Air Transport Services Group Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 11 speakers on the call.

Operator

Good morning, and welcome to our Q1 2024 Earnings Conference Call. We issued our earnings release yesterday after the market closed. It's on our website atatsginc.com. Let me begin by advising you that during the course of this call, we will make projections and other forward looking statements that involve risks and uncertainties. Our actual results and other future events may differ materially from those we describe here.

Operator

These forward looking statements are based on information, plans and estimates as of the date of this call. Air Transport Services Group undertakes no obligation to update any forward looking statements to reflect changes in underlying assumptions, factors, new information or other changes. These factors include, but are not limited to, unplanned changes in the market demand for our assets and services, including the loss of customers or a reduction in the level of services we perform for customers. Our operating airlines' ability to maintain on time service and control costs, the cost and timing with respect to which we were able to purchase and modify aircraft to a cargo configuration. Fluctuations in ATSG's traded share price and an interest rate, which may result in mark to market charges on certain financial instruments.

Operator

The number, timing and scheduled routes of our aircraft deployments to customers. Our ability to remain in compliance with key agreements with customers, lenders and government agencies the impact of current supply chain constraints both within and outside the U. S. Which may be more severe or persist longer than we currently expect the impact of the current competitive labor market changes in general economic and or industry specific conditions including inflation and regulatory changes the impact of geopolitical tensions or conflicts and human health crises and other factors as contained from time to time in our filings with the SEC, including the Form 10 Q to be filed this week. We will also refer to non GAAP financial measures from continuing operations, including adjusted earnings, adjusted earnings per share, adjusted pre tax earnings, adjusted EBITDA, free cash flow and adjusted free cash flow.

Operator

Management believes these metrics are useful to investors in assessing ATSG's financial position and results. These non GAAP measures are not meant to be a substitute for our GAAP financials. We advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website. And now I'll turn the call over to Joe Hete, our Chairman and CEO, for his opening comments.

Speaker 1

Thanks, Joe. Good morning, everyone. I have a couple of positive developments I'd like to share with you before reviewing our results for the quarter. As many of you have seen, we just expanded and extended our flying agreement with Amazon to operate 10 more Boeing 767-three 100 freighters that Amazon will provide this year with the first one in June. The agreement includes the potential for Amazon to add up to 10 more aircraft beyond 2024.

Speaker 1

At ATSG, we are committed to providing high quality service to our customers and we believe this expansion of our relationship with Amazon is evidence of those efforts. The first ten aircraft will be operated by ABX Air. This agreement for 10 aircraft will initially increase to 50, the number of freighters that ATSG will operate for Amazon by year end, including 30 that CAM leases. We are now and will continue to be Amazon's principal provider of air operations and capacity. Additionally, the amendment extends the term of the flying agreement into 2029 with the option to extend to 2,034.

Speaker 1

We have adjusted our guidance for 2024 to include some benefit from the incremental flying under the agreement. The benefit factors in start up costs as we onboard the additional aircraft and a partial year impact of the additional revenue. We expect results from this incremental flying to improve in 2025. As described in the press release and 8 ks, ATSG granted new warrant incentives to Amazon and amended the terms of vested and unvested warrants they already hold. 2nd piece of good news is the ABX Air pilots ratified an extension of their contract over the weekend, pushing the next amendable date out until 2,030.

Speaker 1

This provides that airline's customers with significant labor stability into the next decade. Hats off to their leadership. I want to thank the entire ATSG team for their efforts as we execute the plans we laid out for 2024. We remain focused on safety, customer satisfaction and cost control. We delivered 4 converted 767-three 100 freighters to external customers in the quarter and the benefit of our capital spending reductions were evident as we generated positive free cash flow putting us in great position to achieve more of the same for the full year.

Speaker 1

As I just mentioned, we are raising our adjusted EBITDA guidance by $10,000,000 and reaffirming our capital expenditure outlook for 2024. Our commercial teams remain focused on opportunities for both additional aircraft leases and incremental flying for our airlines, which could add upside to our guidance. We're excited about these developments and believe they showcase the best of ATSG's fundamentals. We look forward to realizing these plans. I will now turn the call over to Quint Turner to discuss our financial results for the quarter.

Speaker 1

Quint?

Speaker 2

Thanks, Joe, and welcome to everyone joining us this morning.

