Q1 2022 Atlas Air Worldwide Holdings Inc Earnings Call

[music].

Good day, and thank you for standing by and welcome to <unk>.

Atlas Air worldwide.

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Q1, 2022 crucibles.

This conference call at this time, all participants lines are in a listen only.

All right.

After the speaker's presentation, there will be a question and answer session to.

To ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

You require any further assistance. Please press star zero I would now like to hand, the call over to your speaker today Atlas Air. Please go ahead.

Thank you operator, and good morning, everyone.

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

Welcome to our first quarter 2022 results conference call.

Today's call will be hosted by John Dietrich, Our Chief Financial 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 of 1095.

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 2021 Form 10-K as amended or supplemented by our subsequently filed SEC reports.

Any references to non-GAAP measures are meant to be.

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.

Thanks, Ed and thank you all for joining us first quarter earnings call.

I'd like to start by acknowledging the unfortunate and horrific humanitarian crisis in Ukraine.

Our thoughts are with the people of Ukraine, and with all those helping during these difficult times.

At Atlas.

We've been doing our part by providing critical air lift to many organizations moving relief supplies into the region.

And as the leading provider of air lift to the U S. Military we've been supporting the U S government's significant supply efforts.

We're very grateful that Atlas is able to participate in these important relief missions.

I'd also like to thank the entire Atlas team for their ongoing commitment to delivering these outstanding results.

As we've been able to demonstrate Atlas has a resilient and proven business that has consistently delivered very positive results even through the most challenging times.

And we continue to show the value of Airfreight is a critical component of the global supply chain.

Our aircraft and services provide the flexibility reliability and speed.

That enables our customers to succeed even through the ever changing logistical landscape.

And air freight will continue to be vital going forward, particularly as the pandemic and related challenges remain.

Passenger capacity is slow to return and manufacturing in Asia ramps back up.

And as we've been discussing with you in recent quarters, we're seeing a sustaining shift in customer demand for long term dedicated airlift.

Is driving more need for atlas's assets and services.

We're expanding and diversifying our customer base and increasing the amount of flying that we perform under long term contracts with attractive rates and guaranteed levels of flying.

In fact during the first quarter, our customers continued to enter or enhance long term agreements with Atlas for dedicated freighter capacity.

And it's important to reiterate that the overwhelming majority of our fleet is now committed under these long term contracts, which puts us in a strong position for the years ahead.

This all bodes well for Atlas and our future.

On the financial front, we've significantly strengthened our balance sheet and have dramatically improved our net leverage ratio.

We have a healthy cash balance and the financial flexibility to act quickly on attractive opportunities to deploy capital, including investing in our business and returning capital to shareholders.

As we've previously noted we are investing in our world class feet.

Our World Class fleet excuse me by adding four new 747 dash eights and four new triple Sevens to meet customer demand.

All four of our new Dash eights have been placed under long term agreements and we expect the first will be delivered later this month.

We also have very strong interest for the new Triple Sevens, and we look forward to sharing details on those placements in future calls.

And as we've shared before we're also purchasing five of our existing 747 400 freighters at the end of their leases throughout this year, the first of which we acquired in March.

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

I am pleased to report that we've achieved new first quarter records for both revenue and adjusted earnings.

This is despite the ongoing operational challenges.

That were caused by the pandemic.

Our strong results reflected higher yields, including the impact of numerous new and extended long term contracts.

This was partially offset by higher pilot costs, driven by our new collective bargaining agreement.

Spencer will provide more details on our Q1 results in a moment.

Now moving onto our outlook on slide five as.

As I mentioned earlier, we expect market 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 need to be retired.

Passenger belly capacity, particularly out of Asia remain slow to return.

And as it does we expect passenger networks will look different than prior to the pandemic and will favor more leisure and point to point flying.

This will result in more need for dedicated freighters and major cargo trade lines.

The continuation of congestion at Ocean ports and other related supply chain disruptions are also continuing to favor airfreight.

And importantly, a new customer base, including more manufacturers and freight forwarders I'll now turning to dedicated freighters due to the resiliency of airfreight networks compared to the vulnerability of passenger networks.

In addition to our excellent first quarter results.

We expect strong performance in the second quarter and for the full year.

In the second quarter, we anticipate revenue to exceed $1 $1 billion from flying more than 85000 block hours.

In addition, we expect adjusted EBITDA of approximately $215 million.

And adjusted net income to grow by a high single digit percentage compared with our adjusted net income of $88 8 million in the first quarter of this year.

Our full year earnings outlook reflects the significant portion of our business under high yielding long term contracts.

As well as strong yields in the AD hoc charter market.

As a result, we expect to fly more than 350000 block hours in 2022 with revenue of approximately $4 6 billion.

And adjusted EBITDA of about $1 billion.

In addition.

We anticipate adjusted net income in the second half of 2022.

To improve approximately 60% compared with that of the first half of this year.

This includes our projected full year adjusted tax rate.

Approximately 23%.

We expect aircraft maintenance expense in 2022 to be similar to that of 2021 and.

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

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

Mainly for parts and components for our fleet.

This outlook also includes the higher pilot costs from our new collective bargaining agreement, including additional pay for pilots flying in locations still significantly impacted by Covid.

Before I turn the call over to Spencer I'd like to discuss the update we shared in our press release. This morning regarding our share repurchase program.

As announced in February we established a $200 million share repurchase program.

We began by entering into a $100 million accelerated share repurchase program, which was recently completed.

In total we've now repurchased approximately one 2 million shares through this month.

Returning capital to shareholders continues to be a top priority.

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

Thank you John and Hello, everyone.

Our outstanding first quarter results are highlighted on slide six.

On an adjusted basis, EBITDA was $202 $8 million and adjusted net income was $88 8 million.

On a reported basis net income was $81 5 million.

Our adjusted earnings included an effective income tax rate of 22, 3%.

Moving to the top of slide seven.

Revenue rose to $1 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 higher yields net of fuel, including the impact of the new and enhanced long term agreements.

As well as higher fuel costs.

Slightly lower volumes during the period reflected a reduction in less profitable smaller gauge CMI flying as.

As well as operational disruptions caused by omicron Lockdowns in China.

Higher revenue in our dry leasing segment was primarily due to the expected $5 million of revenue received from maintenance payments related to the scheduled return of an aircraft, which we subsequently sold in January .

Looking now at the bottom of the slide.

Segment contribution was $202 7 million in the first quarter.

Higher airline operations contribution was primarily driven by higher yield net of fuel.

These improvements were partially offset by the increased pilot costs related to our new collective bargaining agreement and.

And higher premium pay for pilots operating in certain areas significantly impacted by COVID-19.

In dry leasing segment contribution benefited from the maintenance payment I noted a moment ago as well as lower interest expense following the scheduled repayment of debt.

Now turning to slide eight.

Our net leverage ratio ended the quarter at one five times.

Which is consistent with year end 2021.

We ended the first quarter of 2022 with cash, including cash equivalents and restricted cash totaling $749 million.

Our cash position at March 31 reflected cash used for investing and financing activities, partially offset by cash provided by operating activities.

Net cash used for investing activities was primarily for payments for flight equipment and modifications.

<unk> $115 million for pre delivery payments for our new aircraft.

As well as core capital expenditures and spare engines.

Net cash used for financing activities, primarily reflected debt payments and the payment for our share repurchases.

As we've said before we apply a disciplined approach to financing.

Given the current rising interest rate environment. It is important to highlight that all of our debt is at a fixed rate.

With a very low weighted average coupon rate, which is now at 283%.

And the majority is secured by our aircraft assets, which have.

A value in excess of the related debt.

We are committed to maintaining our strong balance sheet, which allows us to deploy capital for attractive investment opportunities navigate unexpected events and return capital to shareholders.

Now I would like to turn it back to John .

Thank you Spencer.

Moving to slide nine.

As I mentioned.

We're off to an excellent start in 2022.

And we have a strong outlook for the remainder of the year.

Equally important to the results we delivered is how we delivered them.

At Atlas one of our core values as corporate responsibility and.

And next week, we're issuing our third environmental social and governance report.

Our ESG initiatives capture our commitments to our people communities and the planet and also how we're advancing our ESG strategy and goals.

Right you read more about these initiatives in our ESG report, which will be available in the corporate responsibility section of our website next week.

And with that operator may we have our first question. Please.

Your first question is from.

Bob Leduc of CGS Securities. Your line is open.

Good morning, Congratulations on continued strong performance.

Thank you Bob good morning.

Hi.

Wanted to start with.

It kind of broad question, you've obviously made some major fleet changes over the last year or two.

Coming.

As well you've reduced some of our lower margin smaller gauge planes you've added new plans are in the process of that buying leases et cetera.

