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 September 30, 20202021
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.) |
|
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|
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 October 30, 2020,29, 2021, there were 27,517,29729,028,291 shares of the registrant’s Common Stock outstanding.
TABLE OF CONTENTS
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Item 1. |
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| Consolidated Balance Sheets as of September 30, |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 6. |
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PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Atlas Air Worldwide Holdings, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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| September 30, 2020 |
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| December 31, 2019 |
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| September 30, 2021 |
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| December 31, 2020 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
| $ | 717,867 |
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| $ | 103,029 |
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| $ | 773,911 |
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| $ | 845,589 |
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Restricted cash |
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| 11,466 |
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| 10,401 |
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| 10,230 |
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| 10,692 |
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Short-term investments |
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| 0 |
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| 879 |
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Accounts receivable, net of allowance of $776 and $1,822, respectively |
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| 268,376 |
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| 290,119 |
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Accounts receivable, net of allowance of $3,739 and $1,233, respectively |
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| 283,362 |
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| 265,521 |
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Prepaid expenses, assets held for sale and other current assets |
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| 171,780 |
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| 228,103 |
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| 88,330 |
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| 95,919 |
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Total current assets |
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| 1,169,489 |
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| 632,531 |
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| 1,155,833 |
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| 1,217,721 |
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Property and Equipment |
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Flight equipment |
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| 5,001,481 |
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| 4,880,424 |
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| 5,435,345 |
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| 5,061,387 |
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Ground equipment |
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| 88,327 |
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| 83,584 |
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| 99,769 |
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| 86,670 |
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Less: accumulated depreciation |
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| (1,113,964 | ) |
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| (977,883 | ) |
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| (1,290,928 | ) |
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| (1,147,613 | ) |
Flight equipment modifications in progress |
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| 49,246 |
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| 67,101 |
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Flight equipment purchase deposits and modifications in progress |
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| 289,475 |
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| 110,150 |
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Property and equipment, net |
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| 4,025,090 |
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| 4,053,226 |
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| 4,533,661 |
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| 4,110,594 |
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Other Assets |
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Operating lease right-of-use assets |
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| 182,657 |
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| 231,133 |
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| 158,387 |
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| 255,805 |
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Deferred costs and other assets |
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| 373,074 |
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| 391,895 |
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| 350,759 |
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| 374,242 |
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Intangible assets, net and goodwill |
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| 72,334 |
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| 76,856 |
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| 66,303 |
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| 70,826 |
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Total Assets |
| $ | 5,822,644 |
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| $ | 5,385,641 |
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| $ | 6,264,943 |
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| $ | 6,029,188 |
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Liabilities and Equity |
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Current Liabilities |
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Accounts payable |
| $ | 92,805 |
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| $ | 79,683 |
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| $ | 92,708 |
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| $ | 107,604 |
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Accrued liabilities |
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| 645,094 |
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| 481,725 |
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| 591,208 |
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| 583,160 |
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Current portion of long-term debt and finance leases |
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| 296,112 |
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| 395,781 |
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| 703,650 |
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| 298,690 |
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Current portion of long-term operating leases |
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| 139,152 |
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| 141,973 |
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| 56,670 |
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| 157,732 |
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Total current liabilities |
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| 1,173,163 |
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| 1,099,162 |
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| 1,444,236 |
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| 1,147,186 |
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Other Liabilities |
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Long-term debt and finance leases |
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| 2,073,855 |
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| 1,984,902 |
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| 1,669,248 |
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| 2,020,451 |
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Long-term operating leases |
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| 281,394 |
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| 392,832 |
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| 191,604 |
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| 318,850 |
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Deferred taxes |
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| 145,952 |
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| 74,040 |
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| 297,472 |
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| 203,586 |
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Financial instruments and other liabilities |
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| 130,857 |
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| 42,526 |
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| 38,119 |
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| 77,576 |
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Total other liabilities |
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| 2,632,058 |
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| 2,494,300 |
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| 2,196,443 |
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| 2,620,463 |
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Commitments and contingencies |
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Equity |
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Stockholders’ Equity |
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Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued |
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| 0 |
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| 0 |
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| 0 |
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| 0 |
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Common stock, $0.01 par value; 100,000,000 shares authorized; 31,497,228 and 31,048,842 shares issued, 26,138,539 and 25,870,876 shares outstanding (net of treasury stock), as of September 30, 2020 and December 31, 2019, respectively |
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| 315 |
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| 310 |
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Additional paid-in-capital |
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| 813,858 |
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| 761,715 |
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Treasury stock, at cost; 5,358,689 and 5,177,966 shares, respectively |
|
| (217,786 | ) |
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| (213,871 | ) | ||||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 34,515,565 and 32,877,533 shares issued, 29,025,102 and 27,517,297 shares outstanding (net of treasury stock), as of September 30, 2021 and December 31, 2020, respectively |
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| 345 |
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| 329 |
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Additional paid-in capital |
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| 926,853 |
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| 873,874 |
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Treasury stock, at cost; 5,490,463 and 5,360,236 shares, respectively |
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| (225,327 | ) |
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| (217,889 | ) | ||||||||
Accumulated other comprehensive loss |
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| (2,126 | ) |
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| (2,818 | ) |
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| (1,314 | ) |
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| (1,904 | ) |
Retained earnings |
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| 1,423,162 |
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| 1,246,843 |
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| 1,923,707 |
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| 1,607,129 |
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Total stockholders’ equity |
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| 2,017,423 |
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| 1,792,179 |
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| 2,624,264 |
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| 2,261,539 |
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Total Liabilities and Equity |
| $ | 5,822,644 |
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| $ | 5,385,641 |
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| $ | 6,264,943 |
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| $ | 6,029,188 |
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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)
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| For the Three Months Ended |
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| For the Nine Months Ended |
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| September 30, 2020 |
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| September 30, 2019 |
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| September 30, 2020 |
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| September 30, 2019 |
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| September 30, 2021 |
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| September 30, 2020 |
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| September 30, 2021 |
|
| September 30, 2020 |
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Operating Revenue |
| $ | 809,886 |
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| $ | 648,539 |
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| $ | 2,278,641 |
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| $ | 1,992,140 |
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| $ | 1,016,100 |
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| $ | 809,886 |
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| $ | 2,867,832 |
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| $ | 2,278,641 |
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Operating Expenses |
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Salaries, wages and benefits |
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| 194,265 |
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| 145,987 |
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| 534,600 |
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| 432,911 |
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| 231,437 |
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| 194,265 |
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| 642,417 |
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| 534,600 |
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Aircraft fuel |
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| 216,638 |
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| 118,113 |
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| 594,458 |
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| 309,673 |
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Maintenance, materials and repairs |
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| 116,634 |
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| 88,240 |
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| 379,086 |
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| 305,331 |
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| 102,819 |
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| 116,634 |
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| 356,499 |
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| 379,086 |
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Aircraft fuel |
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| 118,113 |
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| 123,132 |
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| 309,673 |
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| 351,611 |
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Depreciation and amortization |
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| 65,595 |
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| 62,499 |
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| 189,005 |
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| 190,669 |
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| 73,468 |
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| 65,595 |
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| 207,918 |
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| 189,005 |
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Travel |
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| 37,731 |
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| 49,110 |
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| 114,749 |
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| 140,513 |
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Navigation fees, landing fees and other rent |
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| 42,870 |
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| 32,270 |
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| 109,909 |
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| 110,468 |
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| 46,622 |
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| 42,870 |
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| 138,918 |
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| 109,909 |
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Passenger and ground handling services |
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| 36,266 |
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| 34,453 |
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| 98,355 |
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| 97,138 |
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| 40,268 |
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| 36,266 |
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| 121,837 |
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| 98,355 |
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Travel |
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| 42,966 |
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| 37,731 |
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| 120,585 |
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| 114,749 |
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Aircraft rent |
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| 24,239 |
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| 40,048 |
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| 72,522 |
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| 122,271 |
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| 15,485 |
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| 24,239 |
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| 53,928 |
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| 72,522 |
