Q1 2015 Earnings Call Transcript

Published: 30 Apr 2015

[Operator:]

Good morning. My name is Phoenix and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter Earnings Call for Atlas Air Worldwide Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Ed McGarvey, VP and Treasurer. You may begin your conference.

[Edward McGarvey:]

Thank you, Phoenix, and good morning, everyone. Welcome to our first quarter 2015 results conference call. Today’s call will be hosted by Bill Flynn, our President and Chief Executive Officer. Joining Bill is Spencer Schwartz, our Executive Vice President and Chief Financial Officer. As a reminder, today’s call is complemented by a slide presentation that accompanies our remarks. If you have not already downloaded and printed a copy of our press release and slides, you may do so from our website at atlasair.com. You may also find the slides by clicking on the link to Presentations in the Investor Information section of the website. As indicated on slide two, we like to remind you that our discussion about the company's performance today include some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations and they involve risks and uncertainties. Our actual results or actions may differ materially from those projected in any forward-looking statements. For information about the risk factors related to our business, please refer to our 2014 Form 10-K, as amended or supplemented by our subsequently filed SEC reports. Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today’s press release and in the appendix that is attached to today’s slides. You can also find these on our website at atlasair.com. During our question-and-answer period today, we'd like to ask participants to limit themselves to one principal question and one follow-up question, so that we may accommodate as many participants as possible. After you’ve gone through the queue, we’ll be happy to answer any additional questions that you may have as time permits. At this point, I’d like to turn the call over to Bill Flynn.

[William Flynn:]

Thank you Ed and good morning everyone. We thank you for joining us today. Beginning with slide three, we're off to a very good start in 2015 and we look forward to a strong year. We now expect our full year results to increase significantly compared with 2015. Earnings in the first quarter reflected our diverse business mix, ongoing demand for our aircraft and operating services and continuing improvement in the global airfreight market. Adjusted EPS in the first quarter totaled $1.03 which is more than doubled the $0.45 we reported in the first quarter of last year. We were well positioned in our charter segment to capitalize on the demand for airfreight in the TransPacific regions and air trade lines as well as better than expected military cargo and passenger demand. Results in the quarter also benefited from revenue from maintenance payments related to our dry leasing portfolio, our leadership position in ACMI and the startup of three additional 767s and CMI clients for DHL in North America. We also added a four 767s in early April. In total we now operate nine 767 for DHL in North America and two in the Asia Pacific region. Slide four illustrates the continuing positive direction of airfreight demand. Shanghai's PACTL terminal for example posted a record first quarter in 2015 following the record year in 2014. With reported first quarter tonnage growing approximately 13%. IATA has also reported at international airfreight traffic grew 8.2% in the first two months of 2015 partly reflecting poor conditions on the US West Coast. For the full year IATA expects international freight traffic measured on a freight ton kilometer basis to grow at a 5% rate compared with 4.8% in 2014.In addition, IATA estimates that international airfreight traffic will grow at a compound annual rate of nearly 5% through 2019. Slide five focuses on our earnings framework for 2015. We anticipate significant growth in adjusted EPS this year. As the commercial airfreight market is growing, our business initiatives and investments have positioned Atlas to be a prime beneficiary. We are encouraged by our strong first quarter performance and we continue to have a favorable view about the prospects for overall airfreight environment and the demand for our aircraft and services. As noted, forecasts indicate the global airfreight demand will grow approximately 4% to 5% in 2015 outpacing protected growth in global trade. We expect our block hour volume this year will increase 5% to 10% compared with 2014 with more than 70% of the total in ACMI and the balance in charter. At the same time, recent military demand is holding up well compared with 2014 levels. We are seeing good airfreight demand in the second quarter of 2015. On a sequential basis, we expect earnings per share in the second quarter of 2015 to be slightly better than our first quarter 2015 adjusted earnings. We also anticipate sequential increases in our third and fourth quarter earnings per share. Visibility into second half, airfreight demand and yields remains limited at this point. So we will continue to update our expectations about the second half as the year progresses. Taking our current framework and expected first half earnings strengthened to account, we expect approximately 55% of our earnings to occur in the second half. Given anticipated higher flying levels we now expect that aircraft maintenance expense should total approximately $190 million. Depreciation expenses for the year should be approximately $125 million, while our core capital expenditures which exclude aircraft and engine purchases are expected to total approximately $40 million to $45 million for the year, this is mainly for spare parts for our fleet. In addition our effective income tax rate should be approximately 28% to 30%. We do not expect to pay any significant federal income tax until 2020 or later. This is a good point to ask Spencer to provide you with some additional perspective on our first quarter. Following Spencer, I’ll provide some additional thoughts and then will be happy to take your questions. Spencer?