Speaker 1

I'll start on Slide 4, which summarizes our financial results for the quarter. Revenues were down $15,000,000 or 3% versus a year ago to $486,000,000 This was driven by lower revenue in both CAM and the ACMI Services segment. In the Q1, we saw a GAAP pretax earnings of $12,000,000 down from a pretax earnings of $27,000,000 in the prior year period. This resulted in a diluted earnings per share of $0.13 versus diluted earnings per share of $0.25 in the Q1 of 2023. On an adjusted basis, pre tax earnings fell $23,000,000 to $15,000,000 and adjusted EPS was down by half of prior year levels to $0.16 In our Aircraft Leasing segment, revenues decreased 7%, Excluding revenues associated with CAM's 767-200 engine power program, segment revenue would have been flat.

Speaker 1

Since March 2023, CAM leased 12 additional Boeing 767-300 and 3 Airbus A321-200 freighters, but saw returns of 16 767 freighters, including 12 767-200s. CAM's pretax earnings were down $21,000,000 for the quarter, reflecting a $7,000,000 decline from fewer 767-200 engine cycles and $5,000,000 more in both interest expense and depreciation versus the prior year. Additionally, 4767-three 100 converted freighters were deployed to external customers during the quarter, while 1 767-three hundred and 3 767-two hundred freighters were returned. At quarter end, 90 CAM owned aircraft were leased to external customers, 2 fewer than a year ago. In our ACMI Services segment, we reported a pre tax loss of $3,000,000 compared with a loss of $2,000,000 in the Q1 of last year.

Speaker 1

Total block hours flown by our 3 airlines were down 3% versus the prior year quarter. Omni, which was a topic of particular interest on the last call, performed better than budget in the quarter, but continued to see demand trends below normal levels from its largest dollars down dollars down $11,000,000 compared to the prior year. Of the decline in adjusted EBITDA, CAM decreased by 13,000,000 and ACMI Services and Other Businesses increased by $2,000,000 CAM's decline was driven by 767-200 lease returns and fewer engine cycles operated by the 200s remaining in service, resulting in lower power by cycle engine revenues. The increase in ACMI Services and Other was driven by better performance at our MRO operations. Slide 6 details our capital spending on a trailing 12 month basis.

Speaker 1

Total CapEx for the quarter was 102,000,000 consisting of $72,000,000 in growth CapEx and $30,000,000 in sustaining CapEx. Our CapEx spending is down 50% year over year for the Q1, and we project a decline of more than $380,000,000 in capital expenditures compared to 2023. The next slide updates adjusted free cash flow as measured by our operating cash flow, net of sustaining CapEx. Operating cash flow was $126,000,000 in the Q1 this year. That was down $90,000,000 versus the prior year period, which was stronger than usual due to recovery of a $67,000,000 fuel receivable from the Department of Defense.

Speaker 1

Excluding this item, operating cash flow would have decreased by $23,000,000 compared to the prior year. On a trailing 12 month basis, adjusted free cash flow was $368,000,000 in March, up slightly from the comparable period ending March 2023. On Slide 8, you can see that available credit under our bank revolver in the U. S. And abroad was $404,000,000 at the end of the first quarter.

Speaker 1

We continue to maintain healthy liquidity under that facility with unencumbered aircraft asset values of $1,400,000,000 Now I'll turn the call over to Joe to discuss our updated outlook. Thanks Quint. Turning to the next slide. I'd like to spend some time discussing our outlook and assumptions for 2024. Including the increased Amazon flying opportunities announced yesterday, ATSG now expects adjusted EBITDA of approximately $516,000,000 in 2024, an increase of $10,000,000 from the outlook provided in February.

Speaker 1

Similar to our prior guidance, this forecast excludes any contribution from additional aircraft leases or flying opportunities not currently under contract, which could generate additional adjusted EBITDA. This projection assumes a start up of 10 Amazon provided 767-300 aircraft prior to the end of the year and takes into account projected startup costs associated with bringing them into service as well as adding over 50 pilots at ABX Air. The contribution from this expanded agreement was included in the $30,000,000 of potential adjusted EBITDA we laid out in February. As mentioned, we continue to expect total capital spending of $410,000,000 this year with $165,000,000 for sustaining CapEx and $245,000,000 for growth. The gross spending outlook includes the completion of the 17 aircraft that were in process of conversion at the start of the year and the acquisitions of 4 additional feedstock aircraft for the remainder of the year.