Once the Triple Sevens come in are there more expect expected changes.

How do you feel about the current.

Fleet mix.

With what you've announced with a triple Sevens coming in is question. One and then what is the earnings power of this new newly positioned fleet.

It looked like or compared to the pre Covid fleet, even if.

What prices do eventually kind of come back down.

Sure Thanks, Bob and I'll start and then maybe turn it over to sponsor for the latter part of your questions on the earnings power, but.

Look we're very happy with the composition of our fleet.

You're right we did.

Consciously.

Phase out of some of our less productive and less profitable assets. Some of the older equipment, we were flying earlier.

And we feel good about all the fleet types. We currently operate starting with the 737.

800, which is a great fleet and exciting opportunities for new.

New hire pilots and that can continue to graduate up due to the 767 triple seven and 704.

In a variety of different asset types. So it really.

Provides an exciting proposition for pilots who.

Want to see the world or choose to do more domestic flying so we feel we've got the bases covered in terms of our composition with that with a focus on our wide body international capabilities.

Going forward.

One of the things we've said in the past as we.

We'll look at other fleet types or enhancing our.

Existing fleets the triple seven is a great airplane.

It is going to be an airplane in the future, which is why we acquired more of them.

We're really excited about taking the last $4 $74 seven that will ever be produced that's happening.

Throughout this year in fact excited to take on one in May at the end of May.

And there are other new products coming to market that we're looking at closely as well.

Airbus has announced the <unk> hundred 50.

The <unk> hundred 30 conversion so we're looking at all of those.

And for the right opportunities.

Theres nothing we can't fly I guess is what I would say so.

That's just.

I'll summarize and say we are happy with our fleet composition and open to other fleet types as well so on the earnings power question ill turn it over to Spencer.

Thank you John and Bob I'll, just add a couple of quick things.

One is that as you know.

We performed a review of all of our aircraft we specifically we're.

We're looking at some of the older aircraft and we decided to exit the operations of the aging.

774, hundreds and 767, two hundreds and that strategy really ensures that our resources are put to the most profitable use.

So I wanted to point that out the other thing is that our aircraft.

Our.

Modern efficient aircraft that customers want we really don't have aircraft that we think will be retired anytime soon.

And then the other thing I would comment on you were talking about sort of profitability or earnings power.

We don't really provide profitability by by fleet type, but certainly we expect the four new dash eights.

We will contribute to our second half earnings this year at a similar level as the existing dash eights.

Perhaps even more so because they come with the benefit of a maintenance honeymoon and the triple Sevens, they won't really contribute materially this year.

Because one is coming towards the end of the year.

That will generate similar earnings as our dash eights in 'twenty, three and beyond so those two fleet types really generate very strong levels of earnings.

Your question was about earnings power and you can see.

We provided full year full year outlook today, our earnings power is multiples of where it was pre pandemic.

Got it great. Thanks for all that color.

And then just for my follow up question I guess.

Could you give us an update on the.

The financing environment out there I mean, you mentioned obviously.

Debt is fixed at two 8%, which was super attractive you, obviously have more planes coming on and maybe a sense of that.

Cash commitments the PDP. So you have to put out and then just ultimately.

When you finance. These claims what are your thoughts on the current market environment for the financing.

Sure Bob Yes, great questions. So we have paid all of the pre delivery payments for the $70 seven cash eights, we completed those last year.

This year.

During the first quarter, we made a $115 million of pre delivery payments.

And.

That is.

About nearly two thirds of the amount that we need to pay and so we have about a third left that will pay over the course of the remainder of the year. So we're in a great position with our balance sheet, our cash will be able to pay those in cash so we feel.

Terrific about that we have the financing already arranged and mandated for the 747 dash eights when we take delivery of the dash eight and put the financing in place it will actually be cash flow positive which is great.

The.

Margins in swap rates and all of that has been negotiated and we feel really good about the financing that we have in place for those.

And.

Some of the financing on the triple seven because they are coming later.

And some of that is still.

To be done, but we feel great about where we are with regard to all of that.

Okay Super Thanks, so much.

Thank you.

Your next question is from Chris that the levels of <unk>.

Your line is open.

Good morning, everyone. Thanks for.

Taking my question so.

Capacity on the transit group.

Route for past passenger wide bodies is coming back online.

I think al is restarting a lot of flights here could you remind us of your mix of regional flying and what Youre seeing.

With respect to the supply dynamic on key lanes, such as transit Atlantic and Asia Pacific and <unk>.

And then part B.

What are you seeing with respect to rates for charter flying but also.

For <unk> rates on the 760 Sevens and 747 thanks.

Okay.

Out there to unpack Chris.

Let's see so with regard to passenger flying.

And capacity coming back I think as John pointed out earlier not all passenger flying is the same.

So what we're seeing is that when.

Firstly is that the flying Trans Pacific the passenger flying Trans Pacific will be the last flying to come back.

We don't think that will be at pre pandemic levels for quite some time and then even when that flying does return, it's probably not going to look the same as what it looked like prior to the pandemic, there's more leisure and point to point flying.

And in the passenger belly capacity is not as reliable as it once was.

So what we're seeing is that our customers are really focusing on dedicated freighters.

Flexibility the reliability.

And the security that it provides.

So we're seeing more and more.

Freight forwarders and manufacturers direct shippers coming to us.

So I think that was part of your question.

Then I think you were asking about yields.

Pivot to that right alright.

There is some concern out there that rates are starting to go the other way on charter, but also on some of the CMI flying in the market.

Sure so.

Let's see so for the first quarter.

Ad-hoc yields held up extremely well.

They were well above the first quarter of the prior year as an example.

Ex Asia flying from Asia to the U S.

Including fuel.

First quarter of this year was on average $9 65 last year was $5 68, but that includes fuel. So if you take fuel out looking at the first quarter of this year was $8 seven excluding fuel versus the first quarter of last year was $4 83, excluding fuel. So you can see just how strong of a quarter that was.

Now for the second quarter of this.

This year, we think that yields are going to be sort of roughly in line with where they were last year. So last year. What happened was rates were lower in the beginning of the year and then they really took off and we think the rates in the second quarter of this year are looking more similar to where they were in the second quarter.

Of last year, and then overall, we expect spot yields to remain well above where they were pre pandemic levels driven by the shift in consumer demand patterns and continued lack of available capacity.

Okay, and then Chris you mentioned I think transatlantic flying and Thats not really a big space for US, we don't really focus too much on that space.

It can be handled by smaller gauge aircraft and passenger belly space and we really focus more on the longer offline for the most part.

And if I could okay.

Maybe maybe.

By that a little bit and I know these numbers, particularly as the summer travel comes up but they're still well below.

Pre pandemic levels and just some data that we have through through IATA is even on the trans Atlantic It's still 42%.

What it was pre pandemic and on the Trans Atlantic and 10% on the Trans Pacific. So it's a long way to go still and I know Theres a lot of excitement as there should be for international travel opening up but theres still a long way to go.

Okay. So nothing that Youre seeing is giving you concern that this supply dynamic is starting to unravel if you will for cargo operators.

No in fact, I think with what's happened in Ukraine.

Been an additional draw on capacity.

For the increase.

Flying and some of the relief missions I talked about.

Which keeps in addition to other factors.

Demand out there for the available capacity, that's remaining especially for U S carriers.

Okay ill follow ups. So jetblue CEO I think you said a week or two ago that he believes.

Pay rates for pilots among the majors.

Will gradually start to converge and I know you just inked a new deal here with your pilots but.

Several of the large U S airline pilots have deals open now are you concern that pilot rates are going to go up across the board here and if so as you think about the next class.

Pilots at Atlas for the next five to 10 years.

What is the value proposition for flying at Atlas is it the location of crew bases opportunities to advance.

What else thanks.

Sure.

Thanks, Chris and first of all let me just say I'm just.

Pleased with where we are now from.

Pilot.

Labor standpoint, compared to where we've been.

Delighted to be able to have our long term five year contract.

That has provided competitive rates.

We did go through an arbitration.

Asian process.

But that's not where it ended.

Anytime you are in arbitration.

There is a risk that you get some of what you want but not all of what you want and that proved true here and it enabled us to continue to work with the Union and get agreement on additional provisions, which I'm pleased to say, we did cooperatively and reached agreement and now have fully implemented.

But youre right. There are other contracts that are open and I expect rates will go up and not down.

But our.

Contract provides for.

Escalations.

That were negotiated and both sides, we're aware of what the market is and what it will likely be.

As we reached our pay rates and you have to remember.

Pay rate for a pilot is not static it's not waiting for the next contract there are built in raises.

Within.

