Q4 2021 Atlas Air Worldwide Holdings Inc Earnings Call

February 17, 2022

[music].

Good day, ladies and gentlemen, thank you for standing by and welcome to the Atlas Air worldwide Holding Inc. Fourth quarter 2021 results conference call. At this time, all participants are in a listen only mode.

The speaker's presentation, there will be a question and answer session to ask a question. During this session you will need to pause to start into one key on your touchstone telephone.

Please be advised that today's conference maybe recorded.

If you recall offer assistance you May press Star then zero.

I would now like to turn the conference over to Atlas Air speakers. Please go ahead.

Thank you Olivia and good morning, everyone and.

I'm, Ed Mcgarvey Treasurer for Atlas Air worldwide.

Turning to our fourth quarter 2021 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 in 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.

95.

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

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

For information about risk factors related to our business.

Please refer to our 2020 Form 10-K as amended or supplemented by our subsequently filed SEC reports.

Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release and.

In the appendix that is attached to today's slides.

During our question and answer period today, we'd like to ask participants to limit themselves to one principal question and one follow up question. So.

So that we can accommodate as many participants as possible.

After 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.

Thank you Ed and Hello, everyone. Thanks.

Thanks for joining our fourth quarter earnings call.

I'd like to start by thanking the entire Atlas team for their tremendous efforts and keeping our business moving forward.

Within the year and on the ground, especially in this pandemic environment.

2021 was another outstanding year with excellent financial and operating performance.

At Atlas our greatest strength is our people and without their professionalism and hard work, we wouldn't have been able to deliver these very strong results.

With that in mind, we're very pleased to have achieved our long term labor agreement with our pilots that recognizes their significant contributions to our company.

Throughout 2021, we leveraged our world class fleet and global operating capabilities.

Increased aircraft utilization and capitalize on strong demand for our services.

And aircrafts to achieve higher airfreight yields and we continue to do so.

As reported in our press release. This morning, we have now placed all four of our new and incoming 747 dash eight freighters under long term agreements.

We've also enhanced numerous long term contracts with our strategic and diversified customer base.

<unk> deepened our relationships with valued customers, including China CEVA logistics.

Gives me DB Schenker DHL.

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Fedex Flex board.

G Otis.

H P.

Iceland Air.

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Jess Kuehne <unk> Nagel.

<unk> group and UBS.

Quite an impressive list.

Consistent with our strategy, we not only secured these long term agreements, but also reserved and allocated capacity to take advantage of very high yielding opportunities in the global spot charter market.

This all contributed to Atlas delivering record block hours record revenue and record earnings in 2021.

Before we review our fourth quarter results I'd like to first share several milestones from our full year record performance.

We flew more than 360000 block hours.

Exceeded the $4 billion revenue Mark.

Delivered more than $1 billion of adjusted EBITDA.

And generated over $550 million of adjusted net income.

Yes.

In addition to the strong financial performance and as I mentioned, we reached a new joint collective bargaining agreement with our pilots in connection with Atlas Air's merger with southern Air.

Okay.

We're very pleased to now have this long term pilot agreement in place. It provides even more reasons for pilots to choose Atlas is there a career destination.

We have now effectively completed the merger with southern and we're operating under the single brand of Atlas and the Atlas operating certificate.

With the strength flexibility and resiliency of our global business model, we delivered high quality service to our customers. Despite a very challenging operating environment with persistent pandemic related obstacles.

The safety of our team and operations remains our top priority.

And we're proud of the role we're playing in supporting the global supply chain and transporting essential goods around the world.

I'd like to note that 2022 marks a significant milestone for Atlas as it's our 30 <unk> year in business.

Over these 30 years, we've built an industry, leading fleet a broad array of service offerings, a diversified base of marquee customers and the best team in the business.

From a growth perspective, and as I noted we're excited that we placed all four of our new and incoming 747 dash eight freighters under long term contracts.

We will operate one for China <unk>.

One for <unk> and two for Kuehne and Nagel.

As a reminder, we expect delivery of these aircraft between May and October of this year.

We also look forward to the deliveries and placements of the four new Triple seven freighters, we recently announced for which there is very strong customer demand.

We expect the first of these triple Sevens to be delivered late in the fourth quarter of this year and three more throughout 2023.

As previously announced we also purchased six of our existing 747 400 freighters. During 2021 that were formally on lease to us and.

And we're purchasing another five of our other 747 400 freighters at the end of their existing leases during the course of this year.

Acquiring these wide body freighters underscores our confidence in the long term demand for dedicated international air freight capacity.

Particularly in e-commerce , and fast growing global markets.

Such as Asia, and South America.

These investments are consistent with our long term strategic growth plan and will provide customers with modern environmentally efficient aircrafts, especially from a fuel burn and noise perspective.

Which will drive strong returns for Atlas in the years ahead.

Now turning to our outstanding fourth quarter results on slide four.

Our revenue and adjusted earnings grew to New records, our fourth quarter results reflected higher yields and increased aircraft utilization.

They also reflected the impact of numerous new and extended long term customer contracts and.

