Attached files
file | filename |
---|---|
8-K - 8-K - Air Transport Services Group, Inc. | a2017form8kcoversept6inves.htm |
The global leader in midsize wide-body
leasing and operating solutions
Cowen & Co.
Global Transportation Conference
Boston
September 6, 2017
Joe Hete
President & CEO
Quint Turner
Chief Financial Officer
Safe Harbor Statement
2
Except for historical information contained herein, the matters discussed in this presentation contain forward-looking
statements that involve risks and uncertainties. There are a number of important factors that could cause Air Transport
Services Group's ("ATSG's") actual results to differ materially from those indicated by such forward-looking
statements. These factors include, but are not limited to, our operating airline's ability to maintain on-time service and
control costs, the number, timing and scheduled routes of our aircraft deployments to customers, the cost and timing
with respect to which we are able to purchase and modify aircraft to a cargo configuration, changes in market demand
for our assets and services and other factors that are contained from time to time in ATSG's filings with the U.S.
Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-
Q. Readers should carefully review this presentation and should not place undue reliance on ATSG's forward-looking
statements. These forward-looking statements were based on information, plans and estimates as of the date of this
presentation. ATSG undertakes no obligation to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or other changes.
2
Dry Leasing
767-300, 767-200,
757-200, 737-400
Engine Leasing
Engine PBH/PBC
Services
ACMI Services
CMI Services
Wet leasing
Ad-Hoc Charter
Heavy and Line Maintenance
Component Services
Engineering Services
Passenger to Freighter Conversions
Boeing and Airbus Capability
Sort Operations
GSE Leasing
Facility Support
Services
MHE Service
Leasing ACMI - CMI Services
Airborne Global Solutions is the marketing entity supporting all business units
For customers seeking midsize freighter services, ATSG offers all elements of the
solution set, ranging from an entry-point ACMI lease to a dedicated dry-leased fleet with
flight crews, maintenance and logistical support from five strong operating companies.
World’s Only Comprehensive Turn-key Solution Provider
3
We Start With a Lease, and Add Customized Services
4 4
Wet
Lease
Aircraft
+
Crew
+
Maintenance
+
Insurance
(avg. 1-3 yrs)
Airline Customers Non-Airline Customers
Dry
Lease
Aircraft
Service
Options:
• Airframe
Maintenance
• Engine
Maintenance
• Insurance
(avg. 5-10 yrs)
Transition Options:
• Pilot training
• Aircraft
certification
• Network
development
• Ground services
Examples:
Amerijet, CargoJet,
NAS
Wet2Dry
Wet
Lease
Aircraft
+
Crew
+
Maintenance
+
Insurance
(avg. 1-3 yrs)
Dry Lease
+ CMI
Aircraft
+
CMI
Crew,
Maintenance,
Insurance
(Lease terms avg. 5-10
years, Operating
agreement, 3-5 years)
Transition Options:
• Network
development
• Ground services
Examples: DHL-US,
Amazon
Wet2Dry
11
50
8
10
41
7
17
30
2
In-Service 767F Fleet to be 82% Dry Leased at YE2017
5
Focus on regional air networks driving demand for more of our midsize 767 freighters,
longer-term dry leases, and more CMI, maintenance and logistics support.
YE 2015
CAM-Owned 767Fs
YE 2016
(15 with CMI)
(28 with CMI)
Dry leased ACMI/Charter Staging/Unassigned Undergoing cargo modification
2016-17 767F Leases
2016
Q1: DHL 1 – 767-300
Raya 1 – 767-200
Q2: Amazon 8 – 767-200
Amerijet 1 – 767-300
Q3: Amazon 3 – 767-200
Q4: Amazon 1 – 767-200
Amazon 2 – 767-300
DHL 1 – 767-300
2017 (all 300s)
Q1: Amazon 2
Q2: Amazon 2
Projected
Q3-4:
Amazon 2 (completed)
NAS 1
Amerijet 1
CargoJet 1
YE 2017E
(32 with CMI)
1
5
Targeting Growing Global Network Demand
6
E-commerce, distributed manufacturing trends creating demand for new express networks
Abundant ACMI and Dry Lease Opportunities Under Double-Digit Global FTK Growth
MIDDLE EAST
• 6.9% market growth in 2016: IATA
• Aging network fleets due for replacement
• CAM has leased four 767s into DHL’s Mideast network
ASIA
• Rapid regional e-commerce, distributed manufacturing
growth driving 11% FTK growth in 2017
• Strong position in 737 freighter conversions in China
creates growth opportunities
• Adding Airbus A321-200 conversions via JV as next-
gen option for e-commerce customers
AMERICAS
• DHL’s Americas region revenue growth leads all DHL
regions in 2017.
