Annual Statements Open main menu

ATLAS AIR WORLDWIDE HOLDINGS INC - Quarter Report: 2021 June (Form 10-Q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2021  

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 001-16545

 

Atlas Air Worldwide Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4146982

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)

 

 

 

2000 Westchester Avenue, Purchase, New York

 

10577

(Address of principal executive offices)

 

(Zip Code)

 

(914) 701-8000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 Par Value

 

AAWW

 

The NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer       Accelerated filer      Non-accelerated filer       Smaller reporting company       Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 30, 2021, there were 29,024,886 shares of the registrant’s Common Stock outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

Part I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)

 

6

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity as of and for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

33

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

33

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

34

 

 

 

 

 

Item 1A.

 

Risk Factors

 

34

 

 

 

 

 

Item 6.

 

Exhibits

 

34

 

 

 

 

 

 

 

Exhibit Index

 

35

 

 

 

 

 

 

 

Signatures

 

36

 

 

 

 


 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atlas Air Worldwide Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

750,161

 

 

$

845,589

 

Restricted cash

 

 

10,292

 

 

 

10,692

 

Accounts receivable, net of allowance of $3,582 and $1,233, respectively

 

 

291,843

 

 

 

265,521

 

Prepaid expenses, assets held for sale and other current assets

 

 

97,906

 

 

 

95,919

 

Total current assets

 

 

1,150,202

 

 

 

1,217,721

 

Property and Equipment

 

 

 

 

 

 

 

 

Flight equipment

 

 

5,287,205

 

 

 

5,061,387

 

Ground equipment

 

 

95,901

 

 

 

86,670

 

Less:  accumulated depreciation

 

 

(1,240,656

)

 

 

(1,147,613

)

Flight equipment purchase deposits and modifications in progress

 

 

223,761

 

 

 

110,150

 

Property and equipment, net

 

 

4,366,211

 

 

 

4,110,594

 

Other Assets

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

209,898

 

 

 

255,805

 

Deferred costs and other assets

 

 

344,914

 

 

 

374,242

 

Intangible assets, net and goodwill

 

 

67,811

 

 

 

70,826

 

Total Assets

 

$

6,139,036

 

 

$

6,029,188

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

103,399

 

 

$

107,604

 

Accrued liabilities

 

 

535,947

 

 

 

583,160

 

Current portion of long-term debt and finance leases

 

 

606,661

 

 

 

298,690

 

Current portion of long-term operating leases

 

 

73,595

 

 

 

157,732

 

Total current liabilities

 

 

1,319,602

 

 

 

1,147,186

 

Other Liabilities

 

 

 

 

 

 

 

 

Long-term debt and finance leases

 

 

1,783,648

 

 

 

2,020,451

 

Long-term operating leases

 

 

241,067

 

 

 

318,850

 

Deferred taxes

 

 

262,146

 

 

 

203,586

 

Financial instruments and other liabilities

 

 

35,519

 

 

 

77,576

 

Total other liabilities

 

 

2,322,380

 

 

 

2,620,463

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 100,000,000 shares authorized;

    34,515,070 and 32,877,533 shares issued, 29,024,700 and 27,517,297

    shares outstanding (net of treasury stock), as of June 30, 2021

    and December 31, 2020, respectively

 

 

345

 

 

 

329

 

Additional paid-in capital

 

 

919,362

 

 

 

873,874

 

Treasury stock, at cost; 5,490,370 and 5,360,236 shares, respectively

 

 

(225,321

)

 

 

(217,889

)

Accumulated other comprehensive loss

 

 

(1,504

)

 

 

(1,904

)

Retained earnings

 

 

1,804,172

 

 

 

1,607,129

 

Total stockholders’ equity

 

 

2,497,054

 

 

 

2,261,539

 

Total Liabilities and Equity

 

$

6,139,036

 

 

$

6,029,188

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

3


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Revenue

 

$

990,432

 

 

$

825,253

 

 

$

1,851,732

 

 

$

1,468,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

208,366

 

 

 

192,591

 

 

 

410,980

 

 

 

340,335

 

Aircraft fuel

 

 

214,269

 

 

 

83,242

 

 

 

377,820

 

 

 

191,560

 

Maintenance, materials and repairs

 

 

132,547

 

 

 

168,300

 

 

 

253,680

 

 

 

262,452

 

Depreciation and amortization

 

 

66,661

 

 

 

65,826

 

 

 

134,450

 

 

 

123,410

 

Navigation fees, landing fees and other rent

 

 

47,409

 

 

 

35,638

 

 

 

92,296

 

 

 

67,039

 

Passenger and ground handling services

 

 

41,504

 

 

 

30,130

 

 

 

81,569

 

 

 

62,089

 

Travel

 

 

39,947

 

 

 

34,627

 

 

 

77,619

 

 

 

77,018

 

Aircraft rent

 

 

17,687

 

 

 

24,316

 

 

 

38,443

 

 

 

48,283

 

Loss (gain) on disposal of aircraft

 

 

-

 

 

 

2

 

 

 

16

 

 

 

(6,715

)

Special charge

 

 

-

 

 

 

15,934

 

 

 

-

 

 

 

15,934

 

Transaction-related expenses

 

 

117

 

 

 

1,275

 

 

 

318

 

 

 

1,796

 

Other

 

 

61,848

 

 

 

52,710

 

 

 

120,260

 

 

 

103,822

 

Total Operating Expenses

 

 

830,355

 

 

 

704,591

 

 

 

1,587,451

 

 

 

1,287,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

160,077

 

 

 

120,662

 

 

 

264,281

 

 

 

181,732

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-operating Expenses (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(189

)

 

 

(224

)

 

 

(400

)

 

 

(704

)

Interest expense

 

 

26,992

 

 

 

28,950

 

 

 

54,172

 

 

 

58,225

 

Capitalized interest

 

 

(1,850

)

 

 

(132

)

 

 

(3,121

)

 

 

(325

)

Loss on early extinguishment of debt

 

 

-

 

 

 

74

 

 

 

-

 

 

 

74

 

Unrealized loss on financial instruments

 

 

-

 

 

 

30,671

 

 

 

113

 

 

 

29,747

 

Other (income) expense, net

 

 

(4,854

)

 

 

(50,598

)

 

 

(44,310

)

 

 

(49,392

)

Total Non-operating Expenses (Income)

 

 

20,099

 

 

 

8,741

 

 

 

6,454

 

 

 

37,625

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

139,978

 

 

 

111,921

 

 

 

257,827

 

 

 

144,107

 

Income tax expense

 

 

32,868

 

 

 

33,009

 

 

 

60,784

 

 

 

41,842

 

Net Income

 

$

107,110

 

 

$

78,912

 

 

$

197,043

 

 

$

102,265

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

3.69

 

 

$

3.02

 

 

$

6.85

 

 

$

3.93

 

Diluted

 

$

3.53

 

 

$

3.01

 

 

$

6.59

 

 

$

3.92

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

29,011

 

 

 

26,129

 

 

 

28,752

 

 

 

26,048

 

Diluted

 

 

30,319

 

 

 

26,182

 

 

 

29,900

 

 

 

26,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

4


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Net Income

 

$

107,110

 

 

$

78,912

 

 

$

197,043

 

 

$

102,265

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reclassification to interest expense

 

 

256

 

 

 

296

 

 

 

524

 

 

 

604

 

Income tax benefit

 

 

(60

)

 

 

(70

)

 

 

(124

)

 

 

(133

)

Other comprehensive income

 

 

196

 

 

 

226

 

 

 

400

 

 

 

471

 

Comprehensive Income

 

$

107,306

 

 

$

79,138

 

 

$

197,443

 

 

$

102,736

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

5


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

197,043

 

 

$

102,265

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile Net Income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

172,216

 

 

 

157,509

 

Accretion of debt securities discount

 

 

-

 

 

 

(2

)

Reversal of expected credit losses

 

 

(381

)

 

 

(6

)

Loss on early extinguishment of debt

 

 

-

 

 

 

74

 

Special charge, net of cash payments

 

 

-

 

 

 

15,934

 

Unrealized loss on financial instruments

 

 

113

 

 

 

29,747

 

Loss (gain) on disposal of aircraft

 

 

16

 

 

 

(6,715

)

Deferred taxes

 

 

60,086

 

 

 

39,518

 

Stock-based compensation

 

 

7,466

 

 

 

10,506

 

Changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(24,730

)

 

 

51,781

 

Prepaid expenses, current assets and other assets

 

 

(12,452

)

 

 

(19,115

)

Accounts payable, accrued liabilities and other liabilities

 

 

(56,271

)

 

 

178,894

 

Net cash provided by operating activities

 

 

343,106

 

 

 

560,390

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(43,359

)

 

 

(25,095

)

Purchase deposits and payments for flight equipment and modifications

 

 

(224,922

)

 

 

(59,919

)

Investment in joint ventures

 

 

(1,636

)

 

 

-

 

Proceeds from investments

 

 

-

 

 

 

881

 

Proceeds from disposal of aircraft

 

 

1,850

 

 

 

44,110

 

Net cash used for investing activities

 

 

(268,067

)

 

 

(40,023

)

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt issuance

 

 

23,948

 

 

 

321,518

 

Payment of debt issuance costs

 

 

(1,257

)

 

 

(3,910

)

Payments of debt and finance lease obligations

 

 

(171,223

)

 

 

(274,960

)

Proceeds from revolving credit facility

 

 

-

 

 

 

75,000

 

Customer maintenance reserves and deposits received

 

 

9,029

 

 

 

6,010

 

Customer maintenance reserves paid

 

 

(23,932

)

 

 

(14,437

)

Treasury shares withheld for payment of taxes

 

 

(7,432

)

 

 

(3,840

)

Net cash provided by (used for) financing activities

 

 

(170,867

)

 

 

105,381

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(95,828

)

 

 

625,748

 

Cash, cash equivalents and restricted cash at the beginning of period

 

 

856,281

 

 

 

113,430

 

Cash, cash equivalents and restricted cash at the end of period

 

$

760,453

 

 

$

739,178

 

 

 

 

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment included in Accounts payable and accrued liabilities

 

$

7,928

 

 

$

13,613

 

Acquisition of property and equipment acquired under operating leases

 

$

8,875

 

 

$

1,918

 

Acquisition of flight equipment under finance lease

 

$

121,313

 

 

$

-

 

Customer maintenance reserves settled with sale of aircraft

 

$

-

 

 

$

6,497

 

Issuance of shares related to settlement of warrant liability

 

$

31,582

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

6


 

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

 

 

 

As of and for the Three Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at March 31, 2021

 

$

345

 

 

$

(225,239

)

 

$

912,728

 

 

$

(1,700

)

 

$

1,697,062

 

 

$

2,383,196

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

107,110

 

 

 

107,110

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

196

 

 

 

-

 

 

 

196

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

3,406

 

 

 

-

 

 

 

-

 

 

 

3,406

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

3,228

 

 

 

-

 

 

 

-

 

 

 

3,228

 

Treasury shares of 1,267 withheld for payment of taxes

 

 

-

 

 

 

(82

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(82

)

Issuance of 19,332 shares of restricted stock

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Balance at June 30, 2021

 

$

345

 

 

$

(225,321

)

 

$

919,362

 

 

$

(1,504

)

 

$

1,804,172

 

 

$

2,497,054

 

 

 

 

As of and for the Three Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at March 31, 2020

 

$

315

 

 

$

(217,705

)

 

$

782,517

 

 

$

(2,573

)

 

$

1,270,196

 

 

$

1,832,750

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

78,912

 

 

 

78,912

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

226

 

 

 

-

 

 

 

