28 February, 2024

ATSG Reports Fourth Quarter and Full-Year 2023 Results

Air Transport Services Group, the leading provider of medium wide-body freighter aircraft leasing, contracted air transportation, and related services, today reported consolidated financial results for the quarter and year ended December 31, 2023. Those results, as compared with the same periods in 2022, were as follows:

Fourth Quarter Results

  • Revenues $517 million, down 3%
  • GAAP Loss per Share (basic) from Continuing Operations $0.24, down $0.82
  • GAAP Pretax Loss from Continuing Operations $15.6 million, including $24.4 million non-cash settlement expense associated with the partial termination of a pension plan
  • Adjusted Pretax* Earnings $19.8 million, down 69%
  • Adjusted EPS* $0.18, down $0.35
  • Adjusted EBITDA* $129.9 million, down 20%

Full Year 2023 Results

  • Revenues $2.1 billion, up 1%
  • GAAP EPS (basic) from Continuing Operations $0.87, down $1.80
  • GAAP Pretax Earnings from Continuing Operations $84.2 million, including $24.4 million non-cash pension settlement expense
  • Adjusted Pretax Earnings* $146.7 million, down 44%
  • Adjusted EPS* $1.46, down $0.82 or 36%
  • Adjusted EBITDA* $562 million, down 12%
  • GAAP Operating Cash Flows $654 million, up 39% and Adjusted Free Cash Flow* $435 million, up 52%

Joe Hete, chairman and chief executive officer of ATSG, said, "As expected, the fourth quarter saw lower demand in our leasing segment and reduced demand in our passenger airline operations. Flying for the U.S. military decreased throughout the quarter, and fewer leased Boeing 767-200 freighters in service continued to affect results at our leasing segment. Despite challenges in the second half of 2023, we converted and leased thirteen aircraft, including our first three Airbus A321-200 freighters. We have substantially reduced our capital spending plans, and now expect to generate positive cash flow in 2024."

2023 Operating Highlights

  • Ten more dry leases of newly converted Boeing 767-300 freighters, plus dry leases of three newly converted A321-200 freighters. One of those newly converted 767-300 freighters is operated by an ATSG cargo airline under a Crew, Maintenance and Insurance (CMI) agreement.
  • Three more customer-provided 767-300 freighters were subleased to and operated by an ATSG cargo airline during 2023, for a total of sixteen such aircraft in the fleet at the end of the year.

2023 Financial Highlights

  • Revenue of $2.1 billion in 2023, an increase of $25 million from 2022, due primarily to a full year of contributions from six new leases of 767-300s made in 2022, as well as partial-year contributions from 2023 leases of the ten newly converted 767-300 freighters and three newly converted A321-200 freighters.
  • $562 million in Adjusted EBITDA for 2023, down $79 million. Weaker performance in our airline operations and lower leasing segment results attributable to the 767-200 freighter fleet more than offset the benefits of newly converted 767-300 freighter leases. The decline in Adjusted EBITDA from the 767-200 freighter aircraft leases and related engines was approximately $33 million.
  • Growth investments of $574 million. These investments supported leased freighter deployments in 2023, and those we aim to deploy in 2024 and 2025.
  • Repurchases of 7.4 million ATSG common shares in 2023. Shares repurchased since October 2022 represent 13% of the 74 million shares outstanding at the beginning of 2022.
  • Secured $400 million of additional debt capital via a new six-year convertible bond offering; proceeds were used primarily to retire other existing debt and repurchase shares.

Cargo Aircraft Management (CAM)

  • Aircraft leasing and related revenues increased 15% for the fourth quarter and 5% for the year, reflecting the 2023 benefit of a full year of revenues from six 767-300 freighters leased during 2022, plus partial-year revenues from ten additional 767-300s and three A321-200s leased in 2023. CAM's revenues versus the prior year were negatively impacted by fewer 767-200s in service.
  • CAM’s fourth-quarter pretax earnings decreased $11 million, or 34%, to $21 million versus the prior-year quarter, and decreased by $34 million, or 23% to $109 million for the full year. More than 90% of the year-over-year reduction in CAM's pretax earnings stemmed from lower 767-200 freighter and engine lease results. For the fourth quarter and full year, interest expense increased by $6 million and $17 million, respectively. For the full year, depreciation increased by $12 million.
  • At the end of 2023, ninety CAM-owned freighter aircraft were leased to external customers, one fewer than a year ago. Ten 767-200 freighters were removed from service during the year. Five 767-200s and three 767-300s were sold during the year.
  • Twenty-three CAM-owned aircraft were in or awaiting conversion to freighters at the end of 2023, one more than at the end of 2022. This included fourteen 767s, six A321s, and three A330s. Four CAM-owned freighter aircraft were staging for future lease.

ACMI Services

  • Pretax losses were $2 million in the fourth quarter, versus gains of $26 million in 2022. Full-year pretax earnings were $32 million for 2023 and $95 million in 2022. The reductions stemmed from fewer block hours flown for the U.S. military, and lower overall margins on our cargo revenues. For the quarter and the full year, interest expense increased by $2 million and $7.5 million, respectively.
  • Revenue block hours for ATSG's airlines decreased 4% for the fourth quarter and 1% for 2023 over 2022. The decrease for 2023 included one fewer aircraft in service than a year ago. Cargo block hours decreased 2% for the fourth quarter and were flat for the year. Passenger block hours were down 12% for the quarter and down 4% for the year, driven primarily by the conflicts in the Middle East.

2024 Outlook
ATSG expects Adjusted EBITDA of approximately $506 million in 2024, down $56 million from 2023. Those forecasts exclude any contribution from additional aircraft leases or flying opportunities not currently under contractual commitment, which could generate additional Adjusted EBITDA above $506 million. Capital spending in 2024 is projected at $410 million, down $380 million from 2023.

Key factors in our 2024 Adjusted EBITDA forecast are:

  • $55 million decline in earnings related to our 767-200 freighters versus 2023, due to fewer leased freighters and lower engine utilization.
  • Four additional external dry leases of 767-300 freighters, two of which have already been delivered.
  • Three 767-300 freighters returned upon lease expiration, including two late in the second half.
  • Lower block hours at our airline operations.

The factors outlined below could, if achieved, yield $30 million more Adjusted EBITDA than our projection:

  • New lease commitments for available aircraft.
  • Opportunities for additional ACMI flying.

The projection for Adjusted EPS is 55 cents to 80 cents diluted for 2024. The estimate reflects higher depreciation, interest expense, and income taxes. That range matches the range implied by our base $506 million and the potential upside we provided. It also assumes a stable share count at current levels.

ATSG's total projected capital spend of $410 million for 2024 includes growth capital of $245 million, versus $574 million in 2023, and reflects fewer aircraft conversions and feedstock purchases. The expected $50 million reduction in sustaining capital expenditures to $165 million is driven by fewer expected engine overhauls.

Hete continued, “Our reduced spending outlook for 2024 greatly improves our cash generation expectations this year, even with lower expected earnings, leading to our goal of positive free cash flow for the year. Our growth investments have positioned us to deploy more freighters rapidly as market conditions improve. Our outlook for 2025 is for continued improvement in our cash flow based on an increase in Adjusted EBITDA and an even lower capex spend."

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