Atlas Air Worldwide Holdings, Inc. Q4 2007 Earnings Call Transcript

| About: Atlas Air (AAWW)
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Atlas Air Worldwide Holdings, Inc. (NASDAQ:AAWW) Q4 2007 Earnings Call February 27, 2008 9:00 AM ET


William C. Bradley - Vice President and Treasurer

William J. Flynn - President and Chief Executive Officer

Jason Grant - Senior Vice President and Chief Financial Officer


Bob Labick - CJS Securities

David Campbell - Thompson, Davis & Co

Evan Ratner - Credit Suisse


Welcome to the Atlas Air Worldwide Holdings, Inc. 2007 results conference call. (Operator Instructions) I would now like to turn the conference over to Bill Bradley, Vice President and Treasurer.

William C. Bradley

Good morning everyone, I am Bill Bradley, Vice President and Treasurer of Atlas Air Worldwide Holdings. Welcome to our 2007 earnings review conference call. Today’s call will be hosted by Bill Flynn, our 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 Reform Act of 1995. These statements relate to future events and expectations and involve unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in the forward-looking statements.

Please refer to the Safe Harbor language in our recent press releases and to the risk factors set forth in our annual report on Form 10-K filed with the SEC on March 15, 2007, and as will be updated by our upcoming 2007 Form 10-K filing for a summary of specific risk factors that could cause results to differ materially from those expressed in our 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 You may access these releases by clicking on the link to financial news in the Investor Relations section on the website.

At this point, I’d like to turn the call over to Bill Flynn.

William J. Flynn

Welcome everyone, 2007 was a very exciting year for us. We achieved record pre-tax earnings of nearly $133 million and we are equally excited about our future. We are well positioned operationally, financially and strategically to build on our 2007 performance.

Based on our current initiative and strategies we expect pre-tax earnings in 2008 to exceed 2007. We also expect pre-tax earnings to accelerate to a range of $165 to $175 million in 2009, which will be the first full year of our express network ACMI service for DHL.

We are building from strength, and our achievements in 2007 demonstrate this. We reported record earnings for the year in the face of record high fuel costs. We considerably enhanced our balance sheet and strategic flexibility, ending the year with a large cash balance that exceeded our net debt, and attractive PDP financing on five of our new 747-8 freighters that complements our launch customer pricing.

We completed a landmark strategic transaction with DHL that will transform our Scheduled Service aircraft assets into ACMI-like contributors with predictable revenues and margins without commercial load and fuel price risk.

We improved our operational execution, maximizing the utilization of our aircraft, exceeding our year-end target for continuous improvement, and driving our margins and earnings while contracting our 747-200 fleet. Moreover, we implemented tax strategies that have minimized cash taxes and reduced book income tax provisions.

As a result, our pre-tax earnings increased to $132.7 million in 2007, which is a 41.5% improvement over our 2006 pre-tax results. We also exceeded our prior record 2005 pre-tax earnings of $124 million despite a 24% reduction in AMC block hours compared with that year and substantially higher fuel costs.

In addition, our 2007 net earnings were a record $132.4 million or $6.17 per diluted share, both of which are more than double our respective 2006 figures.

Before Jason discusses the numbers, I’d like to spend a few moments on the fundamentals underpinning our business success and to highlight exciting growth in both our fleet and our relationship with DHL Express. We have been working over the past two years to substantially de-risk our business and focus on more profitable, long-term contracts, improving revenue and earnings streams visibility.

Our focus is on the bottom line. Our efforts to optimize our asset base, our product mix, and our operations, combined with our continuous improvement initiatives, are driving significant expansion in margins and earnings. Our strategy is focused on leasing and outsourcing new efficient freighter aircraft that will drive long-term earnings growth.

In addition to our compelling assets, we provide the most cost-effective outsource solutions and services to our customers in the global airfreight market. We provide scale and scope efficiencies that our customers are able to integrate with their cargo operations and drive their results.