226

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

6,646

 

 

 

-

 

 

 

-

 

 

 

6,646

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

11,840

 

 

 

-

 

 

 

-

 

 

 

11,840

 

Treasury shares of 206 withheld for payment of taxes

 

 

-

 

 

 

(6

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6

)

Issuance of 9,919 shares of restricted stock

 

 

-

 

 

 

-

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

(1

)

Balance at June 30, 2020

 

$

315

 

 

$

(217,711

)

 

$

801,002

 

 

$

(2,347

)

 

$

1,349,108

 

 

$

1,930,367

 

 

 

 

As of and for the Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2020

 

$

329

 

 

$

(217,889

)

 

$

873,874

 

 

$

(1,904

)

 

$

1,607,129

 

 

$

2,261,539

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

197,043

 

 

 

197,043

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

400

 

 

 

-

 

 

 

400

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

7,466

 

 

 

-

 

 

 

-

 

 

 

7,466

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

6,456

 

 

 

-

 

 

 

-

 

 

 

6,456

 

Treasury shares of 130,134 withheld for payment of taxes

 

 

-

 

 

 

(7,432

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,432

)

Issuance of 1,280,450 shares related to settlement of warrants

 

 

13

 

 

 

 

 

 

 

31,569

 

 

 

 

 

 

 

 

 

 

 

31,582

 

Issuance of 357,087 shares of restricted stock

 

 

3

 

 

 

-

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

Balance at June 30, 2021

 

$

345

 

 

$

(225,321

)

 

$

919,362

 

 

$

(1,504

)

 

$

1,804,172

 

 

$

2,497,054

 

 

 

 

As of and for the Six Months Ended June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2019

 

$

310

 

 

$

(213,871

)

 

$

761,715

 

 

$

(2,818

)

 

$

1,246,843

 

 

$

1,792,179

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

102,265

 

 

 

102,265

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

471

 

 

 

-

 

 

 

471

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

10,506

 

 

 

-

 

 

 

-

 

 

 

10,506

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

28,786

 

 

 

-

 

 

 

-

 

 

 

28,786

 

Treasury shares of 179,417 withheld for payment of taxes

 

 

-

 

 

 

(3,840

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,840

)

Issuance of 444,486 shares of restricted stock

 

 

5

 

 

 

-

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

 

-

 

Balance at June 30, 2020

 

$

315

 

 

$

(217,711

)

 

$

801,002

 

 

$

(2,347

)

 

$

1,349,108

 

 

$

1,930,367

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

7


Atlas Air Worldwide Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

June 30, 2021

1. Basis of Presentation

Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries.  AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”).  AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”).  AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”).  We record our share of Polar’s results under the equity method of accounting. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary and we generally do not have any financial exposure to fund debt obligations or operating losses of Polar (see Note 4 for further discussion).  

The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.

We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”); and (ii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).

The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Intercompany accounts and transactions have been eliminated.  The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, 2020, which includes additional disclosures and a summary of our significant accounting policies.  The December 31, 2020 balance sheet data was derived from that Annual Report. In our opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows.

Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic (see Note 3 for further discussion), and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

Certain reclassifications have been made to prior periods’ notes to the Financial Statements to conform to the current year’s presentation of segments (see Note 11 for further discussion). Except for per share data, all dollar amounts are in thousands unless otherwise noted.

2. Summary of Significant Accounting Policies

Heavy Maintenance

Except as described in the paragraph below, we account for heavy maintenance costs for airframes and engines using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.

We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method.  Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required.  Amortization of deferred maintenance expense included in Depreciation and amortization was $12.3 million and $24.3 million for the three and six months ended June 30, 2021, respectively.  Amortization of deferred maintenance expense was $10.3 million and $18.2 million for the three and six months ended June 30, 2020, respectively.

Deferred maintenance included within Deferred costs and other assets is as follows:  

Balance as of December 31, 2020

 

$

191,303

 

Deferred maintenance costs

 

 

12,599

 

Amortization of deferred maintenance

 

 

(24,300

)

Balance as of June 30, 2021

 

$

179,602

 

8


 

Property and Equipment

Committed expenditures to acquire aircraft and spare engines are expected to be $134.5 million for the remainder of 2021 and $458.3 million in 2022.  These expenditures include our January 2021 agreement to purchase four 747-8F aircraft from The Boeing Company (“Boeing”) that are expected to be delivered from May through October 2022, spare engines, 747-400 freighter aircraft and 747-400 passenger aircraft (to be used for both replacement of older passenger aircraft in service as well as spare engines and parts). In July and August 2021, we acquired two of our existing 747-400 freighter aircraft, included in the amounts above, that were previously on lease to us.

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2020, the Financial Accounting Standards Board amended its accounting guidance for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments.  For convertible debt with a cash conversion feature, the amended guidance removes the current accounting model to separately account for the liability and equity components, which currently results in the amortization of a debt discount to interest expense.  Under this amended guidance, such convertible debt will be accounted for as a single debt instrument with no amortization of a debt discount to interest expense, unless certain other conditions are met.  The amended guidance also requires the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share.  The amended guidance is effective as of the beginning of 2022.  The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, or the modified retrospective approach, under which the guidance is applied only to the most current period presented.  We will adopt this amended guidance on its required effective date of January 1, 2022. While we are still assessing the impact the amended guidance will have on our financial statements, we expect the amount previously allocated to the equity component will be reclassified to debt. In addition, the amended guidance is expected to result in a material increase in net income and reduction in interest expense, as well as a material reduction in diluted earnings per share resulting from an increase in the number of shares included in the denominator.

3. COVID-19 Pandemic

COVID-19

In December 2019, COVID-19 was first reported in China and has since spread to most other regions of the world.  In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization.  Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military had taken precautionary measures to limit the movement of personnel.  Commercial charter cargo demand and yields, net of fuel, have increased as a result of the ongoing reduction of available cargo capacity provided by passenger airlines in the market and increased demand for transporting goods due to the COVID-19 pandemic.  We have incurred and expect to continue to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates we provided to our pilots beginning in May 2020.  In addition, the availability of hotels and restaurants, evolving COVID-19-related travel restrictions and health screenings, and a reduction in passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position employees to operate our aircraft.

To mitigate the impact of any COVID-19 pandemic disruptions, we have:

 

implemented frequent deep cleaning of all aircraft and facilities;

 

provided safety kits for each crewmember and all aircraft;

 

adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic;

 

implemented significant workforce testing, social distancing and protection measures at all of our facilities;

 

made COVID-19 vaccinations available to employees;  

 

arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions;

 

reduced nonessential employee travel;

 

reduced the use of contractors;

 

implemented a number of other cost reduction initiatives;

 

entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Department of the Treasury (the “U.S. Treasury”), with respect to payroll support funding  available to cargo air carriers under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Payroll Support Program”) (see discussion below); and

 

deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022.  

9


Payroll Support Program under the CARES Act

As of May 29, 2020 (the “PSP Closing Date”), Atlas and Southern Air (the “PSP Recipients”) entered into a PSP Agreement with the U.S. Treasury.  As of the PSP Closing Date, AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a $199.8 million senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with Atlas and Southern Air as guarantors.

In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock.  As of June 30, 2021, no portion of the warrants have been exercised.

We initially recognized deferred grant income within Accrued liabilities for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement.  Grant income has been subsequently recognized within Other (income) expense, net in the consolidated statement of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits are paid.  The remaining $40.9 million of deferred grant income as of December 31, 2020 was recognized as grant income within Other (income) expense, net in the consolidated statement of operations during the three months ended March 31, 2021.  During the three and six months ended June 30, 2020, we recognized grant income of $20.2 million.

 

4. Related Parties

Polar

AAWW has a 51% equity interest and 75% voting interest in Polar.  DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, holds a 49% equity interest and a 25% voting interest in Polar.  Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL.  Under a 20-year blocked space agreement, which began in 2008, Polar provides air cargo capacity to DHL.  Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another.  We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.

The following table summarizes our transactions with Polar:

 

For the Three Months Ended

 

 

For the Six Months Ended

 

Revenue and Expenses:

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Revenue from Polar

 

$

75,661

 

 

$

82,858

 

 

$

152,917

 

 

$

159,092

 

Ground handling and airport fees to Polar

 

 

938

 

 

 

1,067

 

 

 

1,820

 

 

 

1,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable/payable as of:

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Receivables from Polar

 

$

21,634

 

 

$

31,079

 

 

 

 

 

 

 

 

 

Payables to Polar

 

 

3,249

 

 

 

3,477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Polar Investment as of:

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Polar Investment

 

$

4,870

 

 

$

4,870

 

 

 

 

 

 

 

 

 

 

In addition to the amounts in the table above, Atlas recognized revenue from flying on behalf of Polar of $69.0 million and $123.1 million for the three and six months ended June 30, 2021, respectively. Atlas recognized revenue from flying on behalf of Polar of $83.1 million and $110.5 million for the three and six months ended June 30, 2020, respectively.

Dry Leasing Joint Venture

We hold a 10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio.  Through Titan, we provide aircraft and lease management services to the joint venture for fees based upon aircraft assets under management, among other things.  Our investment in the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December 2022, of which $5.3 million has been contributed as of June 30, 2021. Our maximum exposure to losses from the entity is limited to our investment. The joint venture has third-party debt obligations of $48.4 million that are not guaranteed by us.  

10


The following table summarizes our transactions with our dry leasing joint venture:

 

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

Revenue and Expenses:

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Revenue from dry leasing joint venture

 

$

68

 

 

$

-

 

 

$

135

 

 

$

-

 

Aircraft rent to dry leasing joint venture

 

 

2,250

 

 

 

-

 

 

 

4,500

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Joint Venture as of:

 

June 30, 2021

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Dry Leasing Joint Venture

 

$

4,871

 

 

$

4,438

 

 

 

 

 

 

 

 

 

Parts Joint Venture

We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and provide repair services for those parts, primarily for 747-8F aircraft.  The joint venture is a variable interest entity and we have not consolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control.  Our investment in the joint venture is accounted for under the equity method of accounting and was $20.5 million as of June 30, 2021 and $21.0 million as of December 31, 2020. Our maximum exposure to losses from the entity is limited to our investment, which is composed primarily of rotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of $0.2 million as of June 30, 2021 and $0.2 million as of December 31, 2020.  We had Accounts payable to the joint venture of $1.2 million as of June 30, 2021 and $0.9 million as of December 31, 2020.

5. Amazon

In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involve, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan.  The Dry Leases have a term of ten years from the commencement of each agreement, while the CMI operations are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of June 30, 2021, 17 767-300 freighter aircraft were operating in CMI service and 19 767-300 freighters in Dry Lease service for Amazon.

In conjunction with the agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.34 per share, as adjusted (“Warrant A”).  All 7.5 million shares, as adjusted, have vested in full and been exercised in two transactions. In October 2020, Amazon exercised shares of Warrant A through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock. In January 2021, Amazon exercised the remaining shares of Warrant A through a cashless exercise resulting in the issuance of 1,210,741 shares of our common stock.  

 

The agreements entered into in May 2016 also provided incentives for future growth of the relationship as Amazon may increase its business with us.  In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.34 per share, as adjusted (“Warrant B”).  This warrant to purchase 3.77 million shares, as adjusted, will vest in increments of 37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for incremental business beyond the original 20 767-300 freighters.  As of June 30, 2021, 715,540 shares, as adjusted, of Warrant B have vested.  Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. In January 2021, Amazon exercised shares of Warrant B through a cashless exercise resulting in the issuance of 69,709 shares of our common stock.

