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Amazon air carrier ATSG posts higher 3Q earnings

ABX Air is an ATSG subsidiary. Shown here is a Boeing 767 (Photo Credit: Flickr/Andrew Hazen - https://www.flickr.com/photos/athazen/)

Air Transport Services Group (NASDAQ: ATSG) reported a 219% increase in third-quarter operating profit of $105 million. The outsourced provider of air cargo services for Amazon.com’s Prime network and other customers generated $366 million in revenue, up 79% from the same period in 2018.

The gains mostly came from one-time occurrences: earnings from operations benefited from the loss in value of warrants issued to Amazon.com [NASDAQ: AMZN] to purchase future stock of up to a third of the company, and revenues were boosted by the November 2018 acquisition of Omni Air International, a passenger charter company, with higher operations for Amazon and leases to UPS in which ATSG subsidiaries operate the aircraft.

Adjusted earnings before interest, taxes, depreciation and amortization increased 47% to $109.2 million, mostly due to contributions from Omni Air and an increase of 17 more externally leased freighters since September 2018, according to the Wilmington, Ohio, company.

The company’s leasing arm, Cargo Aircraft Management, leased three 767-300 freighters to Amazon during the third quarter, including two newly converted aircraft and one previously leased to subsidiary Air Transport International. Six additional 767 freighters are scheduled for deployment during the fourth quarter: two to Amazon and four to UPS. The first of the UPS placements occurred in October.


“Demand for our aircraft and flight operations continued to accelerate in the third quarter, pointing toward a strong peak period of non-payload-sensitive flying for our air express network customers as we deploy more 767 freighters,” CEO Joe Hete said in the Nov. 6 report. “Flight operations for the U.S. Department of Defense and passenger charter customers were also strong.”

Total third-quarter revenues from other activities of $87.8 million increased by $18.3 million, or 26%, due to growth in maintenance services for ATSG affiliate airlines and ground services for external customers. Revenues from external customers increased $4.6 million versus the prior-year period, driven by additional revenue for ground services and fuel sales offset by the termination of sort facility management services for the U.S. Postal Service in the third quarter of 2018.

ATSG continues to project that its adjusted EBITDA will increase to $450 million in 2019 from $312 million in 2018. It said peak-season flight schedules for scheduled express-package services will be higher in the fourth quarter than previously forecast, largely due to strong e-commerce demand. That will increase costs more than anticipated, and fourth-quarter aircraft lease revenues may be impacted by the timing of lease start-ups and transitioning delays.

ATSG slightly revised its projection for 2019 capital expenditures, principally to purchase and modify Boeing 767 aircraft for freighter deployment, to $460 million, down from $475 million, Five 767-300s are expected to be in, or awaiting, cargo conversion by the end of the year.


The air transport provider said it anticipates 10 lease deployments in 2020, including commitments of four to Amazon and one to UPS, noting that demand for 767 freighters remains very strong and that it is negotiating with multiple customers seeking to lease the remaining aircraft.

The company expects to receive Federal Aviation Administration approval next year to convert Airbus A321 passenger aircraft into freighters.

“While trade and tariff issues have impacted the general cargo market,” Hete said, “demand for our mid-size freighters remains very strong, driven by the expansion of regional air express networks and growth in e-commerce. Looking forward, the aircraft and other investments we are making will drive even higher cash flows into an already strong cash-generating business. We expect lower capital expenditures in the next few years with decreasing debt leverage and full availability of capital allocation options to increase shareholder returns.”

ATSG also announced amendments to its credit facility that lengthen the term and lower interest costs.

ATSG’s stock closed 20 cents lower at $21.70.

Eric Kulisch

Eric is the Supply Chain and Air Cargo Editor at FreightWaves. An award-winning business journalist with extensive experience covering the logistics sector, Eric spent nearly two years as the Washington, D.C., correspondent for Automotive News, where he focused on regulatory and policy issues surrounding autonomous vehicles, mobility, fuel economy and safety. He has won two regional Gold Medals and a Silver Medal from the American Society of Business Publication Editors for government and trade coverage, and news analysis. He was voted best for feature writing and commentary in the Trade/Newsletter category by the D.C. Chapter of the Society of Professional Journalists. He won Environmental Journalist of the Year from the Seahorse Freight Association in 2014 and was the group's 2013 Supply Chain Journalist of the Year. In December 2022, Eric was voted runner up for Air Cargo Journalist by the Seahorse Freight Association. As associate editor at American Shipper Magazine for more than a decade, he wrote about trade, freight transportation and supply chains. He has appeared on Marketplace, ABC News and National Public Radio to talk about logistics issues in the news. Eric is based in Vancouver, Washington. He can be reached for comments and tips at ekulisch@freightwaves.com