We serve all global markets, with the majority of our flying outside of the United States. We serve customers who are focused on world markets in Asia, Europe, the Middle East, South America, Australia, and New Zealand, where demand is strong and will grow in the long-term.

Our capacity, our intellectual capital and our high-quality reliable operations have resulted in enduring strategic relationships with our customers such as DHL, Emirates, British Airways, Qantas, Air New Zealand, the US military, and leading global freight forwarders. As an example, you may have seen a press release from Qantas today announcing a six-year term renewal for the three aircraft that are currently placed with them. We are very pleased with this development.

As a result of our strong financial capability and our ability to act quickly on opportunities, we have recently agreed to acquire two additional 747-400 freighters to expand our fleet and generate incremental revenues and earnings, starting in 2008. These aircraft are expected to join our fleet in the second quarter and in the third quarter of this year, and enable us to expand our relationship with DHL in advance of the October startup date for our express network service.

Beginning March 29 we will commence flying two 747-400 freighters for DHL on an ACMI basis for a three-year term in the trans-Pacific. These aircraft will be in addition to the six aircraft specified in our original agreement with DHL. In October, we will commence the full express network ACMI service for DHL, deploying a total of eight aircraft.

Our partnership with DHL will significantly enhance the profitability of the six aircraft that are currently deployed in our Scheduled Service operations. When the new service begins, we expect these assets to generate an ACMI-like profit contribution.

We are looking forward to the launch of our 747-8 freighters in 2010 and 2011. This aircraft will benefit from its scarcity value, payload and fuel efficiency, and our first-to-market ACMI capability.

Jason will now take you through our latest financials. Following Jason, I will provide some additional color about our outlook for 2008 and for 2009, the first full year of our express network ACMI service for DHL. After that we will go to your questions.

Jason Grant

Good morning everyone, As Bill has highlighted, we reported a strong increase in pre-tax earnings and a record net earnings for 2007. We reported operating income of nearly $155 million on total operating revenue of $1.56 billion. After adjusting for pre-tax gain on sale of assets, we increased our operating earnings by 6.2% compared with 2006.

Our asset optimization and continuous improvement initiatives drove cost savings and utilization improvements that helped us overcome the impact of continued high fuel prices and a reduced fleet size.

Key to our performance in 2007 was a 9.9% improvement in aircraft utilization, which we achieved on an 8.8%, reduced fleet size. Through year-end, our continuous improvement efforts have achieved $68.4 million in annualized savings against an addressable 2005-cost base of about $800 million.

Continuous improvement has become an integral part of our culture here at Atlas, and we continue to deliver results from our efforts. We continue to expect that we will exceed our goal of $100 million in annualized benefits in 2008.

Earnings in 2007 also benefited from actions that reduced our non-operating expenses which included: a $24.3 million reduction in our net interest expense, which included the impact of early debt retirement in 2006; the absence of a $12.5 million non-cash charge related to that debt retirement in 2006; and net tax benefits totaling $50 million or the equivalent of $2.33 per diluted share.

Our tax benefits are related to the DHL Express investment in Polar Air Cargo Worldwide as well as our ability to claim a deduction for extraterritorial income on our Federal income tax returns for 2004 through 2006.

In addition to the tax rate and cash tax savings that we have achieved in 2007, we are continuing to actively evaluate income tax planning opportunities that may reduce our effective tax rate and cash tax liability in the future. These opportunities are not yet fully developed, so we cannot quantify the potential tax rate reduction and cash tax savings at this time. However, we do expect to utilize tax loss carry-forwards to offset most taxable income generated during 2008.

Returning to operations, revenues increased 5.9% in 2007, reflecting an increase in non-ACMI block hours and unit revenues. Operating expenses, meanwhile, increased 6.3% in 2007 mainly due to higher fuel costs, which were partially offset by significant continuous improvement cost savings.

