Atlas Air Worldwide Holdings

Good day and thank you for standing by. Welcome to the Atlas Air Worldwide Holdings first quarter 2021 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speakers, Atlas Air. Please go ahead.

Thank you, RJ, and good morning, everyone. I'm Ed McGarvey, treasurer for Atlas Air Worldwide. Welcome to our first quarter 2021 results conference call. Today's call will be hosted by John Dietrich, our chief executive officer, and Spencer Schwartz, our chief financial officer. Today's call is complemented by a slide presentation that can be viewed at atlasairworldwide.com under presentations in the investor information section. As indicated on slide two, we'd like to remind you that our discussion about the company's performance today includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations, and they involve risks and uncertainties. Our actual results or actions may differ materially from those projected in any forward-looking statements. For information about risk factors related to our business, please refer to our 2020 Form 10-K as amended or supplemented by our subsequently filed SEC reports. Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release and in the appendix that is attached to today's slides. During our question and answer period today, we'd like to ask participants to limit themselves to one principal question and one follow-up question so that we can accommodate as many participants as possible. After we've gone through the queue, we'll be happy to answer any additional questions as time permits. At this point, I'd like to draw your attention to slide three and turn the call over to John Dietrich.

John Dietrich Thanks, Ed, and hello, everyone. Welcome to our first quarter earnings call. On behalf of all of us at Atlas, I hope that you, your families, and friends continue to stay safe as we progress towards brighter days ahead. I want to again thank all the frontline responders and essential workers around the world for their efforts. We're encouraged by the distribution of vaccines, yet at the same time, we're disheartened that the path to recovery continues to be prolonged in many regions of the world, particularly in India. We operate frequently in that region and are actively engaged with multiple customers and organizations to support relief efforts. We're also pleased to see so many others both within and outside the industry stepping up to provide critical support. I'd also like to thank our more than 4,000 employees for their incredible dedication and contributions. We're continuing to take wide-ranging precautions to protect our employees and our operations to ensure we're able to safely transport the goods the world needs. Our team continues to work tirelessly doing our part to keep the global supply chain moving. This pandemic has certainly highlighted the important role that air freight plays in the global supply chain and how it brings essential goods to market with unmatched speed and reliability. At Atlas, the services we provide have always been essential, and they're now even more critical than ever. We're leveraging our unmatched global operating capabilities and flexible business model to capitalize on current market conditions. This includes transporting vaccines, PPE and medical supplies, express and e-commerce, perishables, manufacturing components, and other daily necessities around the world. And we're seeing general air freight tonnage grow from pre-pandemic levels. Throughout the pandemic, we've demonstrated to our customers that they can count on Atlas to provide the services and innovative solutions they need to keep their operating networks moving, even in difficult times. These capabilities weren't born out of this pandemic. They've been developed at Atlas through many years of growth and diversification, which allows us to capitalize on market opportunities on a global scale. And you can see that from the excellent results we've been reporting. Advancing our initiatives and positioning us well for the future, we continue to enter into and extend numerous long-term charter agreements with strategic customers that have chosen Atlas because of our high-quality services and operating expertise. We recognize the important role we play in their supply chains, and we're committed to delivering for them in these unprecedented times and beyond. Before we move to the next slide and review our results, I'd like to take a moment to briefly discuss the segment reporting change we announced in our press release this morning. I'll also ask Spencer to share more details during his remarks. Beginning with the first quarter of 2021, we've changed our operating and reportable segments to reflect the evolution of our business. Many of you are likely familiar with the three segments we had previously, namely ACMI, charter, and dry leasing. But as the ACMI and charter businesses have become more similar, we review and manage them as one segment. We'll now have two operating and reportable segments, airline operations and dry leasing. This change to our segment