[Spencer Schwartz:]

Thank you, Bill, and hello, everyone. Slide six highlights our first quarter results. Our adjusted net income totaled $25.7 million or $1.03 per share. On a reported basis, net income totaled $29.2 million or $1.17 per share. Results in the first quarter benefited from our diverse business mix and improved contributions in charter and dry leasing. During the quarter, we generated free cash flow of $80 million or $3.20 per share compared with $37 million or $1.47 per share last year. Our reported results in the first quarter included an effective income tax rate of 19.4%. That reflects an income tax benefit of $4 million related to beneficial tax planning regarding the treatment of extra territorial income from leasing of certain of our aircraft. Looking at slide seven, higher operating revenues in the first quarter were due to our business mix and our ability to utilize our aircraft to take advantage of the strong charter market. To substantialize in our charger segment revenue was mainly driven by increases in both cargo and passenger flying partially offset by a decrease in revenue per block hour reflecting the impact of lower fuel prices. Higher block hour volumes and aircraft utilization primarily reflect an increase in commercial cargo demand which was enhanced by congestion issues at ports on the West Coast. Both global and TransPacific supply chains were active during the period. With the automotive sector perishables and the retail fashion industry adding to the tempo of cargo traffic between Asia and North America. In addition, our charter revenue benefited from an increase in military cargo and passenger demand. In dry leasing revenue growth in the first quarter was primarily due to the recognition of revenue from maintenance payments related to the schedule return of a 737-800 passenger aircraft in our Titan portfolio. As our dry leasing business is still somewhat new this is the first time that we had revenue from dry lease maintenance payments which can occur at the end of an aircraft lease. Going forward we expect Titan to generate additional revenue from maintenance payments as it manages his portfolio. Any announcement depend on the lease terms the condition of the aircraft on redelivery et cetera. ACMI revenues during the quarter benefited from an increase in block hours driven by the startup of three additional 767 CMI aircraft and improvements in ACMI aircraft utilization. These were offset by a reduction in revenue per block hour reflecting higher revenue per block hour in 2014 resulting with customers that flew below their contractual minimums, the impact of payments received in 2014 related to a customer’s return to aircraft and then increase in CMI flying in 2015. Moving to slide eight. Segment contribution totaled $86 million in the first quarter, compared with $50 million in the first quarter of last year. The pie chart to the bottom of the slide highlights the strong contribution from our charter and dry leasing segments during the quarter as well as a significant proportion of contribution from ACMI operations. Contribution in charter was driven by an increase in cargo and passenger revenue and by an increase in aircraft utilization reflecting higher demand. Charter results also benefited from lower fuel cost and reduction in heavy maintenance expense. In dry leasing, the increase in profitability was primarily due to the revenue for maintenance payments that I previously noted. Turning to slide nine on our balance sheet. We ended the first quarter of 2015 with cash Including cash equivalents, short-term investments and restricted cash totaling $375 million That compared with $331 million at the end of last year. Our cash position at March 31st reflected net cash of $91 million provided by operating activities during the first quarter. That was partly offset by net cash of $52 million used for financing activities which was primarily for debt payments.Net cash used for investing activities in the first quarter primarily related to the purchase of engines and ratable spare parts offset by proceeds for disposition of aircraft. Excluding the acquisition of aircraft and engines, our core capital expenditures during the quarter totaled $10 million. As slide 10 shows, at the end of the first quarter, our net leverage ratio which includes capitalized rents was five times trailing 12-month EBITDAR including the benefit of our investments in our outstanding WTCs. That’s down from six times at March 31, 2014 5.4 times at December 31st, primarily driven by the pay down of outstanding debt. During the first quarter of 2015, we paid down approximately $51 million of our overall debt. And now I’d like to turn it back to Bill.

[William Flynn:]

Thank you, Spencer. As reflected on slide 11, we are confident about the outlook for 2015. Our strong and dedicated team is well prepared to leverage our competencies in market leadership this year and beyond. Our fleet is modern and efficient, we provide innovated value added services, we operated diversified resilient business models and we have a solid financial structure. We are focused on exceeding strategic opportunities, executing on initiatives and shaping a powerful future. With that operator may we have the first question please?

[Operator:]

[Operator Instructions]. Your first question comes from Kevin Sterling of BB&T Capital Markets. Your line is now open.

[Kevin Sterling:]

Thank you. Good morning gentlemen.

[William Flynn:]

Good morning Kevin.

[Spencer Schwartz:]

Good morning.

[Kevin Sterling:]

Congratulations on a really strong quarter. When I look at to your updated guidance with about 45% of your earnings growth coming in the first half of the year obviously this is stronger than in the year's past. But as we look at the Q2 what particular are you seeing that gives you the confidence the strength we saw in Q1 will continue maybe you can share that some of your customer conversations et cetera and I am just kind of Bill maybe highlight what you’re seeing gives you that confidence as it look at least to Q2 for your guidance?