Speaker 1

At our current capital spending levels, we continue to target positive free cash flow for the year. We remain optimistic on the demand outlook for our midsized freighter assets over the long term and the strength of our business strategy. We're focused on operational execution and cost control as we position ourselves for the eventual market recovery. As the market leader in midsize freighter leasing, we are well positioned to deploy additional aircraft to meet our customers' demand. That concludes our prepared remarks.

Speaker 1

Quint and I, along with Mike Berger, our President and Paul Chase, our Chief Commercial Officer, are ready to answer questions. May we have the first question?

Speaker 3

Thank you. Our first question comes from Helane Becker with TD Cowen. You may proceed.

Speaker 4

Thanks very much, operator. Hi, guys. Thanks for

Speaker 2

the call.

Speaker 4

So I just have two questions really. One is, congratulations on the pilots getting that deal done. I feel like I ask you that question every quarter, like what's going on. And you always say, we're talking, but we're not in a rush. And then you got this deal done.

Speaker 4

So congratulations on that. But what prompted it to get done to finally get done?

Speaker 1

Well, I think there's 2 things. 1, the ones you've asked about previously was the ATI pilots, which we are still in mediation with them, in fact had the mediation session last week. This is actually the AVX pilot group, which had a CBA, which ran through 2026, 2027. One of the challenges that they had, obviously, they were the ones that had the strike back in 2016. And so they had a hole they had to dig out of.

Speaker 1

And the leadership finally came to the realization that you know what, maybe there's a better way to approach this than the traditional let's go after the company kind of thing. And came to us with an offer to extend the existing agreement to give potential customers some comfort that they wouldn't experience any labor disruptions in the future. So that's kind of what kicked it off. And we're able to get something done realistically. I know you're going to find this hard to believe, but got it done in 3 days.

Speaker 4

So it can be done. If there is a will behind it, it can be done.

Speaker 1

Yes. And like I say, you have to have realistic expectations on both sides of table. Obviously, we had to give some stuff up and obviously they had to pull back from what others think the market is for our type of business. We're not a passenger airline. We're not a FedEx or a UPS.

Speaker 1

We're in a different marketplace altogether. When people put their minds to it, they can come to an agreement that works for everybody.

Speaker 5

Yes. Helane, it's Mike. I'll just add to that. They've also done a fabulous job over the last several years, presenting themselves at industry conferences. Normally, you will not see airlines and unions represented at the industry conferences, whether it be CargoFax and ISTAT.

Speaker 5

And they've done a really nice job of rebranding themselves in a very positive way. And I think this is an example of, the fruits of their labor.

Speaker 4

That's really helpful. Thanks. And then just my follow-up question and it's completely unrelated. On the aircraft that you got back, what are you going to do with those? And are there or is there more aircraft that are coming back this year that we should know about?

Speaker 6

Hey, Helane, it's Paul Chase. Good morning. With respect to the aircraft that come back, we're marketing just depending on where the aircraft are in their cycles maintenance cycles, we're either marketing those for sale or release. We have several opportunities that we're looking at today. With respect to aircraft coming back this year, we expect 2 more aircraft back in 2024.

Speaker 4

Are those 300s or 200s?

Speaker 6

Yes, ma'am. Yes, and we're marketing those for sale at least. Sorry, 300s. I misunderstood your question. I'm sorry.

Speaker 6

Those are 767-300s. Okay.

Speaker 4

All right. That's really helpful. Thank you.

Speaker 1

Thank you.

Speaker 3

Thank you. One moment for questions. Our next question comes from Frank Galanti with Stifel. You may proceed.

Speaker 7

Great. I appreciate you guys taking my questions. I wanted to ask on sort of the omni business. Obviously, I think it was sort of the major contributor to that sort of negative pretax earnings for that segment. Can you talk about what sort of expectations are for that seasonally, maybe from a margin perspective?

Speaker 7

And then what expectations are sort of after the repricing at the sort of end of September?

Speaker 1

Yes, Frank, from the standpoint of Omni, obviously, as we've talked about on the prior calls, the amount of utilization by the Department of Defense has been down versus where it was in prior years. There was a slight decline versus Q1 of last year, but not nearly as significant as what we saw in Q4. As we look into the Q2, things look to be picking up more so in the omni side of the equation. And from the standpoint of the Q1 results, it wasn't necessarily Omni that was the contributor to the loss that we experienced. Cargo hours, for example, at ATI were down 9% on a year over year basis.