 

In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon.  The 737-800 CMI operations are for a term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years).  As of June 30, 2021, eight 737-800 freighter aircraft were operating in CMI service for Amazon.    

 

In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional 9.9% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.67 per share, as adjusted (“Warrant C”).  After Warrant B has vested in full, this warrant to purchase 6.66 million shares, as adjusted, would vest in increments of 45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B.  As of June 30, 2021, no portion of Warrant C has vested.  Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026. While Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.  

11


Upon the vesting of Warrant A in previous years, the fair value of the warrant was recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements.  When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the grant date fair value of such portion is recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized.  The grant date fair value of such increment is also recorded as Additional paid-in-capital. At the time of vesting, any amounts recorded in Additional paid-in-capital related to Dry Lease contracts would be reclassified as a warrant liability within Financial instruments and other liabilities with changes in fair value recorded in Unrealized loss (gain) on financial instruments.

We amortized $11.4 million and $21.9 million of the customer incentive asset as a reduction of Operating Revenue for the three and six months ended June 30, 2021, respectively. We amortized $9.5 million and $18.6 million of the customer incentive asset for the three and six months ended June 30, 2020, respectively.

Customer incentive asset included within Deferred costs and other assets is as follows:

 

Balance at December 31, 2020

 

$

125,276

 

Initial value for estimate of vested or expected to vest warrants

 

 

6,456

 

Amortization of customer incentive asset

 

 

(21,924

)

Balance as of June 30, 2021

 

$

109,808

 

 

We recognized an unrealized loss of $0.1 million on the Amazon warrant liability related to Warrant A during the six months ended June 30, 2021.  We recognized unrealized losses of $30.7 million and $29.7 million on the Amazon Warrant liability during the three and six months ended June 30, 2020, respectively.  The fair value of the Amazon warrant liability was zero as of June 30, 2021 and $31.5 million as of December 31, 2020. Due to the exercise of Warrant A discussed above, our earnings are no longer affected by changes in the fair value of our Amazon warrant liability.  

 

6. Supplemental Financial Information

Accounts Receivable

Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was $238.4 million as of June 30, 2021 and $195.6 million as of December 31, 2020.

Allowance for expected credit losses, included within Accounts receivable, is as follows:

Balance as of December 31, 2020

 

$

1,233

 

Bad debt recovery

 

 

(381

)

Amounts written off, net of other items

 

 

2,730

 

Balance as of June 30, 2021

 

$

3,582

 

 

Accrued Liabilities

Accrued liabilities consisted of the following as of: 

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Maintenance

 

$

132,766

 

 

$

142,374

 

Salaries, wages and benefits

 

 

115,111

 

 

 

136,753

 

Customer maintenance reserves

 

 

90,508

 

 

 

93,092

 

Deferred revenue

 

 

52,129

 

 

 

41,665

 

Aircraft fuel

 

 

39,913

 

 

 

24,578

 

Deferred grant income

 

 

-

 

 

 

40,944

 

Other

 

 

105,520

 

 

 

103,754

 

Accrued liabilities

 

$

535,947

 

 

$

583,160

 

12


 

Revenue Contract Liability

Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition.  The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Changes in Deferred revenue during the six months ended June 30, 2021 were as follows:

 

Balance as of December 31, 2020

 

$

30,291

 

Revenue recognized

 

 

(131,705

)

Amounts collected or invoiced

 

 

142,655

 

Balance as of June 30, 2021

 

$

41,241

 

Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:

 

 

 

June 30, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

 

$

750,161

 

 

$

845,589

 

Restricted cash

 

 

10,292

 

 

 

10,692

 

Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows

 

$

760,453

 

 

$

856,281

 

 

7. Assets Held For Sale and Other Income

  As of December 31, 2020, we had two 737-400 passenger aircraft previously used for training purposes and certain spare CF6-80 engines classified as held for sale. We received net proceeds of $1.9 million during the six months ended June 30, 2021 from the completion of the sales of some of the spare CF6-80 engines.  We estimated the fair value of these assets, less costs to sell, based on bids received from independent third parties or recently completed sales.  The carrying value of the assets held for sale was $12.3 million and $14.1 million as of June 30, 2021 and December 31, 2020, respectively, which was included within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. In August, 2021, we completed the sale of the two 737-400 passenger aircraft and some spare CF6-80 engines and received net proceeds of $5.6 million. Sales of the remaining engines are expected to be completed during 2021.

We recognized a refund of $4.6 million during the three and six months ended June 30, 2021 related to aircraft rent paid in previous years within Other (income) expense, net.  We recognized refunds of $31.5 million and $32.9 million during the three and six months ended June 30, 2020, respectively, related to aircraft rent paid in previous years within Other (income) expense, net.

8. Debt and Finance Leases

Term Loans

In March 2021, we borrowed $16.2 million at a fixed interest rate of 0.93% under an unsecured five-year term loan due in January 2026 for GEnx engine performance upgrade kits and overhauls.  The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.

In June 2021, we borrowed $7.8 million at a fixed interest rate of 0.91% under an unsecured five-year term loan due in May 2026 for GEnx engine performance upgrade kits and overhauls.  The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.

Finance Leases

In May and June 2021, we amended five operating leases for 747-400 freighter aircraft to acquire the aircraft at the end of the lease terms, from March to December 2022, resulting in additional commitments of $82.2 million and a change in classification to finance leases.

Convertible Notes

In May 2017, we issued $289.0 million aggregate principal amount of 1.88% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering.  In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering.  The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured

13


obligations and accrue interest payable semiannually on June 1 and December 1 of each year.  The Convertible Notes are due on their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.

The Convertible Notes consisted of the following as of June 30, 2021:

 

 

 

2015 Convertible Notes

 

 

2017 Convertible Notes

 

Remaining life in months

 

 

11

 

 

 

35

 

Liability component:

 

 

 

 

 

 

 

 

Gross proceeds

 

$

224,500

 

 

$

289,000

 

Less: debt discount, net of amortization

 

 

(8,359

)

 

 

(32,824

)

Less: debt issuance cost, net of amortization

 

 

(766

)

 

 

(2,520

)

Net carrying amount

 

$

215,375

 

 

$

253,656

 

 

 

 

 

 

 

 

 

 

Equity component (1)

 

$

52,903

 

 

$

70,140

 

 

(1)

Included in Additional paid-in-capital on the consolidated balance sheet as of June 30, 2021.

The following table presents the amount of interest expense recognized related to the Convertible Notes:

 

 

 

For the Three Months Ended

 

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

June 30, 2021

 

 

June 30, 2020

 

Contractual interest coupon

 

$

2,618

 

 

$

2,618

 

 

 

$

5,236

 

 

$

5,235

 

Amortization of debt discount

 

 

4,745

 

 

 

4,457

 

 

 

 

9,416

 

 

 

8,845

 

Amortization of debt issuance costs

 

 

406

 

 

 

391

 

 

 

 

808

 

 

 

777

 

Total interest expense recognized

 

$

7,769

 

 

$

7,466

 

 

 

$

15,460

 

 

$

14,857

 

Revolving Credit Facility

We have a $200.0 million secured revolving credit facility that matures in December 2022 (the “Revolver”). As of June 30, 2021, there were no amounts outstanding and we had $200.0 million of unused availability, based on the collateral borrowing base.

9. Income Taxes

The effective income tax rates were 23.5% and 23.6% for the three and six months ended June 30, 2021, respectively. These rates differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.

The effective income tax rates were 29.5% and 29.0% for the three and six months ended June 30, 2020, respectively.  These rates differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements).  For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.

10. Financial Instruments

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:

 

Level 1

Unadjusted quoted prices in active markets for identical assets or liabilities;

 

Level 2

Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets;

 

Level 3

Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability.

We endeavor to utilize the best available information to measure fair value.

The carrying value of Cash and cash equivalents, and Restricted cash is based on cost, which approximates fair value.

Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, a promissory note issued to the U.S. Treasury and equipment enhanced trust certificates. The fair values of these debt instruments and the Revolver are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.

The fair value of our Convertible Notes is based on unadjusted quoted market prices for these securities.

14


The fair value of a customer warrant liability is based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.

 

The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:

 

 

 

June 30, 2021

 

 

 

Carrying Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

750,161

 

 

$

750,161

 

 

$

750,161

 

 

$

-

 

 

$

-

 

Restricted cash

 

 

10,292

 

 

 

10,292

 

 

 

10,292

 

 

 

-

 

 

 

-

 

 

 

$

760,453

 

 

$

760,453

 

 

$

760,453

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans and notes

 

$

1,693,587

 

 

$

1,777,796

 

 

$

-

 

 

$

-

 

 

$

1,777,796

 

Convertible notes (1)

 

 

469,031

 

 

 

608,197

 

 

 

608,197

 

 

 

-

 

 

 

-

 

 

 

$

2,162,618

 

 

$

2,385,993

 

 

$

608,197

 

 

$

-

 

 

$

1,777,796

 

 

 

 

December 31, 2020

 

 

 

Carrying Value

 

 

Fair Value

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

845,589

 

 

$

845,589

 

 

$

845,589

 

 

$

-

 

 

$

-

 

Restricted cash

 

 

10,692

 

 

 

10,692

 

 

 

10,692

 

 

 

-

 

 

 

-

 

 

 

$

856,281

 

 

$

856,281

 

 

$

856,281

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Term loans and notes

 

$

1,809,656

 

 

$

1,909,942

 

 

$

-

 

 

$

-

 

 

$

1,909,942

 

Convertible notes (1)

 

 

458,803

 

 

 

560,975

 

 

 

560,975

 

 

 

-

 

 

 

-

 

Customer warrant

 

 

31,470

 

 

 

31,470

 

 

 

-

 

 

 

31,470

 

 

 

-

 

 

 

$

2,299,929

 

 

$

2,502,387

 

 

$

560,975

 

 

$

31,470

 

 

$

1,909,942

 

(1) Carrying value is net of debt discounts and debt issuance costs (see Note 8).

 

11. Segment Reporting

During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business. We currently have the following two operating and reportable segments: Airline Operations and Dry Leasing.  Previously, our operating and reportable segments were ACMI, Charter and Dry Leasing.  As ACMI and Charter services have become more similar, our chief operating decision maker began assessing operating results and making resource allocation decisions for Airline Operations.

Our Airline Operations segment provides outsourced aircraft operating services to customers including, express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers.  We generally provide these services on an ACMI, CMI and Charter basis.  Most agreements provide us with guaranteed minimum revenues at predetermined rates, levels of operation and defined periods of time. We also provide certain services on a short-term basis.

Our Dry Leasing segment provides for the leasing of cargo and passenger aircraft and engines to customers, and aircraft- and lease-management services.  In our Dry Leasing segment, the customer operates, and is responsible for insuring and maintaining, the flight equipment.

Other represents revenue for services that are not allocated to any segment, including administrative and management support services and flight simulator training.

Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions.  We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.

We use an economic performance metric called Direct Contribution, which shows the profitability of each segment.  Direct Contribution includes Income before income taxes and excludes the following: Special charges, Transaction-related expenses, nonrecurring items, Gain (losses) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized losses (gains) on financial instruments and Unallocated income and expenses, net.  Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation.  Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes,

15


interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue, other non-operating costs and CARES Act grant income.