[William Flynn:]

Thanks very much Kevin. I think the real underlying story here is to continued strength in the international airfreight market we saw really solid growth in 2014 we’re seeing good growth in 2015 beyond even as we factor in or factor out the impact of the West Coast work issues we’re seeing that growth pretty much broad-based across most major trade lanes and so we participate in that growth as a result of our ACMI operations with all of our customers many of whom have a track record of growing at greater than market over the last several years particularly when we didn’t see much growth. Our charter business is strong and again certainly took advantage of the issues on the West Coast but we also saw a very good strength in other trade lanes including South America, Africa and other kind of point-to-point operations in that business. Our conversations with our just another data point for example Q1, we operated our customers were operating at 4.2% above minimums which contrasted with 2.9% below in Q1 2014. The schedules that our customers have given us for the flying this quarter as we now are into the IATA summer season we’re looking at the schedules that we have for the balance of the last year. There are discussions about peak already in the market as we think about 2015 and so. We think the strength is broad-based our caution as we said in my comments we’ve still some limited visibility or limited visibility into second half but I think overall the market feels pretty good and we’re well positioned to take advantage of it.

[Kevin Sterling:]

Got you. Thanks Bill. And Bill given the West Coast port disruptions maybe I think follow up on that a little bit. Given the West Coast port disruptions are you seeing maybe a shift to airfreight that might be a little more permanent than saying years past particularly when you count for the drop in fuel prices as well.

[William Flynn:]

I think that's really in cycled question Kevin. I think the West Coast port issues have caused the major companies that we think their global supply chain. That doesn't mean they're just going to wholesale go from ocean to air. But that to - from an ocean certainly companies will be thinking about realigning their supply chain to include Gulf and East Coast ports. But I think also realigning this supply chain to think about how better to use air, how much more air might make sense. Particularly given fuel as you pointed out if we're in a $60 to $80 range on fuel for some period of time that certainly favors the airfreight, it will make airfreight more attractive as companies begin to think about critical failure points in their supply chain. So I think we could see some shift of freight from sea to air and that something we'll continue to monitor.

[Kevin Sterling:]

Got you. Thanks for the color Bill. And on the military side are you seeing more freight or passenger flying and what is the mix and how do you think the mix will shake as this year progresses.

[William Flynn:]

Well certainly from the military operations, 90% of the passengers fly on commercial aircraft and so that will change and will always be an important part of military flying. In terms of the cargo side, we see well than we expected something more consistent with prior year. And even on a go forward basis as we move past crisis and conflict that we're seeing today. I think there will always be a base level of military flying for cargo in part because the cargo side of craft is an essential part of the country's crisis plans and I think the AMC in particular will want to have cargo carriers flying some base level of operations on a continuing basis just to ensure that craft carriers already interoperable for when they really needed in the time of crisis for example.

[Kevin Sterling:]

Got you, okay. That's all I had. Thanks so much for your time today and once again congratulations on a very strong quarter.

[William Flynn:]

Thank you Kevin.

[Operator:]

Your next question comes from the Jason Ursaner from CJS Securities. Your line is now open.

[Jason Ursaner:]

Good morning congratulations on a great start of the year.

[William Flynn:]

Thanks Jason.

[Jason Ursaner:]

Just I wanted to start to in ACMI revenue in direct contribution were both down a little bit year-to-year despite for one extra point and higher block hours. Spencer, you mentioned the couple of other factors from last year. I would have thought it might have been an easier comp with British Air winding down. So maybe you could just go through those again and presenting out there to help understand the quarter performance year-to-year.

[Spencer Schwartz:]

Sure Jason. I think there were several things going on in the first quarter that made that the first quarter comparison a little bit unusual and the first is that we have higher revenue per block hour in 2014 and because the customers moved well their contractual minimums as Bill said our customers this year on average grew 4.1% above their contractual minimums. This is the first quarter last year that includes 2.9% from now. And so that really inflates the rate on an actual revenue per block hour basis. So that's a key part of it. And it's also due to mix. So our CMI flying has certainly growing. We now have 18 aircraft that we're operating on a CMI basis and that's up from last year as you noted. And so that mix certainly has an impact on both weight and volume with additional aircraft in block hours in the CMI portion of ACMI. And then from a contribution standpoint, it's really a first quarter issue. We expect our ACMI earnings for the remainder of the year could be much more consistent than what we used to and we saw in the prior year.

[Jason Ursaner:]

Okay and just a follow up to that maybe you can remind investor’s incremental direct contribution in the ACMI segment. So how do you guys generally think about that internally and as you look at to the balance of the year with the strong outlook and kind of above minimum flying already in Q1. And just what is that due to the incremental margin when you flying above minimum to.