In the full year operation of $1 747 freighter that we reactivated during the fourth quarter of 2020.

Our fourth quarter performance also benefited from lower heavy maintenance expense.

These benefits were partially offset by higher pilot costs, driven by our new pilot agreement.

Now moving on to slide five.

While the pandemic continues to make the operating environment, a very challenging one we're seeing solid momentum in the first quarter.

We continue to expect interest industry conditions and customer demand to remain favorable.

Global Airfreight volumes are exceeding pre pandemic levels.

Capacity continues to be constrained as there are limited number of new freighters entering the market while older less efficient aircraft will be retired.

Passenger belly capacity, particularly on key international cargo trade lanes remained subdued.

And backlogs at Ocean ports worldwide and other supply chain bottlenecks are driving demand for air cargo capacity as businesses look to address very low inventory levels.

The pandemic has also spurred what we see as a sustaining step change in express and e-commerce growth.

And it's also highlighted the value of speed and reliability that airfreight provides to the global supply chain, which bodes well for air cargo today and beyond.

As a result, we expect strong performance in the first quarter of 2022 with our adjusted EBITDA and adjusted net income.

<unk> to that of the first quarter of 2021.

We also anticipate revenue of about $1 billion from.

From flying approximately 85000 block hours.

This outlook reflects higher yields, including the contribution from numerous new or enhanced long term customer contracts.

Along with the higher pilot costs from our new J CBA.

We also expect ongoing expenses driven by the pandemic.

Including additional pay for employees flying into locations significantly impacted by Covid.

As well as other operational costs, including for regulatory compliance and continuing to provide a safe working environment for all employees.

For the full year, we expect aircraft maintenance expense to be similar to 2021.

And we expect depreciation and amortization to be around $300 million.

Core capital expenditures, which exclude aircraft and engine purchases are projected to total approximately $135 million to $145 million.

Mainly for parts and components for our fleet.

Including for the $7 seven dash eights and the triple seven that we're adding this year.

We also have commitments related to aircraft purchases and spare engines, including pre delivery payments related to our triple seven order and delivery payments related to 737 dash eight and triple seven aircraft all of which we expect to debt finance.

Due to the uncertainty related to the pandemic ongoing supply chain disruptions and other factors we.

We are not providing additional guidance at this time.

Before I turn the call over to Spencer to provide more detail on our fourth quarter results I'd like to discuss our capital allocation strategy and the share repurchase program, we announced in our press release this morning.

As we've consistently stated we take a disciplined and balanced approach to allocating capital.

Our focus is on maintaining a strong balance sheet, while continuing to grow the business and returning capital to shareholders.

Over the last number of years, we've made significant investments in the business, including aircraft acquisitions.

And the purchase of southern Air.

Most recently, we've also made further growth investments with our 747 dash eight and triple seven orders.

And the 747 four hundreds we're buying off lease.

These modern efficient aircraft remain in high demand and will be an important investment for our future.

We're also always looking for ways to grow through mergers acquisitions or strategic partnerships like our very successful acquisitions of polar and southern and our tightened dry leasing joint venture with Bain capital credit.

Consistent with our balanced approach. We're now pleased to announce the establishment of a new $200 million share repurchase program, which includes a $100 million and accelerated share repurchases that we expect to complete by the end of the second quarter.

Our capital allocation strategy demonstrates our commitment to creating enhancing and delivering value for our shareholders.

I'd like to now pass the call over to Spencer and after Spencer's remarks, I'll have some additional comments and then we'll be happy to take your questions Spencer.

Thank you, Joe and Hello, everyone.

Our excellent fourth quarter results are highlighted on slide six.

On an adjusted basis, EBITDA was $361 $8 million and adjusted net income was $211 6 million.

On a reported basis net income was $176 7 million.

Our adjusted earnings included an effective income tax rate of 21, 7%.

Moving to the top of slide seven.

Revenue rose to $1 2 billion in the quarter.

Higher airline operations segment revenue was primarily driven by an increase in the average rate per block hour.

Which was mainly due to an increased proportion of higher yielding decline, including the impact of new and extended long term contracts.

The ongoing reduction of available cargo capacity in the market.

The disruption of global supply chains.

As well as higher fuel costs.

Volumes during the period, reflecting reduction in less profitable smaller gauge CMI flying.

This was partially offset by our ability to increase the utilization of our current fleet to meet strong customer demand.

As John sure.

<unk> also gained from operating 747 Andrew.

Activated during the fourth quarter of 2020.

Revenue in our dry leasing segment was relatively unchanged.

Looking now at the bottom of the slide segment contribution was $365 $5 million in the fourth quarter.

Significantly higher airline operations contribution was primarily driven by the positive factors benefiting segment revenue I, just noted as well as lower heavy maintenance expense.

These improvements were partially offset by higher pilot costs related to our new joint collective bargaining agreement.

And in dry leasing segment contribution was relatively unchanged.

Now turning to slide eight.

Our net leverage ratio lowered further and finished the year at one five times.

We ended 2021 with cash, including cash equivalents and restricted cash totaling $921 million.

