Q4 2020 Atlas Air Worldwide Holdings Inc Earnings Call

February 18, 2021

[music].

Yes.

Ladies and gentlemen, and thank you for standing by and welcome to the fourth quarter 'twenty and 'twenty earnings call for Atlas Air at this time, all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone please.

Be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

I would now like to hand, the conference over to Atlas Air. Please go ahead.

Thank you Sarah and good morning, everyone I'm, Ed Mcgarvey Treasurer for Atlas Air worldwide.

I'll come to our fourth quarter, 2000, and 'twenty results conference call.

Today's call will be hosted by John Dietrich, Our Chief Executive Officer and.

Sensor Schwartz, our Chief Financial Officer.

Today's call is complemented by a slide presentation that can be viewed at Atlas air worldwide Dot com under presentations and the Investor information section.

As indicated on slide two we'd like to remind you that our discussion about the company's performance. Today includes some forward looking statements within the meaning of the private Securities Litigation Reform Act up 1995.

These statements relate to future events and events and expectations and they involve risks and uncertainties.

Our actual results or actions may differ materially from those projected and any forward looking statements.

For information about risk factors related to our business. Please refer to our 2019 form 10-K as amended or supplemented by our subsequently filed SEC reports.

And he references to non-GAAP measures and meant to provide meaningful insights and are reconciled with GAAP and today's press release and in the appendix and is attached to today's slides.

During our presentation and answer period today, we'd like to ask participants to limit themselves to one principal question and one follow up question. So that we can accommodate as many participants as possible.

And we've gone through the queue, we'll be happy to answer any additional questions as time permits.

At this point I'd like to draw your attention to slide three and turn the call over to John Dietrich.

Thanks, Ed and Hello, everyone welcome to our fourth quarter earnings call I'd like to start by thanking all of the frontline responders.

As well as all the essential workers around the world, including our more than 4000 and Atlas team members for their unwavering efforts throughout this pandemic.

On behalf of all of US at Atlas I want to express our sincere hope that you your families and friends continue to stay safe as we work toward better days ahead.

We had Atlas take great pride and the role, we're playing and keeping global supply chains, and our customers' operating networks, moving and and supporting COVID-19 relief efforts.

From critical health care supplies like vaccines, and other pharmaceuticals medical equipment, and PPE as well as ecommerce educational supplies food and other everyday consumer products.

Our team has worked tirelessly to keep our aircraft flying safely. So we can continue transporting the goods that matter most during this challenging time.

Operating and global airline during a pandemic hasnt been easy.

Our performance is the result of the team banding together to navigate through a very complex regulatory and operating environment.

First and foremost keep our employees safe.

But also to provide high quality service for our customers.

And the safety of our team as our top priority and we will continue to take extensive precautions to ensure that we're able to safely carry and central items around the world.

And as we've said over the years, our resilient business model allows us to sustain during challenging market conditions as well as capitalize on opportunities during more favorable market conditions.

We're continuing to leverage our unrivaled portfolio of assets and the scale of our global network.

We're also diversifying our customer base and have entered into numerous long term charter agreements that provide reliable and attractive revenue streams for the years ahead.

Our long term charter business provides exciting opportunities with strategic customers, such as China Flex port and HP that have come to Atlas to secure our high quality services for dedicated capacity of their own.

These are savvy buyers of air freight and their commitment to Atlas is telling about their vision of the future and their interest for locking in capacity on a longer term basis.

In addition to the significant reductions in passenger belly cargo capacity on long haul trade lanes.

COVID-19 is also causing congestion and delays at ocean ports worldwide.

As a result shippers are increasingly using air freight to avoid bottlenecks and their supply chains, and that's driving even further and near term demand.

From a fleet standpoint, providing our customers with modern fuel efficient aircraft has been a long standing priority at Atlas and we're excited to have recently announced and we ordered four new 747 dash eight freighters from Boeing.

Not only does this investment underscore our commitment to provide our customers with the best available aircraft.

But it also furthers our commitment to the environment by investing and the latest technologies to reduce aircraft noise emissions and fuel consumption.

The dash eight is a great airplane it provides 20% higher payload capacity and 16% lower fuel consumption and the very capable seven and $4 seven 400 freighter.

And has 25% higher capacity than the triple seven freighter.

In addition, the advanced engines on the dash eight reduced noise by approximately 30% compared to the previous generation of aircraft.

As the world's largest 747 freighter operator, the dash eight is core to our business and complements our diversified fleet of $7 74, hundreds Triple Sevens 760, Sevens and 730 Sevens.

We're expecting delivery of these new aircrafts beginning in May and continuing through October of 2022.

And they will play a key role in advancing Atlas is strategic growth plans for decades to come.

Now turning to the fourth quarter results on slide four.

We finished this unprecedented year on a strong note with financial and operating results that exceeded our expectations.

Everyone at Atlas stepped up to deliver and extraordinary peak season and for that matter the full year for our business and our customers.

In the face of unrelenting operational challenges and complexities driven by the COVID-19 pandemic, we added wide body capacity and increased aircraft utilization to grow block hours and Carrie historic volumes.

Our fourth quarter results benefited from strong demand for our assets and services.

Higher commercial charter yields.