Speaker 1

So it's a combination of all the above, but we still believe that Omni has a lot of longer term benefit for us. Like I said, it has in the last 12 months underperformed where they had traditionally, but they far exceeded our expectations in terms of what they've generated in terms of cash flow and profitability at the time we made the acquisition back in 2018.

Speaker 7

Okay. That's helpful. And then thinking about sort of, Quint, you commented that there's about $1,400,000,000 of unencumbered assets. Is that a book value calculation? Can you sort of comment on where you think market values are for your fleet relative to book value?

Speaker 7

And then sort of what the sort of comfort level is at the current debt load and sort of expectations for leverage going into the future?

Speaker 2

Sure, Frank. Yes, in terms of the values that we talk about there for unencumbered asset value, that's based on appraisals that are done annually as under our senior secured bank facility, that's something we do with the bank group each spring. And so that's a pretty fresh appraisal. And actually, of course, the values, as you might expect, depending on the aircraft type, they differ between, for example, 767 or an A321 or 763 versus 76200. But the values in general, of course, our fleet is predominantly 767-300 and they've held up well.

Speaker 2

Keep in mind that the asset value is largely driven by the conversion of the aircraft. Over half of the value is in the conversion itself and our 767-300 fleet is pretty young in terms of years since conversion. And it's still the most chosen midsized freighter around. So those values have held up well. That $1,400,000,000 is a combination of excess collateral that we've put into our bank facility as well as aircraft we have not put in the facility at all because we have a coverage ratio.

Speaker 2

As far as debt levels and leverage levels, according to our bank agreement, we were a little under 3.2 times at the end of the quarter. And as Joe talked about at the onset, and I think I mentioned in some of the earlier remarks, the CapEx spend is way down this year and we're targeting some free cash flow generation. So we anticipate a very stable sort of in that range of leverage. And then as EBITDA begins to move ahead next year, we look to see some delevering.

Speaker 7

Great. Thank you very much.

Speaker 3

Thank you. One moment for questions. Our next question comes from Christopher Sathalopoulos with SIG. You may proceed.

Speaker 8

Good morning, everyone. Thanks for taking my question. Good morning, everyone. So Joe, Quintin, it's been a while since we've gone through or talked about Amazon in any real detail here. And could you walk us through there's a lot of moving parts here, as we think about the composition of the fleet, the order book, the options, the accelerated ABX deal, who approached who, kind of the economics, TAM versus ACMI flying here.

Speaker 8

So could you kind of walk us through this new segment, this new deal here, specifically? So I heard $50,000,000 by year end, there's an option for $10,000,000 So that could put you at $60,000,000 Is this entirely $300,000,000 now? Are we done with the $200,000,000 Are the economics of the deal contemplate the pull forward with the ABX piece? And then the duration, I'm looking at your K yesterday evening, the duration of the existing yields, excuse me, leases was staggered through. And just wondering now if there's a sort of a uniform sort of endpoint for that or they continue to kind of stagger off through end of decade and beyond?

Speaker 8

Thanks.

Speaker 5

Yes. Hi, Chris. It's Mike. I'll take you through this a little bit. So as you heard, the initial will be 10 incremental aircraft that will fly, that we've designated now to ABX.

Speaker 5

We'll get those through into service by the end of this year. There's another potential for 10 incremental aircraft that Amazon will potentially award at a future date. Within that, we also have the potential to have lease extensions as part of the 10 incremental aircraft that will potentially come at a future date. So that's how the agreement is structured. 10 initially, 10 potential with the option to also include lease extension as it relates to the incremental warrants in the future.

Speaker 8

And just yes, on the mix of AVX versus ATI in terms of how many aircraft within each of that. And then also, as we think about utilization levels is sort of similar to what we've seen and similar routes, I think most of us are familiar with what that looks like. But any detail so far as the composition of flying and also the mix within AVX and ATI? Thank you.

Speaker 5

The initial 10 will be ABX. We'll determine if we're successful with the additional 10, we'll make that decision at a later date. The composition of the flying, not only in terms of the domestic piece, where they'll go as well as the block hours will be very similar to what we have today. We have a minimum of 200 block hours per tail. Per month.

Speaker 1

Per month, excuse me.

Speaker 5

Right. Yes, per month.

Speaker 1

Okay. And these are just CLLs, these aren't

Speaker 5

That's right.

Speaker 3

This is Correct.