reporting now reflects how we analyze both current operations and new business opportunities to ensure that our resources are put to the most profitable use. Now turning to our first quarter results on slide four. Our performance was driven by the strength and flexibility of our global business model, as well as our team continuing to capitalize on the current air freight environment with demand and yields that are well above typical seasonal levels. I want to again thank all of our employees at Atlas for delivering safe, high-quality service for our customers in this very challenging operating environment. We continue to leverage our global network and increase aircraft utilization to match significant air freight demand. Our first quarter results continued to reflect strong demand for our aircraft and services, our expanded and extended customer agreements, high commercial charter yields, and the significant reduction of international wide-body belly cargo capacity. Our results also benefited from the four 747 freighters and one 777 freighter that we reintroduced to our fleet throughout 2020 to serve customer demand. These benefits were partially offset by higher costs related to premium pay for pilots operating into certain areas that have been significantly impacted by COVID-19, the 10% pay increase we provided our pilots in May 2020, and higher heavy maintenance expense. Turning to our pilot labor negotiations, we remain committed to reaching a joint collective bargaining agreement with our pilots in connection with the merger between Atlas Air and Southern Air. We're pleased to report that we've now moved closer to completing the new JCBA. The scheduled arbitration proceeded on time and recently concluded on April 1st, and the union has now provided the company with the integrated seniority list. This is a critical item for implementing a new agreement. The next step is for both parties to submit post-hearing briefs on an agreed schedule, after which the arbitrator will consider all the information presented and render a binding decision. which we expect sometime in the second half of this year. Now moving to slide five. We're off to a very good start in 2021 and are seeing continued business momentum in the second quarter. We're closely monitoring the market and leveraging the diversity of our business model. This includes being prepared to capitalize on global market conditions as well as being able to successfully adjust any changes. Long-haul international passenger flying on wide-body aircraft has been slow to recover and will likely be last to return as countries continue to struggle with COVID-19 and many borders remain closed. Although there's been a lot of attention about recent levels of improved U.S. passenger air traffic, it's important to note that these recent increases have largely been driven by pent-up demand for domestic and regional leisure travel with smaller-gauge aircraft. which is less impactful to international air freight. It will also be important to monitor what the new normal will be beyond the pandemic, including any impact on international business travel. With the strong global demand for air freight outpacing air cargo supply, we anticipate air freight demand and yields to remain strong with capacity on long-haul trade lanes remaining tight. Looking to the second quarter, we expect to fly approximately 90,000 block hours with revenue of approximately $950 million and adjusted EBITDA of about $210 million. In addition, we expect adjusted net income to grow by approximately 30% compared with adjusted net income of $72.2 million in the first quarter of this year. Our outlook anticipates commercial cargo charter yields to remain above typical seasonal levels, but below the historically high yields experienced during the second quarter of 2020. We also expect additional expenses driven by the pandemic, including premium pay for our pilots, costs for continuing to provide COVID safety measures in the workplace, higher costs from the pay increase we provided to our pilots in May 2020, and maintenance expense in the second quarter of approximately $130 million. For the full year, we continue to expect aircraft maintenance expense to be lower than 2020, with depreciation and amortization totaling about $270 million. In addition, core capital expenditures which exclude aircraft and engine purchases are projected to total approximately $110 to $120 million, mainly for parts and components for our fleet. Given the ongoing economic and market-related uncertainties, including COVID-19, new variants of the virus, surges in cases globally, travel restrictions, and other factors, we are providing a second quarter outlook, but not providing a full year 2021 outlook at this time, and we'll look forward to providing updates as the year progresses. This is a good point for me to ask Spencer to provide more details on our first quarter results and our segment reporting. And after Spencer's remarks, I'll look forward to providing a few additional comments, and then we'll be happy to take your questions. Spencer.