The pay scale for years of service, so it's not as though our pilots not going without a rate.

So that's all factored into the total collective bargaining agreement.

Yes.

With regard to the environment, it's not uncommon that.

Carriers lose pilots particular carriers in our space and the regionals when when the big guys are hiring that's not a new phenomenon.

But it's something we're continuing to focus on we feel good about the pipeline of pilots and I'll get to the value proposition in a minute.

But we feel good about the pipeline and.

I wish there was less attrition, we're focused on that and making sure our pilots understand the full value proposition of working for Atlas.

For example.

<unk> flying the biggest and best assets that are out there. If you are young man or woman pursuing a pilot career you have the opportunity coming out, let's just start with the 737 and work your way up through the biggest aircraft in the market, which which I talked about in my comments.

We also have a number of different types of offline you can fly scheduled networks, both domestically or internationally.

You can truly see the globe with our international breadth.

You can fly passengers.

Our passenger network for the military we do some cool charter stuff sports teams and entertainment junkets and so forth.

And we really have a great niche and my sense is.

That the overwhelming majority of our pilots are really happy to be here at Atlas and.

And that's what we're focused on delivering the quality of life.

The career path for them, because we know they have choices that that's the way we can compete we cannot always compete on.

Run rate, it's just not our business but.

But we value each and every one of our pilots and.

There is pressure in the marketplace that pilots do have choices and you talked about the next five to 10 years.

I think the next few years theyre going to be critical.

Maintaining our pilot supply and then I think the pipeline of pilots coming out of the military but the flight schools.

I think it's going to catch up eventually.

I'll just give you an anecdote or had a flight ops and myself, we visit flight schools I went to one recently that.

The particular University you said they were.

Inclined to shut down the flight program back in 2018, and they are glad they didnt because they are busting at the seams now.

Keep up with the number of young men and women interested in pilot careers, but thats going to take some time.

To get those pilots.

Fully trained and qualified to fly commercially.

Which is another area I think as an industry.

We're focused on there is it's very expensive to become a commercial pilot and there are some.

Impediments in terms of total hours.

Working closely with government I think industry is looking for ways to make it more efficient.

And cost effective for young pilots to get their commercial licenses maximizing simulator time Im expecting the rule is a 500 dollar roll for example, those who follow the industry know what that is.

But there are ways to get to that 500 hours.

Or alternate means of compliance that are available that we think should be leveraged to increase the pipeline of pilots.

But look we feel great about the company the direction were going the value proposition for our pilots to build their careers here and that's what we're focused on.

Great color John Thank you.

Sure.

Your next question is from Scott Group of Wolfe Research. Your line is open.

Good morning, this is Jake on for Scott.

Hey, Jay.

<unk>.

So when I look historically, you normally see a pretty significant earnings ramp from <unk> to <unk> at least on a percent basis, so guidance of up high single digits sequentially. It feels a little more muted than normal what's driving that.

Yes.

So.

A couple of things that are going on so in the beginning of the first quarter. I know you are asking about the second but at the beginning of the first quarter, we were impacted by.

Carl we.

We had challenges with.

Our own employees and we have challenges with.

Airport and other employees in.

In the second quarter now.

Well actually late in the first quarter and then now in the second quarter.

Having issues with the Lockdowns in China.

And so.

So that's certainly having an impact on the second quarter, when we think about sort of.

Seasonality in our earnings pattern.

Traditionally our earnings are higher in the second half of the year than the first half although that distribution has changed a bit over the past few years, but we do have the majority of our capacity committed with customers on a long term basis, and so that kind of naturally results in a smoother.

Quarterly earnings pattern, but we still perform more heavy maintenance in the first half of the year and we typically still see higher AD hoc rates and higher customer utilization in the fourth quarter peak period, and then of course this year, we expect to take delivery of the four dash eights.

In this quarter and three in the second half so that will.

To further improve our second half earnings and I just wanted to deploy what other Cui.

Quick thing out which is about the lockdowns in China.

Last question.

He was asking about yields and so I just wanted to.

Pointed out that right now because of the Lockdowns in China.

Manufacturing is not as strong as it was in some of the manufacturing has stopped or slowed in some of the <unk>.

Supply chain has stopped or slowed and.

And so I think some people are misinterpreting that meaning that there is some sort of a slowdown but I think it's really a short term COVID-19 blip and when China opens back up there's going to be a tremendous backlog.

Goods and theres going to be a lot more goods manufactured and so there's going to be tremendous demand for airfreight and presumably higher yields as a result.

Got it.

That's all really helpful. And then just a quick question on the salary wages and benefits line for this quarter. It was up sequentially despite block hours down quarter on quarter what drove that.

Yes so.

Youre asking on a sequential basis.

Yes, the prior year just to make sure all versus the prior year. There are some new CBA right spot correct central basis.

Yeah, so on a sequential basis.

We had higher.

Premium pay so we pay our pilots premium pay for operating into areas significantly impacted by COVID-19, and so the premium pay payments in the first quarter.

Hi, guys.

If you were going to try to model, our salaries wages and benefits I think probably the fourth quarter is more representative than the first quarter interestingly.

But of course, it will depend on what happens with Covid going forward.

And if I could add to that.

I could add to that just quickly.

The Omicron variant there was a period of time, where some of the restrictions in foreign countries where easing.

Omicron came around we had countries that had been kind of taken off the Red Zone list that was eligible for premium pay go back on and that's factored into what Spencer is talking about here.

And now some of that's pulling back again.

Got it that's all really helpful. Thanks for the time guys.

Sure. Thanks.

Okay.

Your next question is from.

The launch of Stifel. Your line is open.

Great. Thank you very much I appreciate you taking my questions.

I wanted to sort of ask about contract coverage.

Historically, you have said.

I guess in the last year or two that's about 5% of block hours.

Tie directly to the ad hoc.

Charter market.

Can you just give us an update on what that where that stands today.

More importantly, what is the expectations around that exposure.

Through the rest of this year and into next year.

Sure Hi, Frank Spencer, So I guess the first thing.

Say is that during the first quarter as John noted earlier, we extended or entered into.

New contracts about 10 of those at great rates hours.

Maturities and so we now have nearly two and a half dozen of these long term charter contracts customers are enjoying the dedicated capacity. They now have the majority of them now go through 2000 late 'twenty for early 'twenty five and some of them go through the end of 2002.

Seven.

So we feel great about these and then.

To your specific question about 60% of our.

Flying is an HDMI now about 24% as long term charter.

6% is with the U S military.

About 6% is South America.

That leaves about 4% for AD hoc spot market flying.

Okay, and I guess, a follow up on that.

Some of those I guess on all of those.

Contracts that are locked in now right through late 2024.

Rates are what exactly are they tied to spot or they fixed today, Dave fluctuate seasonally.

What does that look like from.

I guess, the revenue and EBITDA contribution.

Sure so in our in our <unk> business.

<unk> is a fixed fixed take or pay contracts, we have guaranteed monthly minimums customers pay us a guaranteed rate per block hour.

And then in the long term charter contracts, it's very similar but instead of on a per block hour basis. It's on a per trip basis, but these are guaranteed levels and they stay consistent throughout.

Fuel.

On an issue okay.

Fuel is.

Not really an issue.

Are there for us.

Thank you Craig actually.

Are those.

Okay.

Currently above.

<unk> side those are generally on me.

Minimum.

Block hour.

Levels and I think in the past you said you have about 13.

Low double digits percentage above minimum levels.

<unk>.

Am I remembering that correctly is that right is that.

Is that dynamic the same on the charter side are the are you currently operating above contract minimum levels.

Okay.

Sure <unk>.

<unk> customers typically fly 5% to 10% above.

And.

We expect them to be well above that much higher than that.

This year.

With regards to long term charters, it's more on a per trip basis. So we're acquiring the customers network on a per trip basis.

We can at times.

Work with the customer and try to increase utilization, but we really are.

Trying to operate their networks, so theres not theres not a tremendous amount of <unk>.

<unk> involved there because were finding the customers network.

Alright, perfect I appreciate you taking the question.

Very much.

Thank you Greg.

Your next question is from Greg of FTE. Your line is open.

Great results gentlemen.

A few questions here can you can you quantify the <unk>.

The premium pay was it along the lines of <unk>.

$20 million plus in Q1.

The higher Covid.

Going into more Covid hotspots.

Yes.

We haven't really quantified it but I guess.

Sort of quantify it for you so in the first quarter, our salaries wages and benefits.

If you look at the increase in salaries wages and benefits in the first quarter of this year versus the first quarter of last year.

But 85% of that increase.

It was related to crew cost and of that amount about two thirds was related to our new joint collective bargaining agreement and then about one third of that was related to premium pay.