The significant reduction of international widebody passenger belly cargo capacity and lower aircraft rent and depreciation.

In addition, we reactivated our four 747 converted freighter more quickly than we expected further, allowing us to capitalize on attractive opportunities.

These benefits were partially offset by higher heavy maintenance expense related to additional engine overhauls that we had performed to take advantage of attractive vendor pricing and slot availability.

As well as higher pilot costs related to the premium pay we've been providing our pilots for operating into certain areas that have been significantly impacted by COVID-19.

As well as the 10% pay increase we provided to our pilots and May 2020, pending the completion of our joint collective bargaining agreement.

We had atlas are dedicated to keeping our business on a successful trajectory.

This includes executing on our strategic plan continuing to diversify our business as well as aggressively manage our costs and balance sheet.

We will also continue to focus on ensuring that our assets and resources are allocated to those opportunities that generate the best returns.

As Spencer will share with you and more detailed during his remarks. These actions coupled with our team executing on market opportunities drove significant improvement and our balance sheet. This year.

We improved our cash position enhanced liquidity and reduced our net leverage ratio.

As a capital intensive business building and maintaining a strong cash position is vital for our long term success and provides us with the financial flexibility to both endure more challenging market conditions as well as to thrive and more favorable conditions.

With respect to our pilot labor negotiations our work continues to complete a new joint collective bargaining agreement in connection with the merger between Atlas Air and Southern Air.

Scheduled negotiations with our pilots Union have recently concluded as provided in our respective collective bargaining agreements and we are now moving on to binding interest arbitration to resolve all remaining open issues.

This arbitration is scheduled to begin in mid March.

Now moving to slide five the.

The strong demand for our aircraft and services has continued and the first quarter. As a result, we expect to fly approximately 85000 and block hours and the first quarter with revenue of approximately $820 million and adjusted EBITDA of about $150 million.

In addition, we expect first quarter adjusted net income to grow approximately 60% to 65% compared with adjusted net income of $29 9 million.

And the first quarter of 2020.

Our outlook also anticipates additional expenses driven by the pandemic, including premium pay for our pilots cost for continuing to provide a safe working environment for all our employees.

As well as higher costs from the pay increase we provided to our pilots and May 2020.

For the full year, we expect aircraft maintenance expense to be lower than 2020, with depreciation and amortization totaling about $270 million.

In addition, core capital expenditures, which exclude aircraft and engine purchases are projected to total approximately $110 million to $120 million.

Mainly for parts and components for our fleet.

We also expect committed expenditures relating to acquiring aircraft and spare engines to be approximately $265 million and 2021.

These expenditures include pre delivery payments related to our seven and $4 seven dash eight aircraft order acquisition of spare engines and the purchase of several used 747 and 400 passenger aircraft that we'll use to both replace certain of our older passenger aircraft that are in service.

As well as others to part out for spare engines and components.

Due to the ongoing uncertainty related to the pandemic and the associated market dynamics, including ever changing border restrictions new variance of COVID-19.

Pace of vaccine distribution and surges and cases globally, we are not providing a full year 2020 earnings outlook at this time, but we will provide updates to you as the year progresses.

This is a good point for me to ask Spencer to provide more details on our fourth quarter results and after Spencer's remarks, I'll look forward to providing a few additional comments and then we'll be happy to take your questions Spencer.

Thank you John and Hello, everyone.

Our strong fourth quarter results are highlighted on slide six.

Alright, and adjusted basis, EBITDA increased to $279 7 million.

With adjusted net income growing to $143 2 million.

On a reported basis net income totaled $184 million.

Our fourth quarter adjusted earnings included and effective income tax rate of 23, 9%.

For the full year, we had an adjusted effective tax rate of 22, 9%.

Moving to the top of slide seven opt.

Operating revenue totaled $932 5 million and the quarter.

<unk> revenue, primarily reflected lower levels of flying driven by the redeployment of 787 and 400 aircraft to charter.

This was partially offset by our ability to increased aircraft utilization and higher levels of CMI flying.

Higher charter revenue was primarily driven by increased flying.

Partially offset by a slightly lower average rate per block hour due to lower fuel costs.

Block hour volume growth, primarily reflected strong demand for our services driven by the reduction of available cargo capacity and the market.

The disruption of global supply chains.

The redeployment of 747 400 aircraft from a CMI and a triple seven from dry leasing.

And as well as our ability to increased aircraft utilization.

And dry leasing revenue, primarily related to changes and leases and the disposition of certain non essential aircrafts during the first quarter of 2020.

Looking now at the bottom of the slide.

Segment contribution totaled 267 $6 million and the fourth quarter.

A CMI earnings included higher pilot costs, including premium pay for operating and certain areas and a 10% pay increase that we provided to our pilots and May 2020.

Higher heavy maintenance expense, which includes additional engine overhauls to take advantage of availability and attractive pricing discounts and.

And the redeployment of 747 aircrafts and charter.

These items were partially offset by increased utilization and an increase and CMI flying.

Higher charter contribution was primarily driven by an increase in yields excluding fuel star.

Strong demand for our services and.

And our ability to increased aircraft utilization.

Charter contribution also benefited from lower aircraft rent and depreciation and.

And the redeployment of aircraft from ACI and dry leasing.

