Amid COVID outbreak, freighter demand boosts ATSG in Q1

Big white jet with wheels down for landing.

It’s much better to be a cargo than a passenger airline these days. The former has seen demand shoot through the roof; the latter’s business has fallen off a cliff.

Air Transport Services Group (NASDAQ: ATSG) delivered first-quarter operating profit of $133.7 million, or $2.27 per share, versus $22.6 million in the year-ago period on the strength of combined revenue growth of 12% for its aircraft leasing and air transport segments. That’s a good three months compared to passenger carriers that were hundreds of millions of dollars in the red as the coronavirus destroyed travel demand.

Consolidated diluted earnings of 84 cents per share beat consensus estimates by 54 cents, and revenue came in 11.8% higher than expected at $389 million. The results follow record revenues and strong earnings growth in 2019.

ATSG, Wilmington, Ohio, is not providing full-year guidance but did say it expects adjusted earnings before interest, taxes, depreciation and amortization to exceed the 2019 total of $452 million. That’s more detail about future performance than most companies are giving these days because of coronavirus uncertainties.

The air services provider said it expects to receive $67 million from the federal aid package for the airline industry designed to prevent involuntary furloughs through September.

The company continues to be busy, from its cargo subsidiaries deploying more aircraft to meet growing e-commerce demand at customers such as and DHL, to its maintenance and engineering group completing avionics work on short notice for the New England Patriots’ Boeing 767 so it could fly to China to pick up about 1 million N95 face masks for hospitals in Boston and New York.

“Despite the pandemic, we remain cautiously optimistic about the rest of 2020, as we deploy more 767 converted freighters for customers responding to expanded e-commerce shopping, and operate passenger aircraft to support the U.S. military’s evolving requirements,” CEO Joe Hete said in his final earnings statement before retiring on Thursday.

Cargo Aircraft Management (CAM), the leasing company, benefited from seven newly converted 767 freighters deployed in the past year, including one being flown by UPS since January. CAM has 62 of its in-service cargo aircraft leased to customers — three more than a year ago — and 35 of those are operated by sister companies ABX Air or Air Transport International. CAM has 15 aircraft being converted to cargo configuration or ready for lease, and more than half are already committed to customers, with the rest likely to be rented this year or next, ATSG said.

First-quarter revenue for its contract air transport subsidiaries increased 10%, mainly from growth in passenger charter Omni Air and Air Transport International. The three airlines operate 69 aircraft, 15 of them passenger variants. The company said it is holding on to two 757-200 freighters for the rest of the year even though DHL’s contract for them expired Friday.

Air Transport International is training crews now to begin flying four additional 767-300 aircraft leased by Amazon from CAM.