Okay, that's great.

And then.

Did you say the second half of the year, you're forecasting net income to be up approximately.

More than 50% or 60% I didn't hear that correctly.

Over the first half of 2022.

We said that the second half of the year.

<unk> would be about 60% of the full year.

60% of the full year, okay great.

Can you quantify we've announced first quarter earnings today, we provided an outlook for the second quarter and then we have said the full year would be about 60%.

The second half would make up 60% of the full year, great. That's excellent and then in terms of.

Sorry no.

Sorry.

I'm, sorry, I said that wrong.

60% greater than the first half is what we said sorry about that okay. Yes. Thank you for that clarification Spencer I was just about to sorry about that okay.

Okay, Great and then in terms of the impacts from Covid in China, specifically right now are you seeing.

All of the pressure and the shutdown in Shanghai are you seeing flights being diverted to other.

The major metropolitan areas in China or are you seeing a general reduction in China currently.

At some point, there's got to open up.

Well, it's both in my opinion.

<unk> been working hard with our customers to very quickly adjust to those locations that are being restricted or limited.

And I feel good about.

Our success factor in doing that it has not resulted in really any material negativity in terms of total block hours.

So utilizing other locations or some of the surrounding countries Korea for example.

We have been.

Effectively working with our customers I will go back to what Spencer said, though and that is one that does open up and it will.

We see a lot of pent up demand and there's going to be a tremendous appetite for the speed and reliability that airfreight brings.

<unk> brings to the market.

And we expect that will continue for a long period of time.

And then finally on the stock repurchase is great to see that ASR done last quarter.

Do you how do you expect the pace of the remaining authorization to go and are you contemplating the potential for adding to that authorization in 2022.

Well as I said in my remarks share repurchases remain a top priority.

And we will look forward to keeping you all posted.

As you can see we.

Fairly quickly completed the first $100 million of that through the accelerated program and I look forward to keeping you updated on more details.

Great. Thanks, a lot great results.

Thank you thank.

Thank you.

We have a follow up from Chris <unk>.

Your line is open.

Thanks for taking my question. So I just wanted to understand here the utilization nine six hours in the quarter was below the 10 or so you did for the last three quarters and I know that there is some seasonal seasonality here in <unk> generally a weaker quarter, but how much of that reflects any ear.

Regular ops due to COVID-19 or perhaps the conflict in Ukraine.

Yeah, Thanks, Chris less about the conflict in Ukraine.

As an aspect of the Ukraine flying that actually increases block hours to have to go around Russia, Russian aerospace versus through it.

And more of it is associated with what you describe the operational disruptions, particularly with regard to <unk>.

That as you look at global statistics affected everybody in Atlas was no different.

Great if I could.

Yes.

I'm sorry.

Overall airline operations utilization was fairly flat in the first quarter versus the first quarter of last year and traditionally the first quarter has lower utilization due to the higher downtime that we have because of the scheduled maintenance and lower customer flying around lunar new year, and then additionally, as well.

Talked about this quarter, we experienced disruptions and cancellations driven by omicron, especially in the beginning of the quarter, we expect utilization to improve sequentially throughout the year with the fourth quarter being the highest quarter.

Okay.

And then last question on the 22. This year's block hour guide is there a way to give the same store sales comp here and if we do see.

Slowing in the U S consumer in say volumes with Amazon do you think that a low single digit comp for 2023 as possible. Thank you.

Let's see.

With regard to.

Same store sales youre seeing takeaway the aircraft that were no longer flying anymore. I think is that your point.

On an apples for apples basis, just wanted to get a sense.

Because youre, adding aircraft here, which ultimately drives to keep it up but if we were to normalize the fleet year on year what was that.

Volume comps look like.

Yes, I think youll see that our utilization on a per aircraft basis will increase throughout the year and then we'll be adding.

$470 seven dash eight one triple seven this year is our expectation so.

Really.

Fairly consistent slightly better flying on the existing plays and then.

Adding these great new planes will really.

Improved things as well.

Okay and given the order book here that you have or you implied count for this year the triple seven.

Is it possible if we do see a slowing here in the U S and perhaps with world trade that you can do.

As a low single digit.

Comp here later cycle or for 2023 possible. Thank you.

I don't think we're going to comment on 2023 today, but I guess I will say, we'll be adding the $7 seven dash eights this year.

One this quarter and three in the second half of the year next year, we'll have a full year of flying all of those will be adding one triple sevens this year and three more next year.

So we will have.

Not quite a full year apply in 'twenty three but then a full year of acquiring in 'twenty four and those are our most profitable planes they come with a maintenance honeymoon.

<unk>, new modern efficient and customers love them, they carry a high rate so.

That will be good for volumes as well as earnings.

Okay.

<unk> been given.

Youre attached to your time is on a DHS, we shouldnt think that if things do slow that.

1% to 2% organic volume growth here is not achievable.

I realize youre, adding planes and it's not again like for like just trying to there is some concern here that the sustainability.

Of rates here, but also what block hours can do X. The addition of the 770 <unk> Triple Sevens.

Yes, I think.

We think that.

A lot of the concern at the moment.

Is because of the Lockdowns in China, and I think perhaps people are misinterpreting the reduced volumes and.

On the reduced buildup at the Ocean shipping ports.

Things are slowing down and it's just because of these China lockdowns and as soon as things open up.

What we're hearing from all of our customers is that things are going to be incredibly strong. So we are not expecting.

What you said.

And I'd like to add to that.

This is in no way intended to disparage.

Our brothers in the passenger business, but as I said in my comments, we think theres been a shift change in terms of.

The interest in dedicated freighters.

And even when some capacity comes back which anytime capacity comes back it could potentially put pressure on rates.

But I think there were a lot of lessons learned as the value of long term dedicated freighters.

The air freight market was resilient through this difficult time, and there is vulnerable <unk> and the passenger is a new variant surfaces or.

Commercially if capacity doesn't come back to the same degree or in the same form that it was before.

So again, we think that.

Pavers.

Both the volume and rate environment for airfreight and.

And it's created a whole new customer bases of customers that have historically.

Not contracted for dedicated air freight and so that demand that increased demand helps offset some of the concerns in my opinion.

But you are talking about.

Okay I appreciate the color. Thank you.

Thank you.

Your next question is from Helane Becker of Cowen and company. Your line is open.

Hi, Thanks. This is <unk> on for Helane Becker today, Thanks for taking the time and congrats on a great quarter.

Picking up on some of the macro stuff Chris was talking about.

I appreciate that.

Customers are seeing the value of <unk>.

Dedicated air freighters, but theres a lot of debate about how much of an inventory glut theres going on outside of semiconductor chips.

And given how much consumers spent on goods in the last couple of years and inflation rates are experiencing savings rates have come down a lot. It seems like people are shifting their wallet spend back to services.

It's going to come up come at the expense of goods I'm, just kind of curious just to play Devil's advocate how are you thinking about thinking about that it seems like the macro environment is going to get much more sinister over the next year or so.

Well I think we've described how we're thinking about it.

Tom and I appreciate it what you've said, but I think there are a number of <unk>.

Countering positive factors.

We're showing but we're keeping our heads down delivering results. After result after result.

<unk> some of the same questions coming up.

In prior calls.

And.

Is this going to last forever, we fully expect and as we've said before things will moderate but I think for all the reasons, we've said that.

The favorable factors outweigh some of the concerns that both you and Chris have identified <unk> Europe .

Youre right for being concerned about that and for asking those questions but.

Our focus on and one of the reasons why.

Things are starting to settle a little bit in <unk>.

Why we elected to go with full year guidance.

As you know we hadn't done that for a number of quarters because of the lack of clarity in the volatility of the pandemic and some of the supply chain issues, but we have some more visibility now and with as much of our.

Capacity locked up.

For years. This is not just a 'twenty two for years going forward.

I think theres validation.

The <unk>.

Decisions the choices that very sophisticated.

Purchases of our services and aircraft capacity.

Are aligned with what.

What our view of the market is here that's not to say.

We're not concerned about some of the negative forces, where we watch that very closely.

But based on the visibility and the strength of the market, we felt comfortable giving full year guidance.

For this particular release and look forward to keeping you posted and look forward to keeping our head down and continuing to deliver.

As we've done up to this point.

Got it that's good that's great to hear thank you. Thank you very much for the color.

Thank you.

No more questions. Please continue.

Okay, great well. Thank you all of these are great questions.

On behalf of all of Us at Atlas Spencer and I want to thank you for your interest in Atlas Air worldwide. We appreciate the questions and the time, you've taken with US today and we hope you all stay safe and we'll look forward to catching up with you next time.

Thank you for joining.

Thank you operator.