These benefits were partially offset by higher heavy maintenance expense and higher pilot costs as well as fewer charters for sports teams and fans as leagues canceled games.

And dry leasing.

Lower segment contribution was primarily due to changes and leases and the disposition of certain non essential aircraft during the first quarter of 2020.

Also during the quarter as we previously reported on October nine.

And I have elected a cashless exercise with respect to approximately $3 6 million shares vested under a warrant issued in 2016 as.

As a result, Amazon acquired approximately one 4 million shares of Atlas common stock.

And then in addition on January 27th of this year Amazon are likely to cashless exercise with respect to approximately $4 2 million shares also invested under warrants issued in 2016.

As a result, Amazon acquired approximately one 3 million shares.

Now turning to slide eight.

As anticipated and our net debt and our net leverage ratio continued to improve during the fourth quarter.

Our net leverage ratio declined and other <unk>, finishing the year at two one times down significantly from four four times, where we began the year.

We ended the year with cash, including cash equivalents restricted cash and short term investments totaling $856 3 million compared.

Compared with $114 3 million at the end of 2019.

And our improved cash balance primarily reflected cash provided by operating activities and the funds we received through the cares Act.

Net cash used for financing activities, primarily related to payments on debt obligations, including our revolving credit facility, partially offset by debt issuances.

Net cash used for investing activities, primarily related to core capital expenditures.

Their engines, and then and upgrade kits.

Partially offset by proceeds from the disposition of certain non essential aircraft and engines.

As a reminder, our.

Our debt has a low weighted average coupon interest rate, which now stands at 298%.

And the vast majority is secured by our aircraft assets, which have a value in excess of the related debt.

As John said.

We are taking actions to mitigate the impact of any continuation or worsening of the pandemic and remain committed to a strong balance sheet, we're reducing costs and <unk>.

<unk> liquidity and strategically allocating resources.

Now I'd like to turn it back to John.

Thank you Spencer.

Moving on to slide nine 2020, certainly was an unprecedented year and we finished it on a strong note.

The higher demand for our aircraft and services has carried into the first quarter and our team continues to step up and execute amid the ongoing operational challenges from the pandemic.

We will continue to take every precaution to protect our world class team of employees and our operations to ensure that we can continue to transport the goods the world needs most.

At this point operator may we have the first question. Please.

Thank you.

A reminder to ask a question you will need to press Star then one on your telephone.

Our first question comes from the line of Bob <unk> with CJS Securities. Your line is now open.

Good morning, Congratulations on just terrific execution and a fantastic year.

Thanks, Bob and Bob.

I wanted to start the discussion with <unk>.

Talking about the dash eights, it's a pretty exciting opportunity for you to get four more of them can you talk a little about the demand environment out there have you talked to customers of their inquiries when would you expect to.

Tell us about customers I guess and will these be going into acm's charter or have you decided on that yet.

Yeah look I think we're excited about the acquisition as you know we like the aircraft very much it's performed exceptionally well for us.

And we expect there will be continued demand for that aircraft what.

What we find and in good times and in tougher times. The best most efficient aircraft are the ones that remain flying.

And the dash eight will certainly be that.

And in terms of.

Where we're going to place them, we're going to continue to evaluate that we have ongoing discussions and every segment and.

And we're going to do what makes best for the.

For the organization once that time comes on delivery, but we're excited about the opportunities.

Okay Super and then just kind of following up on that you mentioned and $265 million.

Aircraft parts and purchase commitments, including the PDP for the dash eight.

But you also just mentioned the.

The right word, but the obscene amount of cash for $850 million plus and the balance sheet. So what are the other uses of cash.

The fantastic cash generation this year and what we expect next year and going forward.

Yes.

Thank you Bob so.

We have a.

Our capital allocation strategy remains disciplined and balanced our focus continues to be on growing the business, while generating returns above our cost of capital and.

And maintaining a strong balance sheet.

There are none.

Number of things that we continue to look at.

And we look at each opportunity.

Kind of on its own we evaluate each opportunity when it comes to deploying capital we set pretty aggressive return targets.

And.

As John said balance sheet strength and <unk>.

Continuing to maintain low.

Levels of leverage remain our top priority, but beyond that we will continue to evaluate investments like we did for the dash eights.

Okay Super Thanks, very much and ill get back in queue.

Thanks, Bob.

Thank you. Our next question comes from the line of Chris <unk> with Susquehanna. Your line is now open.

Good morning, everyone.

So risk.

John Spencer and I am.

Yes, I understand.

You not wanting to give guidance around COVID-19 due to uncertainty but.

I think it is important here.

For investors at least.

So help us frame about.

Getting through this year against what is clearly a tough comp on EBITDA and a really unique operating environment. So.

On the international side or the long haul wide body side.

You have your competitive capacity effectively sidelined, let's say for two to three more years.

I would expect.

AMC and commercial charter.

And I'm flying to improve as the vaccine is more.

Distributed and you'll also have opportunity I don't know.

Do you want to speak to this but the 11, new Amazon planes that.

And that they purchased and January whether you're looking to bid on those so just putting those together.

And even if we assume that we have a labor deal sometime in the back half of this year.

Thoughts around.

Round getting through this environment and.