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Gain on disposal of aircraft |
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| (163 | ) |
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| 0 |
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| (6,878 | ) |
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| 0 |
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|
| (810 | ) |
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| (163 | ) |
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| (794 | ) |
|
| (6,878 | ) |
Special charge |
|
| 547 |
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| 18,861 |
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| 16,481 |
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| 22,130 |
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| 0 |
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|
| 547 |
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| 0 |
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|
| 16,481 |
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Transaction-related expenses |
|
| 490 |
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|
| 324 |
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|
| 2,286 |
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| 3,585 |
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|
| 168 |
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|
| 490 |
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|
| 486 |
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| 2,286 |
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Other |
|
| 54,107 |
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| 54,494 |
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|
| 157,929 |
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| 160,548 |
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| 63,106 |
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| 54,107 |
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| 183,366 |
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|
| 157,929 |
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Total Operating Expenses |
|
| 690,694 |
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| 649,418 |
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|
| 1,977,717 |
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|
| 1,937,175 |
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|
| 832,167 |
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|
| 690,694 |
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|
| 2,419,618 |
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|
| 1,977,717 |
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Operating Income (Loss) |
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| 119,192 |
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| (879 | ) |
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| 300,924 |
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|
| 54,965 |
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Operating Income |
|
| 183,933 |
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|
| 119,192 |
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|
| 448,214 |
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|
| 300,924 |
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Non-operating Expenses (Income) |
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Interest income |
|
| (225 | ) |
|
| (653 | ) |
|
| (929 | ) |
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| (3,975 | ) |
|
| (159 | ) |
|
| (225 | ) |
|
| (559 | ) |
|
| (929 | ) |
Interest expense |
|
| 28,524 |
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|
| 30,117 |
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|
| 86,749 |
|
|
| 90,515 |
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|
| 27,173 |
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|
| 28,524 |
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|
| 81,345 |
|
|
| 86,749 |
|
Capitalized interest |
|
| (203 | ) |
|
| (853 | ) |
|
| (528 | ) |
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| (1,943 | ) |
|
| (2,335 | ) |
|
| (203 | ) |
|
| (5,456 | ) |
|
| (528 | ) |
Loss on early extinguishment of debt |
|
| 7 |
|
|
| 559 |
|
|
| 81 |
|
|
| 804 |
|
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 81 |
|
Unrealized loss (gain) on financial instruments |
|
| 43,604 |
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|
| (83,175 | ) |
|
| 73,351 |
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|
| (78,900 | ) | ||||||||||||||||
Unrealized loss on financial instruments |
|
| 0 |
|
|
| 43,604 |
|
|
| 113 |
|
|
| 73,351 |
| ||||||||||||||||
Other (income) expense, net |
|
| (62,689 | ) |
|
| 1,434 |
|
|
| (112,081 | ) |
|
| (596 | ) |
|
| 3,136 |
|
|
| (62,689 | ) |
|
| (41,174 | ) |
|
| (112,081 | ) |
Total Non-operating Expenses (Income) |
|
| 9,018 |
|
|
| (52,571 | ) |
|
| 46,643 |
|
|
| 5,905 |
|
|
| 27,815 |
|
|
| 9,018 |
|
|
| 34,269 |
|
|
| 46,643 |
|
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Income before income taxes |
|
| 110,174 |
|
|
| 51,692 |
|
|
| 254,281 |
|
|
| 49,060 |
|
|
| 156,118 |
|
|
| 110,174 |
|
|
| 413,945 |
|
|
| 254,281 |
|
Income tax expense (benefit) |
|
| 36,120 |
|
|
| (8,282 | ) |
|
| 77,962 |
|
|
| (68,072 | ) | ||||||||||||||||
Income tax expense |
|
| 36,583 |
|
|
| 36,120 |
|
|
| 97,367 |
|
|
| 77,962 |
| ||||||||||||||||
Net Income |
| $ | 74,054 |
|
| $ | 59,974 |
|
| $ | 176,319 |
|
| $ | 117,132 |
|
| $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
Earnings per share: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.83 |
|
| $ | 2.32 |
|
| $ | 6.76 |
|
| $ | 4.54 |
|
| $ | 4.12 |
|
| $ | 2.83 |
|
| $ | 10.98 |
|
| $ | 6.76 |
|
Diluted |
| $ | 2.78 |
|
| $ | 2.32 |
|
| $ | 6.72 |
|
| $ | 1.34 |
|
| $ | 3.91 |
|
| $ | 2.78 |
|
| $ | 10.52 |
|
| $ | 6.72 |
|
Weighted average shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 26,135 |
|
|
| 25,854 |
|
|
| 26,077 |
|
|
| 25,814 |
|
|
| 29,023 |
|
|
| 26,135 |
|
|
| 28,844 |
|
|
| 26,077 |
|
Diluted |
|
| 26,619 |
|
|
| 25,854 |
|
|
| 26,256 |
|
|
| 26,909 |
|
|
| 30,547 |
|
|
| 26,619 |
|
|
| 30,117 |
|
|
| 26,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Nine Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Net Income |
| $ | 74,054 |
|
| $ | 59,974 |
|
| $ | 176,319 |
|
| $ | 117,132 |
|
| $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification to interest expense |
|
| 290 |
|
|
| 331 |
|
|
| 894 |
|
|
| 1,012 |
|
|
| 250 |
|
|
| 290 |
|
|
| 774 |
|
|
| 894 |
|
Income tax benefit |
|
| (69 | ) |
|
| (78 | ) |
|
| (202 | ) |
|
| (239 | ) |
|
| (60 | ) |
|
| (69 | ) |
|
| (184 | ) |
|
| (202 | ) |
Other comprehensive income |
|
| 221 |
|
|
| 253 |
|
|
| 692 |
|
|
| 773 |
|
|
| 190 |
|
|
| 221 |
|
|
| 590 |
|
|
| 692 |
|
Comprehensive Income |
| $ | 74,275 |
|
| $ | 60,227 |
|
| $ | 177,011 |
|
| $ | 117,905 |
|
| $ | 119,725 |
|
| $ | 74,275 |
|
| $ | 317,168 |
|
| $ | 177,011 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
5
Atlas Air Worldwide Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
| $ | 176,319 |
|
| $ | 117,132 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile Net Income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 240,826 |
|
|
| 241,284 |
|
|
| 265,231 |
|
|
| 240,826 |
|
Accretion of debt securities discount |
|
| (2 | ) |
|
| (237 | ) |
|
| 0 |
|
|
| (2 | ) |
Provision for (reversal of) expected credit losses |
|
| 76 |
|
|
| (83 | ) |
|
| (377 | ) |
|
| 76 |
|
Loss on early extinguishment of debt |
|
| 81 |
|
|
| 804 |
|
|
| 0 |
|
|
| 81 |
|
Special charge, net of cash payments |
|
| 16,481 |
|
|
| 22,130 |
|
|
| 0 |
|
|
| 16,481 |
|
Unrealized loss (gain) on financial instruments |
|
| 73,351 |
|
|
| (78,900 | ) | ||||||||
Unrealized loss on financial instruments |
|
| 113 |
|
|
| 73,351 |
| ||||||||
Gain on disposal of aircraft |
|
| (6,878 | ) |
|
| 0 |
|
|
| (794 | ) |
|
| (6,878 | ) |
Deferred taxes |
|
| 75,331 |
|
|
| (68,552 | ) |
|
| 96,053 |
|
|
| 75,331 |
|
Stock-based compensation |
|
| 15,816 |
|
|
| 16,553 |
|
|
| 10,653 |
|
|
| 15,816 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| 23,072 |
|
|
| 1,397 |
|
|
| (15,785 | ) |
|
| 23,072 |
|
Prepaid expenses, current assets and other assets |
|
| (39,823 | ) |
|
| (69,254 | ) |
|
| (43,297 | ) |
|
| (39,823 | ) |
Accounts payable, accrued liabilities and other liabilities |
|
| 208,058 |
|
|
| 11,016 |
|
|
| (19,442 | ) |
|
| 208,058 |
|
Net cash provided by operating activities |
|
| 782,708 |
|
|
| 193,290 |
|
|
| 608,933 |
|
|
| 782,708 |
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
|
Capital expenditures |
|
| (45,134 | ) |
|
| (107,594 | ) |
|
| (64,132 | ) |
|
| (45,134 | ) |
Payments for flight equipment and modifications |
|
| (102,777 | ) |
|
| (153,706 | ) | ||||||||
Proceeds from insurance |
|
| 0 |
|
|
| 38,133 |
| ||||||||
Purchase deposits and payments for flight equipment and modifications |
|
| (346,028 | ) |
|
| (102,777 | ) | ||||||||
Investment in joint ventures |
|
| (2,424 | ) |
|
| 0 |
| ||||||||
Proceeds from investments |
|
| 881 |
|
|
| 14,367 |
|
|
| 0 |
|
|
| 881 |
|
Proceeds from disposal of aircraft |
|
| 45,660 |
|
|
| 0 |
|
|
| 9,470 |
|
|
| 45,660 |
|
Net cash used for investing activities |
|
| (101,370 | ) |
|
| (208,800 | ) |
|
| (403,114 | ) |
|
| (101,370 | ) |
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from debt issuance |
|
| 401,419 |
|
|
| 93,723 |
|
|
| 23,948 |
|
|
| 401,419 |
|
Payment of debt issuance costs |
|
| (5,172 | ) |
|
| (1,316 | ) |
|
| (1,274 | ) |
|
| (5,172 | ) |
Payments of debt and finance lease obligations |
|
| (353,795 | ) |
|
| (273,142 | ) |
|
| (271,078 | ) |
|
| (353,795 | ) |
Proceeds from revolving credit facility |
|
| 75,000 |
|
|
| 50,000 |
|
|
| 0 |
|
|
| 75,000 |
|
Payment of revolving credit facility |
|
| (175,000 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (175,000 | ) |
Customer maintenance reserves and deposits received |
|
| 10,465 |
|
|
| 11,717 |
|
|
| 13,491 |
|
|
| 10,465 |
|
Customer maintenance reserves paid |
|
| (14,437 | ) |
|
| (8,174 | ) |
|
| (35,608 | ) |
|
| (14,437 | ) |
Treasury shares withheld for payment of taxes |
|
| (3,915 | ) |
|
| (9,336 | ) |
|
| (7,438 | ) |
|
| (3,915 | ) |
Net cash used for financing activities |
|
| (65,435 | ) |
|
| (136,528 | ) |
|
| (277,959 | ) |
|
| (65,435 | ) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
| 615,903 |
|
|
| (152,038 | ) |
|
| (72,140 | ) |
|
| 615,903 |
|
Cash, cash equivalents and restricted cash at the beginning of period |
|
| 113,430 |
|
|
| 232,741 |
|
|
| 856,281 |
|
|
| 113,430 |
|
Cash, cash equivalents and restricted cash at the end of period |
| $ | 729,333 |
|
| $ | 80,703 |
|
| $ | 784,141 |
|
| $ | 729,333 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of property and equipment included in Accounts payable and accrued liabilities |
| $ | 11,357 |
|
| $ | 55,610 |
|
| $ | 16,802 |
|
| $ | 11,357 |
|
Acquisition of property and equipment acquired under finance and operating leases |
| $ | 19,521 |
|
| $ | 32,794 |
| ||||||||
Acquisition of property and equipment acquired under operating leases |
| $ | 9,661 |
|
| $ | 2,486 |
| ||||||||
Acquisition of flight equipment under finance leases |
| $ | 191,913 |
|
| $ | 17,035 |
| ||||||||
Customer maintenance reserves settled with sale of aircraft |
| $ | 6,497 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 6,497 |
|
Issuance of shares related to settlement of warrant liability |
| $ | 31,582 |
|
| $ | 0 |
| ||||||||
|
|
|
|
|
|
|
|
|
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 September 30, 2021 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2021 |
| $ | 345 |
|
| $ | (225,321 | ) |
| $ | 919,362 |
|
| $ | (1,504 | ) |
| $ | 1,804,172 |
|
| $ | 2,497,054 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 119,535 |
|
|
| 119,535 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 190 |
|
|
| 0 |
|
|
| 190 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 3,187 |
|
|
| 0 |
|
|
| 0 |
|
|
| 3,187 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 4,304 |
|
|
| 0 |
|
|
| 0 |
|
|
| 4,304 |
|
Treasury shares of 495 withheld for payment of taxes |
|
| 0 |
|
|
| (6 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (6 | ) |
Issuance of 93 shares of restricted stock |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2021 |
| $ | 345 |
|
| $ | (225,327 | ) |
| $ | 926,853 |
|
| $ | (1,314 | ) |
| $ | 1,923,707 |
|
| $ | 2,624,264 |
|
|
| As of and for the Three Months Ended September 30, 2020 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2020 |
| $ | 315 |
|
| $ | (217,711 | ) |
| $ | 801,002 |
|
| $ | (2,347 | ) |
| $ | 1,349,108 |
|
| $ | 1,930,367 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 74,054 |
|
|
| 74,054 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 221 |
|
|
| 0 |
|
|
| 221 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 5,310 |
|
|
| 0 |
|
|
| 0 |
|
|
| 5,310 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 7,546 |
|
|
| 0 |
|
|
| 0 |
|
|
| 7,546 |
|
Treasury shares of 1,306 withheld for payment of taxes |
|
| 0 |
|
|
| (75 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (75 | ) |
Balance at September 30, 2020 |
| $ | 315 |
|
| $ | (217,786 | ) |
| $ | 813,858 |
|
| $ | (2,126 | ) |
| $ | 1,423,162 |
|
| $ | 2,017,423 |
|
|
| As of and for the Three Months Ended September 30, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at June 30, 2019 |
| $ | 310 |
|
| $ | (213,728 | ) |
| $ | 746,725 |
|
| $ | (3,312 | ) |
| $ | 1,597,114 |
|
| $ | 2,127,109 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 59,974 |
|
|
| 59,974 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 253 |
|
|
| 0 |
|
|
| 253 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 6,527 |
|
|
| 0 |
|
|
| 0 |
|
|
| 6,527 |
|
Issuance of warrant |
|
| 0 |
|
|
| 0 |
|
|
| (462 | ) |
|
| 0 |
|
|
| 0 |
|
|
| (462 | ) |
Treasury shares of 4,064 withheld for payment of taxes |
|
| 0 |
|
|
| (109 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (109 | ) |
Balance at September 30, 2019 |
| $ | 310 |
|
| $ | (213,837 | ) |
| $ | 752,790 |
|
| $ | (3,059 | ) |
| $ | 1,657,088 |
|
| $ | 2,193,292 |
|
|
| As of and for the Nine Months Ended September 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 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 316,578 |
|
|
| 316,578 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 590 |
|
|
| 0 |
|
|
| 590 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 10,653 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,653 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 10,760 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,760 |
|
Treasury shares of 130,227 withheld for payment of taxes |
|
| 0 |
|
|
| (7,438 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (7,438 | ) |
Issuance of 1,280,450 shares related to settlement of warrants |
|
| 13 |
|
|
| 0 |
|
|
| 31,569 |
|
|
|
|
|
|
|
|
|
|
| 31,582 |
|
Issuance of 357,582 shares of restricted stock |
|
| 3 |
|
|
| 0 |
|
|
| (3 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2021 |
| $ | 345 |
|
| $ | (225,327 | ) |
| $ | 926,853 |
|
| $ | (1,314 | ) |
| $ | 1,923,707 |
|
| $ | 2,624,264 |
|
|
| As of and for the Nine Months Ended September 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 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 176,319 |
|
|
| 176,319 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 692 |
|
|
| 0 |
|
|
| 692 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
Treasury shares of 180,723 withheld for payment of taxes |
|
| 0 |
|
|
| (3,915 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,915 | ) |
Issuance of 448,386 shares of restricted stock |
|
| 5 |
|
|
| 0 |
|
|
| (5 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2020 |
| $ | 315 |
|
| $ | (217,786 | ) |
| $ | 813,858 |
|
| $ | (2,126 | ) |
| $ | 1,423,162 |
|
| $ | 2,017,423 |
|
|
| As of and for the Nine Months Ended September 30, 2019 |
| |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
|
|
|
|
|
|
| Total |
| ||
|
| Common |
|
| Treasury |
|
| Paid-In |
|
| Accumulated Other |
|
| Retained |
|
| Stockholders' |
| ||||||
|
| Stock |
|
| Stock |
|
| Capital |
|
| Comprehensive Loss |
|
| Earnings |
|
| Equity |
| ||||||
Balance at December 31, 2018 |
| $ | 306 |
|
| $ | (204,501 | ) |
| $ | 736,035 |
|
| $ | (3,832 | ) |
| $ | 1,539,956 |
|
| $ | 2,067,964 |
|
Net Income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 117,132 |
|
|
| 117,132 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 773 |
|
|
| 0 |
|
|
| 773 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 16,553 |
|
|
| 0 |
|
|
| 0 |
|
|
| 16,553 |
|
Issuance of warrant |
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
|
| 0 |
|
|
| 0 |
|
|
| 206 |
|
Treasury shares of 184,146 withheld for payment of taxes |
|
| 0 |
|
|
| (9,336 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (9,336 | ) |
Issuance of 461,276 shares of restricted stock |
|
| 4 |
|
|
| 0 |
|
|
| (4 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2019 |
| $ | 310 |
|
| $ | (213,837 | ) |
| $ | 752,790 |
|
| $ | (3,059 | ) |
| $ | 1,657,088 |
|
| $ | 2,193,292 |
|
|
| As of and for the Nine Months Ended September 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 |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 176,319 |
|
|
| 176,319 |
|
Other comprehensive income |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| 692 |
|
|
| 0 |
|
|
| 692 |
|
Stock-based compensation |
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
|
| 0 |
|
|
| 0 |
|
|
| 15,816 |
|
Issuance of warrants |
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
|
| 0 |
|
|
| 0 |
|
|
| 36,332 |
|
Treasury shares of 180,723 withheld for payment of taxes |
|
| 0 |
|
|
| (3,915 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (3,915 | ) |
Issuance of 448,386 shares of restricted stock |
|
| 5 |
|
|
| 0 |
|
|
| (5 | ) |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
Balance at September 30, 2020 |
| $ | 315 |
|
| $ | (217,786 | ) |
| $ | 813,858 |
|
| $ | (2,126 | ) |
| $ | 1,423,162 |
|
| $ | 2,017,423 |
|
See accompanying Notes to Unaudited Consolidated Financial Statements
7
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Consolidated Financial Statements
September 30, 20202021
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) contractualaircraft operating service arrangements,agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), as well as those through which we provide crew, maintenance and insurance, but not the aircraft (“CMI”); (ii) and cargo and passenger charter services (“Charter”); and (iii)(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, 2019,2020, which includes additional disclosures and a summary of our significant accounting policies. The December 31, 20192020 balance sheet data was derived from that Annual Report. In our opinion, thethese Financial Statements containinclude all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, 2020, theCompany’s results of operations, for the threefinancial position, and nine months ended September 30, 2020 and 2019, comprehensive income for the three and nine months ended September 30, 2020 and 2019, cash flows for the nine months ended September 30, 2020 and 2019, and stockholders’ equity as of and for the three and nine months ended September 30, 2020 and 2019.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
Warrant Liability
Common stock warrants that are classified as a liability are marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized loss (gain) on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the warrant liability, 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. Our earnings are affected by changes in our common stock price due to the impact those changes have on the fair value of our warrant liability (see Note 5 for further discussion).