[Spencer Schwartz:]

Sure so we want our customers to fly as much as possible of course. We have modern efficient assets. Bill talked about the low fuel rate environment which really helps our customers want to fly more with the assets that we have so when customers fly above their minimums that accretes to the bottom line pretty easily. So we certainly want to do whatever we can to get our customers flying more and their performance that we saw in the first quarter obviously was very different than the first quarter performance we have seen in prior years. And as Bill said, you know, a large part it was due to the West Coast port congestion but it is much more than that. We have seen a broader market pick up, you know, so it is not just that.

[Jason Ursaner:]

Okay, great, I will go back in the queue, but I just want to say a great quarter.

[Spencer Schwartz:]

Thank you, Jay.

[Operator:]

Your next question comes from Jack Atkins of Stephens. Your line is now open.

[Jack Atkins:]

Great, thanks, guys. Just a couple of questions here and I appreciate the time this morning, but you know, Spencer, just a piggy back on what you just said, your last comment there and what Bill was saying earlier, I mean, it certainly sounds like underlying airfreight demand even outside the TransPacific which clearly benefit it from the West Coast port congestion is doing much better this year. And, when you look at some of the economic data points, you know, this makes some areas in Europe doing better but certainly it is not exactly a rosy economic picture in terms of what is happening. So just sort of curious, you could maybe comment on what do you think is really, maybe two or three things you think are really driving just sort of a better outlook for airfreight this year than we have seen in the last couple of years.

[William Flynn:]

Well, I think the first thing, Jack, it is broad based. Generally you are seeing growth across almost every major trade lane but some concerns about the parts of the European trade lane I think we are seeing good exports from Europe with a particularly low Euro now into Asia and other markets. Just the net cost of the customer in terms of the lower fuel environment and how persistent that will be until fuel ultimately settles obviously no one really knows, but it seems reasonable to think that the 60 to the 80 dollar market is probably something that we will see over the next couple of years, and I think that’s favourable to airfreight overall. When we talk about airfreight being maybe 50 tons in terms of weight, sorry 50 million tons in terms of weight in the market and you know, the earlier question from Kevin about it is have we done some few shifts. It doesn’t take a lot of shift in terms of weight when viewed from the ocean side to make a meaningful impact on terms of weight on the air side. So a couple million tons of weight coming out of sea freight is not really that perceptible, but two million tons into airfreight would be perceptible and would be meaningful, and I think that’s another important part of it.

[Spencer Schwartz:]

And, Jack, this is Spencer just give a little bit more color to that as well. During the quarter we flew a lot for the automotive industry which you know is very much focused on just in time deliveries. We flew gear boxes, engines, and electronics for the automotive industry. There was a lot between Japan and various destinations in the US as well as Korea to the US, lesser degree China to the US. As I mentioned earlier we saw some other industry segments like retail and fashion that had reduced the inventory levels and so we are flying more for them particularly from China, Hong Kong and Vietnam into the US mid-west. We flew food and actually things that we don’t normally fly but some perishables which we normally fly but some other things for the food and beverage industry from Asia and so, you know, as Bill said it really was broad based and we saw this, you know, different segments, and different parts of the globe.

[William Flynn:]

So, Jack, just one additional point, so Spencer and I had commented about the market overall in broad terms but I think the other part of the, an important part of the answer is the Atlas customer base, right, and many of our customers have a very well demonstrated track record of growing above market whatever that market was, even in the markets of ‘12 and ‘13 where we saw no growth at all, you know, many of our customers reported growth and strong growth. So I think they've got that track record and in a more buoyant market they should be able to take even better advantage of that and that will crude us to our ACMI and certainly to our charter given the brokers and freight forwarders that we work with.

[Jack Atkins:]

Okay, that's really helpful guys. And then to follow-up on that I mean given the market it seem to recover here in a broad based way your net leverage is coming down pretty nicely with the cash flow that you're generating how we think about capital allocation going forward what are the investment opportunity that you see in the business with your cash flow and perhaps would maybe think about reaccelerating the buyback program at this point?

[Spencer Schwartz:]

Sure, Jack a very good question as you know we ended the quarter with about $375 million of cash and so we paid-off over $50 million of debt during the quarter and we still grew our cash balance. We really being trying to do and we have talked about this we are really trying to achieve a balanced approach when it comes to capital allocation. Our cash prioritization really hasn’t changed our focus is on three things, we want to ensure that we maintain a strong balance sheet which we have been doing we want to continue to invest in modern efficient assets that our customers want and we want to return capital to our shareholders and so we have been focused on all of those you know last year we bought three 777s making it six 777s in the last couple of year you know about the DASH A3 purchase our cash balance has been strong our net leverage ratio has been coming down and we did buyback 8.3% of our stock over the last two years. So we are really committed to creating enhancing and returning value and our focus continue to be on trying to do all three of those. So, I didn’t completely answer your question I realized that but I think we've been balance and I think we will continue to be balanced.

