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.