And then may be a part D and sort of related to that.

John you've been in this seat and out here for a year I'm curious if there's anything you've learned about kind of running this airline.

With an operating playbook that net.

And that really doesn't exist because of COVID-19 and whether there is any new opportunities here that you realized in terms of.

Cost savings or.

Per block hour basis or network.

Productivity. Thanks.

Thanks, Chris and I'll start with.

Last question in terms of what I've learned of.

It's been a great exciting.

For 14 months, almost and the one thing I've learned is that we've got the best team of employees and the business and we've been able to execute and.

And remarkably complex and challenging environment on every front and that just about every regulatory challenge operational challenge.

Throw in some weather challenges along the way as well.

Spikes in demand and this team has stepped up and executed on all cylinders and every front and thats the strength of our team and our resilient business model that we've talked often about.

And Chris you've been you've been following us a long time.

We have often said that we are well positioned.

Both <unk> and channel more challenging times, but as we're seeing now well positioned to capitalize on opportunities.

And working together.

We've delivered and executed in terms of kind of new opportunities or other.

Things that we're looking at and or have learned or developed the new customer base and we've talked about some of our long term charter customers. We've really developed a new customer base for our aircraft and our services and that's really exciting.

Spencer has talked about often this is these are CMI like agreements.

And I think.

We'll serve the market well serve our customers well expanding the customer profile beyond just the historical and typical ACI customers, we served and the past that's really exciting.

So.

More immediately we have a lot of work ahead of us on the immediate horizon as I said, we look forward to keeping you informed when where and a better position to give more tangible guidance, but.

We are.

Following the market, we're following the activities what's happening with Covid.

And we just look forward to continuing to deliver and we will keep you posted when and when we can.

Okay the follow up.

Charter utilization was really strong here at $12 six hours I'm curious at what point Theres a limit there in terms of having to to pull additional aircrafts.

From a CMI or potentially leasing and other aircraft.

So we're reviewing our fleet and our allocation of resources every day.

And between our <unk> customers and our charter customers.

And.

From a network standpoint.

Linking customers together at times to provide full utilization of the aircraft. So it runs the whole gamut in terms of.

We've got our core ACI customers, we've got our charter customers, but there are oftentimes opportunities, where a customer may say you know what.

And I am interested and capacity, but I may not need it full time for the full operation can you join us with somebody else. So are our marketing team does a great job of bringing customers together to ensure we're maximizing.

Utilization of the aircraft and also maximizing the trade lanes and so it's a combination of all those things that go into building.

Our total network, which is comprised of a number of sub networks.

Okay.

So I'll just.

Just briefly add expense or just briefly add as you pointed out some force over 400.

Utilization and charter was up 51% and quarter over quarter.

And.

And the.

And is primarily driven by really strong demand but.

And just pointed out as John noted earlier.

This is and in the midst of the most challenging operating environment and I think that we've ever seen.

It Hasnt come easy.

But our organization has just continued to step up.

Make sure that everyone is safe and that we can continue.

Operating as much as we have.

Okay. Thank you.

Thank you.

Our next question comes from the line of Scott Group with Wolfe Research. Your line is now and.

Hey, Thanks, good morning, guys.

So I wanted to ask Scott.

And last quarter, you guys talked about $60 million and lower maintenance cost. This year is that still the right way to think about it and then just separately.

And the 33 aircraft and charter.

How many of those are now and long term charter.

Sure.

The first part of it was with regard to maintenance. So we did say previously during the last call.

$60 million of heavy maintenance expense was incurred in 2020 that was related or would have been incurred in two.

2021, so that's.

And that statement is.

Still out there.

But as far as maintenance expense overall for 'twenty one.

Are still evaluating that and we'll update that as the year progresses, we gave first quarter.

Outlook for heavy maintenance expense, because we wanted to make sure that everyone had that and it's pretty close in but as far as the rest of the year, we'll update you as the year progresses and then.

With regard to the long term charter question.

We now have.

So many of these it it's.

The thing about these is it.

Not necessarily.

Utilization of an entire aircraft it it may be one flight per week or something like that sometimes it's a couple of rotation and sometimes it is the full utilization of the full aircraft.

It's slightly different.

But we have now entered into so many of these contracts they are amazing.

There are just a few of them that currently terminate at the end of this year, but most go into 2022% and 23 and now some have even and <unk>.

And that into 2024.

And Scott if I could that ties in with the comments I was just making about our marketing team linking customers together. So those one off charter and maybe one a week.

Hey, what's that aircraft during the rest of the week and that ties in with selling.

Same tails to multiple customers on a long term basis as well in addition to the fully dedicated fully dedicated aircraft deals.

It's not very significant.

Difficult portion of our business.

So.

And I suppose with more of this longer term charter you've got more visibility and.

This situation with <unk> is clearly going to help this air free environment stay stronger.

I mean I.

I know youre, not giving guidance, but directionally do you think there is an opportunity to grow earnings this year.

So like we've said.

As a whole lot. So like I said, we're not giving guidance at this point.

Other than what we've shared and we look forward to getting back to you as soon as possible. We've got a lot of important work.

Ahead of us and including following what the market's doing.

And continuing to allocate our resources. So we'll look forward to giving you an update on that.