[Jack Atkins:]

Okay, I'll give you a pass Spencer. Thanks again for the time.

[Spencer Schwartz:]

Thanks, Jack.

[William Flynn:]

Thank you, Jack.

[Operator:]

Your next question comes from Scott Group of Wolfe Research. Your line is now open.

[Scott Group:]

Hey, thanks guys, good morning. Can you help us with some of the drivers of the second quarter earnings growth and how it breaks up between the segments meaning how much of the profit improvement comes from ACMI versus Charter versus Dry Leasing?

[William Flynn:]

In the second quarter, Scott?

[Scott Group:]

Yeah.

[William Flynn:]

So we have provided we think that the second quarter earnings should be slightly better than the first quarter earnings as you know I think that the ACMI segment as I mentioned earlier you should expect to see growth on a direct contribution basis in the ACMI segment. We had the first quarter kind of anomaly and we expect to see that to grow. Commercial Charter obviously had a very, very strong first quarter we expect it to have another strong second quarter but probably not quite as strong as the first quarter but we will see. And then Dry Leasing we have a fairly steady contribution in Dry Leasing. We did have a plenty that came back during the first quarter and so that generated some maintenance payment revenue and other than that the Dry Leasing business in general is fairly steady other than any sort of maintenance return conditions.

[Scott Group:]

Okay. In your point ACMI should we expect year-over-year in contribution in the second quarter or more sequential or maybe both?

[William Flynn:]

I think you should expect to see a little bit of both so sequentially certainly and then compared to the prior year should be in line with or a little better than the prior year.

[Scott Group:]

Okay, that's very helpful. And then just in terms of the earnings framework on 5% in the second half and it's typically 70 is that just because the first-half so as the first-half is so strong so it squeeze the seasonality of it but this is I am not reading this is cautious view on the second-half it is just a this is a first-half really strong comment is that a fair way to characterize the guidance?

[William Flynn:]

Yes, Scott that is a fair way to - strong first quarter we talk about the elements that drive that we want to provide of a prospective of what that means full year and I think the broader story is I think a good solid 2015 and looking forward to 2016 given what we believe would be the continuing industry fundamentals.

[Scott Group:]

Last just real quick thing so I can any upcoming planned placements that we need to be thinking about any changes in the quarter to share?

[William Flynn:]

No. Scott, there is nothing that if we had something that we would have shared it.

[Scott Group:]

And then in terms of going forward anything coming up or is that done for the year at this point?

[William Flynn:]

No. Sorry. Perhaps I misunderstood your previous question. So, I think you’re asking on a contractual basis how the year looks perhaps that’s what you’re asking?

[Scott Group:]

Correct. Yeah.

[William Flynn:]

Okay. I misunderstood. So this year we talk about a typical year three to four of renewals and so this year is a, it’s a typical year so from that perspective it’s a typical year. We are in constant discussions with our current customers as well as potential and new customers and that’s why I thought you’re asking whether big announcement with regard to that. And those discussions are ongoing obviously the market is strong and our aircraft are modern efficient and those conversations are ongoing with our customers and we’ll talk about when things transpire.

[Scott Group:]

Okay, great. Thank you guys. Appreciate it.

[William Flynn:]

Thank you.

[Operator:]

Your next question comes from Helen Becker of Cowen. Your line is now open.

[Helen Becker:]

Thanks very much operator. Hi guys, thank you so much for the time. Bill probably a question for you. There is, I don’t know if you want to call it a trade work but there is certainly a dispute between these three big passenger airlines and the UAE airlines. And I am just kind of wondering your thoughts on it and how it could potentially affect Atlas Air if at all and your relationships with your customers?

[William Flynn:]

Yeah. That’s certainly hardly discussed topic these days. So I think our views are pretty straight forward, we’ve communicated our views as several other airlines have to the various secretaries of transportation and state and commerce. We believe, we’ve been successful as a country and all our society is more broadly benefited from the Open Skies agreements that we have over 114 that are in place. Each agreement provides from consultation mechanisms if one or the other side or multi parties in an agreement believe that consultations are warranted and so from that perspective, we believe should follow the process that is outlined in the Open Skies agreement with the United Air Bremerton with Qatar and should to be away from that process or act outside of that process, we believe that these agreements are incredibly valuable to the US economy across these customers and certainly to the airlines that operate underneath and we’ll see how that plays out but I just thinking it would be very bad president if our government acted outside of the agreements that we’ve signed.

