysts in understanding our financial results and assessing our prospects for future performance.