Youre welcome Sir and this concludes today's conference call. Thank you for participating you may now disconnect.

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Thanks.

Good day, and thank you for standing by welcome to the Atlas Air worldwide.

<unk> incorporated.

Q1, 2022 first of all its conference call at this time all participants lines 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 star one on your telephone. Please be advised that today's conference is being recorded.

Joseph Please press Star Zero I would now like to hand, the call over to your speaker today Adam.

MS. <unk>. Please go ahead.

Thank you operator, and good morning, everyone.

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

Welcome to our first quarter.

2022 results conference call.

Today's call will be hosted by John Dietrich, Our Chief Financial 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 of 1095.

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 2021 Form 10-K as amended or supplemented by our subsequently filed SEC reports.

Any references to non-GAAP measures are meant to be.

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.

Thanks, Ed and thank you all for joining our first quarter earnings call.

I'd like to start by acknowledging the unfortunate and horrific humanitarian crisis in Ukraine.

Our thoughts are with the people of Ukraine, and with all those helping during these difficult times.

At Atlas.

We've been doing our part by providing critical air lift to many organizations moving relief supplies into the region.

And as the leading provider of air lift to the U S. Military we've been supporting the U S government's significant supply efforts.

We're very grateful that Atlas is able to participate in these important relief missions.

I'd also like to thank the entire Atlas team for their ongoing commitment to delivering these outstanding results.

As we've been able to demonstrate Atlas has a resilient and proven business. That's consistently delivered very positive results.

Even through the most challenging at times.

And we continue to show the value of air freight is a critical component of the global supply chain.

Our aircraft and services provide the flexibility reliability and speed.

That enables our customers to succeed even through the ever changing logistical landscape.

And air freight will continue to be vital going forward, particularly as the pandemic and related challenges remain.

Passenger capacity is slow to return and manufacturing in Asia ramps back up.

And as we've been discussing with you in recent quarters, we're seeing a sustaining shift in customer demand for long term dedicated airlift.

Is driving more need for atlas's assets and services.

We're expanding and diversifying our customer base and increasing the amount of flying that we performed under long term contracts with attractive rates and guaranteed levels of flying.

In fact during the first quarter, our customers continued to enter or enhance long term agreements with Atlas for dedicated freighter capacity.

And it's important to reiterate that the overwhelming majority of our fleet is now committed under these long term contracts, which puts us in a strong position for the years ahead.

This all bodes well for Atlas and our future.

On the financial front, we've significantly strengthened our balance sheet and have dramatically improved our net leverage ratio.

We have a healthy cash balance and the financial flexibility to act quickly on attractive opportunities to deploy capital, including investing in our business and returning capital to shareholders.

As we've previously noted we are investing in our world class feet.

Our World Class fleet excuse me by adding four new 747 dash eights and four new triple Sevens to meet customer demand.

All four of our new desk dates have been placed under long term agreements and we expect the first will be delivered later this month.

We also have very strong interest for the new Triple Sevens, and we look forward to sharing details on those placements in future calls.

And as we've shared before we're also purchasing five of our existing 747 400 freighters at the end of their leases throughout this year, the first of which we acquired in March.

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

I am pleased to report that we've achieved new first quarter records for both revenue and adjusted earnings.

This is despite the ongoing operational challenges.

That were caused by the pandemic.

Our strong results reflected higher yields, including the impact of numerous new and extended long term contracts.

This was partially offset by higher pilot costs, driven by our new collective bargaining agreement.

Spencer will provide more details on our Q1 results in a moment.

Now moving onto our outlook on slide five as.

As I mentioned earlier, we expect market conditions and customer demand to remain favorable.

Global Air freight 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 need to be retired.

Passenger belly capacity, particularly out of Asia remain slow to return.

And as it does.

We expect passenger networks will look different than prior to the pandemic and will favor more leisure and point to point flying.

This will result in more need for dedicated freighters and major cargo trade lines.

The continuation of congestion at Ocean ports and other related supply chain disruptions are also continuing to favor airfreight.

And importantly, a new customer base, including more manufacturers and freight forwarders I'll now turning to dedicated freighters due to the resiliency of airfreight networks compared to the vulnerability of passenger networks.

In addition to our excellent first quarter results.

We expect strong performance in the second quarter and for the full year.

In the second quarter, we anticipate revenue to exceed $1 1 billion from flying more than 85000 block hours.

In addition, we expect adjusted EBITDA of approximately $215 million.

And adjusted net income to grow by a high single digit percentage compared with our adjusted net income of $88 8 million in the first quarter of this year.

Our full year earnings outlook reflects the significant portion of our business under high yielding long term contracts.

As well as strong yields in the AD hoc charter market.

As a result, we expect to fly more than 350000 block hours in 2022 with revenue of approximately $4 6 billion.

And adjusted EBITDA of about $1 billion.

In addition, we anticipate adjusted net income in the second half of 2022.

To improve approximately 60% compared with that of the first half of this year.

This includes our projected full year adjusted tax rate of approximately 23%.

We expect aircraft maintenance expense in 2022 to be similar to that of 2021 and.

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

Our 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.

This outlook also includes the higher pilot costs from our new collective bargaining agreement, including additional pay for pilots flying in locations still significantly impacted by Covid.

Before I turn the call over to Spencer I would like to discuss the update we shared in our press release. This morning regarding our share repurchase program.

As announced in February we established a $200 million share repurchase program we.

We began by entering into a $100 million accelerated share repurchase program, which was recently completed.

In total we've now repurchased approximately one 2 million shares through this month.

Returning the capital to shareholders continues to be a top priority.

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

Sensor.

Thank you John and Hello, everyone.

Our outstanding first quarter results are highlighted on slide six.

On an adjusted basis EBITDA was $202 8 million.

And adjusted net income was $88 8 million.

On a reported basis net income was $81 5 million.

Our adjusted earnings included an effective income tax rate of 22, 3%.

Moving to the top of slide seven.

Revenue rose to $1 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 higher yields net of fuel, including the impact of the new and enhanced long term agreements.

As well as higher fuel costs.

Slightly lower volumes during the period reflected a reduction in less profitable smaller gauge CMI flying.

As well as operational disruptions caused by omicron Lockdowns in China.

Higher revenue in our dry leasing segment was primarily due to the expected $5 million of revenue received from maintenance payments related to the scheduled return of an aircraft, which we subsequently sold in January .

Looking now at the bottom of the slide.

Segment contribution was $202 $7 million in the first quarter.

Higher airline operations contribution was primarily driven by higher yield net of fuel.

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

And higher premium pay for pilots operating in certain areas significantly impacted by COVID-19.

In dry leasing segment contribution benefited from the maintenance payment I noted a moment ago as well as lower interest expense following the scheduled repayment of debt.

Now turning to slide eight.

Our net leverage ratio ended the quarter at 145 times.

Which is consistent with year end 2021.

We ended the first quarter of 2022 with cash, including cash equivalents and restricted cash totaling $749 million.

Our cash position at March 30, <unk> reflected cash used for investing and financing activities, partially offset by cash provided by operating activities.

Net cash used for investing activities was primarily for payments for flight equipment and modifications.

<unk> $115 million for pre delivery payments for our new aircraft.

As well as core capital expenditures and spare engines.

Net cash used for financing activities, primarily reflected debt payments and the payment for our share repurchases.

As we've said before we apply a disciplined approach to financing.

Given the current rising interest rate environment. It is important to highlight that all of our debt is at a fixed rate.

With a very low weighted average coupon rate, which is now at 283%.

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

We are committed to maintaining our strong balance sheet, which allows us to deploy capital for attractive investment opportunities navigate unexpected events.

And return capital to shareholders.

Now I would like to turn it back to John .

Thank you Spencer.

Moving to slide nine.

As I mentioned.

We're off to an excellent start in 2022.

And we have a strong outlook for the remainder of the year.

Equally important to the results we delivered is how we delivered them.

At Atlas one of our core values as corporate responsibility and.

And next week, we're issuing our third environmental social and governance report.

Our ESG initiatives capture our commitments to our people communities and the planet and also how we're advancing our ESG strategy and goals.

You can read more about these initiatives in our ESG report, which will be available in the corporate responsibility section of our website next week.

And with that operator may we have our first question. Please.

Your first question is from.

Bob Leduc CGS Securities. Your line is open.

Good morning, Congratulations on continued strong performance.

Thank you Bob good morning.

Hi.

Wanted to start with.

It kind of broad question, you've obviously made some major fleet changes over the last I don't know a year or two.

Coming.

As well you've reduced some of our lower margin smaller gauge planes, you've added new plants are in the process of that buying leases et cetera.

Once the Triple Sevens come in are there more expect expected changes.

How do you feel about the current.