[Helen Becker:]

Yeah. I am sure I agree with you and it’s kind of an interesting issue and I am not And thank you for that. I appreciate your response. Spencer I think maybe one for you and maybe you’ve said it and I missed it and I apologize if that’s the case. Maintenance is increasing in 4Q from 3Q is that normal I mean I always feel like maintenance is up in the first quarter?

[Spencer Schwartz:]

Yeah. It’s a good question. I mean last year, we saw a similar situation where maintenance was increased towards the end of the year which actually put us its condition is based and needs to be performed but put us in the position that actually operates as much as we did during the first quarter of this year so it is very, very helpful and then we announced Bill said earlier that were increasing our maintenance expense for the full year to $190 million and that’s a result of the higher flying that we did during the first quarter as well as the higher flying that we now expect for the remainder of the year. So, its conditions based and based on the increased block hours and cycles, ups and downs, we expect the maintenance will increase.

[William Flynn:]

And I think the other thing too Helen this is very different fleet. If we were to dial back to the 747 freight or only operation that the company had so many years ago. There was that's kind of more typical seasonal nature to it to maintenance with this much as we can get done in the first half first quarter. So we had all the capacity available in the second half for the focus on the peak periods. Now with as a combination of aircraft that we have in ACMI and CMI passenger and freighter some of the special aircrafts that we operate for some of our other customers 767 so that the maintenance is essential a little bit. To be clear we seek to accomplish as much as the maintenance as we can in the lower periods of the year. But it may tend to more smooth overtime just given the mix that we have in the fleet and the 50 plus aircraft as we now operate up from 25 which or so 27 or so that we have when we - our lowest fleet count back around 2008.

[Helen Becker:]

That's really helpful. Thank you very much. I appreciate your guidance. Thanks.

[William Flynn:]

Thanks Helen.

[Operator:]

Your next question comes from Nathan Hong [ph] of Morgan Stanley. Your line is now open.

[Unidentified Analyst:]

Hi thanks for taking the question. I'm actually having a tough time reconciling some of the comments you made about the marketing in general. So first you see that you're confident about the 2015 outlook, but there is also a lack of visibility into the second half. So I'm just curious wondering if you can kind an elaborate on what you mean about having confidence in the 2015 outlook.

[William Flynn:]

So a couple of things. So we have our ACMI aircraft in our ACMI operations along with our CMI operations. That's 70% of our flying as we talked about. We have schedules in forecast from our ACMI customers and so have a strong sense of what that's going to provide for us in terms of levels of activity and the pricing for that. That’s the first part of it. Our drivers in businesses is not dependent on market demand I'm sorry not dependent on air freight relative specifically the aircraft replace with our customers we have monthly as you know we have monthly rentals and we collect the rentals and then and that's the other part of our revenue stream. We've had a strong charter markets so far we anticipate a strong charter market throughout the balance of the year. And so I guess it's a question of degree of when we factor that in. and if we have a good handle on cost we provided on the call and in really of the dividend increase and maintenance spend driven by Atlas - and I was expected to be flown. As accurate thus far our confidence where we expect to year to end up.

[Unidentified Analyst:]

Got it and then I think you've mentioned also about seasonally we should be seeing better earnings as we head into the peak season. But I recall historically that thus far you mentioned that the first half was seasonally lower than the 45% of the full year EPS that you mentioned today. So I'm just wondering if you could offer some thoughts on why a normal seasonality unit hold this year.

[William Flynn:]

Because of the first quarter was so strong it was 100% plus bit of the first quarter of last year it's in part driven by the west coast port issues that we had and some other issues in charter markets. And I think as Scott asked the similar question earlier in the call as it just this year because Q1 was a strong given the external factors that existed and that's the large part yes that's the key to it. And so we want to give you it's a kind a sense to how to think about to two halves and balance them. Over the long run first half typically and it has been and likely will be closer to the 30% kind of percent. I think the larger period I think we're at in inflection point in the market good growth in '14 good growth in '15 I think that transferred into '16 and beyond and we're well positioned to take advantage of it.

[Unidentified Analyst:]

Great. Thanks for the time.

[William Flynn:]

Thank you.

[Operator:]

Your next question comes from the John Barnes of RBC Capital. Your line is now open.

[John Barnes:]

Hey guys thanks for taking my question. Just looking at the fleet going forward. How would you thinking about aircraft additions whether it's ACMI or drivers, I know you've talking about a very strong air freight market great traffic you've returned the last of the list BCS. Do you feel the need is sufficient enough which you need to add additional aircrafts so fleet and then you know along with that you know always down to just a few orders on the DASH 8 you know I guess the military or the government’s request for you know a new year probably we keeps the line around a little bit longer but you know is there any concern that the potentially the DASH 8 is a freighter model goes away and the even that occurs you know what are the next step?

