The air cargo services provider reported a $7.5 million loss in third quarter 2016, it’s second straight quarter in the red, as nondeductible expenses related to vested warrants granted to e-commerce giant Amazon dragged on earnings.
Atlas Air Worldwide Holdings Inc. reported a loss from continuing operations of $7.5 million for the third quarter of 2016 compared with a $12.8 million loss in the same 2015 period, according to the company’s most recent financial statements.
The cargo aircraft operator and outsourced services provider posted a loss per diluted share (EPS) of $0.30 for the quarter compared with $0.51 per share in third quarter 2015. Revenues were relatively stable in Q3, slipping just 0.4 percent year-over-year to $448 million.
Atlas Air attributed the loss primarily to nondeductible expenses related to vested warrants granted to e-commerce giant Amazon.com Inc.
The company in May agreed to dry lease and operate 20 B767-300 freighter aircraft on behalf of Amazon. Under the agreements, Atlas Air operates the converted freighters for Amazon on a crew, maintenance and insurance (CMI) basis on a seven-year term and provides dry leasing through its Titan Aviation leasing unit on a 10-year term.
In addition, Amazon was also granted vested warrants to purchase up to 20 percent (after the issuance) of Atlas Air Worldwide’s common shares for $37.50 per share over a period of five years, and additional warrants to purchase up to another 10 percent over seven years at the same exercise price.
Atlas Air shareholders voted to approve the issuance of those warrants to Amazon, allowing the e-tailer to acquire up to 30 percent of the common shares of the company. Because it constitutes a “change in control” under the company’s benefit plans, the approval resulted in a $26.2 million one-time expense, which included “accelerated compensation for certain restricted and performance share and cash awards” of $11.6 million.
The company noted adjusted income from continuing operations, a non-GAAP measure that excludes the abovementioned expenses, stood at $27.4 Million ($1.09 per diluted share) compared with $30.7 million ($1.23 per diluted share) in the prior year period.
“During the third quarter, we continued to focus on increasing our alignment with the faster-growing express and e-commerce markets,” Atlas Air President and CEO William J. Flynn said of the results. “We placed our first aircraft into service for Amazon in August, and we moved forward with preparations to ramp up to 20 by the end of 2018.”
Flynn said the company also made “significant progress” in its integration of Souther Air, which Atlas officially purchased in April of this year, adding that the contributions and synergies from Southern Air and its express-focused 777 and 737 CMI services have exceeded company expectations.
“Reflecting our expanding business base and the ongoing development of our strategic platform, our third-quarter results were at the upper end of the range that we expected,” he said. “In ACMI, we started flying for Amazon and benefited from accretion generated by Southern Air. In Charter, our results reflected an increase in military cargo and passenger demand. And our Dry Leasing business maintained its steady, annuity-like performance. Despite publicity about the Hanjin Shipping bankruptcy during the quarter, we did not observe any noticeable impact on airfreight demand or rates.”
In addition, Flynn reiterated the company’s expectations for a strong fourth quarter. Atlas Air projects adjusted diluted EPS from continuing operations of around $2.25 in the fourth quarter. The company noted it provides guidance on an adjusted basis because “we are unable to predict, with reasonable certainty, the effects of the warrants issued to Amazon or certain other significant items that could be material to our reported results.”
“We expect peak-season demand to be solid and accompanied by a seasonal improvement in commercial airfreight yields,” said Flynn. “Together with our additional seasonal flying for express operators and a lower level of maintenance expense, we expect both a sequential and a year-over-year improvement in our block-hour volumes, revenue, profitability and margins in the fourth quarter, which we anticipate will account for slightly more than 50% of our 2016 adjusted diluted EPS.”
Atlas Air pilots, who have been vocal in their concerns about the Amazon deal, however, had a different take on the company’s earnings.
“While AAWW attributed much of its loss this quarter to millions of dollars in executive payouts around the Amazon deal, the company is choosing to avoid its growing shortage of pilots that will have a devastating and long-term financial impact on shareholders and customers like DHL and Amazon,” Capt. Robert Kirchner, an Atlas Air pilot and executive council chairman of APA Teamsters Local 1224, said in a statement. “Atlas Air and Southern Air pilots have been working overtime and doing everything we can to serve our customers like DHL and Amazon, but we can’t keep up with the pace without recruiting and retaining more pilots.
“If Atlas continues to deny us of an industry-standard contract, we simply won’t have enough pilots to get the job done, and it could seriously disrupt deliveries for customers worldwide and put AAWW business at risk,” he added. “With our busiest flying season approaching and more and more of our pilots leaving for better opportunities at other airlines, AAWW executives and shareholders should be concerned about the future of the company.”
Atlas Air in August signed a five-year agreement with FedEx Express to provide five 747-400 freighters during peak shipping season beginning in 2017.
Atlas Air losses continue into Q3