The increase primarily reflected cash provided by operating activities, partially offset by cash used for investing and financing activities.

Net cash used for investing activities was primarily for payments for flight equipment and modifications, including all of the pre delivery payments for our four 747 eight freighters.

Core capital expenditures as well as spare engines and engine upgrade kits.

Net cash used for financing activities, primarily reflected payments, partially offset by proceeds from debt issuance.

We continue to apply a disciplined approach to financing all of our debt is at a fixed rate with a very low weighted average coupon rate, which is now at $2 eight 4%.

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

As John said earlier, we remain committed to a strong balance sheet and cash balance, which allows us to opportunistically deploy capital to strengthen our business navigate unexpected events and return capital to shareholders.

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

Thank you Spencer and moving on to slide nine.

2021 was certainly an excellent year and we finished it on a very strong note.

Market conditions remained strong our team continues to deliver and leverage our competitive advantages.

Strong balance sheet, a formidable fleet of aircraft and unparalleled network of customers and unrivaled global operating capabilities.

And we'll continue to take every precaution to protect our employees and our operations to keep the business moving forward.

To sum it all up Atlas is very well positioned to serve the evolving needs of our customers the air freight market and the global supply chain today and in the future.

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

Ladies and gentlemen to ask a question you will need to press. The Star then the one key on your Touchtone telephone to withdraw your question your question Keith.

My first question coming from the line of Bob <unk> with CJS Securities. Your line is open.

Hi, its actually lead you go to for Bob This morning, good morning.

Good morning Ali.

So just starting with the fleet additions you announced obviously before dash eights and then the $4 770 Sevens next year.

Can you kind of help us understand the relative profitability.

Each of those aircraft types compared to your fleet averages.

How we should think about impacting the model going forward.

Surely.

The dash eights in the Triple Sevens. These are outstanding aircraft with superior payload.

So valued in the market where capacity is so constrained.

As we announced today, we signed up long term agreements with customers. These aircrafts will deliver.

Returns.

I'd say that our.

Similar to what Youre seeing elsewhere in our business, but they also have the benefit of.

Having what we've called a maintenance honeymoon so.

The first few years the aircraft don't require.

Maintenance and anything that could potentially go wrong with the aircraft is typically covered by warranty so.

Their performance is even better in the early years. So you don't need a D check for about six six to eight years.

And so very strong performance.

Got it and then.

Just as a follow up buying the additional 740 sevens off leases expire at.

It sounds like the right thing to do in this environment.

Are there any fleet deletions that we should think about either this year or over the next several years.

But just the impact on that number going forward.

Lee its John we're not anticipating any fleet deletions, but one of the advantages of our approach here is as we've talked about.

Several of our aircraft are coming off lease some of which were buying some are coming off lease. Even later in time. So we have what I'll describe as a built in hedge to manage our capacity.

If the demand remains strong as we expect.

We're going to continue to operate those airplanes, but it's kind of a built in hedge to allow some capacity to run off if the market changes on us.

Which we're hoping and expecting it won't but that's kind of the.

Scenario, where we would see fewer airplanes, but nothing other than that.

Great. Thanks, very much and I will hop back in the queue.

Thank you.

Our next question coming from the line of Chris <unk> with Susquehanna. Your line is open.

Good morning, everyone. Thanks for taking my question.

So with these travel restrictions easing in passenger wide body flights coming back.

Are you seeing in terms of the mix of freighters versus belly capacity and are there lanes, whether that's for example, trans Atlantic Trans Pacific where that mix is moving back towards more typical.

Levels.

Sure.

So I'll start with that Chris Thanks for your question.

Yes.

We expect that the passenger wide body capacity will come back gradually.

We've shared that before frankly, I think it's been slower than most people expect.

On the ground.

Settled that down.

Down even further.

But when it does come back what were seeing is the likelihood of Trans Atlantic.

<unk>, which has less of an impact on us frankly than the trans Pacific and with many of the Asia countries, China, particularly.

Tightening up.

We don't see.

Substantial belly capacity coming back into trans Pacific for quite some time.

And certainly not at pre Covid levels.

And I guess, a further point I would make is even if and when it comes back to pre COVID-19 levels, where is that capacity is going to come back to is it going to be in.

Typical cargo trade lanes or other point to point flying.

And whats the demand outlook going to be for manufactured goods.

And e-commerce .

Which frankly volumes right now airfreight volumes are.

Exceeding as I mentioned in my remarks.

Are exceeding.

Pre COVID-19 levels.

And there is still a tremendous tightening of capacity in the marketplace. So I <unk>.

Thank.

That coupled with some other variables that we see in the marketplace that more and more customers like the security.

And the value of dedicated freighter capacity, maybe not as the complete substitute for passenger belly, but kind of under the theory of once bitten twice shy.

On the <unk>.

Security that air freight is continues the dedicated freighters have really continued uninterrupted through COVID-19 takes out the vulnerability of passenger belly capacity going forward.

There are a number of reasons why I think.

The mix of freighters.

Is going to increase.

Even when the passenger wide bodies come back.