Thank you, John, and hello, everyone. I'd like to start by discussing the change to our segment operations and reporting, and then we'll move to the next slide and I'll discuss our great first quarter results. On prior earnings calls, we've talked about the blurring of lines between ACMI and charter and how these agreements have become more similar over the past few years. As our long-term charter business grew significantly during 2020, the similarities became even more pronounced with both our ACMI and charter businesses now including contracts of a long-term nature. And as we've expanded the amount of flying that's performed under long-term contracts, we've reduced the percentage of our business that serves ad hoc demand. Both ACMI and the majority of charter services provide outsourced aircraft operating capabilities for customers on a fixed take-or-pay basis, providing us with more predictable revenue streams. As we look to capitalize on customer demand and maximize returns, we regularly exchange aircraft between ACMI and charter service. This operating flexibility allows us to fly to the destinations and transport the cargo that customers want, regardless of whether they pay by block hour with ACMI or by flight with charter. And from a sales, operations, and support staff perspective, we have the same team of outstanding employees assisting both ACMI and charter activities. For both ACMI and charter, we operate on similar routes, fly to similar airports, carry similar goods, provide similar services, and customers are primarily responsible for fuel. Now moving to our strong first quarter results, which are highlighted on slide six. On an adjusted basis, EBITDA increased to $181.3 million, with adjusted net income growing to $72.2 million. On a reported basis, net income totaled $89.9 million. Our adjusted earnings in the first quarter included an effective income tax rate of 21.9 percent. Moving to the top of slide seven, operating revenue totaled $861.3 million in the quarter. Higher airline operations revenue was primarily driven by a significant increase in flying and the average rate per block hour. Block hour volume growth primarily reflected strong demand for our commercial charter and CMI services, driven by higher air freight volumes, the reduction of available cargo capacity in the market, the disruption of global supply chains, and our ability to increase aircraft utilization. In addition, The segment revenue benefited from the operation of five freighters that we activated throughout 2020, including four 747s and one 777. These items were partially offset by lower AMC passenger flying, as the US military has taken precautionary measures to limit the movement of military personnel. Revenue in our dry leasing segment was relatively unchanged. Looking now at the bottom of the slide, Segment contribution totaled $179.7 million in the first quarter. Higher airline operations contribution during the period was primarily driven by the positive factors benefiting segment revenue I just noted. These benefits were partially offset by higher pilot costs and higher heavy maintenance. Similar to revenue, dry leasing segment contribution was also relatively unchanged. Now turning to slide eight. Our net leverage ratio ended the quarter at 2.1 times, which is consistent with year-end 2020. We ended the first quarter of 2021 with cash, including cash equivalents and restricted cash, totaling $714 million. Our cash position at March 31 reflected cash used for investing and financing activities, partially offset by cash provided by operating activities. Net cash used for investing activities during the first quarter was primarily for core capital expenditures, payments for flight equipment and modifications, including pre-delivery payments for our 747-8 order, as well as spare engines, engine overhauls, and upgrade kits. Net cash used for financing activities during the period primarily reflected payments on debt obligations, partially offset by proceeds from debt issuance, We continue to apply a disciplined approach to financing. As we've noted before, this has resulted in a low weighted average coupon interest rate, which now stands at 2.96%, and the majority is secured by our aircraft assets, which have a value in excess of the related debt. We remain committed to a strong balance sheet, and we're taking actions to mitigate the impact of any continuation by reducing costs, enhancing liquidity, and strategically allocating resources. Now, I'd like to turn it back to John.

Thank you, Spencer. Moving to slide nine, and as I mentioned, we're off to a very good start in 2021 and are seeing continued business momentum in the second quarter. Our team continues to capitalize on the current air freight environment while delivering safe, high-quality service for our customers We look forward to finalizing the new joint collective bargaining agreement with our pilots and will continue to take every precaution to protect our world-class team of employees and our operations to ensure that we can continue to transport essential goods around the world. At this point, operator, may we have the first question, please?

As a reminder, to ask a question, please press star then the number one on your telephone keypad. Again, that is star then the number one. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question comes from the line of Bob Labic from CJS Securities. Your line is open.

Good morning. Congratulations on the performance and a very attractive guide for Q2 as well. Thank you, Bob. I wanted to start with... just trying to get a sense how much of the strong first half performance relates to spot or ad hoc flying versus contracted ACMI and long-term charter take-or-pay contracts. I'm trying to get a sense of the kind of sustainability and recurring nature of the contribution in the first half. Sure, Bob.

So about 60% to 65% of our flying now is in what was traditional ACMI. About 20% is now in long-term charters. About 10% is with the U.S. military. About 5% is flying around South America. And only about 5% or 6% now is what was traditionally kind of ad hoc spot market. So it really has become a very small percent of our overall business. And so approximately 94% of all the flying is on a dedicated aircraft.