• Amazon’s air-network growth will continue via 50-yr. lease
for hub at CVG, with ramp space for 100 aircraft
• 767 range/payload an ideal fit for north-south routes
EUROPE
• Fastest-growing major airfreight market in 1H 2017
• Investment in Sweden’s West Atlantic AB yields additional
767 dry leases
• Deploying CAM-leased 737 in Europe via DHL
767-300 Investments & Deployments
7
CAM-Owned 767-300Fs 2016 2017E 2018E
Complete Modification & Deploy 5 9 8
Deploying To
Amazon,
DHL,
Amerijet
Amazon, NAS,
Amerijet,
CargoJet
NAS, Amerijet,
other external
In Service at End 16 25 33
Customer demand for additional 767-300 freighters in 2017 and 2018
beyond the eight we have leased to and operate for Amazon
PEMCO Boosts MRO Capacity, Adds 737 Conversions
• 2 large hangars, 300,000+ sq ft
• Heavy maintenance
• Narrowbody / widebody support
• Complex structural modifications
• Component and backshop services
• Line maintenance and AOG teams
Expands ATSG MRO Capacity New to ATSG Portfolio
REGIONAL
CRJ, Embraer, MRJ (LOI)
AIRBUS
A320 Family
BOEING
B737 CLASSIC / NG, B757, B767
• 70% China market share in B737 cargo
conversions
• China satellite locations
• Established relationships with airlines
Enhanced China Strategy
8
• Southern USA location
• Extensive Airbus experience
• Robust passenger customer portfolio
• Pax to Freighter 737 Conversions:
• -300, -400 Classics
• -700 Next Gen in development
New Joint Venture for A321 Freighter Conversion
Joint Venture
• CAM is partnering with Precisions Aircraft Solutions to
form a new joint venture, 321Precision Conversions
• Precision is the market leader in converting 757 aircraft
• CAM is the second largest freighter lessor in the world
• CAM and Precision have had a long-term relationship
through Boeing 757 freighter conversions
Airbus A321
• The largest new generation narrow body freighter
• More than 1,400 A321 passenger aircraft in service
• Economics similar to the smaller 737-800
• Cube space commensurate with the 757-200 but with
lower operating cost
• Will compete effectively in 10-15 pallet segment with
superior cube economics
• Target aircraft for the fastest growing segment in the
industry – e-commerce and integrators
The A321 will be a new platform for ATSG to leverage its multi-service freighter aircraft
solutions including converting, leasing, operating and maintaining the aircraft
9
Timeline
• Precision began work on the project in 3Q2016
• Pending FAA approval, projecting deliveries in 2019
All 20 Amazon Freighters Leased and Deployed
• Five-year operating agreement
signed March 8, 2016, effective
April 1, 2016
• Seven-year lease terms for eight
767-300s; five-year leases for
twelve 767-200s
• Aircraft are CAM-leased, ABX Air/
ATI operated, AMES maintained,
LGSTX supported
Trial network launched two years ago with support from five ATSG businesses now includes
20 CAM-leased 767 freighters, crews and support services
ATSG leases, operates & supports
twenty B767 freighters for Amazon
767-300 767-200
LEASING CMI SERVICES GATEWAYS MAINTENANCE
10
Amazon to receive ATSG warrants for purchase of up to 19.9% of ATSG
common shares at $9.73 per share through March 2021
Warrant A Warrant B-1
7.7MM potential
shares; warrant
issued, vested
1.6MM potential shares;
warrant to be issued and
vest March 2018
Warrant B-2
<0.5MM potential shares;
(adjusts to 19.9%)
warrant to be issued and vest
September 2020
5.1MM potential shares;
pro-rata warrant vesting
as eight 767Fs leased
through mid-2017
• Investment Agreement for warrants signed March 8, 2016
• ATSG shareholders overwhelmingly approved increase in authorized shares and other enabling measure at
2016 annual meeting.
• Amazon may appoint a Board observer, and, alternatively, upon acquiring 10% of ATSG shares, nominate one
candidate for election to ATSG’s Board
• 12.8MM ATSG warrants issued and vested as of Aug. 31, 2017.