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 and 777-200 aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the shorter of the estimated period until the next scheduled heavy maintenance event is required.required or remaining lease term. Amortization of deferred maintenance expense included in Depreciation and amortization was $12.5$12.8 million and $5.5$37.1 million for the three and nine months ended September 30, 20202021, respectively. Amortization of deferred maintenance expense was $12.5 million and 2019, respectively, and was $30.8 million and $15.2 million for the three and nine months ended September 30, 2020, and 2019, respectively.
8
Deferred maintenance included within Deferred costs and other assets is as follows:
Balance as of December 31, 2019 |
| $ | 184,279 |
| ||||
Balance as of December 31, 2020 |
| $ | 191,303 |
| ||||
Deferred maintenance costs |
|
| 34,693 |
|
|
| 38,493 |
|
Amortization of deferred maintenance |
|
| (30,783 | ) |
|
| (37,070 | ) |
Balance as of September 30, 2020 |
| $ | 188,189 |
| ||||
Balance as of September 30, 2021 |
| $ | 192,726 |
|
8
Recent Accounting Pronouncements Adopted in 2020Property and Equipment
In November 2019, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for share-based payment awards issuedCommitted expenditures to a customer. The amended guidance requires share-based payment awards issued to a customeracquire aircraft and spare engines are expected to be recorded as a reduction$48.2 million for the remainder of the transaction price2021 and $458.3 million in revenue based on the fair value at grant date and2022. These expenditures include our January 2021 agreement to purchase 4 747-8F aircraft from The Boeing Company (“Boeing”) that are expected to be classified on the balance sheet using accounting guidance for stock-based compensation. The amended guidance was effective for fiscal years beginning after December 15, 2019. Effective January 1, 2020, we adopted the amended guidance and applied the modified retrospective approach to the most current period presented. As a result, $14.6 million, or approximately 60% of our customer warrant liability of $24.3 million related to revenue contracts, which was included in Financial instrumentsdelivered from May through October 2022 and other liabilities as of December 31, 2019, was reclassified as Additional paid-in-capital within Total stockholders’ equity on January 1, 2020. As a result, these customer warrants are no longer marked-to-market at the end of each reporting period with changes in fair value recorded as an unrealized loss (gain) on financial instruments. The amended guidance did not impact the accountingagreements for the remaining portion of our customer warrant liability related to Dry Lease contracts, which was approximately $9.7 million or approximately 40% of the total customer warrant liability as of December 31, 2019. The new guidance did not impact how we account for the amortization of the customer incentive asset (see Note 5 for further discussion).
In June 2016, the FASB amended its accounting guidance for the measurement of credit losses on financial instruments. The guidance requires entities to utilize an expected credit loss model for certain financial instruments, including most trade receivables, which replaces the incurred credit loss model previously used. Under this new model, we are required to recognize estimated credit losses expected to occur over time using a broad range of information including historical information, current conditions and reasonable and supportable forecasts. Receivables related to lease contracts are not within the scope of this amended guidance. Effective January 1, 2020, we adopted the amended guidance under the modified retrospective approach and it did not have a material impact on our consolidated financial statements and related disclosures (see Note 6).
spare engines.
Recent Accounting Pronouncements Not Yet Adopted
In August 2020, the FASBFinancial 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, with early adoption permitted no earlier than the beginning of 2021.2022. 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 itthe amount previously allocated to the equity component will result in a material reclassification from equitybe reclassified to debt and a reduction in interest expense.debt. In addition, the amended guidance is expected to result in a material increase in net income and reduction ofin interest expense, as well as a material reduction in diluted earnings per share.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. During the first three quarters of 2020,Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in flight cancellationsa reduction in flights by some of our ACMI customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military tookhad taken precautionary measures to limit the movement of personnel. Apersonnel through June 2021. 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 also resulted in increased commercial charter cargo yields, net of fuel, during the first three quarters of 2020.pandemic. We have incurred and expect to continue to incur significant additional costs, including premium pay;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 resulting fromwe provided to our recent interimpilots beginning in May 2020 in advance of a new joint collective bargaining agreement (“JCBA”) with our pilots.pilots beginning in September 2021 (see Note 12 for additional discussion). In addition, the availability of hotels and restaurants;restaurants, evolving COVID-19-related travel restrictions and vaccine mandates, health screenings;screenings, ground handling delays and cancellations ofa reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft.
9
Our ability to continue to service our debt and meet our lease and other obligations as they come due is dependent on our continued ability to generate earnings and cash flows. To mitigate the impact of any continuation or worsening of the COVID-19 pandemic disruptions, we have:
| • | made COVID-19 vaccinations available to employees; |
• | provided paid time-off for employees to get COVID-19 vaccinations; |
• | 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; |
• | 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 |
| • |
|
If we are unable to implement these or additional initiatives, or comply with the requirements under the PSP Agreement, it could have a material adverse effect on our financial position, results of operations, and cash flows. We believe the Company will generate sufficient liquidity to satisfy its obligations over the next twelve months.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 Program, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the payment of certain employee wages, salaries and benefits of the PSP Recipients. The Payroll Support Program subjects the PSP Recipients and certain of their affiliates to a number of restrictions, including prohibitions against reductions in certain employee salaries, wages and benefits, and certain involuntary terminations and furloughs of employees through September 30, 2020, prohibitions of repurchasing shares in the open market of, or making dividend payments with respect to, our common stock through September 30, 2021, as well as certain limitations on executive compensation until March 24, 2022. Under the PSP Agreement, we must also maintain certain internal controls and records relating to the payroll support funding and we are subject to additional reporting obligations.
Pursuant to the PSP Agreement, the U.S. Treasury provided us with payroll support fundingreceived in 3 installments totaling $406.8 million. The first installment of $203.4 million was received on June 1, 2020 the second installment of $101.7 million was received on June 29, 2020 and the third installment of $101.7 million was received on July 30, 2020.
As compensation for payroll support funding under the PSP Agreement, we issued the Promissory Notewarrants to the U.S. Treasury which provides for our unconditional promise to pay to the U.S. Treasury $199.8 million.
The Promissory Note bears interest on the outstanding principal amount at a rate of 1.00% per annum until the fifth anniversary of the PSP Closing Date and the applicable Secured Overnight Financing Rate (“SOFR”) plus 2.00% per annum thereafter, and interest accrued thereon will be payable in arrears on the last business day of March and September of each year, beginning on September 30, 2020. The aggregate principal amount outstanding under the Promissory Note, together with all accrued and unpaid interest thereon and all other amounts payable under the Promissory Note, will be due and payable in May 2030. The Promissory Note contains customary representations and warranties, covenants and events of default provisions. Interest expense is recognized using the effective interest method over the term of the Promissory Note.
We may, at any time and from time to time, voluntarily prepay amounts outstanding under the Promissory Note, in whole or in part, without penalty or premium. If certain change of control triggering events occur, we would be required to prepay the aggregate outstanding principal amount of the Promissory Note within 30 days, together with any accrued interest or other amounts owing under the Promissory Note.
As compensation for payroll support funding under the PSP Agreement, we also entered into a Warrant Agreement pursuant to which we granted the U.S. Treasury warrants to acquire shares of our common stock. In connection with the three payroll support funding installments from the U.S. Treasury, we issued warrants to acquire up to 625,452 shares of our common stock.
The Warrant Agreement provides the U.S. Treasury certain registration rights with respect to each warrant and the underlying common stock. Each warrant is exercisable at an exercise price of $31.95 per share of common stock (which was the closing price of
10
our common stock on the Nasdaq Global Select Market on May 1, 2020) and will expire on the fifth anniversary of the issue date of such warrant. Each warrant may be settled through net share settlement or net cash settlement, at our option. Each warrant includes customary antidilution provisions and is freely transferable with registration rights. The U.S. Treasury is not permitted to vote any shares it acquires upon exercise of each warrant. The grant date fair value, as determined using the Black-Scholes model, of each warrant was recognized as Additional paid-in-capital and totaled $14.4 million. Each warrant will not be remeasured as long as it continues to meet the conditions for equity classification. As of September 30, 2020,2021, 0 portion of the warrants hashave 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 proceeds receivedAgreement and the amounts recognizedrecorded for the Promissory Note and the Warrant Agreement for each installment.Agreement. Grant income ishas 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. ForThe 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. We recognized grant income of $64.2 million and $84.4 million during the three and nine months ended September 30, 2020, we recognized grant income of $64.2 million and $84.4 million, respectively. We expect to recognize the remainder of the grant income through the first quarter of 2021.