Speaker 8

Okay. Okay. Got it. And then as a follow-up, Quinn, could you just remind us of the power by cycle economics, the number of engines in that fleet and anything else we should consider? Thank you.

Speaker 1

Sure. Well, Chris, when we

Speaker 2

talked about power by cycle in relationship to the changes in CAM versus prior periods, it's generally been in the context of the 767-two 100 aircraft. And that is the only fleet type that we offer customers access to a pool of engines that we maintain, those being the GE powered CS6-eighty eight engines and they pay CAM on a per cycle basis as they operate aircraft they lease, 7 6200s they lease, they would okay them a cycle charge and that would hit revenue. Any overhauls of the engines that we do in that pool to maintain it is capitalized and is depreciated. So you can see that when usage utilization drops or we take or retire or remove from service 767-200s as we've been doing with that fleet now for the last few years, there's a significant impact on EBITDA. And in particular because the expense is mostly in depreciation, which wasn't there to begin with.

Speaker 2

So the revenue comes straight out. And we've seen some lower monthly utilization of the aircraft that remain in service. And we've talked about the removals, I think a dozen or so in the last 12 months. And those are just aircraft that have reached sort of that 20 right around that 20 years post conversion part of their life and their airframe cycle age is such that it's beginning to make sense to remove us from service. The aircraft are still performing well, but it's just as we've said, eventually that fleet, some of it is going to sunset.

Speaker 2

There are some aircraft I think at the end of this year that we'll still have in service roughly 14 or so freighters. And the majority of those are a ways away from a cycle standpoint where we would look to remove them from service. So we only expect maybe 3 or so to come out of service in the next few years of that 14. But we sort of had some cliffs. You may recall, they were the first twelve aircraft that sort of got the Amazon relationship started.

Speaker 2

They were the first twelve of what became 42 aircraft that we were leasing to Amazon. The other 30 are all the larger 76s. So they came to the end of their extended lease terms and Amazon had an option to not obviously not extend further as they had done a couple of times already with that fleet type. So that's what you're seeing. So I do think as we look into next year from a year over year basis, you'll see less of a negative impact on CAM in comparing to prior periods because we had these chunks of 200s that we got back last year and this year.

Speaker 2

And so I think that will stabilize as we look forward.

Speaker 8

Okay. If I could just get in one more. So just remind us where you are with the labor talks with ATI and Omni? Thank you.

Speaker 1

Sure. As I mentioned earlier, Chris, that we had a mediation session last week with the folks at ATI and then had one with the Omni folks a couple of weeks ago. Obviously, we're still trying to work through the negotiations. I think if you look at what we agreed to with the ABX pilots, who weren't in a position where the CBA was amendable. They stepped up and said, okay, look, here's what we think is reasonable.

Speaker 1

So it kind of sets the mark in a way for our line of business as opposed to as I said earlier, we can't compare ourselves to a FedEx or UPS or anybody of that ilk. It's a totally different business environment. So, we still expect that we won't get any of those done this particular year. If we do, that's great. I think the fact that we were able to get something across the plate with the ABX guys and realistically what took 3 days, says the company can get there here.

Speaker 1

It's just to have to have realistic expectations on the other side of the table.

Speaker 8

Okay. Thank you.

Speaker 3

Thank you. Thanks, Chris. Thank you. One moment for questions. Our next question comes from Michael Ciarmoli with Truist Securities.

Speaker 3

You may proceed.

Speaker 1

Hey, good morning guys. Hi, Michael.

Speaker 9

Nice results here. Thanks for taking the question. Just on this Amazon, I mean, did you opt to use AVX because of the pilot settlement there and just thinking, I think you said what, you got to hire 50 pilots, would that have been more of a challenge? Just I guess just how did the AVX come into play versus API?

Speaker 1

Well, I think the key driver there was the fact that there was a new agreement, which basically lowered the new hire rate, that allowed us to get people on board. One of the challenges we've had is every other airline in the industry has had over the last 18 months to 24 months is finding sufficient pilots and of course key to that is what your starting rate is in that regard. So with the new agreement, it made it easier for us to basically be able to onboard the people that we need necessary. One of the challenges that we've had on the ATI side of the equation is, we don't have enough guys to cover the left seat of the airplane surprisingly enough. We have a lot of new hire first officers with basically not as much experience to be able to move to the left seat.