Got it. Great. And then just looking to the second half in 2022 then with that in mind, other than the pilot labor information that you'll get by the end of this year, pilot costs, what are the biggest variables you're thinking about for the second half and for 2022, since so much of your flying is kind of already locked up?

Yeah, really, you know, of course, we're in the middle of a pandemic. So, you know, there are a lot of uncertainties related to that and what that might mean overall. Based on everything we're seeing, you know, We feel pretty good about the space that we play in and the continued strength of the air parade environment, but there are plenty of uncertainties out there, as you know. Other than that, it's really supply, demand, impact on yields, operational challenges, the amazing work that our team does to overcome those operational challenges. Those are really the big items.

Yeah, and Bob, if I could add to that, you know, We've talked a lot through 2020 about COVID related and pandemic related movements, which are still continuing. But we're also keeping a close watch on overall economic conditions. And as I said in my comments, what lies beyond the pandemic? IATA came out with some statistics, you know, pretty recently to show that, you know, the economy and economies are recovering. We're going to be watching that closely. Inventory levels are down. We expect manufacturing to want to get back to full strength, which it's not right now. So those are, beyond the pandemic, some of the things I'm looking to, and an important variable to keep an eye on.

Super. Thank you very much.

Thank you.

Your next question comes from the line of Helaine Becker from Cowen. Your line is open.

Thanks very much, Operator. Hi, everybody, and thank you very much for the time. Just a couple of questions. As you think about the aircraft over the next bunch of years, you're taking these four last Dash 8s, and I guess you'll fly them, what, 30 or 40 years. So maybe this isn't a question you have to think about too soon. But how are you thinking about aircraft replacement for some of the older 747-400s? Maybe.

Yeah, I'll start with that. And, you know, it's important to remember that the 747-400 is still a great airplane and still well within its useful life. And the models that we have are on average, you know, 2020, 2022 builds. And if you look at the lifeline you just described for the 747-8, that still applies to 747-400. So we expect that the 400 will continue to be a workhorse in the years to come. And I would say similar to our comments on the 747-8, over time, we also think there's some of the older ones start to retire. And what I mean by that is the less productive ones, which are likely to be the converted passenger to freighter 747s, those will likely retire earliest. I would say that pure freighters are going to have scarcity value over time with its payload range capabilities as well as its nose loading capabilities. So we feel really good about the 747 into the future, both the 400 and the Dash 8. Now, that said, there are also some great airplanes out there. You know, the 777 is a great airplane. The existing freighter fleet and looking forward to the converted 777 as well as other aircraft types, Airbus is talking about the A350. You know, we're going to be looking, as we always do, at all fleet types, but with the 747 as kind of the backbone of our operation.

Gotcha. Okay, that's very helpful. Thank you for that. And then the other question I have is you gave your pilots a pay increase in May of last year. Yes. And now it's so good to see that you're making progress on this contract. Glad that it's hopefully coming to an end or maybe a beginning, depending on how you want to think about it. You know, as May 1st came and went this year, is not giving them another raise this year just holding off because you think you're close to getting an agreement before year end that would encompass, you know, pay that would cover this year?

Well, Helene, there's a lot in that question, and I agree with you. We're pleased to see this negotiation coming to an end, and I can say it is coming to an end. The arbitration is now complete, and we have specific dates where the post-hearing briefs are due. The arbitration completed on April 1st, two weeks of hearings, and it is coming to an end. And the arbitrator has committed to us to get to a outcome as soon as reasonably possible. We're hoping it's within a 60-day time period. There's a large record that was submitted, but it is coming to an end, and we're pleased about that. There's nothing to prevent us from continuing dialogue with the union. Our representatives have been in touch with each other through the process, but the arbitration procedure that we've been pushing for for so long in terms of bringing this to a conclusion, it's happening. And we expect a result. I can't give you a specific date, but we expect it in the second half of the year.

Right, right. I heard you say that on the call. Okay. Well, thank you. Thank you very much. And, wow, that was quite a quarter. Congratulations.

Thank you. Thanks, Elaine.