The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income before income taxes:

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Operating Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

955,861

 

 

$

789,498

 

 

$

1,782,101

 

 

$

1,395,871

 

Dry Leasing

 

 

40,404

 

 

 

40,906

 

 

 

80,768

 

 

 

82,832

 

Customer incentive asset amortization

 

 

(11,443

)

 

 

(9,534

)

 

 

(21,924

)

 

 

(18,556

)

Other

 

 

5,610

 

 

 

4,383

 

 

 

10,787

 

 

 

8,608

 

Total Operating Revenue

 

$

990,432

 

 

$

825,253

 

 

$

1,851,732

 

 

$

1,468,755

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct Contribution:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

231,793

 

 

$

200,464

 

 

$

400,943

 

 

$

303,552

 

Dry Leasing

 

 

10,766

 

 

 

9,721

 

 

 

21,329

 

 

 

20,420

 

Total Direct Contribution for Reportable Segments

 

 

242,559

 

 

 

210,185

 

 

 

422,272

 

 

 

323,972

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated income and (expenses), net

 

 

(102,464

)

 

 

(50,308

)

 

 

(163,998

)

 

 

(139,029

)

Loss on early extinguishment of debt

 

 

-

 

 

 

(74

)

 

 

-

 

 

 

(74

)

Unrealized loss on financial instruments

 

 

-

 

 

 

(30,671

)

 

 

(113

)

 

 

(29,747

)

Special charge

 

 

-

 

 

 

(15,934

)

 

 

-

 

 

 

(15,934

)

Transaction-related expenses

 

 

(117

)

 

 

(1,275

)

 

 

(318

)

 

 

(1,796

)

Gain (loss) on disposal of aircraft

 

 

-

 

 

 

(2

)

 

 

(16

)

 

 

6,715

 

Income before income taxes

 

 

139,978

 

 

 

111,921

 

 

 

257,827

 

 

 

144,107

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add back (subtract):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

(189

)

 

 

(224

)

 

 

(400

)

 

 

(704

)

Interest expense

 

 

26,992

 

 

 

28,950

 

 

 

54,172

 

 

 

58,225

 

Capitalized interest

 

 

(1,850

)

 

 

(132

)

 

 

(3,121

)

 

 

(325

)

Loss on early extinguishment of debt

 

 

-

 

 

 

74

 

 

 

-

 

 

 

74

 

Unrealized loss on financial instruments

 

 

-

 

 

 

30,671

 

 

 

113

 

 

 

29,747

 

Other (income) expense, net

 

 

(4,854

)

 

 

(50,598

)

 

 

(44,310

)

 

 

(49,392

)

Operating Income

 

$

160,077

 

 

$

120,662

 

 

$

264,281

 

 

$

181,732

 

The following table disaggregates our Airline Operations segment revenue by customer and service type:

 

 

For the Three Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

Cargo

 

 

Passenger

 

 

Total

 

 

Cargo

 

 

Passenger

 

 

Total

 

 

Commercial customers

 

$

819,175

 

 

$

-

 

 

$

819,175

 

 

$

686,013

 

 

$

17

 

 

$

686,030

 

 

AMC

 

 

49,072

 

 

 

87,614

 

 

 

136,686

 

 

 

49,762

 

 

 

53,706

 

 

 

103,468

 

 

Total Airline Operations Revenue

 

$

868,247

 

 

$

87,614

 

 

$

955,861

 

 

$

735,775

 

 

$

53,723

 

 

$

789,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Six Months Ended

 

 

 

June 30, 2021

 

 

June 30, 2020

 

 

 

 

Cargo

 

 

Passenger

 

 

Total

 

 

Cargo

 

 

Passenger

 

 

Total

 

 

Commercial customers

 

$

1,532,387

 

 

$

2,879

 

 

$

1,535,266

 

 

$

1,139,246

 

 

$

3,122

 

 

$

1,142,368

 

 

AMC

 

 

94,384

 

 

 

152,451

 

 

 

246,835

 

 

 

112,236

 

 

 

141,267

 

 

 

253,503

 

 

Total Airline Operations Revenue

 

$

1,626,771

 

 

$

155,330

 

 

$

1,782,101

 

 

$

1,251,482

 

 

$

144,389

 

 

$

1,395,871

 

 

 

Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.

We are exposed to a concentration of revenue from the AMC, Polar and DHL (see above for the AMC and Note 4 to our Financial Statements for further discussion regarding Polar).  No other customer accounted for more than 10.0% of our Total Operating Revenue.  Revenue from DHL was $169.4 million and $327.3 million for the three and six months ended June 30, 2021, respectively. Revenue from DHL was $151.9 million and $250.2 million for the three and six months ended June 30, 2020, respectively. We have not experienced any credit issues with these customers.

16


12. Labor and Legal Proceedings

Collective Bargaining Agreements

Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”).  We have a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016, and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021.

After we completed the acquisition of Southern Air in April 2016, we informed the IBT of our intention to pursue (and we have been pursuing) a complete operational merger of Atlas and Southern Air.  The Atlas and Southern Air CBAs both have a defined and streamlined process for negotiating a joint CBA (“JCBA”) when a merger occurs, as in the case with the Atlas and Southern Air merger.  Pursuant to the merger provisions in both CBAs, joint negotiations for a single CBA for Atlas and Southern Air should commence promptly.  Further, once an integrated seniority list (“ISL”) of Atlas and Southern Air pilots is presented to the Company by the union, it triggers a nine-month agreed-upon timeframe to negotiate a new JCBA with any unresolved issues promptly submitted to binding arbitration.  

The IBT refused to follow the merger provisions in the Atlas and Southern Air CBAs, which resulted in significant litigation, arbitrations and delay. The Company prevailed in all of the prior merger-related proceedings, including all federal court litigation and related appeals. The IBT was ordered by two arbitrators and two federal district courts to comply with the merger provisions of the Atlas and Southern Air CBAs, which included providing the Company with the ISL by May 15, 2020.

The IBT subsequently requested additional time from the Company to complete the ISL and the parties agreed to a joint stipulation. As a result, on April 24, 2020, the U.S. District Court for the District of Columbia (“DC District Court”) issued a modified order, providing that the nine-month timeframe to bargain for a new JCBA was triggered on May 15, 2020 and that the IBT must produce the ISL by March 31, 2021. Any remaining open issues as of February 15, 2021 are to be determined by binding interest arbitration pursuant to the merger provisions in the CBAs.

In April 2020, the Company entered into Coronavirus Memorandum of Understandings (“COVID MOU”) with both IBT Local 2750 and Local 1224, providing additional compensation and benefits for pilots flying into certain areas that were heavily impacted by COVID-19.

On May 7, 2020, the Company announced that Atlas and Southern Air reached an agreement with IBT Locals 2750 and 1224, which provides for a ten percent pay increase for all pilots, effective as of May 1, 2020.  This pay increase provides interim additional compensation to our pilots until a new JCBA is reached.

The Company and the IBT continued to meet virtually from March 2020 through January 2021 to move the process forward and bargain in good faith for a new JCBA. Substantive progress was made with tentative agreements reached for more than half of the articles in a new JCBA. On February 15, 2021, the Company and IBT completed the contractually-mandated nine-month period for negotiations for a JCBA. All remaining open issues not resolved in negotiations are subject to binding interest arbitration between the Company and the IBT, which occurred in the latter half of March 2021 and concluded on April 1, 2021. On March 30, 2021, the IBT provided the Company with the ISL.

On May 1, 2021, IBT Local 2750, which represents Atlas Air Pilots, also became the official IBT representative for all Southern Air pilots who had previously been represented by IBT Local 1224.  While the Atlas and Southern pilots are represented by the same local, they remain two distinct pilot groups under separate CBAs until there is a new JCBA.

On July 2, 2021, the Company entered into a COVID Memorandum of Understanding II (“COVID II MOU”) with IBT Local 2750, which provided additional compensation to all pilots who receive their COVID-19 vaccine and expanded the scope of the COVID MOU.

Once the arbitration decision is issued, there will be a new JCBA. We expect to receive the arbitrator’s binding decision late in the third quarter of 2021 and that labor costs arising from the new JCBA will be materially greater than the costs under our current CBAs with Atlas pilots and Southern Air pilots.

17


We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.

Preliminary Injunction

In late November 2017, the DC District Court issued a preliminary injunction preventing the IBT from “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities that were intended to gain leverage in pilot contract negotiations with the Company and requiring the IBT to meet its obligations under the Railway Labor Act. The IBT appealed to the DC Court of Appeals, which, in a unanimous three-judge panel, affirmed the DC District Court’s ruling. On May 22, 2020, the IBT filed a motion to dismiss the Company’s action for a preliminary injunction, which has been fully briefed. The preliminary injunction remains in full force and effect pending the court’s decision.  The preliminary injunction will expire once the parties’ new JCBA becomes effective.

Matters Related to Alleged Pricing Practices

In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from allegedly unlawful pricing practices of such defendants.  In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings.  Another defendant, Thai Airways, filed a similar indemnification claim.  Activities in the case have focused on various procedural issues and rulings, some of which are awaiting court decisions on appeal.  The ultimate outcome of the lawsuit is likely to be affected by a decision readopted by the European Commission in March 2017, finding EU competition law violations by British Airways, KLM, Martinair, Air France and Lufthansa, among others, but not Old Polar or Polar.  If the Company, Old Polar or Polar were to incur an unfavorable outcome, such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows.  We are unable to reasonably estimate a range of possible loss for this matter at this time.

Brazilian Customs Claim

Old Polar was cited for two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000.  Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil.  The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately $4.1 million in aggregate based on June 30, 2021 exchange rates.

In both cases, we believe that the amounts claimed are substantially overstated due to a calculation error when considering the type and amount of goods allegedly missing, among other things.  In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities.  In the other case, we received an administrative decision in favor of the Brazil customs authorities, and we are in the process of appealing this decision to the Brazil courts.  As required to defend such claims, we have made deposits pending resolution of these matters.  The balance was $3.5 million as of June 30, 2021 and $3.3 million as of December 31, 2020, and is included in Deferred costs and other assets.

We are currently defending these and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.

Other

In addition to the matters described in this note, we have certain other contingencies incident to the ordinary course of business.  Unless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies or matters will materially affect our financial condition, results of operations or cash flows.

13. Earnings Per Share

Basic earnings per share (“EPS”) represents income divided by the weighted average number of common shares outstanding during the measurement period.  Diluted EPS represents income divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method.  


18


 

The calculations of basic and diluted EPS were as follows:

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

Numerator:

June 30, 2021

 

 

June 30, 2020

 

 

June 30, 2021

 

 

June 30, 2020

 

Net Income

$

107,110

 

 

$

78,912

 

 

$

197,043

 

 

$

102,265

 

Plus: Unrealized loss on financial instruments, net of tax

 

-

 

 

 

-

 

 

 

112

 

 

 

-

 

Diluted net income

$

107,110

 

 

$

78,912

 

 

$

197,155

 

 

$

102,265

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic EPS weighted average shares outstanding

 

29,011

 

 

 

26,129

 

 

 

28,752

 

 

 

26,048

 

Effect of dilutive warrants

 

499

 

 

 

9

 

 

 

625

 

 

 

4

 

Effect of dilutive convertible notes

 

608

 

 

 

-

 

 

 

304

 

 

 

-

 

Effect of dilutive restricted stock

 

201

 

 

 

44

 

 

 

219

 

 

 

22

 

Diluted EPS weighted average shares outstanding

 

30,319

 

 

 

26,182

 

 

 

29,900

 

 

 

26,074

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

3.69

 

 

$

3.02

 

 

$

6.85

 

 

$

3.93

 

Diluted

$

3.53

 

 

$

3.01

 

 

$

6.59

 

 

$

3.92

 

 

Antidilutive shares related to warrants issued in connection with our Convertible Notes and warrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were 3.0 million for the three and six months ended June 30, 2021, and 15.5 million for the three and six months ended June 30, 2020.  Diluted shares reflect the potential dilution that could occur from restricted shares using the treasury stock method.  The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of 9.9 million for the three and six months ended June 30, 2021 and 10.5 million for the three and six months ended June 30, 2020.