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 Nine Months Ended |
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||||
Revenue and Expenses: |
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Revenue from Polar |
| $ | 80,876 |
|
| $ | 84,957 |
|
| $ | 239,968 |
|
| $ | 283,313 |
|
|
| $ | 81,119 |
|
| $ | 80,876 |
|
| $ | 234,036 |
|
| $ | 239,968 |
|
Ground handling and airport fees to Polar |
|
| 796 |
|
|
| 568 |
|
|
| 2,389 |
|
|
| 1,631 |
|
|
|
| 1,096 |
|
|
| 796 |
|
|
| 2,917 |
|
|
| 2,389 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable/payable as of: |
| September 30, 2020 |
|
| December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||||
Receivables from Polar |
| $ | 19,526 |
|
| $ | 10,855 |
|
|
|
|
|
|
|
|
|
|
| $ | 9,115 |
|
| $ | 31,079 |
|
|
|
|
|
|
|
|
|
Payables to Polar |
|
| 2,523 |
|
|
| 2,161 |
|
|
|
|
|
|
|
|
|
|
|
| 8,169 |
|
|
| 3,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Polar Investment as of: |
| September 30, 2020 |
|
| December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||||
Aggregate Carrying Value of Polar Investment |
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
|
| $ | 4,870 |
|
| $ | 4,870 |
|
|
|
|
|
|
|
|
|
In addition to the amounts in the table above, Atlas recognized revenue from flying on behalf of Polar of $28.3 million and $151.4 million for the three and nine months ended September 30, 2021, respectively. Atlas recognized revenue from flying on behalf of Polar of $48.0 million and $23.8$158.5 million for the three months ended September 30, 2020 and 2019, respectively, and $158.5 million and $70.2 million for the nine months ended September 30, 2020, and 2019, respectively, from Charter flying on behalf of Polar.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. Our investment in the joint venture was $0.52022, of which $6.8 million and $1.5 millionhas been contributed as of September 30, 2020 and December 31, 2019, respectively, and our2021. Our maximum exposure to losses from the entity is limited to our investment. The joint venture does not currently have anyhas third-party debt obligations and 0 capital contributions have been made as of September 30, 2020. We had Accounts receivable from the$56.8 million that are not guaranteed by us.
10
The following table summarizes our transactions with our dry leasing joint venture of $1.5 million as of September 30, 2020 related to the reimbursement of certain expenses by the joint venture. We have recognized 0 service fee income for the three and nine months ended September 30, 2020.venture:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||
Revenue and Expenses: |
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||
Revenue from dry leasing joint venture |
| $ | 288 |
|
| $ | 0 |
|
| $ | 423 |
|
| $ | 0 |
|
Aircraft rent to dry leasing joint venture |
|
| 2,250 |
|
|
| 0 |
|
|
| 6,750 |
|
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Carrying Value of Joint Venture as of: |
| September 30, 2021 |
|
| December 31, 2020 |
|
|
|
|
|
|
|
|
| ||
Aggregate Carrying Value of Dry Leasing Joint Venture |
| $ | 6,293 |
|
| $ | 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
11
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. Asaccounting and was $18.9 million as of September 30, 20202021 and $21.0 million as of December 31, 2019,2020. Our maximum exposure to losses from the entity is limited to our investment, inwhich 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 was $20.7of $0.1 million as of September 30, 2021 and $20.0$0.2 million respectively.as of December 31, 2020. We had Accounts payable to the joint venture of $1.1$1.3 million as of September 30, 20202021 and $0.5$0.9 million as of December 31, 2019.2020.
5. Amazon
In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involves,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). Between August 2016 and November 2018, we placed all 20 767-300 freighter aircraft into service for Amazon. In February 2019, the numberAs of September 30, 2021, 19 767-300 freighters were in CMI and Dry Lease service, for Amazon was reduced to 19 with the loss of an aircraft. In September 2019, the number of 767-300 freighterswhich 17 were operating in CMI service for Amazon was reduced to 17 with the early termination of CMI services for two aircraft, which remain under dry lease.service.
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”). As of December 31, 2018, this warrant to purchaseAll 7.5 million shares, as adjusted, hadhave vested in full. Warrant A is exercisablefull and been exercised in accordance with its terms through May 2021. As of September 30, 2020, 0 portion of Warrant A had been exercised.2 transactions. In October 2020, Amazon exercised 3,607,477 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 vestvests 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 September 30, 2020, 338,9402021, 828,520 shares, as adjusted, of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. As of September 30, 2020, 0 portionIn January 2021, Amazon exercised shares of Warrant B has been exercised.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 September 30, 2020, seven2021, eight 737-800 freighter aircraft were operating in CMI service. In October 2020, an eighth 737-800 freighter aircraft entered CMI service. Amazon may, in its sole discretion, place up to 12 additional 737-800 freighter aircraft into service with us by May 31, 2021.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”). When combined with Warrant A and Warrant B, this provided Amazon with warrants to acquire up to a total of 39.9% of our outstanding common shares, as of the date of the agreements. 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. 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 September 30, 2020,2021, 0 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.
In May 2020, the warrants issued to the U.S. Treasury (see Note 3 for further discussion) triggered an antidilution adjustment to certain terms of the Amazon warrants as reflected above.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. Determining the amount of amortization related to the CMI agreements requires significant judgment to estimate the total number of Block Hours expected over the terms of those agreements. The fair value of Warrant A was also initially recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized loss (gain) on financial instruments.
12
As described in Note 2, we adopted the new accounting guidance for share-based payment awards issued to a customer as of January 1, 2020. Under the amended guidance, approximately 60% of the Amazon Warrant liability related to the CMI agreements as of January 1, 2020 was reclassified to Additional paid-in-capital and will no longer be marked-to-market at the end of each reporting period. The amended guidance does not impact the accounting for the remaining portion of the Amazon Warrant liability related to Dry Lease contracts. We recognized net unrealized losses of $43.6 million and $73.4 million on the Amazon Warrant liability during the three and nine months ended September 30, 2020, respectively. We recognized net unrealized gains of $83.2 million and $78.9 million on the Amazon Warrant during the three and nine months ended September 30, 2019, respectively. The fair value of the Amazon Warrant liability was $83.3 million as of September 30, 2020 and $24.3 million as of December 31, 2019.
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. paid-in capital. At the time of vesting, any amounts recorded in Additional paid-in-capitalpaid-in capital related to Dry Lease contracts would be reclassified to the Amazon Warrant liability.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 $9.9$11.3 million and $12.8$33.3 million of the customer incentive asset as a reduction of Operating Revenue for the three and nine months ended September 30, 2020 and 2019,2021, respectively. We amortized $28.4$9.9 million and $26.0$28.4 million of the customer incentive asset for the three and nine months ended September 30, 2020, and 2019, respectively.
Customer incentive asset included within Deferred costs and other assets is as follows:
Balance at December 31, 2019 |
| $ | 152,534 |
| ||||
Balance at December 31, 2020 |
| $ | 125,276 |
| ||||
Initial value for estimate of vested or expected to vest warrants |
|
| 7,528 |
|
|
| 10,759 |
|
Amortization of customer incentive asset |
|
| (28,414 | ) |
|
| (33,256 | ) |
Balance at September 30, 2020 |
| $ | 131,648 |
| ||||
Balance as of September 30, 2021 |
| $ | 102,779 |
|
We recognized an unrealized loss of $0.1 million on the Amazon warrant liability related to Warrant A during the nine months ended September 30, 2021. We recognized unrealized losses of $43.6 million and $73.4 million on the Amazon Warrant liability during the three and nine months ended September 30, 2020, respectively. The fair value of the Amazon warrant liability was 0 as of September 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 $216.0$253.2 million as of September 30, 20202021 and $247.5$195.6 million as of December 31, 2019.2020.
Allowance for expected credit losses, included within Accounts receivable, is as follows:
Balance as of December 31, 2019 |
| $ | 1,822 |
|
Bad debt expense |
|
| 76 |
|
Amounts written off, net of recoveries |
|
| (1,122 | ) |
Balance as of September 30, 2020 |
| $ | 776 |
|
Balance as of December 31, 2020 |
| $ | 1,233 |
|
Bad debt recovery |
|
| (377 | ) |
Amounts written off, net of other items |
|
| 2,883 |
|
Balance as of September 30, 2021 |
| $ | 3,739 |
|
Accrued Liabilities
Accrued liabilities consisted of the following as of:
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Salaries, wages and benefits |
| $ | 167,820 |
|
| $ | 136,753 |
| ||||||||
Maintenance |
| $ | 139,233 |
|
| $ | 136,315 |
|
|
| 119,967 |
|
|
| 142,374 |
|
Deferred grant income |
|
| 108,156 |
|
|
| 0 |
| ||||||||
Salaries, wages and benefits |
|
| 105,623 |
|
|
| 75,719 |
| ||||||||
Customer maintenance reserves |
|
| 100,739 |
|
|
| 110,355 |
|
|
| 83,266 |
|
|
| 93,092 |
|
Deferred revenue |
|
| 43,720 |
|
|
| 26,357 |
|
|
| 63,799 |
|
|
| 41,665 |
|
Aircraft fuel |
|
| 33,449 |
|
|
| 28,821 |
|
|
| 30,066 |
|
|
| 24,578 |
|
Deferred grant income |
|
| 0 |
|
|
| 40,944 |
| ||||||||
Other |
|
| 114,174 |
|
|
| 104,158 |
|
|
| 126,290 |
|
|
| 103,754 |
|
Accrued liabilities |
| $ | 645,094 |
|
| $ | 481,725 |
|
| $ | 591,208 |
|
| $ | 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.
13
Significant changes Changes in our Deferred rRevenue contract liability balancesevenue during the nine months ended September 30, 20202021 were as follows:
|
|
|
|
| ||||
|
| Deferred Revenue |
| |||||
Balance as of December 31, 2019 |
| $ | 19,234 |
| ||||
Balance as of December 31, 2020 |
| $ | 30,291 |
| ||||
Revenue recognized |
|
| (155,781 | ) |
|
| (229,325 | ) |
Amounts collected or invoiced |
|
| 172,996 |
|
|
| 252,076 |
|
Balance as of September 30, 2020 |
| $ | 36,449 |
| ||||
Balance as of September 30, 2021 |
| $ | 53,042 |
|
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:
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Cash and cash equivalents |
| $ | 717,867 |
|
| $ | 103,029 |
|
| $ | 773,911 |
|
| $ | 845,589 |
|
Restricted cash |
|
| 11,466 |
|
|
| 10,401 |
|
|
| 10,230 |
|
|
| 10,692 |
|
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows |
| $ | 729,333 |
|
| $ | 113,430 |
|
| $ | 784,141 |
|
| $ | 856,281 |
|
7. Assets Held For Sale and Other Income
As of December 31, 2019,2020, we had 2 737-400 passenger aircraft previously used for training purposes and certain spare CF6-80 engines and 3 aircraft in our Dry Leasing portfolio classified as held for sale. DuringWe received net proceeds of $9.5 million during the nine months ended September 30, 2020, we received net proceeds of $45.7 million2021 from the completion of the sales of the two 737-400 passenger aircraft and some of the spare CF6-80 engines and 2 aircraft in our Dry Leasing portfolio, and recognized a net gain of $6.9 million. During the nine months ended September 30, 2020, we recognized an impairment loss of $16.5 million related to fair value adjustments for assets held for sale, within Special charge in the consolidated statement of operations.engines. The carrying value of the assets held for sale was $5.5 million and $14.1 million as of September 30, 20202021 and December 31, 2019 was $96.0 million and $155.9 million,2020, respectively, which was included within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. We estimated the fair value of these assets, less costs to sell, based on bids received from independent third parties or recently completed sales. Sales of the remaining aircraft and engines held for sale are expected to be completed in 2020, except for certain aircraft and engines that are expected to be completed during the first half2021.
We recognized a refund of 2021.
During$4.6 million during the nine months ended September 30, 2020, we2021 related to aircraft rent paid in previous years within Other (income) expense, net. We recognized refunds of $32.9 million during the nine months ended September 30, 2020, related to aircraft rent paid in previous years within Other (income) expense, net.
8. Debt and Finance Leases
Term Loans
In February 2020,March 2021, we refinanced two secured term loans that were originally due later in 2020, with 2 new term loans. One term loan is for 126 months in the amount of $82.0borrowed $16.2 million at a fixed interest rate of 3.27% with a final payment of $12.5 million due in July 2030 (the “First 2020 Term Loan”). The other term loan is for 130 months in the amount of $82.0 million at a fixed interest rate of 3.28% with a final payment of $12.5 million due in November 2030 (the “Second 2020 Term Loan”). The First and Second 2020 Term Loans are each secured by a mortgage against a 777-200LRF aircraft and subject to usual and customary fees, covenants and events of default, with principal and interest payable quarterly.
In April 2020, we borrowed $14.6 million at a fixed interest rate of 1.15%0.93% under an unsecured five-year term loan due in April 2025January 2026 for GEnx engine performance upgrade kits and overhauls (the “Third 2020 Term Loan”).overhauls. The Third 2020 Term Loanterm loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.
In August 2020,June 2021, we borrowed $22.9$7.8 million at a fixed interest rate of 0.95%0.91% under an unsecured five-year term loan due in June 2025May 2026 for GEnx engine performance upgrade kits and overhauls (the “Fourth 2020 Term Loan”).overhauls. The Fourth 2020 Term Loanterm loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.