Speaker 1

So that presents challenges in terms of being able to staff up for the aircraft, flying that we need to get done. And so the ABX option with the new agreement certainly made it easier for us to onboard the necessary people in the tight timeframe that we have. As we've mentioned, we have to get these aircraft into service by target is December 1. And that's a lot of airplanes to bring on when we won't receive the first one until June. Right.

Speaker 1

Okay. Is the profitability on these planes the same, just probably assuming that there's more salary and wages on ABX versus ATI? Yes. Every contract is different in terms of the cost structure. For example, with the ATI folks, they have home pacing, which is a significant expense to the company to be able to move into their first assignment, where the ABX guys are domiciled.

Speaker 1

So it's their responsibility to get there. So that keeps that side of the cost equation down. The other piece of it is, as I said, the the amount of premium pay that we had to pay on the ATI side of the equation has had a negative impact on our earnings on that side. And so that's what we have to overcome. And we think with the new agreement on the AVX side, that facilitates the hiring piece.

Speaker 9

Okay. Got it. And Nick, just to give you the background, why did this new deal have to come with the $2,900,000 of warrants? I mean, I guess that's at some point maybe 4% dilution. I'm just trying to understand the mechanics behind this whole transaction and why the need?

Speaker 9

And then I guess there was a lot of different language in there regarding if you guys announce a buyback and what price Amazon can sell for, just if you can give us any color there?

Speaker 2

Yes, Michael. We of course, we've done some different deals with Amazon expansions and renewals. And it's always a question of just looking at the value creation in any of these deals. I don't think we're unique that Amazon when they do significant deals, they may look to the equity side as part of that negotiation and the other party always just have to make an assessment, what's in the best interest and what creates the most value. It's a negotiation point that does come up when you get into these kind of discussions.

Speaker 9

Okay. Got it. Thanks guys. I'll turn back in the

Speaker 10

queue. Thanks.

Speaker 3

Thank you. One moment for questions. Our next question comes from Isaac Selhuysen with Oppenheimer. You may proceed.

Speaker 10

Hey, guys. Good morning. This is Isaac filling in for Ian. Thanks for taking all the questions.

Speaker 9

I wanted

Speaker 10

to ask on the guidance assumptions for the year, I guess, which still excludes any additional leases or fine opportunities like you mentioned. I think you previously quantified that at around 30,000,000 dollars Is that still the right range? Or do you feel that could potentially be higher? And then any additional leases are fine. Would you expect those to be with existing or new customers?

Speaker 10

Thanks.

Speaker 5

Yes. Appreciate the call. I'll take the piece on the additional leases. As you've heard us say throughout the year, we're going to continue to make further announcements as our leases become firm. We've got several solid opportunities in our pipeline.

Speaker 5

And as we progress through the year on the next call, we'll advise further in regards to the impact that will have on revenue and EBITDA.

Speaker 1

On the flying piece of it, obviously, there's significant startup costs associated with bringing on the additional pilots, transitioning aircraft, though we have to do a bridging check essentially. So we're estimating that in terms of the impact for 2024, the offset to the revenue that we will gain as the aircraft meter in is somewhere in the $6,000,000 to $8,000,000 range in terms of expenses, that you won't see obviously once you get the last airplane in service. So you'll be able to leverage that on a go forward basis.

Speaker 10

Okay, understood. And then just a quick follow-up on the ACMI side. How have cargo and passenger block hours trended in April maybe moving into the Q2? I think you mentioned the slight improvement in DoD activity, but still somewhat lower. So just trying to understand how hours are trending?

Speaker 1

In terms of the quarter, as I mentioned earlier, for example, the ATI side, they were down about 9% on a quarter to quarter basis. Remember, the 7 6200s all came out of ATI and ABX over the last, call it, 12 months. Last airplanes were parked April 5, I think it was the last couple. So if you look at April, it's from that standpoint with no additional flying in place, it's going to be down a little bit versus where it was in call it March. But we expect it to start obviously coming back as we bring on the additional 10 aircraft through the balance of the year.

Speaker 10

Okay, great. Thanks so much. Yes, thanks.

Speaker 3

Thank you. One moment for questions. Our next question comes from Christopher Stathoulopoulos with SIG. You may proceed.

Speaker 8

Hey, thanks for taking my follow-up. Quint, the 137 aircraft expected at year end, are these all fully committed and or running perhaps at the utilization levels you need them to be? Meaning as we contemplate what other flying opportunities there exist here and potential upside to the guidance, Is there any kind of slack capacity or currently aircraft that are currently on the ground? And then the 18 for next year, as we particularly the A321s and A330s, just remind us how many of those are committed at this point? Thank you.