14. Accumulated Other Comprehensive Income (Loss)

The following table summarizes the components of Accumulated other comprehensive income (loss):

 

 

 

Interest Rate

 

 

Foreign Currency

 

 

 

 

 

 

 

Derivatives

 

 

Translation

 

 

Total

 

Balance as of December 31, 2019

 

$

(2,827

)

 

$

9

 

 

$

(2,818

)

Reclassification to interest expense

 

 

604

 

 

 

-

 

 

 

604

 

Tax effect

 

 

(133

)

 

 

-

 

 

 

(133

)

Balance as of June 30, 2020

 

$

(2,356

)

 

$

9

 

 

$

(2,347

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2020

 

$

(1,913

)

 

$

9

 

 

$

(1,904

)

Reclassification to interest expense

 

 

524

 

 

 

-

 

 

 

524

 

Tax effect

 

 

(124

)

 

 

-

 

 

 

(124

)

Balance as of June 30, 2021

 

$

(1,513

)

 

$

9

 

 

$

(1,504

)

 

19


 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 2020 Annual Report on Form 10-K.

Background

Certain Terms - Glossary

The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.

 

Block Hour

 

The time interval between when an aircraft departs the terminal until it arrives at the destination terminal.

 

 

 

C Check

 

“Heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type.

 

 

 

D Check

 

“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six and eight years depending on aircraft type.

 

 

 

Heavy Maintenance

 

Scheduled maintenance activities that are extensive in scope and are primarily based on time or usage intervals, which include, but are not limited to, C Checks, D Checks and engine overhauls.  In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be Heavy Maintenance.

 

 

 

Line Maintenance

 

Maintenance events occurring during normal day-to-day operations.

 

 

 

Non-heavy

Maintenance

 

Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers.

 

 

 

Utilization

 

The average number of Block Hours operated per day per aircraft.

 

 

 

Yield

 

The average amount a customer pays to fly one tonne of cargo one mile.

Business Overview

We are a leading global provider of outsourced aircraft and aviation operating services.  We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 and 737 aircraft for domestic, regional and international cargo and passenger operations.  We provide unique value to our customers by giving them access to highly reliable new production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale.  We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

 

During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business (see Note 11 to our Financial Statements). Our primary service offerings are provided through two operating segments:

 

Airline Operations. Our Airline Operations segment provides outsourced aircraft operating services to customers including express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services through aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”).

 

Dry Leasing. Our Dry Leasing business provides cargo and passenger aircraft and engine leasing solutions.  The customer operates, and is responsible for insuring and maintaining, the flight equipment.

We look to achieve our growth plans and enhance shareholder value by:

 

Delivering superior service quality to our valued customers;

 

Focusing on securing long-term customer contracts;

 

Managing our fleet with a focus on leading-edge aircraft;

 

Leveraging our flexible business model to maximize utilization;

 

Driving significant and ongoing productivity improvements;

20


 

 

Selectively pursuing and evaluating future acquisitions and alliances; while

 

Appropriately managing capital allocation and delivering value to shareholders.

See “Business Overview” and “Business Strategy” in our 2020 Annual Report on Form 10-K for additional information.

Business Developments

In December 2019, COVID-19 was first reported in China and has since spread to many other regions of the world.  In March 2020, it was determined to be a global pandemic by the World Health Organization. Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our ACMI customers and lower AMC passenger flying as the military had taken precautionary measures to limit the movement of personnel.  

 

Our Airline Operations results for the first half of 2021, compared with 2020, were significantly higher primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the ongoing reduction of available cargo capacity provided by passenger airlines in the market and the continued disruption of global supply chains due to the COVID-19 pandemic.  Due to this strong demand in 2020, we reactivated four 747-400BCF aircraft that had been temporarily parked and began Charter operations using a 777-200 freighter aircraft that was previously in our Dry Leasing business.  During 2020 and the first half of 2021, we entered into numerous long-term Charter programs and extensions with customers seeking to secure committed cargo capacity.  These long-term Charter programs provide us with guaranteed revenue and include indexed fuel price adjustments to mitigate our exposure to fuel price volatility.  

 

Given the dynamic nature of this pandemic, the duration of business disruption, the extent of customer cancellations and the related financial impact cannot be reasonably estimated at this time.  We have incurred and expect to continue to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates we provided to our pilots beginning in May 2020.  In addition, the availability of hotels and restaurants; evolving COVID-19-related travel restrictions and health screenings; and cancellations of passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position employees to operate our aircraft.  In response to these challenging times, we have:

 

implemented frequent deep cleaning of all aircraft and facilities;

 

provided safety kits for each crewmember and all aircraft;

 

adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic;

 

implemented significant workforce testing, social distancing and protection measures at all of our facilities;

 

made COVID-19 vaccinations available to employees;  

 

arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions;

 

reduced nonessential employee travel;

 

reduced the use of contractors;

 

implemented a number of other cost reduction initiatives;

 

entered into a Payroll Support Program Agreement with the U.S. Treasury; and

 

deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022.

 

The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.  

 

On February 15, 2021, the Company and IBT completed the contractually mandated nine-month period for negotiations for a joint CBA.  All remaining open issues not resolved in negotiations are subject to binding interest arbitration, which concluded in April 2021.  We expect to receive the arbitrator’s binding decision late in the third quarter of 2021and that labor costs arising from the new JCBA will be materially greater than the costs under our current CBAs with Atlas pilots and Southern Air pilots (see Note 12 to our Financial Statements for further discussion).

 

We continually assess our aircraft requirements and will make adjustments to our capacity as necessary.  Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.

21


Airline Operations results for the first half of 2021, compared with 2020, were also impacted by increased flying from the following:

 

In October 2020, a third 747-400 freighter entered service for Nippon Cargo Airlines on transpacific routes.  

 

In March 2019, we entered into agreements with Amazon, which include CMI operation of 737-800 freighter aircraft.  A sixth and seventh 737-800 freighter aircraft entered service in September 2020, and an eighth aircraft entered service in October 2020.  

 

We manage our fleet to profitably serve our customers with modern, efficient aircraft.  In January 2021, we signed an agreement with Boeing for the purchase of four new 747-8F aircraft.  The aircraft are expected to be delivered from May through October 2022.    Between May and August 2021, we acquired three of our existing 747-400 freighter aircraft that were previously on lease to us.  In May and June of 2021, we reached agreement with several of our lessors to purchase five of our other 747-400 freighters at the end of their existing lease terms, which range from March to December 2022.  Acquiring these eight 747-400 freighter aircraft keeps them in our fleet and ensures committed capacity to our customers.

Results of Operations

The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.

Three Months Ended June 30, 2021 and 2020

Operating Statistics

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) for the three months ended June 30:

 

Segment Operating Fleet

 

2021

 

 

2020

 

 

Inc/(Dec)

 

Airline Operations*

 

 

 

 

 

 

 

 

 

 

 

 

747-8F Cargo

 

 

10.0

 

 

 

9.9

 

 

 

0.1

 

747-400 Cargo

 

 

34.6

 

 

 

32.5

 

 

 

2.1

 

747-400 Dreamlifter

 

 

1.3

 

 

 

1.8

 

 

 

(0.5

)

747-400 Passenger

 

 

5.0

 

 

 

5.0

 

 

 

-

 

777-200 Cargo

 

 

9.0

 

 

 

8.7

 

 

 

0.3

 

767-300 Cargo

 

 

24.0

 

 

 

24.0

 

 

 

-

 

767-300 Passenger

 

 

4.9

 

 

 

4.8

 

 

 

0.1

 

767-200 Cargo

 

 

2.4

 

 

 

9.0

 

 

 

(6.6

)

767-200 Passenger

 

 

-

 

 

 

1.0

 

 

 

(1.0

)

737-800 Cargo

 

 

8.0

 

 

 

5.0

 

 

 

3.0

 

737-400 Cargo

 

 

-

 

 

 

4.6

 

 

 

(4.6

)

Total

 

 

99.2

 

 

 

106.3

 

 

 

(7.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Dry Leasing

 

 

 

 

 

 

 

 

 

 

 

 

777-200 Cargo

 

 

7.0

 

 

 

7.0

 

 

 

-

 

767-300 Cargo

 

 

21.0

 

 

 

21.0

 

 

 

-

 

737-300 Cargo

 

 

1.0

 

 

 

1.0

 

 

 

-

 

Total

 

 

29.0

 

 

 

29.0

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Aircraft Dry Leased to CMI customers

 

 

(21.0

)

 

 

(21.0

)

 

 

-

 

Total Operating Average Aircraft Equivalents

 

 

107.2

 

 

 

114.3

 

 

 

(7.1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Out-of-service**

 

 

-

 

 

 

1.7

 

 

 

(1.7

)

 

*

Airline Operations average fleet excludes spare aircraft provided by CMI customers.

 

**

Out-of-service includes aircraft that are temporarily parked.

 

Block Hours

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Total Block Hours***

 

 

93,190

 

 

 

84,966

 

 

 

8,224

 

 

 

9.7

%

 

***

Includes Airline Operations and other Block Hours.

22


 

Operating Revenue

The following table compares our Operating Revenue for the three months ended June 30 (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Operating Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

955,861

 

 

$

789,498

 

 

$

166,363

 

 

 

21.1

%

Dry Leasing

 

 

40,404

 

 

 

40,906

 

 

 

(502

)

 

 

(1.2

)%

Customer incentive asset amortization

 

 

(11,443

)

 

 

(9,534

)

 

 

1,909

 

 

 

20.0

%

Other

 

 

5,610

 

 

 

4,383

 

 

 

1,227

 

 

 

28.0

%

Total Operating Revenue

 

$

990,432

 

 

$

825,253

 

 

 

 

 

 

 

 

 

Airline Operations

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Block Hours

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo

 

 

87,675

 

 

 

80,407

 

 

 

7,268

 

 

 

9.0

%

Passenger

 

 

4,713

 

 

 

3,108

 

 

 

1,605

 

 

 

51.6

%

Total Airline Operations

 

 

92,388

 

 

 

83,515

 

 

 

8,873

 

 

 

10.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue Per Block Hour

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

10,346

 

 

$

9,453

 

 

$

893

 

 

 

9.4

%

Cargo

 

$

9,903

 

 

$

9,151

 

 

$

752

 

 

 

8.2

%

Passenger

 

$

18,590

 

 

$

17,285

 

 

$

1,305

 

 

 

7.5

%

 

Airline Operations revenue increased $166.4 million, or 21.1%, primarily due to increased flying and an increase in Revenue per Block Hour.  The increase in Block Hours flown was primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased reflecting growth in airfreight volumes from pre-pandemic levels, the ongoing reduction of available cargo capacity provided by passenger airlines in the market and the continued disruption of global supply chains due to the COVID-19 pandemic.  Due to this strong demand, we reactivated four 747-400BCF aircraft throughout 2020 that had been temporarily parked and began using a 777-200 freighter aircraft that was previously in our Dry Leasing business.  In addition, AMC passenger Charter demand increased compared to the limited movement of military personnel in 2020 due to precautionary measures taken by the U.S. military at that time because of the COVID-19 pandemic.  Revenue per Block Hour rose primarily due to higher fuel costs, partially offset by lower Yields, net of fuel, compared with the higher market Yields during the early months of the COVID-19 pandemic, specifically April and May of 2020.

 

Dry Leasing

Dry Leasing revenue was relatively unchanged.