• Share repurchases will reduce final number of warrants required to true-up Amazon holdings to 19.9% in 2020
Amazon Pact Sealed With Investment Agreement
11
2016 Results & 2017 Adjusted EBITDA Outlook
12
• $150MM revenue gain driven by 11 more
external 767 dry leases, Amazon CMI
support, maintenance and logistics gains
• Adjusted Pre-tax Earnings exclude non-
cash warrant-related effects, pension
expense, affiliate’s debt issuance charge
– Includes $20MM total impact of revenue
reductions stemming from work stoppage,
extra expense for pilot premium pay and
other ramp-up costs
• Adjusted EPS for 2016 exclude non-cash
dollar effects of warrants issued to Amazon
• 2017 Adjusted EBITDA projection
assumes, among other items,
deployment of five 767s and two 737s in
2H 2017, increase in maintenance
expense but lower capitalized
maintenance under Delta engine
contract, improved ACMI Services
results based on CMI customer
requirements
Dry leasing and airline fleet utilization, along with support services backing, drove
revenue and cash flow growth in 2016 and will accelerate in 2017
$619
$769
$61
$65
$0.60
$0.58
$197
$212
Revenues Adj. Pre-Tax
Earnings*
(Cont. Oper.)
Adj. EPS*
(Cont. Oper.)
Adj. EBITDA*
(Cont. Oper.)
2015 2016 2015 2016 2015 2016 2015 2016
* Non-GAAP metrics. See table at end of this presentation for reconciliation to nearest
GAAP results for Adjusted Pretax Earnings and Adjusted EBITDA. See slide 14 for
Adjusted EPS reconciliation.
$MM $MM $MM
2017E
$260E
2017 First Half Results
13
• 39% revenue gain (30% excl. reimbursables)
driven by Amazon CMI support, incremental
maintenance and logistics gains
• CAM leasing ten more freighters at June 30
vs prior year
• ACMI Services profitable for the second
quarter
• Adjusted Pre-tax Earnings exclude non-cash
warrant-related effects, lower 2017 pension
expense
• Adjusted EPS excludes effects of warrants
issued to Amazon
More efficient airline fleet utilization, along with maintenance and logistics services,
drove revenue and cash flow growth in the first half of 2017
$354
$491
$32
$40
$0.26
$0.38
Revenues Adj. Pre-Tax
Earnings*
(Cont. Oper.)
Adj. EPS*
(Cont. Oper.)
Adj. EBITDA*
(Cont. Oper.)
1H16 1H17 1H16 1H17 1H16 1H17 1H16 1H17
* Non-GAAP metrics. See table at end of this presentation for reconciliation to
nearest GAAP results for Adjusted Pretax Earnings and Adjusted EBITDA.
See slide 14 for Adjusted EPS reconciliation.
$MM $MM $MM
$104
$121
EPS Adjustments Reflect Warrant Valuation
14
ATSG’s GAAP Earnings from Continuing Operations for 2016 and future periods reflect:
• incremental gain or loss in financial instruments each quarter, net of tax, based on effect of mark-to-market
changes in ATSG stock price on value of warrant liability
• non-cash lease revenue reduction associated with the amortization of value for warrants
Items above are excluded from Adjusted EPS from Continuing Operations. Adjusted EPS includes additional
shares related to warrant dilution.
2.5x
2.0x
1.6x
2.2x
2.5-3x
2013 2014 2015 2016 2017E
Debt Obligations / Adjusted EBITDA*
49
53
55
60
71
Strong Capital Base to Support Fleet Growth
15
Strong Adjusted EBITDA generation, access to capital through rolling
five-year credit facility allow us to maintain conservative balance sheet
• Adjusted EBITDA is a non-GAAP metric. Debt Obligations, fleet totals are as of end of period.
See table at end of this presentation for reconciliation to nearest GAAP results.
767, 757 & 737 Owned Freighters
Seizing Opportunities for Balanced Capital Structure
16
Repurchases, investments and debt repayment key components of capital allocation strategy
1.1
4.8
0.5
6.4
(MMs)
$10.3
$63.6
$11.2
$85.1
($MMs)
2016
2015
9.9% repurchased of 65.2MM shares
outstanding prior to first Board authorization in
May 2015
Includes 3.8MM shares repurchased from
affiliate of Red Mountain for $50MM in July
2016, and
ATSG purchase of 0.4MM from underwriter in
June 2017 secondary offering as Red
Mountain sold 3.8MM.