Speaker 2

Sure. Well, as we've said in our guidance that we've given, we did not include in that guidance anything beyond the 4 contractually committed 767-300 Leases, all of which we did place in the Q1. We're operating by the end of the quarter. So any additional capacity that we lease during the remainder of the year would be additive to that level of guidance that we gave, the 516. And we do have aircraft, that as Paul said earlier that are being marketed, including A321s and 767 aircraft.

Speaker 2

And then late this year, we'll have our first couple of Airbus 330s that come out in the Q4. I don't know, Paul, if you want to add anything to that.

Speaker 6

No, I think you covered it. I mean, we're seeing pretty strong demand returning on the 767-three hundred side and we see strong customer demand on the A330. The A321 is we have some existential issues with some overcapacity in the 737 freighter market that's hurting demand there that will eventually subside. But yes, I'm confident in what we're seeing in the market, especially relative to 2023.

Speaker 2

But as we move through the year, Chris, we have as contractual commitments are made for those aircraft, we would update that. But certainly, there are discussions taking place that might result in some additional upside there on the lease piece.

Speaker 8

The existential issues here as it relates to the A321s and 300s, is that more of a U. S. Domestic issue or international?

Speaker 6

No. The A321 in particular was what I was referencing, and that's a global issue. You have 2 challenges. You have an oversupply of 737 freighters and then you have some GTS engine issues going on with especially in the B2500 side. So that's what's affecting that particular product.

Speaker 5

Yes. I'd just add from a market standpoint, Chris. We continue to be an enabler of e commerce. We've spoken and I've spoken many times on this call about e commerce being the engine of the industry. If you couple that with improving air cargo trends, which by the way for the last 4 months have been double digit positive over prior year, that's absolutely a winning combination, right?

Speaker 5

If you look underneath the major integrators results in terms of their numbers, the cross border piece and the international piece stand out dramatically versus their other products. So just to expand a drop further on that, we've talked a lot about Asia, Central Asia, Southeast Asia, for example, being a growth opportunity for us. Specifically, you've seen us place assets there over the past year and our pipeline is also very robust in those areas. So as Joe mentioned earlier, in his optimism, we're confident we've got the right assets. And 1st and foremost, those assets will allow us to continue to be the world's largest lessor cargo freighters in the world.

Speaker 8

Okay. Thank you.

Speaker 3

Thank you. One moment for questions. Our next question comes from Michael Ciarmoli with True Securities. You may proceed.

Speaker 9

Hey, thanks for taking the follow-up guys. Just point of clarification, the upside potential on EBITDA $30,000,000 I mean that was originally $536,000,000 you got $10,000,000 Is there still $20,000,000 left or are you just not really commenting on a specific number?

Speaker 1

So again, I think our outlook for the potential hasn't changed much. What slid a little bit was this agreement with Amazon. We originally anticipated that it might start a little

Speaker 2

bit earlier than

Speaker 1

getting the 1st airplane in June. So that will be a little bit of downside there. But there's other potential opportunities from a flying standpoint. And again, the lease placements, we started out the year saying we had 17 aircraft coming through conversion. We placed 4, which is in the guidance.

Speaker 1

So there's 13 more out there that at some point in time we expect to be able to get placed sometime this year that would give us that upside. It all boils down to the timing in the end.

Speaker 9

Okay, got it. Thanks guys.

Speaker 3

Thank you. I would now like to turn the call back over to Joe Hete for any closing remarks.

Speaker 1

Thanks, Josh. From the start of our relationship 9 years ago, the people of ATSG have proven that they can provide the fastest, best and most efficient service to our customer, Amazon. Once again, Amazon has acknowledged our performance with more aircraft to fly and by extending our relationship for many more years. Honoring commitments from customers has always required us to manage our cash flow to fund the investment that growth and great service require. Our goal for 2024 is to generate enough cash to fund our sustaining and growth investments and we did just that in the Q1 as a first step toward being free cash flow positive for the year.

Speaker 1

I look forward to keeping you updated on our progress and to find new ways to produce more cash flow and allocate capital more effectively as the year unfolds. Thanks and have a quality day.

Speaker 9

Thank

Speaker 3

you. This concludes the conference. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Air Transport Services Group Q1 2024
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