23


 

Operating Expenses

The following table compares our Operating Expenses for the three months ended June 30 (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

$

208,366

 

 

$

192,591

 

 

$

15,775

 

 

 

8.2

%

Aircraft fuel

 

 

214,269

 

 

 

83,242

 

 

 

131,027

 

 

 

157.4

%

Maintenance, materials and repairs

 

 

132,547

 

 

 

168,300

 

 

 

(35,753

)

 

 

(21.2

)%

Depreciation and amortization

 

 

66,661

 

 

 

65,826

 

 

 

835

 

 

 

1.3

%

Navigation fees, landing fees and other rent

 

 

47,409

 

 

 

35,638

 

 

 

11,771

 

 

 

33.0

%

Passenger and ground handling services

 

 

41,504

 

 

 

30,130

 

 

 

11,374

 

 

 

37.7

%

Travel

 

 

39,947

 

 

 

34,627

 

 

 

5,320

 

 

 

15.4

%

Aircraft rent

 

 

17,687

 

 

 

24,316

 

 

 

(6,629

)

 

 

(27.3

)%

Loss (gain) on disposal of aircraft

 

 

-

 

 

 

2

 

 

 

(2

)

 

NM

 

Special charge

 

 

-

 

 

 

15,934

 

 

 

(15,934

)

 

NM

 

Transaction-related expenses

 

 

117

 

 

 

1,275

 

 

 

(1,158

)

 

 

(90.8

)%

Other

 

 

61,848

 

 

 

52,710

 

 

 

9,138

 

 

 

17.3

%

Total Operating Expenses

 

$

830,355

 

 

$

704,591

 

 

 

 

 

 

 

 

 

NM represents year-over-year changes that are not meaningful.

Salaries, wages and benefits increased $15.8 million, or 8.2%, primarily due to increased flying.  

Aircraft fuel increased $131.0 million, or 157.4%, primarily due to an increase in the average fuel cost per gallon and higher consumption related to increased Charter flying.  We do not incur fuel expense in providing ACMI and CMI services or in our Dry Leasing business as the cost of fuel is borne by the customer.  Average fuel cost per gallon and fuel consumption for the three months ended June 30 were:

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Average fuel cost per gallon

 

$

1.92

 

 

$

1.10

 

 

$

0.82

 

 

 

74.5

%

Fuel gallons consumed (000s)

 

 

111,818

 

 

 

75,769

 

 

 

36,049

 

 

 

47.6

%

Maintenance, materials and repairs decreased $35.8 million, or 21.2%, primarily reflecting $40.6 million of decreased Heavy Maintenance expense, partially offset by $3.8 million of increased Line Maintenance expense and $2.3 million of increased Non-heavy Maintenance. Heavy Maintenance expense on 747-400 aircraft decreased $35.8 million primarily due to a decrease in the number of engine overhauls and a decrease in the number of C Checks, partially offset by an increase in the number of D Checks. Heavy Maintenance expense on 747-8F aircraft decreased $3.7 million primarily due to a decrease in the number of D Checks, partially offset by an increase in the number of C Checks.  Heavy Maintenance expense on 767 aircraft decreased $2.4 million primarily due to a decrease in the number of C Checks.  Line Maintenance expense increased primarily due to increased flying. Non-heavy Maintenance expense increased on 747-8F aircraft primarily due to the timing of landing gear overhauls.  Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended June 30 were:

 

Heavy Maintenance Events

 

2021

 

 

2020

 

 

Inc/(Dec)

 

747-8F C Checks

 

 

2

 

 

 

-

 

 

 

2

 

747-400 C Checks

 

 

3

 

 

 

7

 

 

 

(4

)

767 C Checks

 

 

1

 

 

 

3

 

 

 

(2

)

747-8F D Checks

 

 

-

 

 

 

3

 

 

 

(3

)

747-400 D Checks

 

 

3

 

 

 

1

 

 

 

2

 

CF6-80 engine overhauls

 

 

3

 

 

 

12

 

 

 

(9

)

PW4000 engine overhauls

 

 

1

 

 

 

1

 

 

 

-

 

Navigation fees, landing fees and other rent increased $11.8 million, or 33.0%, primarily due to increased Charter flying.

Passenger and ground handling services increased $11.4 million, or 37.7%, primarily due to increased Charter flying.

Travel increased $5.3 million, or 15.4%, primarily due to increased Charter flying.

Aircraft rent decreased $6.6 million, or 27.3%, primarily due to changes in 747-400 freighter aircraft operating leases (see Note 8 to our Financial Statements).

24


Special charge in 2020 represented a $15.9 million impairment charge related to fair value adjustments for assets held for sale, including spare engines and 737-400 passenger aircraft for training purposes.

Transaction-related expenses in 2020 primarily related to professional fees in support of the Payroll Support Program under the CARES Act (see Note 3 to our Financial Statements).

Other increased $9.1 million, or 17.3%, primarily due to an increase in professional fees and costs associated with the movement of spare engines.

Non-operating Expenses (Income)

The following table compares our Non-operating Expenses (Income) for the three months ended June 30 (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Non-operating Expenses (Income)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

(189

)

 

$

(224

)

 

$

(35

)

 

 

(15.6

)%

Interest expense

 

 

26,992

 

 

 

28,950

 

 

 

(1,958

)

 

 

(6.8

)%

Capitalized interest

 

 

(1,850

)

 

 

(132

)

 

 

1,718

 

 

NM

 

Loss on early extinguishment of debt

 

 

-

 

 

 

74

 

 

 

(74

)

 

NM

 

Unrealized loss on financial instruments

 

 

-

 

 

 

30,671

 

 

 

(30,671

)

 

NM

 

Other (income) expense, net

 

 

(4,854

)

 

 

(50,598

)

 

 

(45,744

)

 

 

(90.4

)%

Interest expense decreased $2.0 million, or 6.8%, primarily due to the scheduled repayment of debt and the repayment of our revolving credit facility during the third quarter of 2020.

Capitalized interest increased $1.7 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft from Boeing (see Note 3 to our Financial Statements).

Unrealized loss on financial instruments in 2020 represented the change in fair value of a customer warrant liability (see Note 5 to our Financial Statements) primarily due to changes in our common stock price. Due to the exercise of a warrant in early 2021, our earnings are no longer affected by changes in the fair value of our customer warrant liability.

Other (income) expense, net decreased primarily due to a $26.9 million reduction in refunds of aircraft rent paid in previous years (see Note 7 to our Financial Statements) and $20.2 million in CARES Act grant income in 2020 (see Note 3 to our Financial Statements).

Income taxes.  The effective income tax rates were 23.5% and 29.5% for the three months ended June 30, 2021 and 2020, respectively.  The rate for the three months ended June 30, 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.  The rate for the three months ended June 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements).

Segments

The following table compares the Direct Contribution for our reportable segments for the three months ended June 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Direct Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

231,793

 

 

$

200,464

 

 

$

31,329

 

 

 

15.6

%

Dry Leasing

 

 

10,766

 

 

 

9,721

 

 

 

1,045

 

 

 

10.7

%

Total Direct Contribution

 

$

242,559

 

 

$

210,185

 

 

$

32,374

 

 

 

15.4

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated expenses and (income), net

 

$

102,464

 

 

$

50,308

 

 

$

52,156

 

 

 

103.7

%

Airline Operations Segment

Airline Operations Direct Contribution increased $31.3 million, or 15.6%, primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels, as well as lower Heavy Maintenance expense.  Direct Contribution also benefited from the operation and higher utilization of 747-400 freighters reactivated throughout 2020 and a 777-200 freighter aircraft that was previously in our Dry Leasing

25


business.  Partially offsetting these improvements were lower Yields, net of fuel, compared with the higher market Yields during the early months of the COVID-19 pandemic in the second quarter of 2020.  

Dry Leasing Segment

Dry Leasing Direct Contribution increased $1.0 million, or 10.7%, primarily due to lower interest expense related to the scheduled repayment of debt.

Unallocated expenses and (income), net

Unallocated expenses and (income), net increased $52.2 million, or 103.7%, primarily due to a $26.9 million reduction in refunds of aircraft rent paid in previous years, $20.2 million in CARES Act grant income recognized in 2020 and increased professional fees.

Six Months Ended June 30, 2021 and 2020

Operating Statistics

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the six months ended June 30:

Segment Operating Fleet

 

2021

 

 

2020

 

 

Inc/(Dec)

 

Airline Operations*

 

 

 

 

 

 

 

 

 

 

 

 

747-8F Cargo

 

 

10.0

 

 

 

10.0

 

 

 

-

 

747-400 Cargo

 

 

34.2

 

 

 

31.8

 

 

 

2.4

 

747-400 Dreamlifter

 

 

1.2

 

 

 

2.7

 

 

 

(1.5

)

747-400 Passenger

 

 

4.9

 

 

 

5.0

 

 

 

(0.1

)

777-200 Cargo

 

 

9.0

 

 

 

8.4

 

 

 

0.6

 

767-300 Cargo

 

 

24.0

 

 

 

24.0

 

 

 

-

 

767-300 Passenger

 

 

4.9

 

 

 

4.8

 

 

 

0.1

 

767-200 Cargo

 

 

4.0

 

 

 

9.0

 

 

 

(5.0

)

767-200 Passenger

 

 

0.3

 

 

 

1.0

 

 

 

(0.7

)

737-800 Cargo

 

 

8.0

 

 

 

5.0

 

 

 

3.0

 

737-400 Cargo

 

 

-

 

 

 

4.8

 

 

 

(4.8

)

Total

 

 

100.5

 

 

 

106.5

 

 

 

(6.0

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Dry Leasing

 

 

 

 

 

 

 

 

 

 

 

 

777-200 Cargo

 

 

7.0

 

 

 

7.0

 

 

 

-

 

767-300 Cargo

 

 

21.0

 

 

 

21.0

 

 

 

-

 

757-200 Cargo

 

 

-

 

 

 

0.2

 

 

 

(0.2

)

737-300 Cargo

 

 

1.0

 

 

 

1.0

 

 

 

-

 

737-800 Passenger

 

 

-

 

 

 

0.3

 

 

 

(0.3

)

Total

 

 

29.0

 

 

 

29.5

 

 

 

(0.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Aircraft Dry Leased to CMI customers

 

 

(21.0

)

 

 

(21.0

)

 

 

-

 

Total Operating Average Aircraft Equivalents

 

 

108.5

 

 

 

115.0

 

 

 

(6.5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Out-of-service**

 

 

-

 

 

 

3.5

 

 

 

(3.5

)

 

*

Airline Operations average fleet excludes spare aircraft provided by CMI customers.

 

**

Out-of-service includes aircraft that are either temporarily parked or held for sale.

Block Hours

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Total Block Hours***

 

 

181,713

 

 

 

158,213

 

 

 

23,500

 

 

 

14.9

%

 

***

Includes Airline Operations and other Block Hours.