Finance Leases
In October 2020,May, June and August 2021, we borrowed $16.3 millionamended 8 operating leases for 747-400 freighter aircraft to acquire the aircraft at a fixed interest rate of 0.90% under an unsecured five-year term loan due in September 2025 for GEnx engine performance upgrade kits and overhauls (the “Fifth 2020 Term Loan”). The Fifth 2020 Term Loan is subjector prior to customary fees, covenants and events of default, with principal and interest payable quarterly.
Promissory Note
See Note 3 for a discussionthe end of the Promissory Note we issuedlease terms, resulting in additional commitments of $123.1 million and a change in classification to finance leases. NaN of the U.S. Treasury duringaircraft were acquired in October 2021 with the nine months ended September 30, 2020.remainder to be acquired from March to December 2022.
14
Convertible Notes
In May 2017, we issued $289.0 million aggregate principal amount of 1.875%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 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.
13
Upon conversion, each of the Convertible Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amounts of the Convertible Notes paid in cash. Effective September 1, 2021, all conversions of the 2015 Convertible Notes are required to be settled in cash for the principal amount.
The Convertible Notes consisted of the following as of September 30, 2020:2021:
|
| 2017 Convertible Notes |
|
| 2015 Convertible Notes |
|
| 2015 Convertible Notes |
|
| 2017 Convertible Notes |
| ||||
Remaining life in months |
|
| 44 |
|
|
| 20 |
|
|
| 8 |
|
|
| 32 |
|
Liability component: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross proceeds |
| $ | 289,000 |
|
| $ | 224,500 |
|
| $ | 224,500 |
|
| $ | 289,000 |
|
Less: debt discount, net of amortization |
|
| (40,359 | ) |
|
| (14,842 | ) |
|
| (6,128 | ) |
|
| (30,235 | ) |
Less: debt issuance cost, net of amortization |
|
| (3,121 | ) |
|
| (1,372 | ) |
|
| (560 | ) |
|
| (2,316 | ) |
Net carrying amount |
| $ | 245,520 |
|
| $ | 208,286 |
|
| $ | 217,812 |
|
| $ | 256,449 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity component (1) |
| $ | 70,140 |
|
| $ | 52,903 |
|
| $ | 52,903 |
|
| $ | 70,140 |
|
| (1) | Included in Additional |
The following table presents the amount of interest expense recognized related to the Convertible Notes:
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
|
| For the Three Months Ended |
|
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Contractual interest coupon |
| $ | 2,618 |
|
| $ | 2,618 |
|
|
| $ | 7,853 |
|
| $ | 7,853 |
|
| $ | 2,618 |
|
| $ | 2,618 |
|
|
| $ | 7,853 |
|
| $ | 7,853 |
|
Amortization of debt discount |
|
| 4,527 |
|
|
| 4,253 |
|
|
|
| 13,372 |
|
|
| 12,560 |
|
|
| 4,820 |
|
|
| 4,527 |
|
|
|
| 14,236 |
|
|
| 13,372 |
|
Amortization of debt issuance costs |
|
| 394 |
|
|
| 379 |
|
|
|
| 1,171 |
|
|
| 1,126 |
|
|
| 410 |
|
|
| 394 |
|
|
|
| 1,219 |
|
|
| 1,171 |
|
Total interest expense recognized |
| $ | 7,539 |
|
| $ | 7,250 |
|
|
| $ | 22,396 |
|
| $ | 21,539 |
|
| $ | 7,848 |
|
| $ | 7,539 |
|
|
| $ | 23,308 |
|
| $ | 22,396 |
|
Revolving Credit Facility
We have a $200.0 million secured revolving credit facility that matures in December 2022 (the “Revolver”). As of September 30, 2020,2021, there were 0 amounts outstanding and we had $200.0 million of unused availability, based on the collateral borrowing base.
Other Debt
In October 2021, we refinanced a 747-8F term loan and received proceeds of $90.0 million from a financing with a seven-year term for this aircraft at a lower rate. We used $50.4 million of the proceeds to repay the previous term loan in full.
9. Income Taxes
The effective income tax expenserates were 23.4% and 23.5% for the three and nine months ended September 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 32.8% and 30.7% for the three and nine months ended September 30, 2020, respectively. These rates differed from tax at the U.S. statutory rate primarily due to $9.6 million and $16.0 million of nondeductible changes in the fair value of a customer warrant liability respectively (see Note 5 for further discussion).
The income tax benefit for the nine months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefits related to the favorable completion of an IRS examination of our 2015 income tax return, and to a lesser extent, $17.3 million of nontaxable changes in the fair value of a customer warrant liability. The income tax benefit for the three months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of nontaxable changes in the fair value of a customer warrant liability.Financial Statements). For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate. When finalized, the complete operational merger of Atlas and Southern Air (see Note 12 for further discussion) would result in a material increase to our deferred tax liability.
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; |
15
| Level 3 | Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability. |
14
We endeavor to utilize the best available information to measure fair value.
The carrying value of Cash and cash equivalents, Short-term investments 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, the Promissory Notea 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.
The fair value of a customer warrant liability and certain long-term performance-based restricted shares areis 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:
|
| September 30, 2020 |
|
| September 30, 2021 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 717,867 |
|
| $ | 717,867 |
|
| $ | 717,867 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 773,911 |
|
| $ | 773,911 |
|
| $ | 773,911 |
|
| $ | 0 |
|
| $ | 0 |
|
Restricted cash |
|
| 11,466 |
|
|
| 11,466 |
|
|
| 11,466 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,230 |
|
|
| 10,230 |
|
|
| 10,230 |
|
|
| 0 |
|
|
| 0 |
|
|
| $ | 729,333 |
|
| $ | 729,333 |
|
| $ | 729,333 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 784,141 |
|
| $ | 784,141 |
|
| $ | 784,141 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,862,297 |
|
| $ | 1,931,050 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,931,050 |
|
| $ | 1,622,536 |
|
| $ | 1,692,316 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,692,316 |
|
Convertible notes (1) |
|
| 453,806 |
|
|
| 589,183 |
|
|
| 589,183 |
|
|
| 0 |
|
|
| 0 |
|
|
| 474,261 |
|
|
| 679,138 |
|
|
| 679,138 |
|
|
| 0 |
|
|
| 0 |
|
Customer warrant |
|
| 83,312 |
|
|
| 83,312 |
|
|
| 0 |
|
|
| 83,312 |
|
|
| 0 |
| ||||||||||||||||||||
|
| $ | 2,399,415 |
|
| $ | 2,603,545 |
|
| $ | 589,183 |
|
| $ | 83,312 |
|
| $ | 1,931,050 |
|
| $ | 2,096,797 |
|
| $ | 2,371,454 |
|
| $ | 679,138 |
|
| $ | 0 |
|
| $ | 1,692,316 |
|
|
| December 31, 2019 |
|
| December 31, 2020 |
| ||||||||||||||||||||||||||||||||||
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Carrying Value |
|
| Fair Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||||||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 103,029 |
|
| $ | 103,029 |
|
| $ | 103,029 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 845,589 |
|
| $ | 845,589 |
|
| $ | 845,589 |
|
| $ | 0 |
|
| $ | 0 |
|
Short-term investments |
|
| 879 |
|
|
| 879 |
|
|
| 0 |
|
|
| 0 |
|
|
| 879 |
| ||||||||||||||||||||
Restricted cash |
|
| 10,401 |
|
|
| 10,401 |
|
|
| 10,401 |
|
|
| 0 |
|
|
| 0 |
|
|
| 10,692 |
|
|
| 10,692 |
|
|
| 10,692 |
|
|
| 0 |
|
|
| 0 |
|
|
| $ | 114,309 |
|
| $ | 114,309 |
|
| $ | 113,430 |
|
| $ | 0 |
|
| $ | 879 |
|
| $ | 856,281 |
|
| $ | 856,281 |
|
| $ | 856,281 |
|
| $ | 0 |
|
| $ | 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loans and notes |
| $ | 1,800,911 |
|
| $ | 1,885,750 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,885,750 |
|
| $ | 1,809,656 |
|
| $ | 1,909,942 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 1,909,942 |
|
Revolver |
|
| 100,000 |
|
|
| 103,575 |
|
|
| 0 |
|
|
| 0 |
|
|
| 103,575 |
| ||||||||||||||||||||
Convertible notes (1) |
|
| 439,261 |
|
|
| 450,668 |
|
|
| 450,668 |
|
|
| 0 |
|
|
| 0 |
|
|
| 458,803 |
|
|
| 560,975 |
|
|
| 560,975 |
|
|
| 0 |
|
|
| 0 |
|
Customer warrant (2) |
|
| 24,345 |
|
|
| 24,345 |
|
|
| 0 |
|
|
| 24,345 |
|
|
| 0 |
| ||||||||||||||||||||
Customer warrant |
|
| 31,470 |
|
|
| 31,470 |
|
|
| 0 |
|
|
| 31,470 |
|
|
| 0 |
| ||||||||||||||||||||
|
| $ | 2,364,517 |
|
| $ | 2,464,338 |
|
| $ | 450,668 |
|
| $ | 24,345 |
|
| $ | 1,989,325 |
|
| $ | 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).
(2) Includes $14.6 million that was reclassified to Additional paid-in-capital on January 1, 2020 (see Note 2).
11. Segment Reporting
Our business is organized into 3During the first quarter of 2021, we changed our operating and reportable segments, based onreflecting changes in our service offerings:business. We currently have the following 2 operating and reportable segments: Airline Operations and Dry Leasing. Previously, our operating and reportable segments were ACMI, Charter and Dry Leasing. All segmentsAs 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 directly or indirectly engaged in the business of air transportationnot allocated to any segment, including administrative and management support services but have different commercial and economic characteristics. flight simulator training.