Fleet mix.

With what you've announced with Triple Sevens coming in is question. One and then what is the earnings power of this new newly positioned fleet.

It looked like or compare to the pre Covid fleet, even if.

<unk> prices do eventually kind of come back down.

Sure Thanks, Bob and I'll start and then maybe turn it over to sponsor for the latter part of your questions on the earnings power, but.

Look we're very happy with the composition of our fleet.

You're right we did.

Consciously.

Phase out of some of our less productive and less profitable assets and the older equipment, we are flying earlier.

And we feel good about all the fleet types. We currently operate starting with the 737.

800, which is a great fleet as exciting opportunities for.

New hire pilots and that can continue to graduate up due to the 767 triple seven and 74.

And in a variety of different asset types. So it really.

Provides an exciting proposition for pilots who.

Want to see the world or choose to do more domestic flying so we feel we've got the bases covered in terms of our composition with that.

With a focus on our wide body international capabilities.

Going forward.

One of the things we've said in the past is.

We will look at other fleet types or enhancing our <unk>.

Existing fleets the triple seven is a great airplane.

It is going to be an airplane in the future, which is why we acquired more of them.

We're really excited about taking the last $4 74, 7% it will ever be produced that's happening.

This year in fact excited to take on one in May at the end of May.

And there are other new products coming to market that we're looking at closely as well.

Airbus has announced the <unk> hundred 50.

<unk> hundred 30 conversion so we're looking at all of those.

And for the right opportunities.

There is nothing we can't fly I guess is what I would say so.

That's just.

I'll summarize and say, we're happy with our fleet composition and open to other fleet types as well so on the earnings power question ill turn it over to Spencer.

Thank you Jonathan.

Bob I'll, just add a couple of quick things.

One is that as you know.

We performed a review of all of our aircraft we specifically we're.

We're looking at some of the older aircraft and we decided to exit the operations of the aging.

787, four hundreds and 767, two hundreds and that strategy really ensures that our resources are put to the most profitable use.

So I wanted to point that out the other thing is that our aircraft.

Our.

Modern efficient aircraft that customers want we really don't have aircraft that we.

We think will be retired anytime soon.

And then the other thing I would comment on you were talking about sort of profitability or earnings power.

We don't really provide profitability by by fleet type, but certainly we expect that for new dash eights.

We will contribute to our second half earnings this year at a similar level as the existing dash eights.

Perhaps even more so because they come with the benefit of a maintenance honeymoon and the triple Sevens, they won't really contribute materially this year.

Because.

One is coming towards the end of the year.

But that will generate similar earnings as our dash eights in 'twenty three and beyond so those two fleet types really generate very strong levels of earnings.

Your question was about earnings power and you can see.

We provided full year full year outlook today, our earnings power is multiples of where it was pre pandemic.

Got it great. Thanks for all that color.

And then just for my follow up question I guess.

Could you give us an update on the.

The financing environment out there I mean, you mentioned obviously.

Debt is fixed at two 8%, which was super attractive you, obviously have more planes coming on and so maybe a central.

Cash.

<unk>. The PDP is you have to put out and then just ultimately.

When you finance. These claims what are your thoughts on the current market environment for the financing.

Sure Bob Yes, great questions.

We have paid all of the pre delivery payments for the $74 seven cash eights, we completed those last year.

This year during the first quarter, we made a $115 million of pre delivery payments.

And.

That is.

About nearly two thirds of the amount that we need to pay and so we have about a third left that we will pay over the course of the remainder of the year. So we're in a great position with our balance sheet, our cash will be able to pay those in cash so we feel.

Terrific about that we have the financing already arranged and mandated for the 737 dash eights when we take delivery of the dash eight and put the financing in place that will actually be cash flow positive which is great.

B.

Margins in swap rates and all of that has been negotiated and we feel really good about the financing that we have in place for those.

And.

Some of the financing on the Triple Sevens, because they are coming later.

Set and some of that is still.

To be done, but we feel great about where we are with regard to all of that.

Okay.

Okay Super Thanks, so much.

Thank you.

Your next question is from Chris Loughlin.

Your line is open.

Good morning, everyone. Thanks for.

Taking my question so.

Capacity on the <unk>.

<unk>.

Route for past passenger wide bodies is coming back online.

I think <unk> restarting a lot of flights here could you remind us of your mix of regional flying and what Youre seeing.

With respect to the supply dynamic on key lanes, such as Trans Atlantic and Asia Pacific and and then part B.

What are you seeing with respect to rates for charter flying but also.

For <unk> rates on the 760 Sevens at 740 <unk>. Thanks.

Okay, there's a lot there to unpack Chris.

Let's see so with regard to passenger flying.

And capacity coming back I think as John pointed out earlier not all passenger flying is the same and so what we're seeing is that when.

Firstly is that the flying Trans Pacific the passenger flying Trans Pacific will be the last flying to come back.

Don't think that will be at pre pandemic levels for quite some time and then even when.

Flying does return, it's probably not going to look the same as what it look like.

Prior to the pandemic, there's more leisure and point to point decline.

And in the passenger belly capacity is not as reliable as it once was and so what we're seeing is that our customers are really focusing on dedicated freighters the flexibility the reliability.

<unk>.

And the security that it provides.

So we're seeing more and more.

Freight forwarders and manufacturers direct shippers coming to us.

So I think that was part of your question.

Then I think you were asking about yields.

Pivot to that right alright. There is there is there is some concern out there that rates are starting to go the other way on.

Charter, but also on some of the CMI flying in the market.

Sure so.

Let's see so for the first quarter AD hoc yields held up extremely well.

They were well above the first quarter of the prior year as an example.

Ex Asia flying from Asia to the U S.

Including fuel.

The first quarter of this year was on average $9 65 last year was $5 68, but that includes fuel. So if you take fuel out.

Looking at the first quarter of this year it was $8 seven excluding fuel versus the first quarter of last year was $4 83, excluding fuel. So you can see just how strong of a quarter that was now for the second quarter of.

This year, we think that yields are going to be sort of roughly in line with where they were last year. So last year. What happened was rates were lower in the beginning of the year and then they really took off and we think that the rates in the second quarter of this year are looking more similar to where they were in the second quarter.

Of last year, and then overall, we expect spot yields to remain well above where they were pre pandemic levels driven by the shift in consumer demand patterns and continued lack of available capacity.

Okay, and then Chris you mentioned I think Trans Atlantic flying and that's not really a big space for US, we don't really focus too much on that space.

It can be handled by smaller gauge aircraft and passenger belly space and we really focus more on the longer haul flying for the most part.

And if I could okay.

Maybe maybe.

That a little bit and I know these numbers, particularly as the summer travel comes up but they're still well below.

Pre pandemic levels and just some data that we have through through IATA is even on the trans Atlantic It's still 42% of what it was pre pandemic.

The trans Atlantic and 10%.

On the Trans Pacific So, it's a long way to go still and I know Theres a lot of excitement as there should be for international travel opening up but there is still a long way to go.

Okay. So nothing that Youre seeing is giving you concern that there's this supply dynamic is starting to unravel if you will for cargo operators.

No in fact, I think with what's happened in Ukraine, it's been an additional draw on capacity.

For the increase.

And some of the relief missions I talked about which keeps in addition to other factors.

Demand out there for the available capacity, that's remaining especially for U S carriers.

Okay as a follow up sort of Jetblue CEO , I think said a week or two ago that he believes.

Pay rates for pilots among the majors, we will gradually start to converge and I know you just inked a new deal here with your pilots but.

Several of the large U S airline pilots have deals open now are you concerned that pilot rates are going to go up across the board here and if so as you think about the next class.

Pilots at Atlas for the next five to 10 years.

What is the value proposition for flying at Atlas is it the location of crew bases opportunities to advance.

What else thanks.

Sure.

Thanks, Christian and first of all let me just say I'm just.

Pleased with where we are now from pilot.

Labor standpoint, compared to where we've been.

<unk> to be able to have our long term five year contract.

That has provided competitive rates.

We did go through an arbitration process.

But that's not where it ended.

Anytime you are in arbitration.

There is a risk that you get some of what you want but not all of what you want and that proved true here.

It enabled us to continue to work with the Union and get agreement on additional provisions, which I'm pleased to say, we did cooperatively and reached agreement and now have fully implemented.

But youre right. There are other contracts that are open and I expect rates will go up and not down.

But our.

Contract provides for.

Escalations.

That were negotiated and both sides, we're aware of what the market is and what it will likely be.

As we reached our pay rates and you have to remember.

Period for a pilot is not static it's not waiting for the next contract there are built in raises.

Within.

The pay scale for years of service, so it's not as though our pilots not going without a rate.