 


26


 

Operating Revenue

The following table compares our Operating Revenue for the six months ended June 30 (in thousands):

 

 

 

2021

 

 

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Operating Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

1,782,101

 

 

 

 

$

1,395,871

 

 

$

386,230

 

 

 

27.7

%

Dry Leasing

 

 

80,768

 

 

 

 

 

82,832

 

 

 

(2,064

)

 

 

(2.5

)%

Customer incentive asset amortization

 

 

(21,924

)

 

 

 

 

(18,556

)

 

 

3,368

 

 

 

18.2

%

Other

 

 

10,787

 

 

 

 

 

8,608

 

 

 

2,179

 

 

 

25.3

%

Total Operating Revenue

 

$

1,851,732

 

 

 

 

$

1,468,755

 

 

 

 

 

 

 

 

 

Airline Operations

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Block Hours

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cargo

 

 

170,784

 

 

 

148,246

 

 

 

22,538

 

 

 

15.2

%

Passenger

 

 

8,362

 

 

 

7,914

 

 

 

448

 

 

 

5.7

%

Total Airline Operations

 

 

179,146

 

 

 

156,160

 

 

 

22,986

 

 

 

14.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue Per Block Hour

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

9,948

 

 

$

8,939

 

 

$

1,009

 

 

 

11.3

%

Cargo

 

$

9,525

 

 

$

8,442

 

 

$

1,083

 

 

 

12.8

%

Passenger

 

$

18,576

 

 

$

18,245

 

 

$

331

 

 

 

1.8

%

 

Airline Operations revenue increased $386.2 million, or 27.7%, primarily due to increased flying and an increase in Revenue per Block Hour.  The increase in Block Hours flown was primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the ongoing reduction of available cargo capacity provided by passenger airlines in the market and the continued disruption of global supply chains due to the COVID-19 pandemic.  Due to this strong demand, we reactivated four 747-400BCF aircraft throughout 2020 that had been temporarily parked and began using a 777-200 freighter aircraft that was previously in our Dry Leasing business.  AMC passenger Charter demand increased compared to the limited movement of military personnel in 2020 due to precautionary measures taken by the U.S. military at that time because of the COVID-19 pandemic.  Revenue per Block Hour rose primarily due to an increased proportion of higher-yielding commercial cargo Charter flying driven by the factors impacting commercial cargo Charter demand noted above, as well as higher fuel costs, partially offset by lower Yields, net of fuel, compared with the higher market Yields during the early months of the COVID-19 pandemic, specifically April and May of 2020.

 

Dry Leasing

Dry Leasing revenue was relatively unchanged.


27


 

Operating Expenses

The following table compares our Operating Expenses for the six months ended June 30 (in thousands):

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

$

410,980

 

 

$

340,335

 

 

$

70,645

 

 

 

20.8

%

Aircraft fuel

 

 

377,820

 

 

 

191,560

 

 

 

186,260

 

 

 

97.2

%

Maintenance, materials and repairs

 

 

253,680

 

 

 

262,452

 

 

 

(8,772

)

 

 

(3.3

)%

Depreciation and amortization

 

 

134,450

 

 

 

123,410

 

 

 

11,040

 

 

 

8.9

%

Navigation fees, landing fees and other rent

 

 

92,296

 

 

 

67,039

 

 

 

25,257

 

 

 

37.7

%

Passenger and ground handling services

 

 

81,569

 

 

 

62,089

 

 

 

19,480

 

 

 

31.4

%

Travel

 

 

77,619

 

 

 

77,018

 

 

 

601

 

 

 

0.8

%

Aircraft rent

 

 

38,443

 

 

 

48,283

 

 

 

(9,840

)

 

 

(20.4

)%

Loss (gain) on disposal of aircraft

 

 

16

 

 

 

(6,715

)

 

 

(6,731

)

 

NM

 

Special charge

 

 

-

 

 

 

15,934

 

 

 

(15,934

)

 

NM

 

Transaction-related expenses

 

 

318

 

 

 

1,796

 

 

 

(1,478

)

 

 

(82.3

)%

Other

 

 

120,260

 

 

 

103,822

 

 

 

16,438

 

 

 

15.8

%

Total Operating Expenses

 

$

1,587,451

 

 

$

1,287,023

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits increased $70.6 million, or 20.8%, primarily due to higher pilot costs related to increased flying, premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates we provided to our pilots beginning in May 2020.

 

Aircraft fuel increased $186.3 million, or 97.2%, primarily due to an increase in consumption related to increased Charter flying and an increase in the average fuel cost per gallon.  We do not incur fuel expense in providing ACMI and CMI services or in our Dry Leasing business as the cost of fuel is borne by the customer.  Average fuel cost per gallon and fuel consumption for the six months ended June 30 were:

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Average fuel cost per gallon

 

$

1.82

 

 

$

1.47

 

 

$

0.35

 

 

 

23.8

%

Fuel gallons consumed (000s)

 

 

207,404

 

 

 

130,047

 

 

 

77,357

 

 

 

59.5

%

 

Maintenance, materials and repairs decreased by $8.8 million, or 3.3%, primarily reflecting $32.9 million of decreased Heavy Maintenance expense, partially offset by $23.2 million of increased Line Maintenance expense and $4.7 million of increased Non-heavy Maintenance expense.  Heavy Maintenance expense on 747-400 aircraft decreased $34.6 million primarily due to a decrease in the number of engine overhauls and a decrease in the number of C Checks.  Heavy Maintenance expense on 767 aircraft decreased $3.8 million primarily due to a decrease in the number of C Checks.  Line Maintenance expense increased primarily due to increased flying. Non-heavy Maintenance expense on 747-8F aircraft increased $5.7 million primarily due to the timing of landing gear overhauls.  Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the six months ended June 30 were:

 

Heavy Maintenance Events

 

2021

 

 

2020

 

 

Inc/(Dec)

 

747-8F C Checks

 

 

2

 

 

 

-

 

 

 

2

 

747-400 C Checks

 

 

8

 

 

 

11

 

 

 

(3

)

767 C Checks

 

 

3

 

 

 

6

 

 

 

(3

)

747-8F D Checks

 

 

2

 

 

 

3

 

 

 

(1

)

747-400 D Checks

 

 

4

 

 

 

4

 

 

 

-

 

CF6-80 engine overhauls

 

 

4

 

 

 

13

 

 

 

(9

)

PW4000 engine overhauls

 

 

2

 

 

 

1

 

 

 

1

 

 

Depreciation and amortization increased $11.0 million, or 8.9%, primarily due to an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements).

Navigation fees, landing fees and other rent increased $25.3 million, or 37.7%, primarily due to increased Charter flying.

Passenger and ground handling services increased $19.5 million, or 31.4%, primarily due to increased Charter flying.

28


Aircraft rent decreased $9.8 million, or 20.4%, primarily due to changes in 747-400 freighter aircraft operating leases (see Note 8 to our Financial Statements).

Gain on disposal of aircraft in 2020 represented a net gain of $6.7 million from the sale of certain nonessential assets.  

Special charge in 2020 represented a $15.9 million impairment charge related to fair value adjustments for assets held for sale, including spare engines and 737-400 passenger aircraft for training purposes.

Transaction-related expenses in 2020 primarily related to professional fees in support of the Payroll Support Program under the CARES Act (see Note 3 to our Financial Statements).

Other increased $16.4 million, or 15.8%, primarily due an increase in professional fees, which include costs associated with negotiations and arbitration for a joint CBA (see Note 12 to our Financial Statements), as well as costs for continuing to provide a safe working environment for our employees and costs associated with the movement of spare engines.

Non-operating (Income) Expenses

The following table compares our Non-operating (Income) Expenses for the six months ended June 30 (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Non-operating (Income) Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

(400

)

 

$

(704

)

 

$

(304

)

 

 

(43.2

)%

Interest expense

 

 

54,172

 

 

 

58,225

 

 

 

(4,053

)

 

 

(7.0

)%

Capitalized interest

 

 

(3,121

)

 

 

(325

)

 

 

2,796

 

 

NM

 

Loss on early extinguishment of debt

 

 

-

 

 

 

74

 

 

 

(74

)

 

NM

 

Unrealized loss on financial instruments

 

 

113

 

 

 

29,747

 

 

 

(29,634

)

 

 

(99.6

)%

Other (income) expense, net

 

 

(44,310

)

 

 

(49,392

)

 

 

(5,082

)

 

 

(10.3

)%

Interest expense decreased $4.1 million, or 7.0%, primarily due to the scheduled repayment of debt and the repayment of our revolving credit facility during the third quarter of 2020.

Capitalized interest increased $2.8 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft from Boeing (see Note 3 to our Financial Statements).

Unrealized loss on financial instruments represents the change in fair value of a customer warrant liability (see Note 5 to our Financial Statements) primarily due to changes in our common stock price until the exercise of a certain warrant in early 2021.

Other (income) expense, net decreased $5.1 million, or 10.3%, primarily due to a $28.3 million reduction in refunds of aircraft rent paid in previous years (see Note 7 to our Financial Statements), partially offset by a $20.7 million increase in CARES Act grant income (see Note 3 to our Financial Statements).

Income taxes.  The effective income tax rates were 23.6% and 29.0% for the six months ended June 30, 2021 and 2020, respectively.  The rate for the six months ended June 30, 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.  The rate for the six months ended June 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements).

Segments

The following table compares the Direct Contribution for our reportable segments for the six months ended June 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):

 

 

 

2021

 

 

2020

 

 

Inc/(Dec)

 

 

% Change

 

Direct Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Airline Operations

 

$

400,943

 

 

$

303,552

 

 

$

97,391

 

 

 

32.1

%

Dry Leasing

 

 

21,329

 

 

 

20,420

 

 

 

909

 

 

 

4.5

%

Total Direct Contribution

 

$

422,272

 

 

$

323,972

 

 

$

98,300

 

 

 

30.3

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unallocated expenses and (income), net

 

$

163,998

 

 

$

139,029

 

 

$

24,969

 

 

 

18.0

%

29


 

Airline Operations Segment

Airline Operations Direct Contribution increased $97.4 million, or 32.1%, primarily due to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels, as well as lower Heavy Maintenance expense.  Direct Contribution also benefited from the operation and higher utilization of 747-400 freighters reactivated throughout 2020 and a 777-200 freighter aircraft that was previously in our Dry Leasing business.  Partially offsetting these improvements were lower Yields, net of fuel, compared with the higher market Yields during the early months of the COVID-19 pandemic, higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates we provided to our pilots beginning in May 2020.  

Dry Leasing Segment

Dry Leasing Direct Contribution was relatively unchanged.

Unallocated expenses and (income), net

Unallocated expenses and (income), net increased $25.0 million, or 18.0%, primarily due to a $28.3 million reduction in refunds of aircraft rent paid in previous years and increased professional fees, which includes costs associated with negotiations and arbitration for a joint CBA, partially offset by a $20.7 million increase in CARES Act grant income.

 

Reconciliation of GAAP to non-GAAP Financial Measures

To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance.  These non-GAAP financial measures include Adjusted Net Income, Adjusted Diluted EPS and Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results.  These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Net Income and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP.

We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods.  These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance.  In addition, management’s incentive compensation is determined, in part, by using Adjusted Net Income and Adjusted EBITDA.  We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.