Average share repurchase price of $13.22
including fees, vs. current ATSG market price.
Future repurchases executed mainly under Rule
10b5 authorization or under Rule 10b18 for
repurchase of share blocks when available
under attractive terms
Dollars Shares
2017
16
2017-18 Outlook
17
• Strong growth trajectory Double-digit revenue growth from business with new express networks,
global network integrators and regional operators attracted to midsize freighter assets, and unique model that
offers short-term ACMI flexibility and long-term dry-leasing cost advantages backed by support services.
• Attractive assets World’s largest fleet of 100% owned midsize converted Boeing freighters available on a
dedicated basis, with wide range of freighter network applications. Converted freighters offer decades of reliable
service with lower investment, backed by best-in-class maintenance and conversion capabilities.
• Lease-driven sustained cash flow Business model emphasizes long-term returns from dry-
leasing freighter assets to leading network operators, enhanced by unique combinations of airline, maintenance,
logistics and network management services. Not a federal cash taxpayer until 2019 or later.
• Strong balance sheet Debt leverage 2.3 times Adjusted EBITDA at June 30 2017. Will remain below 3
times in 2017 even as borrowings increase for $335MM capex program that is nearly 80% growth weighted.
Credit facility extended and amended in 2017 for more credit at attractive rates.
• Flexible capital allocation strategy Cash reinvested in growth investments, share repurchases
and debt repayment as appropriate based on market conditions and projected returns. Nearly 10% of ATSG
shares have been repurchased since May 2015 Board authorization, including June 2017 secondary offering.
• Appetite for strategic growth through targeted, complementary transactions, such as PEMCO
acquisition and Precision JV, to extend footprint, add capabilities and support capacity for current and
prospective customers worldwide.
• Investments yield strong, sustained cash flow Fleet investments, expanding leased
freighter portfolio with support services generating attractive returns likely to extend through 2018 and beyond.
Adjusted EBITDA for 2017 projected to be $260MM, up 23%.
ATSG – leasing growth driving strong cash returns
17
Non-GAAP Reconciliation Statement
18
• Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings from Continuing
Operations are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure
derived in accordance with GAAP.
• Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest
expense, depreciation and amortization expense, pension settlement costs, debt issuance charges from non-consolidating affiliates, and lease
incentive amortization. It excludes the net effect of financial instrument gains and losses, and of non-service components of retiree benefit
costs.
• Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus pension
settlement costs, debt issuance charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of
financial instrument gains and losses, and of non-service components of retiree benefit costs.
• Management uses Adjusted EBITDA from Continuing Operations, Debt Obligations/Adjusted EBITDA Ratio, and Adjusted Pre-Tax Earnings
from Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in
isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.
2013 2014 2015 2016 1H2016 1H2017
(359)$ 51,776$ 62,563$ 34,454$ 30,911$ (32,338)$
Impairment Charges 52,585 - - - - -
Pension Settlement - 6,700 - (1,997) - -
Non-service components retiree benefit costs (2,716) (8,152) (1,040) 8,812 4,406 354
Debt issuance charge, non-consolidating aff iliate - - - 1,229 1,229 -
Lease Incentive Amortization - - - 4,506 934 5,874
Financial Instruments Loss (Gain) (631) (1,096) (920) 18,107 (5,030) 65,780
48,879 49,228 60,603 65,111 32,450 39,670
Interest Income (74) (92) (85) (131) (61) (48)
Interest Expense 14,249 13,937 11,232 11,318 5,332 7,307
Depreciation and amortization 91,749 108,254 125,443 135,496 65,666 74,223
154,803$ 171,327$ 197,193$ 211,794$ 103,387$ 121,152$
384,515$ 344,094$ 317,658$ 458,721$
2.48 2.01 1.61 2.17
Reconciliation Stmt. ($ in 000s except Ratios)
Debt Obligations/Adjusted E BIT DA Ratio*
GAAP P re-T ax E arnings (Loss) f rom Cont. Oper.
Adjusted E BIT DA from Cont. Oper.
Debt Obligations - end of period
Adjusted Pre-tax Earnings from Cont. Operations
* Debt Obligations/Adjusted EBITDA Ratio is defined as Debt Obligations (Long-term Debt Obligations plus Current Portion of Debt Obligations at end of period) divided by
Adjusted EBITDA from Continuing Operations, rolling four quarters.