ATSG saw revenues of $501 million in the first quarter of 2023.

Air Transport Services Group, one of the leading global providers of medium wide-body aircraft leasing, contracted air transportation, and related services, has released this week its latest results for the first quarter of the year.

The company reported revenues are up 3% to an amazing $501 million, and its adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)  was $138 million, down $20 million. 

Rich Corrado, president and chief executive officer of ATSG, said, "These results, while disappointing, do reflect the operating headwinds we talked about in February, including lower 2023 results at our airlines. The first quarter Adjusted EBITDA reflected lower than expected passenger airline revenues and the continued impact of inflation at our airlines. Our aircraft leasing business, CAM, has seen no reduction in demand for its desirable leased freighters, and continues to invest with the expectation of delivering attractive returns for the midsize freighter aircraft we expect to lease during the rest of 2023 and into 2024."

Segment Results

Cargo Aircraft Management (CAM)

Aircraft leasing and related revenues from external customers in the first quarter were up 8% compared to the first quarter of 2022, primarily reflecting the benefit of eight newly converted Boeing 767-300 freighters leased since the beginning of the first quarter of 2022, offset by lower revenues from engine pooling arrangements for customers leasing 767-200 freighters.

CAM’s first-quarter pretax earnings decreased 2% to $34 million versus the prior-year quarter. Those earnings were impacted by $2.3 million more interest expense allocated to CAM, driven by more aircraft assets, including feedstock in or awaiting freighter modification.

CAM deployed two 767-300 freighters to an external customer during the quarter. One 767-200 freighter was returned upon lease expiration. Ninety-two CAM-owned 767 freighter aircraft were leased to external customers at the end of the quarter, six more than a year ago.

CAM intends to deploy eighteen more freighters in 2023, including twelve 767s and six A321s. Twenty-seven CAM-owned aircraft were in or awaiting conversion to freighters, twelve more than a year ago. That quarter-end total includes nine A321 aircraft and eighteen 767s.

ACMI Services

Pretax earnings were a loss of $2 million in the first quarter, versus earnings of $22 million in the first quarter of 2022. Nearly all the decrease compared to the prior year is attributable to our ACMI and charter airline, Omni Air. Segment results overall were affected by inflation, including increases in line maintenance personnel and flight crew travel and training costs.

Revenue block hours for ATSG's airlines were essentially flat for the first quarter compared to the prior-year period despite operating six more aircraft in 2023. Cargo block hours increased 4%. Hours flown by the four Boeing 757 combination freighter-passenger aircraft were up significantly due to the resumption of a Pacific route in late 2022. Passenger block hours flown by Omni Air decreased by 25%. The prior year quarter included passenger hours flown for additional routes to Europe.

2023 Outlook

ATSG now expects its Adjusted EBITDA for 2023 to be in a range of $610 million to $620 million, and full-year Adjusted EPS in a range of $1.55 to $1.70, based on lower ACMI Services passenger flying than was projected and inflationary effects associated with ACMI airline operations since initial 2023 guidance in February. CAM is projected to deliver results consistent with February guidance.

The Adjusted EBITDA and Adjusted EPS forecasts for 2023 continue to assume:

ACMI Services pretax results will be slightly positive in the first half, and improving in the second half.

Dry leases this year for up to six Airbus A321-200 freighters currently awaiting approval by the foreign regulatory agencies, and fourteen newly converted 767-300s. CAM's results will also be affected by the re-lease or sale of five Boeing 767-200 freighters currently leased to Amazon.

ATSG continues to project 2023 capital spending of $850 million, including $260 million in sustaining capex and $590 million for growth.

Corrado said that demand for ATSG’s freighter aircraft remains very strong, including its Boeing 767s, the narrow-body A321s, and the Airbus A330 freighters the company will begin to deploy next year. CAM is expected to generate more than $70 million in 2024 revenues from freighters it expects to lease this year.

“Our customers remain eager to lease the freighter aircraft we intend to deliver,” he said. “The persistent growth in online commerce throughout the world, and the need to replace older, less efficient aircraft types, means that midsize freighters will remain essential to global economic growth."

Corrado added that "If future market conditions were to affect projected returns on our fleet investments, we have the flexibility to significantly reduce our planned growth investments in 2024 and beyond, in favour of other options, such as debt reduction and additional share repurchases. Our decisions about capital allocation will always be driven by what creates the most value for shareholders.”

ATSG is a leading provider of aircraft leasing and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. ATSG, through its leasing and airline subsidiaries, is the world's largest owner and operator of converted Boeing 767 freighter aircraft. Through its principal subsidiaries, including three airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, passenger ACMI and charter services, aircraft maintenance services and airport ground services.