15
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 after allocation of direct operating and ownership costs.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
16
extinguishment of debt, Unrealized losses (gains) on financial instruments Gains on investments 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, 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 (Loss) and Income before income taxes:
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Operating Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 302,756 |
|
| $ | 289,024 |
|
| $ | 873,451 |
|
| $ | 902,869 |
| ||||||||||||||||
Charter |
|
| 470,835 |
|
|
| 324,046 |
|
|
| 1,296,011 |
|
|
| 944,839 |
| ||||||||||||||||
Airline Operations |
| $ | 980,714 |
|
| $ | 773,591 |
|
| $ | 2,762,815 |
|
| $ | 2,169,462 |
| ||||||||||||||||
Dry Leasing |
|
| 40,740 |
|
|
| 43,847 |
|
|
| 123,572 |
|
|
| 157,328 |
|
|
| 40,926 |
|
|
| 40,740 |
|
|
| 121,694 |
|
|
| 123,572 |
|
Customer incentive asset amortization |
|
| (9,858 | ) |
|
| (12,796 | ) |
|
| (28,414 | ) |
|
| (26,018 | ) |
|
| (11,332 | ) |
|
| (9,858 | ) |
|
| (33,256 | ) |
|
| (28,414 | ) |
Other |
|
| 5,413 |
|
|
| 4,418 |
|
|
| 14,021 |
|
|
| 13,122 |
|
|
| 5,792 |
|
|
| 5,413 |
|
|
| 16,579 |
|
|
| 14,021 |
|
Total Operating Revenue |
| $ | 809,886 |
|
| $ | 648,539 |
|
| $ | 2,278,641 |
|
| $ | 1,992,140 |
|
| $ | 1,016,100 |
|
| $ | 809,886 |
|
| $ | 2,867,832 |
|
| $ | 2,278,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Airline Operations |
| $ | 265,260 |
|
| $ | 179,441 |
|
| $ | 666,203 |
|
| $ | 482,995 |
| ||||||||||||||||
Dry Leasing |
|
| 10,435 |
|
|
| 9,627 |
|
|
| 31,765 |
|
|
| 30,046 |
| ||||||||||||||||
Total Direct Contribution for Reportable Segments |
|
| 275,695 |
|
|
| 189,068 |
|
|
| 697,968 |
|
|
| 513,041 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Unallocated income and (expenses), net |
|
| (120,219 | ) |
|
| (34,409 | ) |
|
| (284,218 | ) |
|
| (173,439 | ) | ||||||||||||||||
Loss on early extinguishment of debt |
|
| 0 |
|
|
| (7 | ) |
|
| 0 |
|
|
| (81 | ) | ||||||||||||||||
Unrealized loss on financial instruments |
|
| 0 |
|
|
| (43,604 | ) |
|
| (113 | ) |
|
| (73,351 | ) | ||||||||||||||||
Special charge |
|
| 0 |
|
|
| (547 | ) |
|
| 0 |
|
|
| (16,481 | ) | ||||||||||||||||
Transaction-related expenses |
|
| (168 | ) |
|
| (490 | ) |
|
| (486 | ) |
|
| (2,286 | ) | ||||||||||||||||
Gain on disposal of aircraft |
|
| 810 |
|
|
| 163 |
|
|
| 794 |
|
|
| 6,878 |
| ||||||||||||||||
Income before income taxes |
|
| 156,118 |
|
|
| 110,174 |
|
|
| 413,945 |
|
|
| 254,281 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Interest income |
|
| (159 | ) |
|
| (225 | ) |
|
| (559 | ) |
|
| (929 | ) | ||||||||||||||||
Interest expense |
|
| 27,173 |
|
|
| 28,524 |
|
|
| 81,345 |
|
|
| 86,749 |
| ||||||||||||||||
Capitalized interest |
|
| (2,335 | ) |
|
| (203 | ) |
|
| (5,456 | ) |
|
| (528 | ) | ||||||||||||||||
Loss on early extinguishment of debt |
|
| 0 |
|
|
| 7 |
|
|
| 0 |
|
|
| 81 |
| ||||||||||||||||
Unrealized loss on financial instruments |
|
| 0 |
|
|
| 43,604 |
|
|
| 113 |
|
|
| 73,351 |
| ||||||||||||||||
Other (income) expense, net |
|
| 3,136 |
|
|
| (62,689 | ) |
|
| (41,174 | ) |
|
| (112,081 | ) | ||||||||||||||||
Operating Income |
| $ | 183,933 |
|
| $ | 119,192 |
|
| $ | 448,214 |
|
| $ | 300,924 |
|
16
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 42,822 |
|
| $ | 33,401 |
|
| $ | 109,624 |
|
| $ | 114,048 |
|
Charter |
|
| 136,619 |
|
|
| 36,339 |
|
|
| 373,371 |
|
|
| 79,554 |
|
Dry Leasing |
|
| 9,627 |
|
|
| 12,028 |
|
|
| 30,046 |
|
|
| 58,646 |
|
Total Direct Contribution for Reportable Segments |
|
| 189,068 |
|
|
| 81,768 |
|
|
| 513,041 |
|
|
| 252,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
|
| (34,409 | ) |
|
| (93,507 | ) |
|
| (173,439 | ) |
|
| (255,569 | ) |
Loss on early extinguishment of debt |
|
| (7 | ) |
|
| (559 | ) |
|
| (81 | ) |
|
| (804 | ) |
Unrealized gain (loss) on financial instruments |
|
| (43,604 | ) |
|
| 83,175 |
|
|
| (73,351 | ) |
|
| 78,900 |
|
Special charge |
|
| (547 | ) |
|
| (18,861 | ) |
|
| (16,481 | ) |
|
| (22,130 | ) |
Transaction-related expenses |
|
| (490 | ) |
|
| (324 | ) |
|
| (2,286 | ) |
|
| (3,585 | ) |
Gain on disposal of aircraft |
|
| 163 |
|
|
| 0 |
|
|
| 6,878 |
|
|
| 0 |
|
Income before income taxes |
|
| 110,174 |
|
|
| 51,692 |
|
|
| 254,281 |
|
|
| 49,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| (225 | ) |
|
| (653 | ) |
|
| (929 | ) |
|
| (3,975 | ) |
Interest expense |
|
| 28,524 |
|
|
| 30,117 |
|
|
| 86,749 |
|
|
| 90,515 |
|
Capitalized interest |
|
| (203 | ) |
|
| (853 | ) |
|
| (528 | ) |
|
| (1,943 | ) |
Loss on early extinguishment of debt |
|
| 7 |
|
|
| 559 |
|
|
| 81 |
|
|
| 804 |
|
Unrealized (gain) loss on financial instruments |
|
| 43,604 |
|
|
| (83,175 | ) |
|
| 73,351 |
|
|
| (78,900 | ) |
Other (income) expense, net |
|
| (62,689 | ) |
|
| 1,434 |
|
|
| (112,081 | ) |
|
| (596 | ) |
Operating Income (Loss) |
| $ | 119,192 |
|
| $ | (879 | ) |
| $ | 300,924 |
|
| $ | 54,965 |
|
The following table disaggregates our CharterAirline Operations segment revenue by customer and service type:
| For the Three Months Ended |
| For the Three Months Ended |
|
| ||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2020 |
|
| September 30, 2019 |
| September 30, 2021 |
|
| September 30, 2020 |
|
| ||||||||||||||||||||||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| ||||||||||||
Commercial customers |
| $ | 333,066 |
|
| $ | 2,193 |
|
| $ | 335,259 |
|
| $ | 127,558 |
|
| $ | 17,075 |
|
| $ | 144,633 |
|
| $ | 847,643 |
|
| $ | 8,835 |
|
| $ | 856,478 |
|
| $ | 635,375 |
|
| $ | 2,640 |
|
| $ | 638,015 |
|
|
AMC |
|
| 57,952 |
|
|
| 77,624 |
|
|
| 135,576 |
|
|
| 85,382 |
|
|
| 94,031 |
|
|
| 179,413 |
|
|
| 29,874 |
|
|
| 94,362 |
|
|
| 124,236 |
|
|
| 57,952 |
|
|
| 77,624 |
|
|
| 135,576 |
|
|
Total Charter Revenue |
| $ | 391,018 |
|
| $ | 79,817 |
|
| $ | 470,835 |
|
| $ | 212,940 |
|
| $ | 111,106 |
|
| $ | 324,046 |
| |||||||||||||||||||||||||
Total Airline Operations Revenue |
| $ | 877,517 |
|
| $ | 103,197 |
|
| $ | 980,714 |
|
| $ | 693,327 |
|
| $ | 80,264 |
|
| $ | 773,591 |
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Nine Months Ended |
| For the Nine Months Ended |
|
| ||||||||||||||||||||||||||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
| September 30, 2021 |
|
| September 30, 2020 |
|
| |||||||||||||||||||||||||||||||||||||
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| Cargo |
|
| Passenger |
|
| Total |
|
| ||||||||||||
Commercial customers |
| $ | 901,617 |
|
| $ | 5,315 |
|
| $ | 906,932 |
|
| $ | 409,640 |
|
| $ | 27,736 |
|
| $ | 437,376 |
|
| $ | 2,380,029 |
|
| $ | 11,714 |
|
| $ | 2,391,743 |
|
| $ | 1,773,803 |
|
| $ | 6,580 |
|
| $ | 1,780,383 |
|
|
AMC |
|
| 170,188 |
|
|
| 218,891 |
|
|
| 389,079 |
|
|
| 234,845 |
|
|
| 272,618 |
|
|
| 507,463 |
|
|
| 124,258 |
|
|
| 246,814 |
|
|
| 371,072 |
|
|
| 170,188 |
|
|
| 218,891 |
|
|
| 389,079 |
|
|
Total Charter Revenue |
| $ | 1,071,805 |
|
| $ | 224,206 |
|
| $ | 1,296,011 |
|
| $ | 644,485 |
|
| $ | 300,354 |
|
| $ | 944,839 |
| |||||||||||||||||||||||||
Total Airline Operations Revenue |
| $ | 2,504,287 |
|
| $ | 258,528 |
|
| $ | 2,762,815 |
|
| $ | 1,943,991 |
|
| $ | 225,471 |
|
| $ | 2,169,462 |
|
|
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.
17
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 $150.8$159.1 million and $487.2 million for the three and nine months ended September 30, 20202021, respectively. Revenue from DHL was $150.8 million and $91.4$401.0 million for the three months ended September 30, 2019. Revenue from DHL was $401.0 million for theand nine months ended September 30, 2020, and $267.8 million for the nine months ended September 30, 2019.respectively. We have not experienced any credit issues with these customers.
12. Labor and Legal Proceedings
LaborCollective 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 and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021. On September 15, 2021, the IBT, representing the flight dispatchers of Atlas and Polar, served the Company with notice of its intent to commence negotiations for a new CBA pursuant to Section 6 of the Railway Labor Act. The Company and IBT are in the process of scheduling dates to start bargaining.
We also had a five-year 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. This has resulted in significant litigation, arbitrations and delay. As more fully stated below, the Company prevailed in all of the merger related proceedings.
After the merger process began, the IBT also filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The NMB conducted a premediation investigation on the IBT’s Atlas application in June 2016, which has remained pending (along with the IBT’s Southern Air application) since 2016.
Due to the IBT’s refusal to adhere to the merger provisions of the respective CBAs, in February 2017, the Company filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. On March 13, 2018, the U.S. District Court for the Southern District of New York (“NY District Court”) ruled in the Company’s favor and ordered arbitration of this issue. The IBT appealed the NY District Court’s decision, and on November 21, 2019, the U.S. Court of Appeals for the Second Circuit Court issued its decision in the Company’s favor affirming the NY District Court’s decision.
The Company and the IBT conducted the Atlas and Southern Air arbitrations for this issuecommenced bargaining in October 2018. The Company prevailed in both the Atlas and Southern Air management grievance arbitrations against the IBT, with decisions rendered on June 12, 2019 and August 26, 2019, respectively. Both arbitrators ruled that the IBT violated the CBAs by refusing to follow merger provisions in the parties’ respective CBAs, which require formulationearly 2016. After approximately six years of a JCBA covering the combined pilot group. The arbitrators each ordered the IBT to promptly comply with the CBAs by submitting an ISL to the Company within 45 days of each arbitration decision, respectively. The IBT failed to comply with both deadlines for submitting the ISL, which passed on July 27, 2019 for Southern Air, and on October 10, 2019 for Atlas. As a result, on October 25, 2019, the Company filed an action in the U.S. District Court for the District of Columbia (“DC District Court”) to enforce the Atlas and Southern Air arbitration decisions. On March 31, 2020, the DC District Court ruled in the Company’s favor, enforcing the arbitration decisions and directing the IBT to produce 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 DC District Court issued an order modifying its March 31st order, providing that the nine-month timeframe to bargainbargaining for a new JCBA will be triggered on May 15, 2020 and that the IBT must produce the ISL by March 31, 2021. Any remaining open issues will then be determined by binding interest arbitration pursuant to the merger provisions in the CBAs. On April 28, 2020, the IBT and Local 2750 filed a Notice of Appeal of the DC District Court’s March 31st order, which remains in place pending appeal (the “March 31st Appeal”).
In connection with its opposition to application of the merger provisions, the IBT commenced lawsuits in the DC District Court seeking to vacate both arbitration awards. On January 28, 2020, the DC District Court ruled in the Company’s favor, granting its
18
motions to dismiss both of the IBT’s lawsuits. On April 28, 2020, the IBT and Local 2750 filed a Notice of Appeal of the DC District Court’s January 28th orders, which remains in place pending appeal (the “January 28th Appeal”).
On June 8, 2020, the U.S. Court of Appeals for the District of Columbia Circuit (“DC Court of Appeals”) consolidated the January 28th Appeal and March 31st Appeal (collectively referred to as the “Consolidated Appeals”). On August 12, 2020, the IBT filed a motion, which the Company agreed not to oppose, to hold the briefing schedule in abeyance in the Consolidated Appeals, stating the IBT had reached an agreement in principle for an ISL with the Atlas and Southern Air pilots, which included two arbitrators and that it expects to file a motion to dismiss the March 31st Appeal oncetwo federal district courts ordering the IBT has formalizedto comply with the agreementmerger provisions of the Atlas and Southern Air CBAs, the parties had reached tentative agreements on more than half of the 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 were subject to binding interest arbitration between the ISL. On August 14, 2020, the DC Court of Appeals granted the IBT’s unopposed motionCompany and ordered the Consolidated Appeals be held in abeyance pending further order from the DC Court of Appeals and ordered 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 integrated seniority list.
On September 10, 2021, the Company and the Company to file status reports at 90-day intervals beginning November 12, 2020.
