“ATSG has never faced the kind of rapid change in customer demand that occurred in 2023,” returning CEO Joe Hete said on an earnings call yesterday.
“Except for 2008,” he added. “DHL’s decision to pivot away from direct competition in the U.S. express market nearly left our entire air cargo fleet without customers.” (This decision is still clearly resonating more than 15 years later.)
But that wasn’t necessarily a lesson learned. This time, ATSG’s revenue was hit by major customer Amazon, with the retail giant’s revenue reportedly falling by about $60 million. Group revenue increased 1% to $2.1 billion for the year, while adjusted EBITDA decreased 12%. , to $562 million.
Mr Hete explained: “The second half of this year saw significant changes in market conditions, resulting in multiple headwinds that continued to impact our fourth quarter financial results.
“The most significant factor was accelerated lease revenue for our 767-200 freighter fleet, which reduced adjusted EBITDA for our Cargo Aircraft Management (CAM) Leasing segment by approximately $33 million in 2023.
“Demand for these aircraft was high as Amazon had been building its own air express network since 2015, but demand was even higher during the pandemic as customers kept their aircraft in service for longer than originally planned. We always envisioned the market moving from the 200s to the 767-300, and the softening of the market has accelerated that process.”
Amazon is returning seven 767-200s, while the leases on three 767-300s also expire this year.
CAM’s pre-tax profit for the fourth quarter was down 34% year over year to $21 million, and for the full year it was down 23% to $109 million. ATSG said more than 90% of the decline was due to a decline in 767-200 leasing performance, namely Amazon.
CFO Quint Turner said block hours have been reduced. “One of our airlines, ABX Airlines, continued to operate long-haul routes related to the pandemic, but those ended in the first quarter. ABX’s portion is declining… Just under $20 million. Block hours are down year-over-year and the other two airlines are about flat, so revenue is down.”
In ATSG’s case, military flights, mostly passengers, also declined, with block times down 24% in the fourth quarter.
There was some good news as well, including EASA’s approval of the ATSG conversion program, some A330s being leased, A321s being deployed to Asia and Europe, and the international market for medium cargo aircraft improving.
However, a soft market means the group is looking to cut costs, which does not bode well for the current pilot negotiations.
“In terms of salary and wage contracts, the reality is that those costs are down compared to 2023 due to things like lower flying volumes, as well as some of the steps we’ve taken to be more cost efficient,” Turner said. I’m predicting that.” We expect the number of employees to remain flat, or even decrease, depending on the subsidiary. So we’re looking at a decrease of $20 million to $30 million. ”
And Haete admitted that it is unlikely that labor-management negotiations will be completed by the end of the year.
“There is a huge difference between the expectations on the part of the union and the amount the company believes it can tolerate. is not expected to be resolved this year, so it will likely extend into 2025.”
ATSG also reduced capital expenditures by approximately $380 million.
ATSG expects 2024 adjusted EBITDA of $506 million. It includes only existing and signed future leases, less expected lease income. We believe that this approach allows us to better express our expectations,” explained Hete.
He added: “Everyone is down. I don’t care if you’re talking about FedEx, UPS, trucking companies, shipping companies.”
He concluded as follows: “Since returning as CEO last November, I have taken steps to reduce spending on fleet expansion and right-size airlines to match changing demands. Do more if…
“But I’m also an optimist. During my career, the long-term demand for cargo aircraft has only increased. To realize the appeal of online shopping, it will take more time to fulfill orders around the world. We know we’re going to need a lot of aircraft lift.”
Full results can be found here