So that's all factored into the total collective bargaining agreement.

Yes.

With regard to the environment, it's not uncommon that.

Carriers lose pilots particular carriers in our space and the regionals when when the big guys are hiring that's not a new phenomenon.

But it's something we're continuing to focus on we feel good about the pipeline of pilots and I'll get to the value proposition in a minute.

But we feel good about the pipeline and.

I wish there was less attrition, we are focused on that and making sure our pilots understand the full value proposition of working for Atlas.

For example, flying the biggest and best assets that are out there. If you are young man or woman pursuing a pilot career you have the opportunity coming out, let's just start with the 737 and work your way up through the biggest aircrafts in the market, which which I talked about in my comments.

We also have a number of different types of flying you can fly scheduled networks, both domestically or internationally.

You can truly see the globe with our international breadth.

You can fly passengers.

Our passenger network for the military we do some cool charter stuff sports teams and entertainment junkets and so forth.

And we really have a great niche and my sense is.

The overwhelming majority of our pilots are really happy to be here at Atlas and.

And that's what we're focused on delivering the quality of life in the career path for them because we know they have choices that that's the way. We can compete we cannot always compete on rate, it's just not our business.

But we value each and every one of our pilots and.

There is pressure in the marketplace that pilots do have choices and you talked about the next five to 10 years.

I think the next few years are going to be critical.

Maintaining our pilot supply and then I think the pipeline of pilots coming out of the military but the flight schools.

I think it's going to catch up eventually.

I'll just give you an anecdote or had a flight ops and myself, we visit flight schools I went to one recently that.

The.

The University said they were.

Inclined to shut down the flight program back in 2018, and they're glad they didnt because they are busting at the seams now.

Keep up with the number of young men and women interested in pilot careers, but thats going to take some time to get those pilots.

Fully trained and qualified to fly commercially.

Which is another area I think as an industry. We're focused on there is it's very expensive to become a commercial pilot and there are some.

Impediments in terms of total hours and working closely with government I think industry is looking for ways to make it more efficient.

And cost effective for young pilots to get their commercial licenses.

Maximizing simulator time Im expecting the rule is a 500 dollar roll for example, those who follow the industry know what that is.

But there are ways to get to that 500 hours.

Or alternate means of compliance that are available that we think should be leveraged to increase the pipeline of pilots.

But look we feel great about the company the direction, we're going the value proposition for our pilots to build their careers here and that's what we're focused on.

Great color John Thank you.

Sure.

Your next question is from Scott Group of Wolfe Research. Your line is open.

Good morning, this is Jake on for Scott.

Hey, Jay.

Jay.

So when I look historically, you normally see a pretty significant earnings ramp from <unk> to <unk> at least on a percent basis.

<unk>.

Single digits sequentially feels a little more muted than normal what's driving that.

Yes, Hi, Jay Spencer so.

A couple of things that are going on so in the beginning of the first quarter. I know you are asking about the second thought at the beginning of the first quarter, we were impacted by <unk>.

Carl we.

We had challenges with.

Our own employees and we had challenges with.

Airport and other employees.

Second quarter now.

Well actually late in the first quarter and then now in the second quarter were having issues with the Lockdowns in China.

So.

So that's certainly having an impact on the second quarter, when we think about that sort of seasonality in our earnings pattern.

Additionally, our earnings are higher in the second half of the year.

First half, although that distribution has changed a bit over the past few years, but we do have the majority of our capacity committed with customers on a long term basis, and so that kind of naturally results in a smoother quarterly earnings pattern, but we still perform more heavy maintenance in the first half of the year.

And we typically still see higher ad hoc rates and higher customer utilization in the fourth quarter peak period.

And then of course this year, we expect to take delivery of the four dash eight one this quarter and three in the second half so that will continue.

Continue to further improve our second half earnings and I just wanted to deploy what other.

Quick thing out which is about the lockdowns in China.

Last question.

He was asking about yields and so I just wanted to.

Point out that right now because of the Lockdowns in China.

Manufacturing is not as strong as it was in some of the manufacturing has stopped or slowed in some of the <unk>.

Supply chain has stopped or slowed.

And so I think some people are misinterpreting that meaning that there is some sort of a slowdown but I think it's really a short term COVID-19 blip and when China opens back up there's going to be a tremendous backlog.

Goods and theres going to be a lot more goods manufactured and so there's going to be tremendous demand for airfreight and presumably higher yields as a result.

Got it.

That's all really helpful.

Just a quick question on the salary wages and benefits line for this quarter. It was up sequentially, despite block hours down quarter on quarter.

What drove that.

Yes so.

You are asking.

On a sequential basis.

Yes, yes, the prior year just to make sure all the prior years, there are some new CBA rice, but correct central basis.

Yeah, so on a sequential basis.

We had higher.

Premium pay so we pay our pilots premium pay for operating into areas significantly impacted by COVID-19, and so the premium pay payments in the first quarter.

Were very high.

If you were going to try to model, our salaries wages and benefits I think probably the fourth quarter is more representative than the first quarter interestingly.

But of course, it will depend on what happens with Covid going forward.

Yeah, and if I could add to that.

If I could add to that just quickly.

The Omicron variant there was a period of time, where some of the restrictions in foreign countries, where easing and when <unk> came around we had countries that had been kind of taken off the Red Zone list that was eligible for a premium pay go back on and that's factored into what sensors talks.

About here and.

And now some of that's pulling back again.

Got it that's all really helpful. Thanks for the time guys.

Sure.

Right.

Your next question is from Frank <unk> of Stifel. Your line is open.

Great. Thank you very much I appreciate you taking my questions.

I wanted to sort of ask about contract coverage.

Historically, you've said.

And I guess in the last year or two that's about 5% of block hours.

Tie directly to the ad hoc.

Charter market.

Can you just give us an update on what that where that stands today.

I guess more importantly, what is the expectations around that exposure.

Through the rest of this year and into next year.

Sure Hi, Frank Spencer.

So I guess the first thing I'll say is that during the first quarter.

John noted earlier, we extended or entered into.

New contracts about 10 of those at great rates hours.

Maturities and so we now have nearly two and a half dozen of these long term charter contracts customers are enjoying the dedicated capacity. They now have the majority of them now go through 2000 late 'twenty for early 'twenty five and some of them go through the end of 2020.

Kevin.

So we feel great about these and then to.

To your specific question about 60% of our flying is in <unk> now about 24% as long term charter.

About 6% as with the U S military.

About 6% is South America, and that leaves about 4% for AD hoc spot market flying.

Okay, and I guess, a follow up on that.

Some of those I guess on all of those.

Contracts that are locked in now right through late 2024, those rates or what exactly are they tied to spot or they fixed today do they fluctuate seasonally.

What does that look like from.

I guess the revenue.

EBITDA contribution.

Sure so in our in our <unk> business.

As a fixed fees are fixed take or pay contracts, we have guaranteed monthly minimums customers pay us a guaranteed rate per block hour.

And then in the long term charter contract is very similar but instead of on a per block hour basis, it's on a per trip basis, but these are guaranteed levels.

Consistent throughout.

Fuel is not an issue.

<unk>.

Okay.

The appeal is.

It's not really an issue there for us.

Thank you Craig actually.

Are those.

Yeah.

Currently above <unk>.

<unk> side those are generally on me.

Minimum.

Block hour.

Levels and I think in the past you said you have about 13.

Low double digits percentage above minimum levels.

<unk>.

Am I remembering that correctly is that right is that.

Is that dynamic the same on the charter side are the are you currently operating above contract minimum levels.

Okay.

Sure for <unk> customers, typically fly, 5% to 10% above it.

And.

We expect them to be well above that much higher than that.

This year.

With regard to long term charters.

More on a per trip basis. So we're flying the customers network on a per trip basis.

We can at times.

Work with the customer and try to increase utilization, but we really are trying to operate their network. So there's not there's not a tremendous amount of flexing.

<unk> involved there because we're flying the customer's network.

Alright, perfect I appreciate you taking the question.

Very much thank you.

Great.

Your next question is from Greg FTE. Your line is open.

Great results gentlemen, just.

Just a few questions here can you can you quantify the <unk>.

Higher premium pay was it along the lines of <unk>.

$20 million plus in Q1.

The higher Covid.

Going into more Covid hotspots.

Yes.

We haven't really quantified it but I guess.

Sort of quantify it for you so in the first quarter, our salaries wages and benefits.

If you look at the increase in salaries wages and benefits in the first quarter this year versus the first quarter of last year.

But 85% of that increase.

Was related to crew cost and of that amount about two thirds was related to our new joint collective bargaining agreement and then about one third of that was related to premium pay.

Okay, that's great.

And then.