Aircraft fuel expense of nearly $532 million in 2007 was $77 million or 17% higher than 2006 due to an increased mix of non-ACMI flying and an increase in fuel prices. Fuel consumption increased 10.5% in 2007 compared with an 11.7% increase in non-ACMI block hours. Average fuel prices increased steadily over the course of the year and negatively impacted our Scheduled Service segment, which is where we are most directly and significantly exposed to the impact of changes in fuel price.

We continued to benefit from our FuelWise continuous improvement initiative, which focuses on improving fuel burn for Atlas and our customers. As a result of our FuelWise program, we reduced fuel burn in our non-ACMI businesses by about 37 gallons per block hour or 1.1% in 2007. Our fuel expense in 2007 also reflects a net benefit of $5.6 million from our fuel hedging activities related to our Scheduled Service business.

Other key expense items include maintenance expense, which consistent with our prior commentary totaled $149.3 million in 2007, up about $5.2 million or 3.6% compared with 2006. The increase was principally due to an increase in line maintenance expense as well as three additional heavy airframe check events and four additional engine overhauls.

The impact of these events was partially offset by improvements in outside repair expenses and reductions in borrowed parts expenses related to our continuous improvement initiatives.

In addition, salary, wages and benefits expense increased about 2.4% or $5.8 million compared with 2006. The change was mainly due to an increase in performance-based incentive compensation and profit sharing for 2007 relative to 2006.

Other operating expenses were sharply lower in 2007 declining $22.3 million or 21.8% due primarily to our ongoing continuous improvement initiatives. The significant improvement reflects reductions in legal and professional fees, contractor fees, insurance, and other general and administrative expenses.

Turning to our balance sheet, we ended the year with a cash balance of $477 million, which represented a 106% increase over year-end 2006. We ended the year with debt and capital lease obligations totaling $394 million.

The face value of our debt and capital lease obligations amounted to $469 million. This included $75 million of unamortized discount related to fair market value adjustments associated with fresh start accounting. This compared with a face value balance of $501.5 million on December 31, 2006.

Free cash flow defined as cash from operations less capital expenditures totaled $134 million in 2007 compared with $77 million in 2006. Cash from operating activities totaled approximately $197 million versus $147 million from 2006.

Capital expenditures totaled $63 million, which included approximately $31 million in Boeing progress payments related to our future aircraft deliveries.

Net cash provided by financing activities totaled $103 million reflecting proceeds of $98 million from DHL’s investment in Polar and $30 million from a refundable deposit from DHL, offset by $32 million in debt repayments. Subsequent to year-end we received an additional $38.6 million from DHL reflecting further investment proceeds. The final payment from DHL of $37.5 million plus interest is scheduled to be paid in November of 2008.

Looking forward we expect that capital expenditure for 2008 will total approximately $45 to $55 million excluding pre-delivery payments (NASDAQ:PDP) of $247 million related to future aircraft deliveries and excluding the purchase price of our two incremental 747-400s that Bill had referenced previously.

We were pleased to announce last month that we have entered into a $270 million PDP financing facility with respect to the first five 747-8 freighters to be delivered to us between February and July 2010. PDPs on these five aircraft totaled $202 million in 2008, which is about 80% of our total PDP requirements for the year.

As of February 1st we had borrowed approximately $63 million under this facility. Our PDPs facility complements our launch customer pricing on the aircraft and reflects the financing community’s positive perceptions about the 747-8s and their compelling operating advantages, the quality of our customers and our relationships with them, and our strong operating performance, balance sheet and prospects for growth.

We are working on the next tranche of financing arrangements with respect to our order for the 747-8s and we are confident about our ability to make further progress on this in 2008.

With that I would like to turn it back to Bill.

William J. Flynn

As I noted at the beginning of my remarks we expect pre-tax earnings to exceed $133 million in 2008 and to grow to a range of $165 to $175 million in 2009. It is important to note that in the 2009 range we have conservatively assumed AMC revenues of $200 million or a nearly 50% reduction from the $376 million generated in 2007.

Based on our outlook and the full impact of our DHL partnership, about 84% of our expected 2009 block hour capacity will be under predictable long-term, take-or-pay contracts. Taking into account our forecasted military charter business about 92% of our capacity will be tied to fixed-price contracts.