Your next question comes from the line of Stephanie Benjamin from Truist. Your line is open.

Hi, good afternoon.

Hi, Stephanie.

I wanted to touch in on the long-term charter business. You had really strong success last year locking in some of these incremental longer-term charter contracts. We'd just love to hear an update on really the demand you're seeing for these types of contracts this year as well as maybe the types of customers and if the momentum from 2020 has continued, you know, through 2021? Thanks.

Yeah, thanks, Stephanie. We're seeing strong interest from these customers and, you know, early in when some of these contracts were being entered into. as I described in a prior call, this is a new customer base and some lessons learned from the pandemic and perhaps over dependence on passenger belly capacity. But what many of our customers are seeing and learning is that main deck freighters is very attractive and to be able to secure that capacity is important, both within this pandemic environment, but also beyond. So we've seen strong interest and are excited about that. It's a whole new customer base. And as Spencer pointed out, they are more ACMI-like contracts because they have term associated with them and many of the attributes of ACMI. And as I mentioned in my remarks, we're not only seeing new agreements entered into, but extensions of existing agreements. So that's all kind of responsive to your question about the interest. I also think there's going to be some post-pandemic lessons learned about the attractiveness of main deck freighters on a dedicated capacity. Some of our customers already recognize the benefits of real-time inventories and moving product around rather than carrying large inventories that may or may not sell. And I think air freight will be a key component of that in the post-pandemic economy.

And, Stephanie, Spencer, I'll just add very briefly to John's comments there that, you know, we now have dozens of these long-term contracts. During the first quarter, we had four contracts that were extended. We had two that either added aircraft or added rotations, and we had one new customer for two years. And the vast majority of these contracts go into 2022 and 2023. some go into 2024 and the majority are on the sort of fastest growing trade lanes and they probably will not be operated by returning passenger aircraft great well thank you so much for all that color thank you your next question comes from the line of chris

from Sasquahanna International Group. Your line is open.

Good morning. Thanks for taking my question. Hi, Chris. So Spencer or John, so with the change in reporting here, can we interpret this here that the changes here in ACMI are more structural or permanent in nature, meaning are you no longer prioritizing or pursuing short-term charter business? And then if so, you know, how should we think about whether it's however you want to quantify it, either the margins or either the dollars or free cash flow through the cycle now, given the change in the duration of the contracts there? Thanks.

Thanks, Chris. I'll start in terms of your prioritization question. The ACMI model is very attractive. It provides secure, assured revenue streams. And some of what we're seeing is we talked about the long-term charter agreements are more ACMI-like. Another element of the long-term charters is sometimes Spencer mentioned dozens of these agreements is our ability to pair customers and get full utilization out of the aircraft and by combining customer demand versus a typical traditional ACMI, which is fully dedicated full-time use of the aircraft. And I think there's demand and desire for both. And it allows us to offer partial aircraft for the remainder for another customer. So that's worked quite well for us in our network planning on a global basis. So from a prioritization standpoint, those two, the ACMI and the long-term charters, are certainly the kind of deals we like and will secure on a long-term basis. But we also are able to flex our capabilities to take advantage of an amount of fleet that we keep aside for ad hoc charter. There's no doubt. And that's allowed us to deliver a lot of these results. And that's really always been the case for us because we know there's a consistent level of interest both in good times and in challenging times for the spot charter market.

So should we think about this as generally accretive or positive for free cash flow, and that if so, that you would look to direct that capital towards the order book or when the PSP restrictions expire, returning capital or pursuing other activities?

Yeah, Chris, with regard to sort of two parts of that question, I think, there was a capital allocation question, and then there was kind of a free cash flow question. Our free cash flows, you can see, have really been strong and have continued to stay that way. As far as capital allocation, you've seen that our net leverage ratio is down at the low twos. We're continuing to use our cash to strengthen our balance sheet, pay down debt, and to pay for the 747-8 pre-delivery payments. We take a really disciplined approach to deploying our capital, and we set aggressive return targets. Our focus continues to be on growing the business while generating returns that are above our cost of capital and at the same time maintaining a strong balance sheet. Right now, you know, we have CARES Act limitations that don't allow us to either, you know, put in place share repurchases or to put in place a dividend program. It's something that the board is always considering, and when those restrictions are gone, that's something that the board will have to determine at that time. But at the moment, it's not really a consideration at this point. We just, you know, can't.