One thing I'd, just add to that Scott as you know yields were incredibly high and the second quarter of last year. So that's a very important thing to keep in mind yields.

And I have continued to be above historical yield levels.

But we have not seen levels like April and May of last year, we have not seen that sits.

Okay. That's helpful. Thank you guys appreciate it.

Thank you.

Thank you. Our next question comes from the line of Helane Becker with Cowen. Your line is now open.

Thank you very much operator, hi, everybody and thanks for the time here.

And so your question about the leverage because expense, where you pointed out that it's down.

Quite a bit right you pointed out 2.1.

Where do you think the business runs.

What level.

Are you aiming for four.

How should we think about.

And growth.

Beyond the four seven and $4 seven that are coming and balance that against the balance sheet.

Yes.

So you know that we made a commitment to reduce our leverage and.

As you've seen as you said.

Net leverage and net.

Average ratio of really declined.

And then we're going to take on some some debt next year.

With the dash eights before enjoying the earnings from the Dash eight so that will presumably increase our net leverage ratio a little bit ideally, we would like we've always kind of targeted somewhere between 3% and 4% really much closer to the 3% part of that range. So.

And so ideally we think the business is right somewhere around there and.

And we're happy that it's down at these levels.

But it's probably right somewhere around 3% and again, when we take out and the dash eights will take on debt before enjoying the earnings. So it will take a little bit of time to catch that back up.

The weighted calculation works.

Right exactly.

So are you thinking.

How are you thinking of financing and that was actually maybe it's the right question.

Yes, we have a number of opportunities to finance those and we're looking at all of them. We think that the the bank markets are open and available to us.

And we think there are.

And some potential other opportunities with whether it would be.

<unk> or <unk>.

Debt facilities, we think we have a bunch of options and we'll pursue all of those.

Okay. That's very helpful and I just had a maintenance related question and that's the kind of the 100 and.

And $17 million, you're forecasting for the first quarter.

Is that.

Should we think I mean, you said 21 less in 'twenty, and and I think Scott pointed out $60 million less.

Just because you pulled up and so is this a high watermark there and I mean normally you would do on your heavy maintenance and the first quarter anyway.

So should we think about this as being like the high watermark for the year.

Well, we're not going to provide maintenance outlook beyond the first quarter today, but we did say that we expect it will be lower this year.

And so yes. The first quarter is the first quarter of this year is higher than the first quarter of last year, we have.

And incremental C check, we've and incremental D check.

Which is <unk>.

Driving that.

But we're not really going to comment beyond that but yes. If the first quarter is higher and the full year is lower obviously, there will be some catch up.

We think there will be catch up between the first quarter and the end of the year.

Okay. Thanks very much.

Thank you. Thank you.

Thank you. Our next question comes from the line of David Ross with Stifel. Your line is now open.

Thank you and good morning, gentlemen.

Good morning, Dave.

And just a real quick clarification question on the pilot talks you said binding arbitration and started mid March is that a 90 day process and bye.

Do you expect a resolution by the end of <unk>.

So it is not a 90 day process. The scheduled hearings are to start and mid March and go through the end of March.

And then there are some procedural things that take place.

Typically what happens is.

And the arbitrator seeks what's called post hearing briefs.

And it's kind of a summation of both sides arguments and their case and then he takes those matters under advisement.

I think the duration how long it takes we have under the agreements under the collective bargaining agreements there is an expedited.

And request to the arbitrator to have the decision made as soon as possible, but there is no defined timeline that is binding on the arbitrator and I think a lot of it depends on how many open issues remain to be resolved.

And the more issues open the longer it may take for the arbitrator to render a decision.

That all said and nothing prevents the company and the union from continuing to have discussions to try and narrow the scope of issues both before during and after arbitration and.

Pending.

Ultimate outcome so.

A lot of variables go into that just like any kind of court proceedings and Theres no defined timelines per se.

But I know both sides are committed to us to move forward, we certainly are and.

We're looking to get it done as soon as reasonably possible.

Excellent and then Spencer, there's been a big change and the unallocated expense line.

Can you talk a little bit about that and where we should.

And think about that for a run rate this year.

Yes sure. So what's included the biggest change that's included in unallocated as the cares Act grant income.

So we received that money and then as we pay qualifying nonexecutive U S salaries wages and benefits.

And then we record the grant income and unallocated so when youre looking on a period over period basis, that's the item that will stand out.

So is the <unk>.

$8 million of.

Good run rate to use for the next several quarters or when does that expire how do you think about that.

Okay.

There's about $41 million of cares Act grant income to be.

Cares Act.

That will be recognized as grant income and the first quarter of this year.

So we expect that that will then be fully utilized after the first quarter. So it won't be an issue as we head into the second quarter, and then youll see sort of more normalized unallocated expenses.

Okay excellent. Thank you very much guys.

Thank you. Thank you.

Thank you. Our next question comes from the line of David Campbell with Thompson Davis. Your line is now open.

David you there.

Mr. Campbell Your line is on mute please UN mute your phone.

Yes.

Yeah.

We heard some background noise operator.

So maybe it's not quite work and maybe we move on to the next one and come back to David.

Certainly our next question comes from the line of Barry Haimes with Sage asset management. Your line is now open.