First half of 2008 will be challenging. Fuel will continue to impact our Scheduled Service business until we commence the express network ACMI service for DHL in the fourth quarter. In addition, we expect lower military volumes.

Nonetheless, our business is well positioned for growth and improved performance. We see continued strong demand for our 747-400 freighters, especially given the fuel and maintenance burden of older 747 Classics, MD-11s and DC-10s.

We have recently formed a wholly-owned subsidiary in Ireland to focus on the acquisition, sale, dry leasing, marketing and servicing of aircraft and related equipment. This subsidiary has already dry leased one 747-200 freighter aircraft to a third party.

In closing, we achieved solid operating performance and record net earnings in 2007. We are focused on execution and we have a solid platform for earnings growth in 2008, 2009 and beyond. We will continue to build on our strength and we will continue to build an exciting and winning future for our customers and for our stockholders.

With that I think it’s a good time to take some questions.

Question-and-Answer Session


(Operator Instructions) Our first question comes from Bob Labick - CJS Securities.

Bob Labick - CJS Securities

I wanted to focus on ACMI. You alluded to the drop in revenue per block hour in the quarter relating to some supplemental flying. Could you just expand on that and explain what the outlook for ACMI revenue per block hour would be in ‘08 and if this fourth quarter reduction should influence that trend at all?

William J. Flynn

Bob, in prior years we have done short-term ACMI flying for FedEx and UPS; a good number of aircraft in 2006 and 2005. The aircraft that they contracted for over a two or three week period during the holiday peak to supplement their fleet.

What we experienced, we didn’t get that level of short-term flying with UPS and FedEx this year and that’s what affected the rate per block hour in a quarter-over-quarter comparison. Going forward we believe in our core ACMI business, the business where we have the aircraft contracted out for multi-year terms, those rates are strong and solid.

Bob Labick - CJS Securities

Then also you mentioned you’re procuring two additional 400s, I guess, in Q2 and Q3. Could you comment on pricing and supply out there? Is this going to be an issue for industry-wide? Is there a lot of 400s available or just the dynamics going on in that regard?

William J. Flynn

Well, let’s kind of take that in reverse order. There are not a lot of 747-400 pure factory freighters available. We’ve are acquiring one factory freighter and one 747 Boeing Converted Freighter (NYSE:BCF).

Demand is still very strong for the aircraft. We were just in a position where we could take advantage of the opportunity where the aircraft that was available and we had several placement opportunities. And as we’ve announced we will place additional aircraft with DHL.

There is not a lot of aircraft available as I’ve said. There are some BCF aircraft coming into the market, but a BCF does not have the same performance characteristics as a pure factory freighter. We’ve not disclosed the price that we’ve paid for the freighters, however, Bob.

Bob Labick - CJS Securities

And then skipping to Scheduled Service, I know it’s short-lived on your P&L for the time being but you mentioned some hedging activity where you were able to mitigate some of the fuel price increase. Could you also just discuss the fuel surcharges and any ability to recapture some of the continued increase in fuel for the next eight or nine months, until it’s under the ACMI agreement with DHL Express?

William J. Flynn

Well, fuel is really one of the key questions, isn’t it? If you go back and you look at last year the lowest cost per gallon was experienced in the first quarter of 2007. And then coming out, starting in March, the cost per gallon just continued to decline and that hasn’t stopped.

We are increasing our fuel surcharges in the marketplace, but the fuel surcharges do not recover 100% of the delta. First, they lag, so there is a time lag; and, secondly, you price to what the market will absorb, and so right now we’re looking at something in the range of a 66%, 65%, kind of recovery. That’s something we continue to monitor and we continue to test the market with pricing, both on underlying rate and on fuel surcharges.

Bob Labick - CJS Securities

And then looking ahead you mentioned minimal cash taxes in ‘08. Have you decided on, or ready to disclose the amount of 747-8s you expect to purchase outright and then use depreciation as a tax shield for ‘09 and beyond, or where are you in that process for purchasing versus leasing the 747-8s?