Is that a number you have handy handy or if you had to guess what you think the mix of freighter versus belly capacity is now.

Last time, I looked or the numbers I've seen out there was around 70 30.

Back half of last of last year.

Yes look pre pandemic. It was basically a 50 50 split give or take a few percentage points I think it will favor airfreight more as I said, whether it will sustain at 70%.

Can't say that but.

We certainly expect a better than 50% as we go forward.

Okay, if I could get it.

One more here so it seems that with each quarter since I think it was February or March of 2020, you become.

Increasingly less payload or spot sensitive. So if you could remind us and I know you get this question every quarter now, but how much of your block hours today are spot or AD hoc flying and then as we think about duration, what's the next shortest lease term meaning beer.

And what would be a month, so say three six months et cetera, and then.

How much of your block hours does that makeup thanks.

Sure Chris It's Spencer.

So the first part of your question was how much is in spite of all give the overall percentages.

Block hours.

It Hasnt changed a whole lot approximately 60% to 65% of our block hours are an HDMI around 20% are in long term charters about 6% as with the U S military.

About 5%.

South America, and that leaves about 5% for AD hoc spot.

Charter flying and then.

Second question I didn't completely understand but I think you were asking about terms and explorations.

Our our long term charter contracts, we just extended.

A few more of them during the fourth quarter.

Increased price added.

As an additional flying contracts now.

I would say the majority of them go through 2024, but we have contracts that go through 2025, 26, and even 2007.

And it's also as John pointed out it's really important to note that.

If and when belly capacity does come back.

It's really important as John said.

Most of the flying that we're doing for this long term charter is not in the traditional freight trade lanes.

Passenger flying operating Tien and so when that aircraft comes back.

Probably won't impact a lot of this flying because freight keeps moving further and further away from traditional passenger airports.

Okay. Thank you.

And our next question coming from the line of Stefan <unk> with <unk> Securities. Your line is now open.

Great. This is actually Joe halfling on for Stephanie Congrats on the record fourth quarter record 2021, and what is shaping up to be a basically record <unk> 22.

Thank you Joe.

Maybe just a quick follow up on that question about managing the sort of spot versus contract. How do you guys think about that sort of relationship or managing that towards fee saw do you feel that you are essentially giving up some product from <unk>.

<unk> why.

By not taking more advantage of the spot market right now with where airfreight and airfreight rates are or do you think that the sustainability and visibility given by a long term contract is where you just kind of want to continue to grow the business going forward.

Yes, Joe Thanks, My answer is yes.

It's a little bit of all of the above anytime youre dedicating capacity under long term charter.

Drawing from your ability to play the spot market, but there is a number of things.

We do we have an integrated network and we're able to when we talked about increasing our utilization.

We piece together the network that allows us we can flex up.

The opportunity from time to time to do a one off charter spot market charter are returned to Asia as it presents itself.

So even though we're fixing that capacity that doesn't necessarily mean were excluded from <unk>.

Flexing up which we do quite well and take advantage of one off charters. Similarly, our customers do the same they have their fixed networks and if they see an opportunity within their network to take.

A charter of one off charter they do that as well.

But look there are tradeoffs.

We really value these customers, especially some of our newer customers that.

Frankly, creating a whole new business for us and strong.

Strong yields and for that we have.

Bias towards the fixed capacity do you leave something on the table with the spot market sure, but we think that's the right trade for us as long as we continue to manage the capacity in the spot market that we do retain.

Great. Thanks for that and then maybe just.

Follow up question more of a longer term outlook question I know, maybe not necessarily your trade lane expertise, but just in thinking about airfreight generally as the alternative to ocean capacity in with.

The supply chain disruptions going on what would sort of be your take on how supply chain through 2020 to ease and that.

The velocity of that evening or not how quickly can ocean freight kind of get back to normal and sort of what that impact might be to both volumes and rates for airfreight market generally.

Sure look there are a number of.

Variables that are contributing to some of the ocean port disruptions.

Kind of the backlog of ships anywhere while we hear some news that its moderating a little bit it's still at very high levels in certain days can be between 70.

And the 100 ships waiting to be Offloaded.

But from a from an air freight standpoint, there are other.

Variables in play that we think.

Increase the demand for airfreight.

Including what I made in my comments as kind of a step change of customers.

Utilizing artificial intelligence and big data too.

Yes.

To rationalize their inventories and yes, airfreight, maybe a little bit more expensive, but if they can cut down on their production cost and exchange.

There's trade offs that we're seeing customers make that they can rely on the speed and reliability of airfreight getting their goods to market and maybe not have to produce as much. So there are a number of very sophisticated customer of ours, who are doing that and I think.

The more of the Ocean <unk>.

Our backlog and longer that continues.

It speaks favorably for air freight in the long run I think there'll be some good lessons learned as well to make a permanent shift not completely but a permanent shift for some of the capacity to.

To go are and we're seeing that.

Now will the ports get there.

Act together, yes, I think things will improve over time.

But there are labor shortages is so shortage of truckers and it's not just the port congestion. It's all of the what happens when the freight arise that backlog and I think that's going to take time.