Thanks, very much for taking the question.

I had two really one.

Relative to the new planes Youre buying I'm wondering if you looked at conversion opportunities.

Yes.

There's a lot and potentially available with fine being down so much commercially.

And I'm just curious.

And how you thought about that and then second question could you just remind us.

I believe under the government cares act situation, you're precluded from buying your stock back for the moment.

Could you tell us when net restriction is thank you.

Yes, I'll take the first one with regard to the new planes and the conversion opportunities.

Absolutely and we look we're looking at all opportunities.

On the 747 platform however.

Really the conversion market and no longer exists.

The freighters that are in the marketplace will be phased out over time, because they are older and the economic viability of doing seven and $4 seven conversions at this time.

I guess possible highly unlikely at this point.

And but other gauges.

And we're looking at every opportunity as you see from our history, we're very active and the 767.

And the conversion market for our growth with Amazon, We went out and acquired and converted those airplanes.

We're also operating the.

And the $737 800 conversions.

Amazon took on Liza.

And their own and for US we we view both of those aircraft types are still very attractive.

We're also being very.

Active and.

Interested in the marketplace and.

And how Covid has impacted the passenger side of the business to see what opportunities are out there our Titan organization, along with our tightened JV is is looking.

Looking closely at all opportunities and the marketplace. So.

And whether conversion or otherwise so.

We look forward to continuing to advance the tightened opportunities.

As we go forward, both from a leasing dry leasing standpoint, but and operating standpoint as well.

The Triple seven was recently announced as a conversion.

Candidate.

Still looking at that one as well nothing imminent on the horizon, but just.

Wanted to share that we're constantly looking at fleet opportunities.

And on the Cares Act Spencer, maybe you can give some guidance on.

The exploration of that commitment on share repurchases.

Sure and Barry.

Before I talk about the <unk> just to add to John's comments.

The there hasnt been a 74.

747 and 400.

Passenger to freighter conversion and about a decade and as John said, we just don't expect that that's going to happen as far as the triple seven 300 passenger to freighter program.

It will deliver its first aircraft and 2024.

So it's still a number of years away.

With regard to the cares Act.

The share repurchase restriction.

And in October of this year.

Yes.

I think that was your question there.

Great. Thank you.

Thank you.

Thank you as a reminder to ask a question. Please press Star then one on your telephone.

We do have a follow up question from the line of Chris <unk> with Atlas with Susquehanna. Your line is now open.

Hey, Thanks for taking my follow up.

Spencer.

<unk>.

Free cash flow ex any.

<unk> from refunds and PSP one funds.

Yes.

Are you talking about during the quarter or the full year.

Both if you have those handy.

Okay, So, let's see as far as the.

The fourth quarter of the year free cash flow, which we calculate as operating cash flow less core capital expenditures.

It was 100 and.

Just short of $189 million.

For the full year.

And it was about $926 million and amazingly for the full year.

We hit a new threshold operating cash flow greater than $1 billion. So we're very excited about that.

And then you were asking about.

The.

Refund.

Excess rent.

And so for the fourth quarter.

That was about $6 $6 million.

And for the.

Full year.

And that was about.

37 $38 million.

$38 million sorry.

Okay and that has any of the airlines sub supply for PSP too.

We have not no.

Okay, and then just going back to this topic of cash deployment here, which.

I mean this is a very unique place for Atlas to be all things considered.

Even if I.

I don't know we put on 400 <unk>.

For the 740 Sevens Youre, taking next year.

And assuming you finance half of those and very modest.

<unk> around EBITDA for next year.

This year and next year, I mean, theres still hear a lot of cash exiting.

And we're going through kind of early innings of the recovery. So.

Should we think about that the priorities are going to be more on the aircraft side I know twin aisles are expected to be weaker than single aisles, given what's happening on the long haul.

International travel side.

Could we see something along perhaps.

And acquisition and be a smaller airline and you haven't done anything I think since 2016 or perhaps something.

Downstream.

Logistics.

We're sort of complementary.

Side of things and any color there helpful. Thanks.

So Chris from my perspective.

And from an operating standpoint.

And my focus is more on the larger wide body aircraft.

While we value all our fleets our strength.

And our.

And kind of core business starts with the with the larger wide body aircraft.

From a leasing standpoint.

All opportunities are on the table, but again I think.

Our tightened platform is more freighter centric or aircraft that can become freighters and the conversion from a feedstock standpoint, and that's one of the core philosophies of Titan.

But if there are other opportunities and the marketplace that have attractive returns.

Everything's on the table.

In terms of.

Beyond that.

M&A and all the other things for which we could deploy our capital.

And would say this everything's on the table from our standpoint.

And we want to be sure that we are.

Our judicious during this volatile period of time.

Through Covid.

<unk>.

I have a couple of times now stressed the operating environment and some of the challenges that have been presented to the team these results and and.

Not saying this and a boastful way, but these results don't just happen.

And our extraordinary workarounds on the international scale to continue to operate into foreign locations that had some varying and very restrictive quarantine testing requirements.

Access to hotels restaurants, the basics of food and shelter.

And I'm not overstating that so we wanted to be sure that as we get through this period.

I think better.

Better times are ahead with the vaccine.

But if you follow the media.