[William Flynn:]

Yeah, thank you, Jon. So just a couple of things in terms of the fleet overall as we said overall that is something that we monitor quite closely and manage aggressively through these fairly challenging years we have had over the last several years ’11-’12-’13 really into the first-half of ’14 we had good utilization on the entire fleet and yes part the BCF out of the whole fleet but that is available between back if we believe that the demand want so we have the flexibility on that asset if it make sense to do that we needed short-term capacity in the 747400 or 400 BCF short-term capacity that is available in the market at very good prices something we could easily do and would do or would only do if we believe you got the demand that can generate the returns on that. Consistently we have said we like the DASH 8, it is performing very well we do plan to acquire more DASH 8 going forward I think there is enough run-rate or room in the bone line to accommodate that get back to your question but if we go and acquire new aircraft make an acquisition like that will have a very clear view how that aircraft is going to utilize and a strong sense of the returns that we are going to generate on that aircraft any individual purchase like that overall. Now on the Dry Leasing side of the house tighten we have made a lot of investment there and I think there are there continue to be opportunities to invest in Titan as well and just as we have done along the way we would not buy aircraft into Titan speculatively we would not be buying aircraft acquiring aircraft into the Titan we didn’t know where it was going at the time it look delivery of the aircraft and have a sense of the returns that you generate on it.

[John Barnes:]

Okay. You know the long - of the DASH 8.

[William Flynn:]

Well I think that would difficult to comment on my part to the point so for the aircraft fleet that we have a Boeing is committed to support that aircraft over the life of the aircraft so if they would have shut the line down or if when a line shuts down on aircraft type at some point Boeing is committed to support that aircraft. I am not sure if you ask the question but I think it is important point to make we are confident in Boeing requirement and their ability to support whatever size fleet of DASH 8 we have going forward. Again I think there is run rate in that production line such that if we require or one additional aircraft I believe will be able to get the fleet size we would want to be at.

[John Barnes:]

Okay, very well. Alright, nice quarter. Thanks for time.

[William Flynn:]

Thanks, John.

[Spencer Schwartz:]

Thanks, John.

[Operator:]

Our next question comes from David Campbell of Thompson Davis. Your line is now open.

[David Campbell:]

Yeah, hi, Bill. Hi, Spencer thank you for all your answers a lot of my questions have been answered. I just want to build in a little bit about the month of March. I had report but it is probably going to be up about 23% year to year and global air freight in March. Do you think there was any benefit in March the port disruptions on the West Coast or was that all in January and February?

[William Flynn:]

I think there was some benefit in March David because once the agreement was signed in West Coast it took time to ratify there were quite a few ships at anchorage waiting to get in and then the supply chain had its disruptions with containers maybe at a position certainly chassis in the wrong place and the ability to flow the trucks through the gates into very congested yards get the right container and get it out so, I think there was some benefit in March as well. You know sitting where we are at the end of April you know I think as we talk about in our comments and maybe in the release we have seen good air freight in the second quarter and I would say most of the portfolio disruption kind of freight probably work is through the end by the end of March but good traffic flows in April across the trade.

[David Campbell:]

Yeah, I hear that you talk about that and of course some of the forwards have said the same time you know we talk because - you are going to have increased demand for your freight in the second quarter and beyond and so we are not surprised that you see the same thing I am just trying to figure out where it is I mean because March was not very impressive and then suddenly we have we still have a lot of confidence say 3% to 4% in the second quarter and I am just trying to figure out where it is I mean you pretty much pretty broad based but similarly in the broad base in the month of March.

[William Flynn:]

Well I think just to maybe go back to the comment I made earlier if your question is you are asking more broad about the market I will come back in the second but if we are thinking about Atlas you know the part of the equation here is our customers as I commented on earlier I think in the Q&A our customers have a many of them have a very strong track record of growing at above market and that is why the utilization. So the market is moving 1% which is a lot but it is moving you know 100 basis points up or down that is something we want to be aware of but customers and they are reporting their result they are way out performing in market driving high utilization in the air craft it is ACMI some of those customers are also our CMI customer. Boeing as a CMI customer is driven it’s product rate not by my market and in Charter business the freight forward is in brokers we work with you know among the leading freight forward and brokers with good solid market shares and so I think we need to purely to kind of get to was it mean for Atlas and I will take our comments on TransPac and frankly I just don’t remember my export team was over March ’13. So, I don’t know if that is a tough comparison or not just only recall the numbers but other trade lanes like South with all the kind of political issues that are going on Brazil continues to be a very strong market with very high yields the same thing in Argentina and then particular North is out of South America has been strong. Africa even in spite of the impact of energy prices or the reduction in energy prices on some of the larger economies the still good airfreight was there. So when I think some of trade lanes and those are the trade lane as Charter market service but also our some of AMIC customer service well.