Okay, thank you. And then this follow up question, just wondering if you could give some color on what you're seeing with respect to supply on some of your key routes, it looks like you know, we're starting to see some indications of long haul commercial wide body flights being added back and areas like Latin America, looks like we could be heading back towards pre pandemic levels in the next few months. So curious, I realize your network is pretty complex, but if you're maybe top three or five lanes, what does that dynamic look like currently and then how are you thinking about that for the second half? Thanks.

Chris, we're really not seeing that at all. In fact, as I mentioned in my remarks, it's slow to recover. borders still remain closed. Now, I also believe there will be a significant appetite for the passenger carriers to get their aircraft back up and running. But there are a number of dynamics there that still favor air freight, including some of the passenger aircraft that are being used as what's called freighters. Once passenger traffic returns, a lot of that capacity is going to come out of the markets. and they're also likely going to come out of major cargo trade lanes and back to passenger service trade lanes, but it's been slow, and we expect it's going to continue to be slow, so we're not necessarily seeing what you're describing. I think there's a lot of, there is going to be a lot of attention given to the passenger carriers to get back up and running and, you know, tout some of the improvements, but Right now, what we're seeing on the demand side is not within the timeframe you're talking about. And reasonable minds can differ on when it will return to pre-pandemic levels, but I'm not one who believes it's going to be in the next few months at all.

Okay. The routes I was referring to was on Latin American. And overall, you know, the number of flights coming back are still small. I was just curious if there's been any route that's – where you've seen a perhaps a marked difference versus a few months ago? No, not really. Okay, thank you. Sure.

As a reminder, to ask a question, you will need to press star one on your telephone. Again, that is star one. Your next question comes from the line of Scott Blue from Wolf Research. Your line is open. Hey, thanks.

Morning, guys. So I want to go back to the segment reporting, because when I look, charter margins have never been higher. ACMI margins have never been lower. And I mean, charter rates are three times as high as ACMI. So, you know, from a financial standpoint, they still look and feel very different. So I'm just struggling with what should the longer term margins of this segment look like?

Yeah, thanks, Scott. We don't think they are that different anymore. As we talked about, the businesses have been becoming more and more similar over time. And, you know, we as a company, we view and manage them as one segment. It's not something that just, you know, transpired during the pandemic. The two segments have been converging for a while now. As we talked about in our sort of opening comments, they both have long-term and short-term nature to them. Even ACMI has pretty significant short-term arrangements in it as well. Both provide similar services. We exchange aircraft between them. Both fly similar routes, carry similar goods, and the same staff support all of them. There was also a challenge from a cost allocation standpoint, keeping the two separate because we record our maintenance for the most part on an as-incurred basis. So in a quarter where we incurred maintenance, that maintenance may have been allocated to either ACMI or to charter, but then the flying for the full year may have been – the quarter where the maintenance was allocated may have been disproportionate. to how the whole year's worth of flying may have performed. And so, for example, you're talking about historically ACMI margins being lower, and there were times when ACMI would get allocated a disproportionate amount of maintenance, for example, even though that's not the way the year would have necessarily played out. It's just the way that we allocated. We consistently have allocated that way. So it presented problems that way. and, you know, it harmed one segment or the other segment, it's just better to look at the two of them together at this point, we think. So you were asking about a long-term, yep, sorry, go ahead.

Yeah, I understand why you're consolidating. I'm just saying I'm struggling with how to think about what this combined segment should look like over time now.

Yeah. Yeah. So we've entered into these long-term charter contracts now, so they're starting to look a lot more similar in that regard. These contracts, as I said, go into 2022 and 2023, and some go into 2024. So they're starting to act a lot more like traditional ACMI. So over the next number of years, I think you'll see those margins kind of normalize for both, And as John talked about, those long-term charter contract customers, they're really getting the taste of what it is to have dedicated aircraft capacity and to be able to operate their networks having that committed capacity. And we hope and expect that this is here to stay, and those customers are going to want to stay in those arrangements and extend them even longer.