Everything has been slower than people thought so it's important for us to be responsible and prudent.

With our cash and the near term, but it's a long winded way of saying everything's on the table and the longer term.

Okay. Thank you and.

And John to your point, there, maybe if you could help us.

Frame here.

Adjusted in your prepared remarks, and certainly the press release.

Bounce about some repositioning expense are headwinds due to COVID-19. So just maybe if you could give us departures for fourth quarter non block hours, but departures.

Absolute year on year, and maybe sequentially and then also where are we with the AMC.

Movement restrictions and what are we what are we seeing there was.

Utilization on the related aircraft.

Yeah. So I'll talk on the AMC piece Spencer I don't know if you have information on departures or whether that's anything where and are positioned to provide at this point, but.

And the AMC Youre right and particularly in the early part of 2020, when Covid hit the military put a stop movement order in.

And place, which affected certainly the passenger demand significantly and also have ripple effects on cargo demand and that remained in place until mid to later part of 2020.

And that stop movement order has since been lifted.

But.

The demand on the passenger side has not yet fully recovered, but we expect that to get to more normalized levels as we move through the year and so.

Especially as the vaccine starts to rollout and get more traction.

Okay and anything on the departures.

The only thing and I would say on departures as that.

Been growing.

Year over year over year.

Departures continue to grow.

And we typically.

Well from an operational standpoint, we look at all of it.

But I typically focus a bit more on the hours that we operate or the charter flights that we operate.

And that's how we can bill our customers.

Okay I can just get one last one here the 11 planes and Amazon purchase.

And <unk>.

And January I don't think Ive seen anyone pick up the CMI leases are you.

Moving on those.

Thanks.

And we're going to be competing for every aircraft that our customers have to offer so.

You're right, there's nothing been reported but we're going to do everything we can to secure as much business as we can from Amazon and all our customers.

Thanks for the time today.

Thank you Chris.

Thanks, Craig and thanks.

Thank you we do have a follow up question from the line of Scott Group with Wolfe Research. Your line is now open.

Hey, guys. Thanks for the follow up just quickly how should we think about excess rent refunds this year.

Sure Scott.

There is a just a tiny amount left small amount left and we won last tranche of it and.

May of this year and it should be.

About $4 5 million.

And the program should be completed.

Okay very helpful and then.

And you guys first started buying the dash eights and almost a decade ago.

Guys talked about pretty significant initial earnings accretion per per.

<unk> per month.

With the maintenance holidays is there any reason to think that the math would be any different for the next tour that you guys are taking.

Yes.

And we provided that.

And that information back then because the planes were late and so we have included the earnings from those planes and our guidance and then when the claims relate from Boeing.

Let everyone know that.

And that amount of earnings would not be.

And not be happening in that period of time.

But it was never meant to really be sort of forecast going forward for those earnings, but clearly and the early days of the aircrafts. The early years of the aircraft.

They don't need maintenance there there are warranties and things like that that are available and the aircraft. If there are any sort of maintenance issues. So.

Sure absolutely more profitable.

And the early years.

And we'll see what the overall market is like this is this is a strong market as John said, we hope to place them with a great customer at a great rate.

And we'll just have to see how the profitability as we have.

Pretty good expectations.

And the other thing I would add to that just from an operational standpoint, and this is true.

<unk>.

Aircraft that are in production for a while the longer the aircrafts are and production generally speaking.

The better the aircraft perform and meaning.

The likes of Boeing and GE and get the Kinks out overtime.

These aircraft are likely to be somewhat lighter than some of the other dash eights and the engines performing at their peak performance compared to the earlier deliveries. So we're excited about that and think that's a great value proposition.

To our customers as well as they review the opportunity.

That makes sense. Thank you guys again I appreciate it.

Thank you. Thank you.

Thank you our last question comes from the line of David Campbell with Thompson Davis.

Your line is now open.

And thanks for taking my question.

<unk>.

Mist.

And I have missed something and I'm asking about that.

And as you know.

January and February every year are distorted by the changes and the Chinese new year.

And this year, we have also the problem of the port congestion on the West Coast.

On the West Coast.

And getting our business in January and February I guess.

But below that March margins were seasonal peak as you know and I was wondering if he'd seen air and any discussions with your.

Customers of the demand and the and the month of March.

Well this year.

Yes, I think thats reflected in our first quarter guidance.

A lot of the.

Variables that we've talked about which favored air freight in 2020 continued into.

2021 Q1.

Lunar new year for example.

Because of Covid and the.

The desire of the Chinese government to limit travel we saw a.

A unique environment, where factories many of them stayed open during lunar new year, which was unprecedented.

You also see the <unk>.

Demand for international passenger air travel and continuing to.

And B down.

Which is a favorable.

Environment, and that's not going to last forever.

And the passenger carriers I expect we will have a tremendous appetite to get their aircraft back up and the air as quickly as possible, but then.

And then what will people be willing to travel so that remains to be seen but.

But I think March is a reflection of what we saw in January February.

Adding to a couple of comments I just made.

And I was thinking.

Question is.

As it relates to Amazon and Amazon, adding aircraft all the time with James.

Correct me, if I'm wrong and easier.

Primarily.

And for domestic use.

And the United States.

Hi.