The following is a reconciliation of Net Income and Diluted EPS to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):

 

 

 

 

For the Three Months Ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

 

Percent Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

107,110

 

 

 

$

78,912

 

 

 

35.7

%

Impact from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CARES Act grant income (a)

 

 

 

-

 

 

 

 

(20,167

)

 

 

 

 

Customer incentive asset amortization

 

 

 

11,443

 

 

 

 

9,534

 

 

 

 

 

Special charge

 

 

 

-

 

 

 

 

15,934

 

 

 

 

 

Noncash expenses and income, net (b)

 

 

 

4,746

 

 

 

 

4,458

 

 

 

 

 

Unrealized loss on financial instruments

 

 

 

-

 

 

 

 

30,671

 

 

 

 

 

Other, net (c)

 

 

 

696

 

 

 

 

4,710

 

 

 

 

 

Income tax effect of reconciling items

 

 

 

(2,220

)

 

 

 

(863

)

 

 

 

 

Adjusted Net Income

 

 

$

121,775

 

 

 

$

123,189

 

 

 

(1.1

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

 

 

30,319

 

 

 

 

26,182

 

 

 

 

 

Add: effect of convertible notes hedges (d)

 

 

 

(608

)

 

 

 

-

 

 

 

 

 

Adjusted weighted average diluted shares outstanding

 

 

 

29,711

 

 

 

 

26,182

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted Diluted EPS

 

 

$

4.10

 

 

 

$

4.71

 

 

 

(13.0

)%

 

30


 

 

 

 

For the Six Months Ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

 

Percent Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

197,043

 

 

 

$

102,265

 

 

 

92.7

%

Impact from:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CARES Act grant income (a)

 

 

 

(40,944

)

 

 

 

(20,167

)

 

 

 

 

Customer incentive asset amortization

 

 

 

21,924

 

 

 

 

18,556

 

 

 

 

 

Special charge

 

 

 

-

 

 

 

 

15,934

 

 

 

 

 

Noncash expenses and income, net (b)

 

 

 

9,418

 

 

 

 

8,844

 

 

 

 

 

Unrealized loss on financial instruments

 

 

 

113

 

 

 

 

29,747

 

 

 

 

 

Other, net (e)

 

 

 

1,025

 

 

 

 

(550

)

 

 

 

 

Income tax effect of reconciling items

 

 

 

5,411

 

 

 

 

(1,559

)

 

 

 

 

Adjusted Net Income

 

 

$

193,990

 

 

 

$

153,070

 

 

 

26.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average diluted shares outstanding

 

 

 

29,900

 

 

 

 

26,074

 

 

 

 

 

Add: effect of convertible notes hedges (d)

 

 

 

(304

)

 

 

 

-

 

 

 

 

 

Adjusted weighted average diluted shares outstanding

 

 

 

29,596

 

 

 

 

26,074

 

 

 

 

 

Adjusted Diluted EPS

 

 

$

6.55

 

 

 

$

5.87

 

 

 

11.6

%

 

 

 

 

For the Three Months Ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

 

Percent Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

107,110

 

 

 

$

78,912

 

 

 

35.7

%

Interest expense, net

 

 

 

24,953

 

 

 

 

28,594

 

 

 

 

 

Depreciation and amortization

 

 

 

66,661

 

 

 

 

65,826

 

 

 

 

 

Income tax expense

 

 

 

32,868

 

 

 

 

33,009

 

 

 

 

 

EBITDA

 

 

 

231,592

 

 

 

 

206,341

 

 

 

 

 

CARES Act grant income (a)

 

 

 

-

 

 

 

 

(20,167

)

 

 

 

 

Customer incentive asset amortization

 

 

 

11,443

 

 

 

 

9,534

 

 

 

 

 

Special charge

 

 

 

-

 

 

 

 

15,934

 

 

 

 

 

Unrealized loss on financial instruments

 

 

 

-

 

 

 

 

30,671

 

 

 

 

 

Other, net (c)

 

 

 

696

 

 

 

 

4,710

 

 

 

 

 

Adjusted EBITDA

 

 

$

243,731

 

 

 

$

247,023

 

 

 

(1.3

)%

 

 

 

 

For the Six Months Ended

 

 

 

 

June 30, 2021

 

 

 

June 30, 2020

 

 

Percent Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income

 

 

$

197,043

 

 

 

$

102,265

 

 

 

92.7

%

Interest expense, net

 

 

 

50,651

 

 

 

 

57,196

 

 

 

 

 

Depreciation and amortization

 

 

 

134,450

 

 

 

 

123,410

 

 

 

 

 

Income tax expense

 

 

 

60,784

 

 

 

 

41,842

 

 

 

 

 

EBITDA

 

 

 

442,928

 

 

 

 

324,713

 

 

 

 

 

CARES Act grant income (a)

 

 

 

(40,944

)

 

 

 

(20,167

)

 

 

 

 

Customer incentive asset amortization

 

 

 

21,924

 

 

 

 

18,556

 

 

 

 

 

Special charge

 

 

 

-

 

 

 

 

15,934

 

 

 

 

 

Unrealized loss on financial instruments

 

 

 

113

 

 

 

 

29,747

 

 

 

 

 

Other, net (e)

 

 

 

1,025

 

 

 

 

(550

)

 

 

 

 

Adjusted EBITDA

 

 

$

425,046

 

 

 

$

368,233

 

 

 

15.4

%

 

 

(a)

CARES Act grant income in 2021 and 2020 related to income associated with the Payroll Support Program (see Note 3 to our Financial Statements).

 

(b)

Noncash expenses and income, net in 2021 and 2020 primarily related to amortization of debt discount on the convertible notes (see Note 8 to our Financial Statements).  

 

(c)

Other, net in 2021 primarily related to leadership transition costs.  Other, net in 2020 primarily related to leadership transition costs, costs associated with the Payroll Support Program (see Note 3 to our Financial Statements) and costs associated with our acquisition of Southern Air.

 

(d)

Represents the economic benefit from our convertible notes hedges in offsetting dilution from our convertible notes as we concluded in no event would economic dilution result from conversion of each of the convertible notes when our stock price is below the exercise price of the respective convertible note warrants (see Note 8 to our Financial Statements).

 

(e)

Other, net in 2021 primarily related to leadership transition costs.  Other, net in 2020 primarily related to a $6.7 million net gain on the sale of aircraft, partially offset by leadership transition costs, costs associated with the Payroll Support Program (see Note 3 to our Financial Statements) and our acquisition of Southern Air.

31


Liquidity and Capital Resources

The most significant liquidity events during the first half of 2021 were as follows:

In March 2021, we borrowed $16.2 million at a fixed interest rate of 0.93% under an unsecured five-year term loan due in January 2026 for GEnx engine performance upgrade kits and overhauls.  The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly (see Note 8 to our Financial Statements).

In June 2021, we borrowed $7.8 million at a fixed interest rate of 0.91% under an unsecured five-year term loan due in May 2026 for GEnx engine performance upgrade kits and overhauls.  The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly (see Note 8 to our Financial Statements).

Operating Activities. Net cash provided by operating activities was $343.1 million for the first half of 2021, which primarily reflected Net Income of $197.0 million and noncash adjustments of $172.2 million for Depreciation and amortization and $60.1 million for Deferred taxes, partially offset by a $56.3 million decrease in Accounts payable, accrued liabilities and other liabilities, a $24.7 million increase in Accounts receivable and a $12.5 million increase in Prepaid expenses, current assets and other assets.  Net cash provided by operating activities was $560.4 million for the first half of 2020, which primarily reflected Net Income of $102.3 million, noncash adjustments of $157.5 million for Depreciation and amortization, $39.5 million for Deferred taxes and $29.7 million for Unrealized loss on financial instruments, a $178.9 million increase in Accounts payable, accrued liabilities and other liabilities, and a $51.8 million decrease in Accounts receivable, partially offset by a $19.1 million increase in Prepaid expenses, current assets and other assets.

Investing Activities. Net cash used for investing activities was $268.1 million for the first half of 2021, consisting primarily of $224.9 million of purchase deposits and payments for flight equipment and modifications and $43.4 million of payments for core capital expenditures, excluding flight equipment. Purchase deposits and payments for flight equipment and modifications during the first half of 2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits.  All capital expenditures for 2021 were funded through working capital and the financings discussed above.  Net cash used for investing activities was $40.0 million for the first half of 2020, consisting primarily of $59.9 million of payments for flight equipment and $25.1 million of payments for core capital expenditures, excluding flight equipment, partially offset by $44.1 million of proceeds from the disposal of aircraft.  Payments for flight equipment and modifications during the first half of 2020 were primarily related to spare engines and GEnx engine performance upgrade kits.  

Financing Activities. Net cash used for financing activities was $170.9 million for the first half of 2021, which primarily reflected $171.2 million of payments on debt, $23.9 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for payment of taxes, partially offset by $23.9 million of proceeds from debt issuance and $9.0 million of customer maintenance reserves and deposits received. Net cash provided by financing activities was $105.4 million for the first half of 2020, which primarily reflected $321.5 million from debt issuance and $75.0 million of proceeds from our revolving credit facility, partially offset by $275.0 million of payments on debt and $14.4 million in payments of maintenance reserves.

In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, implemented a number of other cost reduction initiatives and taken actions to increase liquidity and strengthen our financial position, including participation in the Payroll Support Program and deferral of the payment of the employer portion of social security taxes as provided for under the CARES Act. In connection with our participation in the Payroll Support Program, we agreed not to repurchase shares in the open market of, or make dividend payments with respect to, our common stock through September 30, 2021. We consider Cash and cash equivalents, Net cash provided by operating activities and availability under our revolving credit facility to be sufficient to meet our debt and lease obligations, and to fund committed capital expenditures for the next twelve months and core capital expenditures for the remainder of 2021. Core capital expenditures for the remainder of 2021 are expected to range from $60.0 to $70.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of 2021 are expected to be $134.5 million. These expenditures include pre-delivery payments for our January 2021 agreement to purchase four 747-8F aircraft from Boeing that are expected to be delivered from May through October 2022, spare engines, 747-400 freighter aircraft and 747-400 passenger aircraft (to be used for both replacement of older passenger aircraft in service, as well as spare engines and parts).

We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in April 2020 that enables us to sell debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.


32


 

We do not expect to pay any significant U.S. federal income tax for at least several years.  Our business operations are subject to income tax in several foreign jurisdictions and in many states.  We do not expect to pay any significant cash income taxes for at least several years in these foreign jurisdictions and states.  We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant.

Contractual Obligations and Debt Agreements

See Note 8 to our Financial Statements for a description of our new debt.  See our 2020 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 2020 and a description of our other debt obligations and amendments thereto.

Off-Balance Sheet Arrangements

There were no material changes in our off-balance sheet arrangements during the six months ended June 30, 2021.

Recent Accounting Pronouncements

See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management.  Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.

The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2020.  Many of such factors are beyond AAWW’s control and are difficult to predict.  As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements.  Such forward-looking statements speak only as of the date of this report.  AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except for the change to our market risk in Part I, Item 3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which is hereby incorporated by reference into this Part I, Item 3 of this Form 10-Q, there have been no other material changes to our market risk during the six months ended June 30, 2021.  For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 2020 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of June 30, 2021.  Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

33


PART II — OTHER INFORMATION

With respect to the fiscal quarter ended June 30, 2021, the information required in response to this Item is set forth in Note 12 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.

ITEM 1A. RISK FACTORS

 

There have been no material changes in our risk factors from those disclosed in our 2020 Annual Report on Form 10-K.

ITEM 6. EXHIBITS

 

a.

Exhibits

See accompanying Exhibit Index included before the signature page of this report for a list of exhibits filed or furnished with this report.

 

34


 

EXHIBIT INDEX

 

Exhibit

Number

 

Description

 

 

 

10.1

 

Atlas Air, Inc. 401(k) Restoration and Voluntary Deferral Plan (as amended and restated effective as of June 23, 2021).

 

 

 

31.1

 

Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

 

 

 

31.2

 

Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

 

 

 

32.1

 

Section 1350 Certifications.

 

 

 

101.INS

 

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document. *

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document. *

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document.  *

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document. *

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document. *

 

 

 

104

 

Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).

 

*

Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020, (v) Consolidated Statements of Stockholders’ Equity as of and for the three and six months ended June 30, 2021 and 2020 and (vi) Notes to the Unaudited Consolidated Financial Statements.

 

35


 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

Atlas Air Worldwide Holdings, Inc.

 

 

 

Dated:  August 5, 2021

 

/s/  John W. Dietrich

 

 

John W. Dietrich

 

 

President and Chief Executive Officer

 

 

 

Dated:  August 5, 2021

 

/s/  Spencer Schwartz

 

 

Spencer Schwartz

 

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

 

 

 

 

36