Okay. And then I don't know if you can – help with this, but maybe you can. So the 6% of the business that's ad hoc, is there any way to say sort of what percentage of the earnings that's representing now? And then the 94% that you think about as more longer term now, are the rates on that 94% all fixed, or do those still move based on market conditions? I just want to understand the business now.

Sure. So as far as do the rates move, so for the U.S. military, for example, that's a cost plus contract. So if costs change, then that could certainly change. The flying we do around South America, you know, we fly a loop around South America. So those rates do change over time. The 6%, obviously, those rates change. The long-term charters and the ACMI, typically, you know, those rates only change when those contracts come up for renewal.

Okay. All right. Thank you, guys. Thank you. Thank you, Scott.

We have a follow-up question coming from the line of Chris from Susquehanna International Group. Your light is open.

Okay, thanks for taking my follow-up. So just getting back to my first question and perhaps getting at Scott's from a different angle here, you know, should we think that perhaps, you know, if you want to look at it on an EBITDA margin that you're still, is this overall at a corporate level, a high-teens kind of 20% business through the cycle here with these changes? and the fact that you're moving fewer missions on the spot?

Yeah, absolutely. You can see the growth in our segment margins. And if you just look at the past year, you can just add the two ACMI charter together, or you can look at them separately, whichever. But when you look at 2020 versus 2019, and now you see 2021 versus 2020, you can see the growth of those margins with these long-term charter contracts. And we look at, as John talked about before, we look at each and every arrangement, each and every schedule and network, and we're trying to piece them all together. If we can successfully do that, as we have done, then we'll continue to see really strong margins. And you can see that our utilization, when you look at our utilization, it is up tremendously. And our group has really been focused on increasing that utilization. Our 747-8 utilization has increased, 747-400s, both of those in traditional ACMI utilization has increased. Our ACMI customers flew 16% above their minimum guarantees during the quarter. Commercial charter utilization was up. The only utilization that was down was, you know, the U.S. military, which is understandable given the circumstances, and that's on the passenger side, that is. So utilization has been really strong, which is driving those strong margins.

Okay. And a follow-up, any color on or update on the Amazon business, what the active fleet count is?

routes served, or if you could perhaps frame how it's been growing, what's left on the order book, and where we are with the next tranche of warrants. Thanks.

So the operating fleet, we're at 17 767s and 8 737-800s, so that's 25 total airplanes operating for Amazon. Those are all up and running. We brought on I think the last three towards the tail end of last year. Working closely with Amazon. I'll let Spencer comment on the warrants, but it's a great relationship. It's a great customer. They're continuing to grow and diversify their providers, and we're going to be in there competing as best we can for the business. And we appreciate the business that they give us. So we're up to 25 airplanes right now.

and I'll just briefly comment on the warrants. So, um, Amazon exercised, uh, warrants in October and January of this year, October of last year in January of this year. And so we issued, um, about 2.6 million shares. Um, but in doing so, because they exercise on a cashless basis, they actually sort of surrendered or canceled about 4.9 million shares. So from a, um, An existing shareholder equity dilution standpoint, there's a lot less potential dilution there. As far as warrants outstanding, there are about 338,000 shares worth of warrants that are vested, warrant B that is, and no warrants C shares have vested. Any remaining vestings are tied to revenue paid to the company. So Amazon vests based on revenue that they pay to the company.

Okay, then, Spencer, any plans to apply for PSP3?

Thanks. I'll answer that one. We have no plans to apply for PSP3. Okay, thank you.

Sure. And there are no further questions over the phone line at this time. Presenters may continue.

Great. Thank you, operator, and thanks to all of you for your great questions. On behalf of all of our employees, Spencer and I would like to thank you for your interest in Atlas Air Worldwide. We appreciate you sharing your time with us today. We hope that you and your family stay safe, and we look forward to speaking with you all again soon. Thanks so much.

This concludes today's conference call. Thank you for participating. You may now disconnect.