Jason Grant

We’re fairly advanced in the process. I think the area where we’ve made the most progress is in the sale-leaseback opportunities for the aircrafts that will end up being off-balance sheet. I think it’s probably premature for us to give you a specific split between what we expect will be on and off, but I think it’s fair for you to assume that there will be a material portion of the aircraft, which end up being financed on-balance sheet. And I think part of it becomes the market and the environment as we move forward.

But as it stands now, we envision that there will be a significant portion of the aircraft on-balance sheet and that we would benefit from that tax benefit. I guess to put it in context, of the 12 aircraft that we have firm orders on, we had as we said four backed up, sale-leaseback financings, on those aircraft.

We’ve been in discussions, more advanced discussions, on an additional two aircraft as sale-leaseback, to kind of give you a context today in terms of what wind up as potential off-balance sheet. But again, I don’t want to commit to a specific number because there is some optimization, I think, left in this process, but fair to say that we expect that there will be some tax benefits here.


Our next question comes from David Campbell - Thompson Davis & Co.

David Campbell - Thompson Davis & Co

Just to clarify your comment about capacity and block hours in 2009, 92% being in fixed rate business, does that mean that there will be about 8% of the revenue block hours in Commercial Charter and scheduled operations.

William J. Flynn

That’s correct, David.

David Campbell - Thompson Davis & Co

That seems like quite a decrease from current levels, but I guess that’s part of your plan to reduce the impact of higher fuel costs?

William J. Flynn

Well that’s exactly right. It is a substantial decrease and it is the plan that we’ve been executing on going forward.

David Campbell - Thompson Davis & Co

And you’re not ready to forecast your 2008 tax rate I assume from the comments?

Jason Grant

Well I think David, to focus on the cash taxes we’ve said our expectation is that our NOL position will effectively defer cash taxes for 2008 and I think the booked tax provision we have not given any guidance on and we will not on this call.

David Campbell - Thompson Davis & Co

How about in case of your net interest expense, you will be borrowing money this year. Do you have anything you can disclose in terms of what the net interest cost might be this year?

Jason Grant

I think, David, the place you want to be focused for that calculation is really the PDPs and we will have effectively an incremental $246 million of PDP requirements in 2008 and that is an amount; a portion of which will be financed, a portion of which will come out of equity. For the portion that’s paid out of equity, we record capitalized interest; and capitalized interest on the PDP interest we pay to the lender as well.

So, I think you want to think about a lot of that interest upfront as being capitalized and end up flowing into the capital base of the aircraft going forward. Otherwise, we have no incremental, at this stage, financing activity beyond the two 400s which we will want to find permanent financing solutions for.

David Campbell - Thompson Davis & Co

And the two 400s, you’re not willing to give us a capital expenditure forecast for 2008 including the 400s and the progress payments?

Jason Grant

No, I think given the sensitivity of the procurement process for these aircraft, we are not at a stage where we can disclose that yet, David. And I think as we get farther down the process, clearly there will be more disclosure, but at this stage we cannot.

David Campbell - Thompson Davis & Co

But you are planning on purchasing the two 747s, or that hasn’t been decided yet?

Jason Grant

Yes, I think there is an open question to us here is how much of this ends up on the balance sheet and off the balance sheet, and frankly, we are testing the market for that right now. And we’re going to let the market tell us what the better answer is between the two.

William J. Flynn

But I think if I heard the other part of your question we are moving forward to acquire the aircraft.

David Campbell - Thompson Davis & Co

Right and your dry lease on the 747-200s, you’ve said that there wasn’t much demand for 747-200, so I guess I’m surprised that you would find it profitable to go into a dry lease with one.

William J. Flynn

Well, we’ve said the 747-200 is challenged in the ACMI market. We operate the 747-200s effectively in our military charter and in our Commercial Charter unit. There are other operators there who have uses and applications and customers for the 747-200 and they make money with it and that’s how we manage these assets, particularly these eight 747-200s. We manage them tail-by-tail and we take advantage of the opportunity that’s out there for them.

