FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (TMF Boring)
Atlas Air Inc.
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538 Commons Dr.
Golden, CO 80401
(303) 526-5050
ANN ARBOR, Mich. (July 22, 1998) /FOOLWIRE/ -- Atlas Air is a U.S. certificated air carrier that operates a fleet of 747 freighters under long-term ACMI contracts. These contracts include the provision by Atlas of Aircraft, Crew, Maintenance, and Insurance for some of the world's leading air carriers, including Alitalia, British Airways, Cargolux, China Airlines, Emirates, Fast Air, KLM, LAS, SAS, and Thai International Airways, serving a total of 62 cities in 37 countries.
Net income. Atlas Air today reported net income for the quarter ended June 30, 1998 of $10.1 million, or $0.45 per diluted share, a record for second quarter earnings and the second best quarter in the company's history. These results represent a 189% increase over second quarter 1997 net income of $3.5 million, or $0.16 per diluted share, excluding non-recurring items. Second quarter net income improved 91% sequentially over the first quarter's $5.3 million.
Operating Income. Operating income for the second quarter of 1998 was $31.5 million, the best quarterly performance in the company's history and an increase of 92% over operating income of $16.4 million in the second quarter of 1997, excluding non-recurring items. Operating income increased 46% over that of the 1998 first quarter. The 1998 second quarter's results represented a 36% operating margin, also a record for Atlas.
Operating Highlights. Despite the fact that the company had two fewer aircraft in the fleet than in the year-earlier quarter, Atlas produced nearly as many block hours flown during the quarter as last year (16,828 versus 17,541) and nearly as much operating revenue ($88.0 million versus $93.9 million), reflecting an increase of almost 6% in average block hours per aircraft. Operating cost per block hour of $3353 was 11% below this year's first quarter and a 24% improvement over the second quarter of 1997. Maintenance cost per block hour declined by 6% sequentially, to $1248, and by 31% over the second quarter of 1997.
Fleet Size. The average number of aircraft in operation during the quarter was 17.7, as compared with 17 in the first quarter of 1998 and 19.5 in the second quarter of 1997. Block hour and revenue totals were impacted somewhat by the two 747-200 aircraft from Philippine Airlines entering the fleet slightly later than had been anticipated, with the second of the two not contributing at all to the quarterly results. The first of those aircraft is contracted to China Air, and the second is contracted to Alitalia.
Six Month Results. Net income for the first six months of 1998 was $15.4 million, as compared to $9.3 million for the year-earlier period, excluding non-recurring items. Operating income for the first six months of 1998 was $53.1 million, compared to $34.7 million for the same period in 1997, excluding non-recurring items.
New Aircraft Delivery and Placement. Atlas has placed its first two deliveries of new 747-400F freighter aircraft with two of the world's strongest cargo operators -- British Airways <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAB)") else Response.Write("(NYSE: BAB)") end if %> and Cargolux. Atlas will be taking delivery of its first 747-400F in Seattle next week, and expects to commence its contract with British Airways in August. The second 747-400F aircraft is scheduled for a mid-August delivery, and three additional new freighters are scheduled to be delivered later in the balance of 1998. Atlas' management is so convinced of this aircraft's future at the company that they advanced the delivery of two additional aircraft into 1999, giving Atlas a total of four aircraft next year.
747-400F Maintenance. During the quarter, Atlas announced that it concluded a ten-year, fixed-rate agreement with Lufthansa Technik for the airframe maintenance of Atlas's new 747-400F fleet. This contract, with one of the world's leading aircraft maintenance providers, will be an important element in Atlas Air's goal of maintaining and expanding its cost-efficient operating structure.
Other Recent Developments. Atlas took delivery at the end of April of the first of two used 747-200F aircraft that were undergoing modification at Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> from passenger to freighter configuration. The second of these aircraft was delivered to the company in July, increasing its fleet to 19 aircraft. In April, Atlas announced the placement of a 747-200F aircraft with Alitalia on a long-term ACMI contract. The company further announced a third multi-year ACMI contract for a 747-200F aircraft with LAS, the South American carrier.
Financial Developments. During the quarter, Atlas reported that it had completed a $175 million private placement of 9 1/4% Senior Notes, which will be utilized to prepay amounts outstanding under its revolving aircraft credit facility and for general corporate purposes, including the possible redemption around or after year-end 1998 of the company's 12 1/4% Pass Through Certificates.
Financial Details. Full details will be provided when the company files its 10-Q statement with the SEC. Preliminarily, Atlas ended the quarter with $207 million in cash and equity of $253 million. All financing for delivery of the five 747-400F aircraft this year was secured earlier in the year. Atlas received some payment from Boeing in the second quarter to offset delays in scheduled delivery of new aircraft and expects to receive similar payment in the second half of the year; those payments offset expenses associated with waiting for the aircraft.
Hong Kong Cargo Airport. The recent problems at the new Hong Kong airport affected British Airways flights under contract with Atlas to a limited degree. Those problems have been substantially resolved.
Industry Outlook. The second quarter demonstrated once again the vitality of the world's air cargo marketplace. Despite the problems occurring in Asia, Atlas Air's customers continued to carry strong cargo loads, particularly out of the Far East. The directional imbalance in trade with Asia does not impact Atlas Air at all. The increase in exports from Asia continues to offset any weakening in their imports. As recently reported, Standard & Poor's DRI economic analysis firm is projecting holiday season imports to be up 25% from last year's level, which would set an import record.
Company Outlook. Atlas expects the strong cargo activity to continue, and the company is looking forward to a very healthy peak season for air cargo this year. Management believes that the contracts they have already placed, together with the ones they expect to announce in the not-too-distant future, will meet the profitability targets they set for the company, and they look forward with great anticipation to the second half of 1998 and to a successful 1999.
Guidance. Total block hours for the current (third) quarter are projected to be in the 19,000 to 20,000 range. Block hour forecasts for Q4 depend on the specific timing of aircraft deliveries but are tentatively in the 25,000 to 26,000 range. The acceleration of two 747-400F orders into 1999 will increase anticipated total block-hour production for that year. Based on the current assumed delivery schedule from Boeing, which would give Atlas one aircraft in the second quarter of 1999, two in Q3, and one in Q4, management now projects 1999 total block hours to approach 109,000. That would represent an increase of approximately 35% over 1998's projected block-hour production. Management believes that operating margins in the mid-30% region, as achieved in the second quarter, are sustainable, with some quarter-to-quarter fluctuations associated with front-end costs as new aircraft enter the fleet.
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.