Updated at 8:40 p.m.
Atlas Air Worldwide Holdings Inc. (NASDAQ: AAWW), buffeted by a weak global airfreight market exacerbated by trade disputes and disruptions from a labor dispute with its pilots, lost $879,000 in the fiscal third quarter from operations, compared with a $54.5 million operating profit in the same period a year ago.
Operating profit for the first nine months of 2019 fell 65% to $55 million at AAWH, the parent company of Atlas Air, Southern Air and Titan Aviation and majority owner of Polar Air Cargo.
On paper, the company’s boasted net income of $60 million for the quarter, or $2.32 per diluted share, compared with $71.1 million, or 84 cents per diluted share, in the third quarter of 2018, but the profit came from financial securities that rose in value by $83 million.
The airfreight holding company on Wednesday lowered its full-year guidance for revenue to $2.75 billion from $2.9 billion, adjusted pre-tax earnings to $500 million from $520 million and adjusted net income of about 60 to 65% of its 2018 adjusted net income of $204.3 million. In the summer, the company forecast adjusted net income to be 80% of last year’s figure. It said it expects to fly 325,000 block hours versus 330,000 it previously estimated. In April, Atlas previewed block hours of 340,000, revenue of $3 billion, adjusted pre-tax earnings of about $600 million and mid- to upper-single-digit adjusted net income growth.
The company’s stock closed Oct. 30 down 11.3% to $21.31.
“Our third-quarter performance was affected by the uncertain global macroenvironment, driven by ongoing tariff and trade tensions,” said Chairman and Chief Executive Officer William J. Flynn. “In addition to lower yields and volumes than we anticipated, labor-related service disruptions had a significant impact on our performance during the third quarter.”
Atlas pilots, who complain pay and benefits lag those of other cargo airlines, have been locked in contentious negotiations with the company over a new contract. Atlas management has accused the pilots and their union, the International Brotherhood of Teamsters, of violating terms of the existing contract through sick-outs and work slowdowns. In late August, an arbitrator ruled that the pilots must proceed to an arbitrated contract process.
One of Atlas’ largest customers, e-commerce giant Amazon.com, Inc. (NASDAQ: AMZN) in September assigned two of the 19 aircraft it leases from Atlas for its Prime Air operation to a unit of Atlas’ rival Air Transport Services Group (NASDAQ: ATSG).
“We expect to benefit from peak-season volumes and yields, including the seasonal flying we do for express and e-commerce customers. In addition, our outlook anticipates increased passenger flying for the military and lower maintenance expense compared with the fourth quarter of 2018, as well as from a refund of aircraft rent paid in previous years,” Flynn said.
He expressed confidence that Atlas is positioned to meet future demand for air cargo transport as global middle-class consumption and supply chains continue to grow.
Officials said they are adjusting capacity in line with the market and reducing costs to deal with difficult operating conditions.
AAWH’s revenue fell $7 million to $648.5 million compared with the third quarter of 2018. One of its main business lines is providing airlines with a service package that includes leased aircraft, crew, maintenance and insurance (ACMI). That segment’s revenue was essentially flat at $289 million during the quarter because of higher levels of flying. It was partially offset by a decrease in the average rate per block hour due to the growth of smaller-gauge Boeing 767 and 737 used by airlines contracting only for crew, maintenance and insurance.
Charter business revenue inched up $1 million to $324 million from the same period a year ago, and dry leasing, which only covers the aircraft itself, ticked down 1.4% to $43.8 million.
The direct ACMI contribution to revenue, after allocating for direct ownership costs, fell 35% to $33.4 million because of additional heavy maintenance, startup costs for new customer growth initiatives and short-term redeployment of two 747-8 freighters to the Charter segment, CFO Spencer Schwartz said on the earnings call with analysts later. The Charter direct contribution felt the brunt of decreased yields and volumes due trade and labor headwinds, falling about 22% to $36 million.
Atlas said its cash and cash equivalent holdings fell to $82.8 million from $248.4 million at the start of the year as the company invested in flight equipment and modifications, including the acquisition of 747-400 and 767-300 passenger aircraft and related freighter conversion costs, spare engines and GE engine upgrade kits, and made debt payments.
The company incurred a special charge of $18.8 million primarily due to an impairment loss for the disposal of four aircraft engines and the permanent parking of two 737-400 passenger aircraft used for training purposes.
On Tuesday, Atlas Air Worldwide promoted James A. Forbes, currently senior vice president and chief operating officer of Southern Air, to executive vice president and COO of the parent company, effective Jan. 1. He will succeed John W. Dietrich, who, as previously announced, will assume the role of CEO. Forbes will also act as COO of subsidiaries Atlas Air and Southern Air.
Forbes’ appointment is in line with the leadership transition plan initiated by the company in July, when Flynn announced his retirement on Jan. 1. Flynn will continue to serve as chairman of the board.