IBT received the arbitration decision, which was the final step towards reaching a new JCBA for our Atlas and Southern Air pilots. The new competitive pay rates became effective as of September 1, 2021. The Company and the IBT continueare working together to meet virtuallyimplement the new work rules for the JCBA over the next several months.
There are a few open items from the arbitrator’s decision on which the parties have differing interpretations. These items will be reviewed with the arbitrator, the Company and the IBT, and we expect them to movebe resolved over the process forwardnext several months. Once these remaining items are resolved, the Company and bargain in good faith forthe IBT will sign the new JCBA, which will be deemed effective pursuant to a new JCBA. Substantive progress has been made with tentative agreements for more than halfdate that will be agreed by the parties. While the ultimate outcome of the articles in a new JCBA. these few open items could be material to our financial condition, results of operations or cash flows, it is not expected to be material.
In late September 2019, the Atlas pilots represented by the IBT formed a new local union,October 2021, IBT Local 2750 to represent them. The Southern Air pilots continue to be represented by IBT Local 1224. The Company continues to work with both Local 2750 and Local 1224 leadership groups.
On May 7, 2020,elected new union leadership. While the Company announced that Atlas and Southern Air reached an agreement withpilots are represented by the same IBT LocalsLocal 2750, and 1224, which provides for a 10 percent pay increase forthey have remained two distinct pilot groups under separate CBAs. Now that the JCBA process is completed, the Southern Air pilots are expected to all pilots, effective as of May 1, 2020. This pay increase provides interim additional compensationtransfer to our pilots until a new JCBA is reached.
In lateAtlas on or about November 2017, the DC District Court granted the Company’s request to issue a preliminary injunction to stop an illegal work slowdown and require the IBT to meet its obligations under the Railway Labor Act. Specifically, the DC District Court ordered the IBT to stop “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities, which were intended to gain leverage in pilot contract negotiations17, 2021 with the Company. In addition, the Court ordered the IBT to take affirmative action to prevent and to refrain from continuing any formissuance of interference with the Company’s operations or any other concerted refusal to perform normal pilot operations consistent with its status quo obligations under the Railway Labor Act. In December 2017, the IBT appealed the DC District Court’s decision to the DC Court of Appeals. On July 5, 2019, the DC Court of Appeals, in a unanimous three judge panel, affirmed the DC District Court’s ruling and denied the IBT’s appeal.single operating certificate for Atlas.
On May 22, 2020, the IBT filed a motion to dismiss the Company’s action for a preliminary injunction, asserting the Company’s claim for injunctive relief was mooted by the DC District Court’s March 31, 2020 decision in a separate case enforcing the management grievance arbitration awards in the Company’s favor. The Company filed an opposition to the IBT’s motion on June 22, 2020, and the IBT’s reply was filed on July 3, 2020. The preliminary injunction remains in full force and effect pending the court’s decision. 17
InSince April 2020, the Company and the IBT have entered into several Coronavirus Memorandum of Understandings (“MOU”COVID MOUs”) with both Local 2750 and Local 1224, providing for premium pay andvarious enhanced benefits and compensation (including pay for becoming fully vaccinated) for our pilots due to the challenges of flying into covered areas designated by the Centers for Disease Control and Prevention (“CDC”) as Red Level 3 Travel Health Notices on its website at the time, as well as providing for an increased per diem and other additional safety measures relatedoperating globally due to COVID-19. In August 2020,On September 30, 2021, in connection with implementing the CDC updated its Travel Health Notices, which affected covered areas eligible for premium pay and certain benefits under the MOU. Nonetheless,new JCBA, the Company has voluntarily offeredterminated all COVID MOUs in place with the IBT; however, the Company continues to maintain the MOU, including all of the enhanced pay, per diem and benefits providedoffer additional compensation to its pilots for therein, through December 31, 2020.becoming fully vaccinated.
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. Now that the parties are in the process of completing the last phase of implementing the JCBA in accordance with the terms of the new arbitration award, the DC District Court stayed the preliminary injunction action and directed the parties to submit a joint status report in late November 2021. It is anticipated the action will be dismissed at such time.
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
19
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 $3.6$3.8 million in aggregate based on September 30, 20202021 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 $3.0$3.2 million as of September 30, 20202021 and $4.1$3.3 million as of December 31, 2019,2020, 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.
18
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.
The calculations of basic and diluted EPS were as follows:
|
| For the Three Months Ended |
|
| For the Nine Months Ended | For the Three Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||||
Numerator: |
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| September 30, 2021 |
|
| September 30, 2020 |
| ||||||||
Net Income |
| $ | 74,054 |
|
| $ | 59,974 |
|
| $ | 176,319 |
|
| $ | 117,132 |
|
| $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,578 |
|
| $ | 176,319 |
|
Less: Unrealized gain on financial instruments, net of tax |
|
| 0 |
|
|
| 0 |
|
|
| 0 |
|
|
| (81,139 | ) |
| |||||||||||||||
Diluted Net Income |
| $ | 74,054 |
|
| $ | 59,974 |
|
| $ | 176,319 |
|
| $ | 35,993 |
|
| |||||||||||||||
Plus: Unrealized loss on financial instruments, net of tax |
| 0 |
|
|
| 0 |
|
|
| 112 |
|
|
| 0 |
| |||||||||||||||||
Diluted net income | $ | 119,535 |
|
| $ | 74,054 |
|
| $ | 316,690 |
|
| $ | 176,319 |
| |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS weighted average shares outstanding |
|
| 26,135 |
|
|
| 25,854 |
|
|
| 26,077 |
|
|
| 25,814 |
|
|
| 29,023 |
|
|
| 26,135 |
|
|
| 28,844 |
|
|
| 26,077 |
|
Effect of dilutive warrants |
|
| 237 |
|
|
| 0 |
|
|
| 82 |
|
|
| 1,010 |
|
|
| 584 |
|
|
| 237 |
|
|
| 611 |
|
|
| 82 |
|
Effect of dilutive convertible notes |
| 717 |
|
|
| 0 |
|
|
| 442 |
|
|
| 0 |
| |||||||||||||||||
Effect of dilutive restricted stock |
|
| 247 |
|
|
| 0 |
|
|
| 97 |
|
|
| 85 |
|
|
| 223 |
|
|
| 247 |
|
|
| 220 |
|
|
| 97 |
|
Diluted EPS weighted average shares outstanding |
|
| 26,619 |
|
|
| 25,854 |
|
|
| 26,256 |
|
|
| 26,909 |
|
|
| 30,547 |
|
|
| 26,619 |
|
|
| 30,117 |
|
|
| 26,256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 2.83 |
|
| $ | 2.32 |
|
| $ | 6.76 |
|
| $ | 4.54 |
|
| $ | 4.12 |
|
| $ | 2.83 |
|
| $ | 10.98 |
|
| $ | 6.76 |
|
Diluted |
| $ | 2.78 |
|
| $ | 2.32 |
|
| $ | 6.72 |
|
| $ | 1.34 |
|
| $ | 3.91 |
|
| $ | 2.78 |
|
| $ | 10.52 |
|
| $ | 6.72 |
|
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 nine months ended September 30, 2021, and 15.6 million for the three and nine months ended September 30, 2020, and 15.3 million and 7.8 million for the three and nine months ended September 30, 2019, respectively.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 9.8 million for the three and nine months ended September 30, 2021 and 10.4 million for the three and nine months ended September 30, 2020 and 10.6 million for the three and nine months ended September 30, 2019.2020.
20
14. Accumulated Other Comprehensive Income (Loss)
The following table summarizes the components of Accumulated other comprehensive income (loss):
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
|
| Interest Rate |
|
| Foreign Currency |
|
|
|
|
| ||||
|
| Derivatives |
|
| Translation |
|
| Total |
| |||||||||||||||
Balance as of December 31, 2018 |
| $ | (3,841 | ) |
| $ | 9 |
|
| $ | (3,832 | ) | ||||||||||||
Reclassification to interest expense |
|
| 1,012 |
|
|
| 0 |
|
|
| 1,012 |
| ||||||||||||
Tax effect |
|
| (239 | ) |
|
| 0 |
|
|
| (239 | ) | ||||||||||||
Balance as of September 30, 2019 |
| $ | (3,068 | ) |
| $ | 9 |
|
| $ | (3,059 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Derivatives |
|
| Translation |
|
| Total |
| |||
Balance as of December 31, 2019 |
| $ | (2,827 | ) |
| $ | 9 |
|
| $ | (2,818 | ) |
| $ | (2,827 | ) |
| $ | 9 |
|
| $ | (2,818 | ) |
Reclassification to interest expense |
|
| 894 |
|
|
| 0 |
|
|
| 894 |
|
|
| 894 |
|
|
| 0 |
|
|
| 894 |
|
Tax effect |
|
| (202 | ) |
|
| 0 |
|
|
| (202 | ) |
|
| (202 | ) |
|
| 0 |
|
|
| (202 | ) |
Balance as of September 30, 2020 |
| $ | (2,135 | ) |
| $ | 9 |
|
| $ | (2,126 | ) |
| $ | (2,135 | ) |
| $ | 9 |
|
| $ | (2,126 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance as of December 31, 2020 |
| $ | (1,913 | ) |
| $ | 9 |
|
| $ | (1,904 | ) | ||||||||||||
Reclassification to interest expense |
|
| 774 |
|
|
| 0 |
|
|
| 774 |
| ||||||||||||
Tax effect |
|
| (184 | ) |
|
| 0 |
|
|
| (184 | ) | ||||||||||||
Balance as of September 30, 2021 |
| $ | (1,323 | ) |
| $ | 9 |
|
| $ | (1,314 | ) |
Interest Rate Derivatives
As of September 30, 2020, there was $2.8 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.3 million for the three months ended September 30, 2020 and 2019. Net realized losses reclassified into earnings were $0.9 million and $1.0 million for the nine months ended September 30, 2020 and 2019, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are $1.1 million as of September 30, 2020.
2119
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 20192020 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. Our customers include express delivery providers, e-commerce retailers, airlines, freight forwarders, the U.S. military and charter brokers. 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 includeare 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 following: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. |
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22
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 20192020 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, COVID-19it was determined to be a global pandemic by the World Health Organization. During the first three quarters of 2020,Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in flight cancellationsa reduction in flights by some of our ACMI customers and lower AMC passenger flying as the military tookhad taken precautionary measures to limit the movement of personnel as well as increased operating costs.through June 2021.
Our CharterAirline Operations results for the first three quarters of 2020,2021, compared with 20192020, were significantly impactedhigher 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 resulting in significantly higher commercial charter cargo Yields, net of fuel.pandemic. Due to this strong demand in 2020, we reactivated threefour 747-400BCF aircraft that had been temporarily parked and began Charter operations forusing a 777-200 freighter aircraft that was previously in our Dry Leasing business. During 2020 and the second and thirdfirst three quarters of 2020,2021, we entered into severalnumerous long-term charterCharter programs and extensions with customers seeking to secure committed cargo capacity. These long-term charterCharter programs provide us with guaranteed revenue and include indexed fuel price adjustments to mitigate our exposure to fuel price volatility.
Safety is our top priority. We are closely monitoring the COVID-19 pandemic and taking numerous precautions to ensure the safety of our operations around the world, including:
|
|
|
|
|
|
|
|
|
|
In March 2020, the Department of Homeland Security stated that transportation is an essential critical infrastructure sector, which includes all aviation workers. We play an important role in facilitating the movement of essential goods around the world during this challenging time, including the delivery of pharmaceuticals, medical equipment, education supplies, food and other daily necessities.
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;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 resulting fromwe provided to our recent interim agreementpilots beginning in May 2020 in advance of a JCBA with our pilots.pilots beginning in September 2021 (see Note 12 to our Financial Statements for further discussion). In addition, the availability of hotels and restaurants;restaurants, evolving COVID-19-related travel restrictions and vaccine mandates, health screenings;screenings, ground handling delays and cancellations ofa reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft.
In response to these challenging times, we have:
| • | made COVID-19 vaccinations available to employees; |
• | provided paid time-off for employees to get COVID-19 vaccinations; |
• | 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; |
• | 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; |
|
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|
• |
|
23
| implemented a number of other cost reduction initiatives; |
|
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|
• | entered into a |
| • |
|
The continuation or worsening of the aforementioned and other factors including restrictions on travel and transportation, could materially affect our results for the duration of the crisis.COVID-19 pandemic.