[David Campbell:]

Thanks. My last question is the I know we - 2015 first but looking ahead to 2016 the first quarter is obviously going to be a very though comparison and maybe willing ahead too fast looking at too far what would you say your offsets could be next year?

[William Flynn:]

Well I think the story about Atlas is you know how we perform the overall what is the trajectory of the business how well are positioned how does the underlying market feel so we have portrait very good growth have projected very good growth for ’16 on a year-over-year basis the story - is not story of one quarter and so as we look forward we are encouraged about ’16 as well all the factors that we talked about.

[David Campbell:]

Okay, thank you.

[William Flynn:]

Thanks, David.

[Operator:]

Your last question comes from Bob McAdoo of Imperial Capital. Your line is now open.

[Bob McAdoo:]

Yeah, good quarter guys, thanks. You talk very briefly with David about Brazil and I just curious about South America because it has been just a weak price a lot of product just curious what you are seeing in South America both North and South is it getting that much better or with all the weak currencies in Brazil issue is that still kind of a problem?

[William Flynn:]

Yeah, there is a lot going on in Brazil but the line of the traffic that we are carrying into Brazil is supporting for example the manufacturing the Aviation specter and the manufacturing is going on in Brazil so their capital good intermediate parts and components that are going down to support aviation sector there rather than by naming customer by other thing with reference of who they are and there is other manufacturing that goes on in Brazil overall. Yes, consumer sentiment is off and weekend reality is going to reduce some of the consumer inputs but there but that is still-- and Argentina again with the issues that occur there going on there still we’ve seen good growth I should say good steady demand probably a better way to characterize it in Argentina. On the northern sector there is the seasonal impact, it’s been good seasonal good northern flows across all the northern countries Chile, Peru, Ecuador and Columbia we are well positioned there. We actually what we do, we provide a very high quality service, customers know our service like the modern fleet that our Charter division is operating in South America so we have a very robust market share there in that market as well so that’s how we see South America about.

[Bob McAdoo:]

Okay. And then the couple of airplane questions. One on the plane that came back what’s the likelihood that you’re going to end up holding that plane for a while or is there a lot of demand for that particular plane and the other one is as to the DASH 8 are they’re grounded DASH 8 freighters out there that the people may internal that maybe airlines themselves scheduled the airlines might embark that are on the ground somewhere that might be available and would you ever think about taking the used DASH 8 versus buying new?

[William Flynn:]

If I take the first part of that you could take the second part. Bob your question about the737-800 they came back, that aircraft we actually sold so we acquired that back in 2011 and have least attached to it. And at that time it was vintage 2006 aircraft so it was about eight years old when it was sold. It allowed us to exit that investment there was really for us a non-core narrow body passenger asset plus raise cash. So just quickly on the economics of that aircraft sale both, we’ve look at on after tax levered IRR basis performed better than we had thought when we acquired it, cash flows were better that pre-tax was better. And so all-in-all we’re happy with the least that we had and they’re happy with the aircraft that we saw.

[Bob McAdoo:]

I am glad

[William Flynn:]

Thanks. Turned out...

[William Flynn:]

We brought that aircraft back in the time where we got the good price on the aircraft it was a very challenging market and it makes sense to do it. But our view for tightness always has been to be freight centric. We’ll be freighter exclusive because from time-to-time there might be an opportunistic play that would make sense but all the acquisitions we’ve made over the last several years been freighters and that’s what we think we can add value and have inside on the market overall. As to 747 DASH 8 yes, if we needed aircraft in more DASH 8 and there was an opportunity to acquire DASH 8 that was access to some other carriers fleet there was a good deal to we had there we will certainly look at it.

[Bob McAdoo:]

Are airplanes are thereDASH8on the ground somewhere right now?

[William Flynn:]

Well, there is one a very early vintageDASH8 on the ground that was, that I am aware but I think it was one of the three that we elected not to take and there maybe another one pending delivery might be temporarily part them I am not sure the condition of that although I think that’s just maybe a timing issue with the customer the company that ultimately take it.

[Bob McAdoo:]

So, it’s not like several

[William Flynn:]

No. They’re really aren’t. And even as I said that the early one it’s in something that attractive to us the other one I think it’s just a timing issue on delivery.

[Bob McAdoo:]

Got it. Okay. Thanks a lot. Congratulate Bob.

[William Flynn:]

Thank you.

[Operator:]

There are no further questions over the phone line. I will turn the call back over to the presenters.

[William Flynn:]

Okay. Well, thank you operator. Spencer and I would like to thank all of you for your interest in Atlas Air Worldwide. We very much appreciate sharing your time with us today. And we certainly look forward to speaking with you again. Thank you very much.

[Operator:]

Ladies and gentlemen this concludes today’s conference call. You may now disconnect.