In the meantime, airfreight is a great solution.

Greg certainly paints a pretty good picture for airfreight year, continuing into 2022, that's everything I had thanks, so much for the color.

Sure.

One last point I'll make is.

Their labor disruption pretty good labor availability.

Unionized the ports are highly unionized and understand their labor contracts are coming up for negotiation this year so that.

There's challenges everywhere.

Thank you operator.

Our next question coming from the line of Helane Becker with Cowen Your line is open.

Thanks, very much operator, hi, everybody and thank you very much for the time.

Just a couple of questions.

Sure.

The Chinese government isn't honoring the bilateral agreement with the passenger airlines.

I seriously doubt there given everything in the pandemic there is going to be a big increase in.

Capacity on them on that specific to your point John .

Are you, having any issues with respect to.

Getting your crews in and out of China like you were having last year can you just give us an update on what's going on there.

Yes, no no material disruptions there Helane, we've been rejiggering our network there are some quarantine and testing requirements and certainly those countries. Hong Kong is one where we've adjusted our network to avoid laying over in Hong Kong, where previously.

Pandemic Hong Kong was a.

Key layover hub for us, but we're transiting through Hong Kong and working through Korea, and other points in the region to lay our crews over so not a not a material problem. There we've been able to keep moving.

Sometimes it puts a little pressure on crew availability, because it's not as efficient as the prior network.

But I think the team's been doing a great job pilots are picking up.

Lucrative over time flying so.

That's that's not been an issue for us really.

We're watching the regulatory environment.

International trade and movement of cargo is so critical to all the economies the U S economy and the economy in China. So we haven't seen any disruptions there like you referenced in the on the passenger side, but it's something we keep an eye on.

Okay and then early in the quarter did you have issues with.

Crews, calling out sick because of.

I have the virus at all.

Sure I think we weren't immune to that omicron was so prevalent and so widespread.

<unk>.

Every industry, we were no different.

And but we managed through it and.

Again, my thanks, too to our workforce our pilots everyone pushed through but during that period, particularly from mid December until into January there.

There was pressure there both for flight crew frankly, all employees.

On the crop was so prevalent and not not necessarily just infections, but contact tracing.

<unk> rules on contact tracing that we abide by that that put pressure on us and frankly, everyone else.

Gotcha, and then if I could just a question one more with respect to aircraft financing on maybe for Spencer how are you financing.

The aircrafts that are coming this year has that already you talked about PDP, but have you already decided on how those are going to be financed.

Thanks Helane.

So we paid all of the PDP is now and so we're working with lenders we've already signed.

We expect high Ltvs and attractive rates. The market is the market is really strong and it's a good environment for us to be financing. These aircrafts. So.

We will certainly have that in place as we take delivery.

Thank you thanks very much.

Thank you thank you Helen.

Our next question coming from the line of Scott Group with Wolfe Research. Your line is open.

Hey, Thanks, good morning, guys.

Hey, Scott.

You have guided to flattish earnings in the first quarter I was wondering if you can at least share some directional perspective on the year the.

Pilot cost sell lap in the back half the comps on rates get tough more aircrafts coming I mean Directionally do you think you can can you grow earnings this year or is it flat I think youre thinking about it.

So Scott we've only provided guidance for the first quarter, but.

I'll give a couple of a couple of thoughts one is that we we continue to have increased utilization our utilization is.

Streaming strong was up 14% last year.

We have of course before new $7 seven dash eight that will be coming in throughout the course of the year, we'll have one triple seven but really that's at the end of the year. So not a whole lot coming from that we've entered into all of the long term contracts and we have renewed those.

And so well enjoy a full year in 2022 of all of those contracts.

Said that we expect maintenance to be fairly similar.

Offsetting some of those things of course is we will have the higher pilot costs because of the new pilot agreement.

And then yields are remain the big question.

What that's going to be like right now.

John talked about the yield environment is so strong yields continued to be elevated yields in the first quarter. This year compared to the first quarter of last year or so much stronger and there is tremendous demand for charter.

At solid yields but.

As the year progresses.

That is a.

Bit of a wildcard.

So those are some thoughts without providing any sort of bottom line information.

That's fair I mean I guess.

Maybe maybe the follow up is if youre, saying that the.

AD hoc business is only 5% of the hours, but it sounds like it's a big swing factor. So maybe can you talk about if it's 5% of the hours what percentage of the revenue maybe that might be helpful is in this AD hoc and then the longer term charter that youre talking about the 20% of the hours how does the pricing there fixed does that.

Yes.

If spot rates and start to fall in the market start solution to the does the pricing on that sort of long term charter.

Does that reset or is it fixed.

I'll start there Spencer Scott that pricing on the long term agreements is fixed.

Analogize it to Acm's like agreements.

And with.

We provide on the number of these agreements fuel.

But there is adjustments for fuel if fuel goes up or down that we can make adjustments there, but the underlying fee for service is fixed comparable to ACI.

And Scott the only thing I would add to that is that.

The long term charter programs as I said they have.

We have contracts that are going through 2027.

With regard to.

Revenue.

<unk>.