And I think and.

And if not is there now.

And using an <unk> and international.

Cargo.

Is that the COVID-19.

And the operating rights and they don't have operating rights.

Bilateral rights and in these countries.

Yes, David I can't speak for Amazon and Theyre going to do what theyre going to do with those airplanes.

Generally speaking the type of aircraft. They are acquiring are more regional not long haul wide body international.

But that's their call, where theyre going to deploy them and I don't think there are public with that yet.

But they don't have any restrictions internationally.

By not having.

And I.

I can't I can't I can't speak to Amazon I mean, they don't operate they.

They don't operate their own.

Air operating certificate at this time zone.

That I do know.

And they would deploy those aircraft to carriers I suspect that would be able to operate them wherever they want to operate them.

But they themselves as Amazon to date do not have their own and air operating certificate, which by definition means they don't have.

Air Route rights.

Alright.

Right. Okay. Thank you very much thank.

Thank you David.

Thank you. This concludes today's question and answer session I would now like to turn the call back to Atlas Air for closing remarks.

Okay. Thank you operator, and thanks to all of you for your great questions on behalf of all the employees Spencer and I would like to thank you for your interest and Atlas Air worldwide. We appreciate you sharing your time with US today, and we hope you and your families remain safe and we look forward to speaking with you again soon so thank you all so much.

Thank you operator.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

And.

[music].

Ladies and gentlemen, and thank you for standing by and welcome to the fourth quarter, 'twenty and 'twenty earnings call for Atlas Air.

At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press Star then one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star then zero.

I would now like to hand, the conference over to Atlas Air. Please go ahead.

Thank you Sarah and good morning, everyone I'm, Ed Mcgarvey Treasurer for Atlas Air worldwide.

And through our fourth quarter 2020 results conference call.

Today's call will be hosted by John Dietrich, Our Chief Executive Officer, and Spencer Schwartz, our Chief Financial Officer.

Today's call is complemented by a slide presentation that can be viewed at Atlas air worldwide Dot com under presentations and the Investor Relations section.

These statements relate to future events and events and expectations and they involve risks and uncertainties.

Our actions and results or actions may differ materially from those projected and any forward looking statements.

For information about risk factors related to our business. Please refer to our 2019 form 10-K as amended or supplemented by our subsequently filed SEC reports.

And he references to non-GAAP measures and meant to provide meaningful insights and are reconciled with GAAP and today's press release and in the appendix and is attached to today's slides.

And we've gone through the queue, we'll be happy to answer any additional questions as time permits.

At this point I'd like to draw your attention to slide three and turn the call over to John Dietrich.

Thanks, Ed and Hello, everyone welcome to our fourth quarter earnings call I'd like to start by thanking all of the frontline responders as.

As well as all the essential workers around the world, including our more than 4000 and Atlas team members for their unwavering efforts throughout this pandemic.

On behalf of all of US at Atlas I want to express our sincere hope that you your families and friends continue to stay safe as we work toward better days ahead.

We had Atlas take great pride and the role, we're playing and keeping global supply chains, and our customers' operating networks, moving and and supporting COVID-19 relief efforts.

From critical health care supplies like vaccines, and other pharmaceuticals medical equipment, and PPE as well as ecommerce educational supplies food and other everyday consumer products.

Our team has worked tirelessly to keep our aircraft flying safely. So we can continue transporting the goods that matter most during this challenging time.

Operating and global airline during a pandemic hasnt been easy.

And our performance is the result of the team banding together to navigate through a very complex regulatory and operating environment.

So first and foremost keep our employees safe.

But also to provide high quality service for our customers.

The safety of our team as our top priority and we will continue to take extensive precautions to ensure that we're able to safely carry central items around the world.

We're continuing to leverage our unrivaled portfolio of assets and the scale of our global network.

We're also diversifying our customer base and have entered into numerous long term charter agreements that provide a reliable and attractive revenue streams for the years ahead.

These are savvy buyers of air freight and their commitment to Atlas is telling about their vision of the future and their interest for locking in capacity on a longer term basis.

In addition to the significant reductions in passenger belly cargo capacity on long haul trade lanes.

COVID-19 is also causing congestion and delays at ocean ports worldwide.

As a result shippers are increasingly using air freight to avoid bottlenecks and their supply chains, and that's driving even further and near term demand.

From a fleet standpoint, providing our customers with modern fuel efficient aircraft has been a long standing priority at Atlas and we're excited to have recently announced that we ordered four new 747 dash eight freighters from Boeing.

Not only does this investment underscore our commitment to provide our customers with the best available aircraft.

But it also furthers our commitment to the environment by investing and the latest technologies to reduce aircraft noise emissions and fuel consumption.

The dash eight is a great airplane and it provides 20% higher payload capacity and 16% lower fuel consumption and the very capable 747 and 400 freighter.

And it has 25% higher capacity than the triple seven freighter.

In addition, the advanced engines on the dash eight reduced noise by approximately 30% compared to the previous generation of aircraft.

As the world's largest 747 freighter operator, the dash eight is core to our business and complements our diversified fleet of 747, four hundreds triple Sevens 760 Sevens and 730 Sevens.

We're expecting delivery of these new aircraft beginning in May and continuing through October of 2022.