David Campbell - Thompson Davis & Co

What about the status of the current market for Scheduled Service particularly in the Asia-Pacific region, that impact was the early Chinese New Year and so forth in disclosing that you will have a difficult first six months, you didn’t say the commercial market would be difficult, related mostly to military charters but so what do you think about the commercial market?

William J. Flynn

Well, we said two things, that the biggest overhang on the Scheduled Service market right now is fuel, and we had, I think, IATA has put out statistics Asia-Pac in the second half of ‘07 actually grew 8.1% in terms of freight demand. You’ll see our numbers later in the K and we had a good fourth quarter in Scheduled Service which wasn’t only Asia-Pac. But as we’ve talked about David on other calls, we’ve got a very strong position in the South American trade, both north and southbound as well as trans-Atlantic.

Now, to your more specific question there was pretty good demand in January leading right up to Lunar New Year even in spite of the snowstorms that affected Shanghai and other airfreight markets in China just before Lunar New Year and then and, then, shortly thereafter. The pricing was reasonably strong as was our ability to push the fuel surcharges out into the market.

And on military we’ve historically said that we’ve used the term a normalized volume of military volumes around 1450 hours a month and that’s kind of what we see.

David Campbell - Thompson Davis & Co

So, but January was a good month in general for commercial demand. February will be influenced by the Chinese New Year.

William J. Flynn

Sure, as it always is whether Lunar New Year falls in February, it falls in March. You clearly see that in trade statistics because of the ten or so day shutdown that the factories take.


Our next question comes from Evan Ratner - Credit Suisse.

Evan Ratner - Credit Suisse

On the ACMI market can you just talk about your competitive position better, worse, same? And what you see going forward from that perspective in 2008 and beyond?

William J. Flynn

I think our position, Evan, is absolutely better because we still are the carrier with the almost 90% of the 747-400 freighters that are available in the market for ACMI operations. We are in the process of converting the Scheduled Service to ACMI with DHL.

We’ve gone and in the process of acquiring two more aircraft; one is a pure factory freighter, one is a BCF, which will again increase our size and our scale in the market and our ability to continue to deliver scale and scope efficiencies to our customers.

The other 747-400s that are either in the market or coming into the market are essentially BCFs. Which while we have acquired one for our own use, they are not the same aircraft as a 747 freighter and we believe that our scale advantage as well as the kind of the sterling or platinum credit quality of our customers really do position us in a very strong position in the ACMI market.

Beyond that our renewal rate has been exceptional. If you just kind of think it through, we’ve got six aircraft with DHL in the long-term ACMI agreement that we’ve talked about on several calls now, another two aircraft which are coming into DHL this year on a three-year term.

Last year, British Airways announced a five-year renewal of the three aircraft that we have placed with them through our subsidiary GSS, a minority shareholding in that subsidiary. And Qantas announced today another three aircraft on a six-year renewal which is one of our longer-term renewals.

So as we come into more of an uncertain market in 2008 and 2009 given global conditions, we have very few aircraft that are coming up for renewal and so we don’t expect to have aircraft coming back to us parked or unused for some period of time as a result of a renewal that didn’t happened or something of that nature. We think we’re very well positioned in ACMI with our aircraft well placed as we look forward through the next several years.

Evan Ratner - Credit Suisse

I was also going to ask you about the Qantas extension, generally, are you anticipating some upward trend in ACMI rates in going forward, is that a fair estimate.

William J. Flynn

Well we do get inflationary increases and we are pushing the rates as hard as we can. Our customers who bear the fuel risks are dealing with their challenges around fuel surcharges, so there is a point at which you push price. And then certainly as you get into long-term negotiations, you get increases or can get increases but you kind of balance that to some extent with the certainty of long-term placement on these assets.