Because yields don't have any.

And there's no offsetting expense to those so the flights already going to happen in the yields.

Sort of the swing factor when it comes to the AD hoc spot charter market. So.

The increase or decrease in yields can go right to the bottom line. So it can have an outsized effect.

So again, we've done a lot.

Two.

Really.

Minimized the potential volatility in our business and we've done a lot to put in place. These long term contracts.

But still when yields go up or down it certainly can have an impact on our bottom line.

I mean, I guess, what we're trying to figure out what I think everybody is trying to figure out is right at some point these rates will normalize.

Now you have done stuff and youre going to grow the fleet a lot you've.

Maybe changed the mix a little bit.

What do you think what do you think.

What do you think about normalized margins normalized earnings whenever these rates ultimately.

Sure.

Start to come down who.

Who knows when that is but how do you think about that.

So let me start Spencer in terms of yes, what I would say it slightly differently I would say, what's the new normal going to be.

And I don't see any time soon.

You're talking about normalizing yields or rates go.

Back to pre Covid levels anytime soon as I mentioned, you're going to have the <unk>.

Continuation of significant growth in express and e-commerce , that's creating demand thats going to continue to grow.

You have lessons learned from Covid as I mentioned you have.

A whole new customer base that is willing to take on dedicated capacity.

And youre going to see.

And my view manufacturing come Roaring back as companies look to build inventories and so forth and thats not that all of those dynamics in play is not an overnight.

And for air freight.

I think as pricing power. So for all those factors what will the new normal B, yes, I think particularly in the spot rates things will normalize and moderate a little bit we're watching that closely but on the long term charters and CMI agreements.

There's been a step change so.

We look forward to keeping you posted on what the new normal will be.

Okay, Alright, Thank you guys I appreciate it.

Thank you.

Our next question coming from the line of Barry Haimes with Sage asset management. Your line is open.

Alright, thanks very much.

Just wanted to follow up on the comment you made about.

Moving away from traditional passenger airports.

When I think about anything that makes sense.

Sure.

So places like Phoenix.

Vietnam and Thailand.

But are there any numbers you can share on that.

Got it.

Asia in terms of that breakdown between China and then some of these newer areas, where you wouldn't have the same proclivity to have a lot of passenger flights.

Hey, Barry I think I think your question is.

Sure.

Freight moving out of the sort of more traditional.

Trade lanes that are operated by passenger airlines.

And that's that's absolutely true you have seen all of the chip shortages.

Inventories are critically low and high tech automotive chip manufacturers.

And there is a huge shortage of chips in semiconductors.

And we don't expect things to improve until probably $2024 25, but there are factories that are being built to try to offset those things and the beauty of atlas's business. We don't operate a typical sort of scheduled airlines other than South America.

But our business, we fly airplanes, and we fly airplanes wherever our customers end demand is.

So.

Wherever that demand as we will go there and be able to take advantage of that.

And so if it's not in a traditional passenger operated trade lane, which is becoming more and more common.

As long as the airport can fit our size aircraft.

We'll be there.

If I could just.

Oh I'm sorry go ahead.

As to one per caller, maybe ask it is.

What's the China percentage of Asia flying.

Frank rather now versus pre pandemic.

Just trying to get some sort of feel for how that's moved around sorry, guys. Thanks.

I don't know I don't know that we have a specific number.

To that very I mean, obviously that coming out of China and Asia.

Art.

So.

I don't I don't have a specific number to ascribe to that.

Okay. Thanks.

Congrats on a great year. Thank you.

Thank you.

And we have a follow up question from Chris <unk> with Susquehanna. Your line is now open.

Hey, Thanks for taking my follow up so I wanted to go back to two to Scotts question I think it's an important one and certainly I get.

From investors, but I'm going to try it in a different way here so.

Investors are keenly focused on spot rates and I guess, there's a few ways. We can look at that data, but with the <unk> and the CMI and long term charter lease rates.

They're typically inputs like interest rates and residual values. So could you help us better understand how we should think about that relationship between spot rates and the longer term rates and I guess.

If someone were to start a or a bottoms up revenue build based on your net fleet.

Should we start with the spot assumption, which again there is a few areas. We can look at and then automatically give a haircut on what we think CMI and charter.

Rates might look like.

So I'll start from a higher level of responses and Spencer if you want to talk to the numbers Chris.

Chris I heard what you said that investors are keenly focused on spot rates.

But we are keenly focused not only on spot rates, but also on the long term security at favorable.

Long term charter in <unk> rates and.

There's no doubt for a customer who is willing to to commit to a long period of time.

And what typically includes minimum block hours.

For long lived asset that's very attractive to our business and are focused on the spot rates for that allocated charter capacity as well as the flex up capability because.

Should there be a downturn.

And Youre left overly dependent on the spot rates than your business suffers.

We always strive to strike a balance and thats heavily weighted toward the CMI and long term.

Now in terms of the rest of your question kind of what's the differential there Spencer I don't know if you want to add any comments to that.

Yes, I think Chris I am thinking about.

To your question about modeling you can certainly look at the the rate per block hour.

