ATSG Benefits from Freighter Leases, Boosting Cash Flow

Air Transport Services Group’s (ATSG) Cargo Aircraft Management (CAM) division looked healthy in the second quarter ended June 30, thanks to sustained freighter leases.

Aircraft leasing and related revenues from external customers in the second quarter were up 4% for CAM, year on year.

This was “driven by higher average lease rates as more 767-300s have been deployed, offset in part by fewer leased 767-200 aircraft”, said ATSG.

Pre-tax earnings decreased 22% to $31m year on year.

But this was partly due to the scheduled return of ten 767-200s since June 2022, including seven in the second quarter this year, said the company.

The CAM division deployed one 767-300 leased freighter to an external customer during the quarter. Six more leased freighters have been deployed since June 30, including four more 767-300s, and two A321-200s.

Twenty-three aircraft are currently in or awaiting conversion to freighters. That total includes seven A321 aircraft and sixteen 767-300s, confirmed ATSG.

The lessor recorded revenues of $529m in the second quarter, up 4% year on year.

Rich Corrado, president and chief executive of ATSG, said, “Our results in the second quarter reflect a rebound from the first quarter in our passenger airline operations, including both improved revenues and cost efficiencies, and the benefit of 13 more Boeing 767-300 freighters in service at June 30 this year versus a year ago. Adjusted EBITDA was in-line with the prior year period, despite continuing inflationary effects on our operations versus the second quarter of 2022.

“We remain confident in executing our plan to lease nineteen newly converted freighters in 2023, including nine leased to date. We continue to expect attractive returns on what we now project will be $785 million in 2023 capital spending, down $65 million compared with prior guidance.”

ATSG said it continued to expect adjusted EBITDA for 2023 to be in the range of $610m to $62om.

“A solid July for both freighter leasing and passenger flying has positioned us to achieve our second-half 2023 goals, with sequential improvement each quarter,” Corrado said.

ATSG has decreased its capital spending projection for 2023 by $65m to $785m, including $240m in sustaining capex and $545m for growth. The decrease in growth capex principally reflects two fewer A321 aircraft purchases this year for conversion in 2024. Lower sustaining capex reflects fewer than planned overhauls of engines for Boeing 767-200 freighters.

Corrado noted that the fundamental driver of midsize freighter leasing – rapid fulfilment of e-commerce purchases via air express networks – will persist over the long term.

“Global e-commerce growth projections remain strong, and our owned fleet and conversion pipeline stand ready to meet future demand, further supported by the need to replace aging, less fuel-efficient aircraft over the next decade,” he said. “Our freighters, including Boeing 767s, Airbus A321s, and Airbus A330s, remain the most efficient and reliable solutions for these markets.”