Jason Grant

And one other point I would make on the year-over-year comp that you referenced for the competitive picture is when you look at supply, supply has been relatively unchanged as there are really limited 400s still to be produced. But what has changed significantly is fuel price and really the other operators in the market are almost exclusively operators of the older 747-200 equipment and it’s clear that the business case today is much more stressed than it was a year ago.

Higher fuel prices I think don’t help anyone. But certainly on a relative basis we have the assets that were compelling a year ago, they were compelling two years ago and when we talk about $1 a gallon or $0.75 a gallon increase in fuel price. That relative economic benefit of the 400 is only exacerbated relative to the competitive options out there.

Evan Ratner - Credit Suisse

Bill, can you also talk briefly, I know we can talk a whole lot of about this, but the consolidation, the US commercial marketplace, how does that affect you if at all, is it a benefit, a negative, are you indifferent?

William J. Flynn

You’re talking about the softening demand?

Evan Ratner - Credit Suisse

No, no, no. I mean like with Delta and Northwest getting together and there were other consolidations, US and globally?

William J. Flynn

Well, the only operator out there who has freighters of any amount or, frankly, any freighters is Northwest. And our customers as you know other than the military are essentially all non-US airlines for the ACMI business with the exception of the maybe a seasonal placement that we have with a FedEx or UPS. So, we’ll remain generally unaffected by consolidation.

I think the question that’s out there and I don’t know what the answer to that is, is what will Northwest ultimately do with those freighters? If there is consolidation will the new entity continue to operate the freighters, what are they going to do, but that’s all pure speculation until something is actually announced.


And our next question is a follow-up from David Campbell - Thompson, Davis & Co.

David Campbell - Thompson Davis & Co

Substantial decrease in scheduled revenues, scheduled block hours and Commercial Charter block hours that you have in your plans for 2009 particularly, how does affect the market for ACMI? Doesn’t that somewhat increase in market rate for ACMI, because some airline is going to want to fly their freighters more?

William J. Flynn

Well, I think, I think there is a couple of ways to think about it. Part as we talk about our fleet, what’s going to change between now and 2009. We are going to go from 20 to 22, 747-400s all of which will be in a ACMI effective operation, that’s our expectation in the forecast.

And we will be taking down our 200 fleet. Now, in the 200 fleet we’ll have at a $200 million forecast on AMC revenues. We’ll have about 3 to 4 aircraft in AMC, 3 aircraft in a dry lease situation and then the remaining will be in Commercial Charter and/or could fly in Scheduled Service.

To the extent that the Commercial Charter market certainly has unmet demand, there are a large number of 747-200s out there that other parties could put to work to serve that market. But that excess 747-200 capacity is not likely to be a competitive threat to us with our customers with whom we have the aircraft placed.

One, we don’t believe the aircraft works for them given the nature of their business strategy and their routes served. And, two, we have the long-term placements through contracts with our customers already with very limited renewals to occur in that cycle.

David Campbell - Thompson Davis & Co

So in 2009 your plan will not have 34 aircraft. How many aircraft would be would you be operating?

Jason Grant

David, I think just to give you some rough numbers on that as Bill said we are going from 20 to 22 400s I think and if you think about the 200s today we have 17 in total. There are two of those aircraft, which are subject to D-Check, the big heavy maintenance events in the next 24 months.

Those will be clearly targets for potential reduction and then there are three aircraft that are currently under operating lease in which those operating leases expire by the first quarter of 2010. So, to put in context that’s probably the minimum amount of fleet that is in question here on the 200 side.

William J. Flynn

Meaning roughly 12?

Jason Grant

Meaning you’ve got 17, and there are three come down automatically. Two are due Ds, and we’ll have to make that decision.

William J. Flynn

So you’ve got roughly 12 plus 22, so the fleet is 34, but of course the introduction of the two 400s make a substantial difference in terms of our earnings power with [inaudible].


At this time we have no for questions in queue. I will like to turn the conference back to management for any concluding comments.

William J. Flynn

I’d like to thank everyone for taking the time to participate in the call and for your questions and to thank you for your interest in Atlas Air Worldwide Holdings.

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