No you've got it back out the impact of fuel and that rate per block hour, which you can you can certainly do.

After you back out the impact of fuel then you can see the rate per block hour that we're enjoying in you can see the growth in that rate per block hour about 5% of the flying in 2022 is going to be we expect will be.

Ex Asia.

AD hoc spot charter flying and so all the rest of it is from.

Longer term fly and again, you should be able to see that in the rate per block hour as John said and as we've talked about these long term charter agreements.

They have very very significant rates.

Because there is just tremendous tremendous demand, we simply don't have enough aircraft to provide for all of the demand thats out there.

Okay, and John So you've been in the <unk> been CEO now for two years.

I'm sure you had very different plans going into that role before the occurrence of COVID-19, So as we hopefully move to an endemic state and this year. What are you looking to accomplish and what are your I guess top three areas of focus.

Thank you Chris I appreciate it.

Look.

I'm really excited about where we've been the last couple of years.

Some things were not entirely expected, but I think what we've been able to deliver shows the resiliency of our business model.

When you talk about some of my focus areas.

One continuing to leverage that with a focus on.

International Global.

Are freight transportation with.

Strong customers.

Intentionally rattled off.

Some of those customers in my presentation, because it's just really a powerful.

List.

Great customers, who are long term players in the market sophisticated players so I'm looking to continue to develop.

Those relationships.

Cross border growth of E Commerce, as we announced today with Chi now.

And the global operation, Mike, We announced for the placement of the Dash eights with Kuehne <unk> Nagel.

Those are hugely important.

We want to continue to grow and with all our customers and be their first choice.

Another goal of ours.

No they have choices.

Now in this favorable airfreight.

Market, we have a number of carriers who have emerged to our.

Showing that we have competition, we need to compete for the business, but we simply think we are.

We're the best at what we do and continue to develop our team. So that's another important focused on I was very pleased to have announced the labor agreement and.

Continue to improve our labor relations and are.

Mending fences with with our pilot group, we went through as it is not uncommon.

A protracted period.

Tension because.

Pilots wanted to be recognized in their contract was overdue and I am delighted to bring that to head and were continuing to work closely with the new Union leadership in all pulling in the same direction, which frankly, we couldnt have delivered these results without that unless they were all pulling in the right direction.

And then from a financial standpoint, I think the third point would be a disciplined approach to two capital allocation keeping a strong balance sheet I think spencers final paragraphs in his final comments in his.

Presentation, where powerful and we need to.

Strong balance sheet invest in our future.

And also.

Be prepared for what may get thrown at us because we are not out of the pandemic yet.

And things get thrown at us.

We're watching fuel prices were watching.

The markets.

Korea, and Japan were just put back on.

Heightened COVID-19 status, whereas they were not with the CDC just a few days ago, so things get thrown our way we want to be prepared to endure and navigate those challenges and continue to provide value to our shareholders.

Thank you.

And our last question coming from the line of Eric Greg.

Three Island Advisory your line is open.

Results in really great news about the stock repurchase program three quick questions. The first one is about the Q1 guidance given the airfreight indexes all indicate that air freight rates are up 30% plus so far in 2022 or 2021. The fact your capacity is.

As much as it has.

And the.

The likelihood that all of these contracts that you've been reviewing are at much higher rates, just a little surprising that the guidance for Q1 profitability as is consistent with last year and any comments around that.

Sure. Thank you Eric.

So we entered into a new pilot agreement.

We have a new joint collective bargaining agreement in those rates took effect on September one.

So you're absolutely right.

Sure.

Yields the impact from yields in the first quarter of this year versus first quarter last year are absolutely.

Higher.

<unk> rates absolutely are higher we are.

Acquired 747, four hundreds and so.

The <unk>.

Ownership costs are lower related to that.

And so those are all really nice benefits our volume.

Should be improving but offsetting those things is higher pilot costs.

So that's I think that's the missing component in your and your algebra there.

The other two are on the stock repurchase.

Has your thinking around that.

That's kind of an annual guidance or is it.

There is a possibility here that you get through the $200 million and reload in the latter part of the year.

Now we have a we've announced $200 million program that's the program.

As I mentioned, we are taking to continue to take a disciplined approach of which.

Returning capital to shareholders as a part of it but.

Investing in the business as a part of it.

Making sure we keep our debt ratio in line as a part of it so we're.

We're happy about this program we're going to proceed with it and then we will keep you posted on further developments.

And then the last one was about Amazon and the warrants and how is that relationship progressing and have there been any more exercises on their ownership in the business.

Ill turn dispenser in a moment on the warrants, but Amazon is a great customer.

They've entered the market with <unk> in terms of the number of aircrafts. They put we're delighted to have them as a customer and work hard every day to meet their expectations.

With regard to the warrants I think.

They've done some some transactions and I think it served them quite well.

Given.

Where they are pricing was on the warrants and Spencer I don't know if you want to provide any further details on that.

Yes, there was in November .

Exercise.

Some of their warrants weren't what we call warranty.

And that led to the issuance of 187411 shares during the fourth quarter.

