Atlas Air Worldwide Holdings (AAWW)

Q2 2008 Earnings Call Transcript
07/08/08 11.00 am ET


Executives
William Bradley Vice President and Treasurer
Bill Flan President and Chief Executive Officer
Jason Grant our Senior Vice President and Chief Financial Officer

Analysts

Alex Franks - Stevens Inc
Bob Lavish - CJS Securities
John from BPNT Capital Markets
David Campell from Thompson, Davids & co
Mike Minier from AIG


Presentation

Operator

Good Morning Ladies and Gentlemen and thank you for standing by. Welcome to the Atlas Air Worldwide Holdings Inc. Q2 2008 results conference call. During today’s presentation all parties will be in a listen only mode. Following the presentation the conference will be open for questions. If you have a question please press star followed by the number one on your touch tone phone. If you would like to withdraw your question please press star followed by two. If you are using speaker equipment please lift the handset before making your presentation. This conference is being recorded today August 7 2008. I will now like to turn the conference over to your host Mr. M William Bradley Vice President and treasurer, please go ahead sir

Bill Bradley Vice President & Treasurer

Thank you and good morning everyone I am Bill Bradley Vice President and Treasurer of Atlas Air Worldwide Holdings. Welcome to our second quarter 2008 earnings review conference call. Today’s call will be hosted by Bill Flan President and Chief Executive Officer, joining Bill is Jason Grant our Senior Vice President and Chief Financial Officer. I would also like to remind you that in discussing the company’s performance today we have included some forward looking statements within the meaning of the private securities litigation format of 1995. These statements relate to future events and expectations and involve unknown risk and uncertainties. Our actual results or actions may differ materially from those projected in the forward looking statements. Please refer to the saypabour language in our recent press releases and to the factors set forth in our annual report on form 10K filed with the SCC on February 28 2008. For a summary of specific risk factors that could cause results to differ materially from those expressed on forward looking statements.

In our discussion today we also include some non-GAAP financial measures you can find our presentation on the most directly comparable GAAP financial measures calculated in accordance with generally accepted accounting principles and our related reconciliation in our recent press releases which are posted on our website at www.atlasair.com . you may access these releases by clicking on the link to financial news in the Investor Relations section of the website. At this point I would like to turn the call over to Bill Flan.

Bill Flan-President and Chief Executive Officer

Thank you Bill and welcome everyone, we reported today pre-tax for the first quarter and first half of 2008. Earnings in the second quarter were a mix of positive and negative factors just as we saw in our first quarter results. Our results reflect the impact of fuel prices primarily in our scheduled service business but are not indicative of our earnings expectations going forward. The impact of fuel prices is directly reflected in our revised pre-tax earnings guidance of US$85 million 2008. Our view of 2009 remains that our pre-tax profits will double to the range of US$165-US$175 million.

Our DHL transaction has removed much of the risk of our historically unprofitable scheduled business and established a platform for earnings growth in 2009. Although the impact of fuel prices has been painful for the industry we believe it supports our model for investing in leading edge or cost efficient freight air craft. We expect fuel to draw an inefficient capacity out at the market place and improve our already strong position as the leading supplier of cost efficient freighter solutions.
The 747 400 provides the lowest unit operating costs over any freighter in the market. A position that is only strengthened in this high fuel cost environment. We are the only outsource provider scale for the 747 400 freighter and we continue to demand for this air craft. All of our 400 capacities committed through 2008 and flying levels for our ACMI 747 400 aircraft are above contractual minimums. Very few of our ACMI 400 aircraft are available for renewal in 2009 and we fully expect that they will be renewed or placed on favourable terms.

During the quarter w acquired two additional 747 400 aircraft to meet customer demand for these scarce assets. This will increase the size of our 400 fleet by 10% to 22 aircraft. One of these aircraft a factory built 400 freight entered service on June 12 and the other is being converted to freighter configuration and is expected to enter service late in the third quarter. Initially we relied on our strong balance sheet to fund the acquisition of these aircraft using cash on hand. Shortly after the close of the second quarter we secured attractive commitments for five year term loans that will finance US$100 million of the approximately US$167 million acquisition plus conversion price for these air craft. The financing reflects the positive views our let have regarding the quality of these assets, value the customers that we serve. The quality of the services that we provide and the overall position of Atlas Air world Wide.

Continuous improvement initiatives drove cost savings during the second quarter. As of June 30th we have achieved and surpassed our goal of US$100 million in annualized savings against an addressable 2005 cost base of about US$800 million. We realize this important milestone six months ahead of our expectations. Continuous improvement is a permanent part of the culture of Atlas Air World Wide holdings and we identify and achieve additional cost savings.

Fuel however had a large unfavourable impact on our quarter, commercial fuel prices rose to new record levels and our average costs were 70% higher than it was in the second quarter of 2007. That had a substantial negative impact on our scheduled service segment which is the principle business segment where we are directly exposed to the risk of fuel price volatility. We have therefore revised our 2008 pre-tax guidance to include the impact of fuel prices. Our direct exposure to fuel largely goes away in October when our Polar subsidiary begins flying under its long term blocked space agreement with DHL express.

It is important to know that the US$85 million pre-tax guidance exclude a US$150 million pre-tax gain on the sale of the 49% on interest in Polar to DHL. We expect to book this gain upon the commencement of DSA in the fourth quarter of 2008. Given the current challenges in our industry we actively manage our fleet and take advantage of the scale and productivity in providing innovative, value creating solutions to our customers. We have derisked our business and our focus is on long term contracts that improve our revenue and earnings streams visibility. Along with the benefits that we have achieved from our continuous improvement and efforts and the full start up of the express network, ACMI service in late October, we continue to execute on additional initiatives that drive revenues and earnings. Most important of these is the launch of our 747 dash 8 freighter service in 2010 an 2011. We will benefit form the enhanced payload and improved fuel efficiency that these air craft will provide to our customers and we will benefit from the scarcity value in our first to market exclusive ACMI capability.