Did you say the second half of the year, you're forecasting net income to be up approximately.

More than 50% or 60% I didn't hear that correctly.

Over the first half of 2022.

We said that the second half of the year.

<unk> would be about 60% of the full year.

60% of the full year, okay great.

Can you qualitatively, we've announced first quarter earnings today, we provided an outlook for the second quarter and then we said the full year would be about 60% of.

The second half would make up 60% of the full year, great. That's excellent and then in terms of.

Sorry, no I'm sorry.

I'm, sorry, I said that wrong.

60% greater than the first half is what we said sorry about that okay. Thank you for that clarification Spencer I was just about to sorry about that okay.

Okay, Great and then in terms of the impacts from Covid in China, specifically right now are you seeing.

All of the pressure and the shutdown in Shanghai are you seeing flights being diverted to other.

Our major metropolitan areas in China or are you seeing a general reduction in China currently.

At some point, there's got to open up.

Well, it's both in my opinion.

<unk> been working hard with our customers to very quickly adjust to those locations that are being restricted or limited.

And I feel good about.

Our success factor in doing that it has not resulted in really any material negativity in terms of total block hours.

So utilizing other locations or some of the surrounding countries Korea for example.

We have been.

Effectively working with our customers.

Go back to what Spencer said, though and that is one that does open up and it will.

We see a lot of pent up demand and there's going to be a tremendous appetite for the speed and reliability that airfreight brings to the market.

And we expect that will continue for a long period of time, Okay. And then finally on the stock repurchase is great to see that ASR done last quarter.

Do you how do you expect the pace of the remaining authorization to go and are you contemplating the potential for adding to that authorization in 2022.

Well as I said in my remarks share repurchases remain a top priority and.

And we will look forward to keeping you all posted.

As you can see we we fairly quickly completed the first $100 million of debt through the accelerated program and I look forward to keeping you updated on more details.

Great. Thanks, a lot great results.

Thank you.

Thank you.

We have a follow up from Chris <unk>.

Your line is open.

Thanks for taking my question. So I just wanted to understand here the utilization nine six hours in the quarter was below the 10 or so you did for the last three quarters and I know that theres some seasonal seasonality here in <unk> generally a weaker quarter, but how much of that reflects any.

Irregular ops due to COVID-19 or perhaps the conflict in Ukraine.

Yeah, Thanks, Chris less about the conflict in Ukraine.

There is an aspect of the Ukraine flying that actually increases block hours to have to go around Russia, Russian aerospace versus through it.

And more of it is associated with what you describe the operational disruptions, particularly with regard to omnicom.

As you look at global statistics affected everybody in Atlas was no different.

Okay, if I could.

Yes.

Yes.

I'm sorry.

Overall airline operations utilization was fairly flat in the first quarter versus the first quarter of last year and traditionally the first quarter has lower utilization due to the higher downtime that we have because of scheduled maintenance and lower customer flying around lunar new year, and then additionally, as well.

Talked about this quarter, we experienced disruption and cancellation was driven by omicron, especially in the beginning of the quarter, we expect utilization to improve sequentially throughout the year with the fourth quarter being the highest quarter.

Okay.

And then last question on the 22. This year's block hour guide is there a way to give the same store sales comp here and if we do see.

Slowing in the U S consumer in say volumes with Amazon do you think that a low single digit comp for 2023 as possible. Thank you.

Let's see.

With regard to.

Same store sales youre seeing takeaway the aircraft that were no longer flying anymore. I think is that your point.

On an apples for apples basis, just wanted to get a sense of.

Because you are adding aircraft here, which ultimately drives EBITDA, but if we were to normalize the fleet year on year what was that.

Volume conflict leg.

Yes, I think youll see that our utilization on a per aircraft basis will increase throughout the year and then we'll be adding.

For $7 seven dash eight one triple seven this year is our expectation so.

Really.

Fairly consistent slightly better flying on the existing plays and then.

Adding these great new planes will really.

Improved things as well.

Okay and given the order book here that you have or you implied count for this year the triple seven.

Is it possible if we do see a slowing here in the U S and perhaps with world trade that you can do.

As a low single digit.

Comp here later cycle or for 2023 possible. Thank you.

I don't think we're going to comment on 2023 today, but I guess I will say, we'll be adding the $7 seven dash eights this year.

One this quarter and three in the second half of the year next year, we'll have a full year of flying all of those will be adding one triple 70, this year and three more next year.

So we will have.

Not quite a full year applying in 'twenty three but then a full year of acquiring in 'twenty four and those are our most profitable planes they come with a maintenance honeymoon.

<unk>, new modern efficient and customers love them, they carry a high rate so.

That will be good for volumes as well as earnings.

Okay.

<unk>.

Youre attached to your time is on a DHS, we shouldnt think that if things do slow that.

1% to 2% organic volume growth here is not achievable.

I realize youre, adding planes and it's not again like for like just trying to there is some concern here that the sustainability.

Of rates here, but also what block hours can do X. The addition of the.

747 of the Triple Sevens.

Yes, I think.

We think that.

A lot of the concern at the moment.

Is because of the Lockdowns in China, and I think perhaps people are misinterpreting the reduced volumes and.

The reduced buildup at the Ocean shipping ports.

Things are slowing down, but it's just because of these China lockdowns and as soon as things open up.

What we're hearing from all of our customers is that things are going to be incredibly strong. So we are not expecting.

What you said.

And I'd like to add to that.

This is in no way intended to disparage.

Our brothers in the passenger business, but as I said in my comments, we think theres been a shift change in terms of.

The interest in dedicated freighters.

And even when some capacity comes back which anytime capacity comes back it could potentially put pressure on rates, but I think there were a lot of lessons learned as the value of long term dedicated freighters.

The air freight market was resilient through this difficult time, and there is vulnerable Ot and the passenger if a new variant surfaces or.

Commercially as capacity doesn't come back to.

To the same degree or in the same form that it was before.

So again, we think that favor.

Favors.

Both the volume and rate environment for airfreight.

And it's created a whole new customer bases of customers that have historically.

<unk>.

Contracted for dedicated air freight and so that demand that increased demand helps offset some of the concerns in my opinion.

But youre talking about.

Okay I appreciate the color. Thank you.

Thank you.

Your next question is from Helane Becker of Cowen and company. Your line is open.

Hi, Thanks. This is common share them on for Helane Becker today, Thanks for taking the time and congrats on a great quarter.

Picking up on some of the macro stuff Chris was talking about.

I appreciate that.

Customers are seeing the value of the <unk>.

Dedicated air freighters, but theres a lot of debate about how much of an inventory glut theres going on outside of semiconductor chips.

Given how much consumers spent on goods in the last couple of years and inflation rates are experiencing savings rates have come down a lot. It seems like people are shifting their wallet spend back to services and goods are going to it's going to come at the expense of goods I'm just kind of curious just to play Devil's advocate how are you thinking about thinking about that it seems like the macro environment is going to get much more sinister.

The next year or so.

Well I think we've described how we're thinking about it.

Tom and I appreciate it what you've said, but I think there are a number of <unk>.

Countering positive factors.

We're showing look we're keeping our heads down delivering results. After result after result.

Despite some of the same questions coming up.

In prior calls.

And.

Is this going to last forever, we fully expect and as we've said before things will moderate.

But I think for all the reasons we've said.

The favorable factors outweigh some of the concerns that both you and Chris.

I think Europe .

Youre right for being concerned about that and for asking those questions, but again, our focus on and one of the reasons why.

Things are starting to settle a little bit.

Why we elected to go with full year guidance as you know we hadn't done that for a number of quarters because of the lack of clarity in the volatility of the pandemic and some of the supply chain issues, but we have some more visibility now and with as much of our.

Capacity locked up.

For years. This is not just a 'twenty two for years going forward.

I think theres validation in the.

Decisions the choices that very sophisticated.

Purchases of our services and aircraft capacity are.

Our aligned with.

What our view of the market is here that's not to say.

We're not concerned about some of the negative forces when we watch that very closely.

But based on the visibility and the strength of the market, we felt comfortable giving full year guidance.

For this particular release and look forward to keeping you posted and look forward to keeping our head down and continuing to deliver.

As we've done up to this point.

Got it that's good that's good to hear thank you. Thank you very much for the color.

Thank you.

No more questions. Please continue.

Okay great.

Thank you all of these are great questions.

And on behalf of all of US at Atlas Spencer and I want to thank you for your interest in Atlas Air worldwide. We appreciate the questions and the time, you've taken with US today and we hope you all stay safe and we'll look forward to catching up with you next time.

And thank you for joining.

Thank you operator.

Youre welcome Sir and this concludes today's conference call. Thank you for participating you may now disconnect.