Thanks, a ton tremendous results.

Thank you.

Thank you Eric.

I'm showing no further questions at this time I would now like to turn the call back over to Mr. John Dietrich for any closing remarks.

Great. Thank you operator, and thank you all for your great questions.

We're really excited about the future.

Yeah.

And frankly quite pleased with the results we've reported.

I know the focus on the placements of the Dash eights was hugely important.

For all our constituents so.

Happy to announce that those are all place now and look forward to taking on the triple Sevens.

So on behalf of all of our employees Spencer and I would like to thank you for your interest in Atlas Air. We appreciate you taking the time to be with US today, and we hope you and your families. All stay safe and look forward to speaking with you again soon thank you so much and thank you operator.

Ladies and gentlemen that does conclude our conference for today. Thank you for your participation you may now disconnect.

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Good day, ladies and gentlemen, thank you for standing by and welcome to the Atlas Air Worldwide Holdings, Inc. Fourth quarter 2021 results conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press. The Star then the one key on your.

Touched on telephone please be advised that today's conference maybe recorded if he would call offer assistance you May Press Star then zero.

I would now like turn the conference over to our Atlas Air speakers. Please go ahead.

Thank you Olivia and good morning, everyone.

And Ed Mcgarvey Treasurer for Atlas Air worldwide welcome to our fourth quarter 2021 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 in the Investor information section.

95.

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

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

For information about risk factors related to our business.

Please refer to what 2020 Form 10-K as amended or supplemented by our subsequently filed SEC reports.

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

During our question 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.

After 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.

Thank you Ed and Hello, everyone.

Thanks for joining our fourth quarter earnings call.

I'd like to start by thanking the entire Atlas team for their tremendous efforts and keeping our business moving forward.

Within the air and on the ground, especially in this pandemic environment.

2021 was another outstanding year with excellent financial and operating performance.

At Atlas our greatest strength is our people and without their professionalism and hard work, we wouldn't have been able to deliver these very strong results.

With that in mind, we're very pleased to have achieved our long term labor agreement with our pilots that recognizes their significant contributions to our company.

Throughout 2021, we leveraged our world class fleet and global operating capabilities.

Increased aircraft utilization and capitalize on strong demand for our services.

And aircraft to achieve higher airfreight yields and we continue to do so.

Okay.

As reported in our press release. This morning, we have now placed all four of our new and incoming 747, eight freighters under long term agreements.

We've also enhanced numerous long term contracts with our strategic and diversified customer base.

<unk> deepened our relationships with valued customers, including China CEVA logistics.

DB Schenker DHL.

DSV.

Fedex Flex board.

G O. This.

H P.

Iceland Air.

And the tax.

Jess Kuehne and Nagel.

<unk> group and UBS.

Quite an impressive list.

This all contributed to Atlas delivering record block hours record revenue and record earnings in 2021.

Before we review our fourth quarter results I'd like to first share several milestones from our full year record performance.

We flew more than 360000 block hours.

Exceeded the $4 billion revenue Mark.

Delivered more than $1 billion of adjusted EBITDA.

And generated over $550 million of adjusted net income.

In addition to the strong financial performance and as I mentioned, we reached a new joint collective bargaining agreement with our pilots in connection with Atlas Air's merger with southern Air.

Okay.

We're very pleased to now have this long term pilot agreement in place. It provides even more reasons for pilots to choose Atlas as their career destination.

We have now effectively completed the merger with southern and we're operating under the single brand of Atlas and the Atlas operating certificate.

The safety of our team and operations remains our top priority and.

And we're proud of the role we're playing in supporting the global supply chain and transporting essential goods around the world.

I'd like to note that 2022 marks a significant milestone for Atlas as it's our 30 <unk> year in business.

Over these 30 years, we've built an industry, leading fleet a broad array of service offerings, a diversified base of marquee customers and the best team in the business.

From a growth perspective, and as I noted we're excited that we placed all four of our new and incoming 747 dash eight freighters under long term contracts.

We will operate one for China.

One framed attacks and two for Kuehne <unk> Nagel.

As a reminder, we expect delivery of these aircraft between May and October of this year.

We also look forward to the deliveries and placements of the four new Triple seven freighters, we recently announced for which there is very strong customer demand.

We expect the first of these triple seven to be delivered late in the fourth quarter of this year and three more throughout 2023.

As previously announced we also purchased six of our existing 747 400 freighters. During 2021 that were formally on lease to us and.

And we're purchasing another five of our other 747 400 freighters at the end of their existing leases during the course of this year.

Acquiring these wide body freighters underscores our confidence in the long term demand for dedicated international air freight capacity.

Particularly in e-commerce , and fast growing global markets.

Such as Asia, and South America.

Which will drive strong returns for Atlas in the years ahead.

Now turning to our outstanding fourth quarter results on slide four.

Our revenue and adjusted earnings grew to New records, our fourth quarter results reflected higher yields and increased aircraft utilization.

They also reflected the impact of numerous new and extended long term customer contracts.

And the full year operation of $1 747 freighter that we reactivated during the fourth quarter of 2020.