In August 2021, the Department of Defense activated the U.S. Civil Reserve Air Fleet (“CRAF”) for the first time since 2002 to augment support to the U.S. Department of State in the evacuation of U.S. citizens and personnel, special immigrant visa applicants, and other at-risk individuals from Afghanistan. We provided three 747-400 passenger aircraft to support the CRAF activation, which ended in mid-September, and also provided additional 767 passenger aircraft in support of these evacuations for the AMC.
On February 15, 2021, the Company and IBT completed the contractually mandated nine-month period for negotiations for a
21
JCBA. All remaining open issues not resolved in negotiations were subject to binding interest arbitration, which concluded in April 2021. On September 10, 2021, the arbitrator issued the decision for a new five-year JCBA effective September 1, 2021. Labor costs arising from the new JCBA are materially greater than the costs under our previous CBAs with our Atlas 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.
Our ACMIAirline Operations results for the first three quarters of 2020,2021, compared with 2019,2020, were also impacted by increased flying from the following:
| • |
|
| In March 2019, we entered into agreements with Amazon, which include CMI operation of |
| • | In |
|
|
|
• | In |
• | In September 2021, we entered into various ACMI and CMI contract extensions with DHL for six 747-8F aircraft, two 747-400 freighter aircraft, eight 777-200 freighter aircraft and four 767-300 freighter aircraft. |
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 October 2021, we acquired six 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 eleven 747-400 freighter aircraft keeps them in our fleet and ensures committed capacity to our customers.
2422
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 September 30, 20202021 and 20192020
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the three months ended September 30:
Segment Operating Fleet |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Airline Operations* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 8.1 |
|
|
| 7.7 |
|
|
| 0.4 |
|
|
| 10.0 |
|
|
| 10.0 |
|
|
| - |
|
747-400 Cargo |
|
| 13.0 |
|
|
| 18.3 |
|
|
| (5.3 | ) |
|
| 34.6 |
|
|
| 32.9 |
|
|
| 1.7 |
|
747-400 Dreamlifter |
|
| 2.7 |
|
|
| 3.5 |
|
|
| (0.8 | ) |
|
| 0.6 |
|
|
| 2.7 |
|
|
| (2.1 | ) |
747-400 Passenger |
|
| 5.1 |
|
|
| 5.0 |
|
|
| 0.1 |
| ||||||||||||
777-200 Cargo |
|
| 8.0 |
|
|
| 8.0 |
|
|
| - |
|
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
767-300 Cargo |
|
| 23.0 |
|
|
| 25.0 |
|
|
| (2.0 | ) |
|
| 24.0 |
|
|
| 24.0 |
|
|
| - |
|
767-300 Passenger |
|
| 4.9 |
|
|
| 4.8 |
|
|
| 0.1 |
| ||||||||||||
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| - |
|
|
| 9.0 |
|
|
| (9.0 | ) |
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) |
737-800 Cargo |
|
| 5.5 |
|
|
| 3.7 |
|
|
| 1.8 |
|
|
| 8.0 |
|
|
| 5.5 |
|
|
| 2.5 |
|
737-400 Cargo |
|
| 0.8 |
|
|
| 5.0 |
|
|
| (4.2 | ) |
|
| - |
|
|
| 0.8 |
|
|
| (0.8 | ) |
Total |
|
| 71.1 |
|
|
| 81.2 |
|
|
| (10.1 | ) |
|
| 96.2 |
|
|
| 104.7 |
|
|
| (8.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 1.9 |
|
|
| 2.2 |
|
|
| (0.3 | ) | ||||||||||||
747-400 Cargo |
|
| 19.9 |
|
|
| 15.7 |
|
|
| 4.2 |
| ||||||||||||
747-400 Passenger |
|
| 5.0 |
|
|
| 4.1 |
|
|
| 0.9 |
| ||||||||||||
777-200 Cargo |
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
| ||||||||||||
767-300 Cargo |
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
| ||||||||||||
767-300 Passenger |
|
| 4.8 |
|
|
| 4.8 |
|
|
| - |
| ||||||||||||
Total |
|
| 33.6 |
|
|
| 26.8 |
|
|
| 6.8 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 7.0 |
|
|
| 7.0 |
|
|
| - |
|
|
| 7.0 |
|
|
| 7.0 |
|
|
| - |
|
767-300 Cargo |
|
| 21.0 |
|
|
| 21.0 |
|
|
| - |
|
|
| 21.0 |
|
|
| 21.0 |
|
|
| - |
|
757-200 Cargo |
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) | ||||||||||||
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) | ||||||||||||
Total |
|
| 29.0 |
|
|
| 31.0 |
|
|
| (2.0 | ) |
|
| 29.0 |
|
|
| 29.0 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (21.0 | ) |
|
| (22.7 | ) |
|
| (1.7 | ) |
|
| (21.0 | ) |
|
| (21.0 | ) |
|
| - |
|
Total Operating Average Aircraft Equivalents |
|
| 112.7 |
|
|
| 116.3 |
|
|
| (3.6 | ) |
|
| 104.2 |
|
|
| 112.7 |
|
|
| (8.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-of-service** |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| - |
|
|
| 1.0 |
|
|
| (1.0 | ) |
| * |
|
| ** | Out-of-service includes aircraft that are temporarily parked. |
Block Hours |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Total Block Hours*** |
|
| 90,528 |
|
|
| 79,310 |
|
|
| 11,218 |
|
|
| 14.1 | % |
|
| 90,363 |
|
|
| 90,528 |
|
|
| (165 | ) |
|
| (0.2 | )% |
| *** | Includes |
25
Operating Revenue
The following table compares our Operating Revenue for the three months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI |
| $ | 302,756 |
|
| $ | 289,024 |
|
| $ | 13,732 |
|
|
| 4.8 | % | ||||||||||||||||
Charter |
|
| 470,835 |
|
|
| 324,046 |
|
|
| 146,789 |
|
|
| 45.3 | % | ||||||||||||||||
Airline Operations |
| $ | 980,714 |
|
| $ | 773,591 |
|
| $ | 207,123 |
|
|
| 26.8 | % | ||||||||||||||||
Dry Leasing |
|
| 40,740 |
|
|
| 43,847 |
|
|
| (3,107 | ) |
|
| (7.1 | )% |
|
| 40,926 |
|
|
| 40,740 |
|
|
| 186 |
|
|
| 0.5 | % |
Customer incentive asset amortization |
|
| (9,858 | ) |
|
| (12,796 | ) |
|
| (2,938 | ) |
|
| (23.0 | )% |
|
| (11,332 | ) |
|
| (9,858 | ) |
|
| 1,474 |
|
|
| 15.0 | % |
Other |
|
| 5,413 |
|
|
| 4,418 |
|
|
| 995 |
|
|
| 22.5 | % |
|
| 5,792 |
|
|
| 5,413 |
|
|
| 379 |
|
|
| 7.0 | % |
Total Operating Revenue |
| $ | 809,886 |
|
| $ | 648,539 |
|
|
|
|
|
|
|
|
|
| $ | 1,016,100 |
|
| $ | 809,886 |
|
|
|
|
|
|
|
|
|
ACMI23
Airline Operations
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
ACMI Block Hours |
|
| 61,154 |
|
|
| 60,337 |
|
|
| 817 |
|
|
| 1.4 | % |
ACMI Revenue Per Block Hour |
| $ | 4,951 |
|
| $ | 4,790 |
|
| $ | 161 |
|
|
| 3.4 | % |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 84,512 |
|
|
| 84,435 |
|
|
| 77 |
|
|
| 0.1 | % |
Passenger |
|
| 5,112 |
|
|
| 4,538 |
|
|
| 574 |
|
|
| 12.6 | % |
Total Airline Operations |
|
| 89,624 |
|
|
| 88,973 |
|
|
| 651 |
|
|
| 0.7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 10,943 |
|
| $ | 8,695 |
|
| $ | 2,248 |
|
|
| 25.9 | % |
Cargo |
| $ | 10,383 |
|
| $ | 8,211 |
|
| $ | 2,172 |
|
|
| 26.5 | % |
Passenger |
| $ | 20,187 |
|
| $ | 17,687 |
|
| $ | 2,500 |
|
|
| 14.1 | % |
ACMIAirline Operations revenue increased $13.7$207.1 million, or 4.8%26.8%, primarily due to an increase in Revenue per Block Hour and increased flying. The increase inHour. Revenue per Block Hour wasrose primarily relateddue to changes in customer flying. The increase in Block Hours flown was primarily driven by strong demand related to aan increased proportion of higher-yielding flying, including the impact of new and extended long-term contracts, the ongoing reduction of available cargo capacity in the market and the disruption of global supply chains due to the COVID-19 pandemic, partially offsetprovided by the redeployment of 747-400 aircraft to Charter to support long-term charter programs with customers seeking to secure committed cargo capacity.
Charter
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 23,333 |
|
|
| 12,717 |
|
|
| 10,616 |
|
|
| 83.5 | % |
Passenger |
|
| 4,486 |
|
|
| 5,425 |
|
|
| (939 | ) |
|
| (17.3 | )% |
Total |
|
| 27,819 |
|
|
| 18,142 |
|
|
| 9,677 |
|
|
| 53.3 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 16,758 |
|
| $ | 16,745 |
|
| $ | 13 |
|
| NM |
| |
Passenger |
| $ | 17,792 |
|
| $ | 20,480 |
|
| $ | (2,688 | ) |
|
| (13.1 | )% |
Charter |
| $ | 16,925 |
|
| $ | 17,862 |
|
| $ | (937 | ) |
|
| (5.2 | )% |
NM represents year-over-year changes that are not meaningful.
Charter revenue increased $146.8 million, or 45.3%, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Charter Block Hours flown was primarily driven by increased demand for freighter aircraft reflecting a reduction of available cargo capacitypassenger airlines in the market, the continued disruption of global supply chains due to the COVID-19 pandemic and higher fuel costs. Block Hours flown were relatively unchanged as we reduced less profitable smaller gauge CMI service flying, while increasing utilization of our abilitycurrent fleet to increase aircraft utilization. Due to this increased demand and to support long-term charter programs with customers seeking to secure committed cargo capacity, we redeployed 747-400 aircraft from ACMI and began operating a 777-200 freighter aircraft in our Dry Leasing business. Revenue permeet strong customer demand. Block Hour decreased primarily duevolumes benefited from the operation of one 747-400 freighter we reactivated during the fourth quarter of 2020, as well as increased AMC passenger Charter flying related to lower fuel costs, partially offset by higher commercial cargo Yields driven by the factors impacting commercial cargo demand noted above.CRAF activation in August 2021.
Dry Leasing
Dry Leasing revenue decreased $3.1 million, or 7.1%, primarily due to changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.was relatively unchanged.
26
Operating Expenses
The following table compares our Operating Expenses for the three months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 194,265 |
|
| $ | 145,987 |
|
| $ | 48,278 |
|
|
| 33.1 | % |
| $ | 231,437 |
|
| $ | 194,265 |
|
| $ | 37,172 |
|
|
| 19.1 | % |
Aircraft fuel |
|
| 216,638 |
|
|
| 118,113 |
|
|
| 98,525 |
|
|
| 83.4 | % | ||||||||||||||||
Maintenance, materials and repairs |
|
| 116,634 |
|
|
| 88,240 |
|
|
| 28,394 |
|
|
| 32.2 | % |
|
| 102,819 |
|
|
| 116,634 |
|
|
| (13,815 | ) |
|
| (11.8 | )% |
Aircraft fuel |
|
| 118,113 |
|
|
| 123,132 |
|
|
| (5,019 | ) |
|
| (4.1 | )% | ||||||||||||||||
Depreciation and amortization |
|
| 65,595 |
|
|
| 62,499 |
|
|
| 3,096 |
|
|
| 5.0 | % |
|
| 73,468 |
|
|
| 65,595 |
|
|
| 7,873 |
|
|
| 12.0 | % |
Travel |
|
| 37,731 |
|
|
| 49,110 |
|
|
| (11,379 | ) |
|
| (23.2 | )% | ||||||||||||||||
Navigation fees, landing fees and other rent |
|
| 42,870 |
|
|
| 32,270 |
|
|
| 10,600 |
|
|
| 32.8 | % |
|
| 46,622 |
|
|
| 42,870 |
|
|
| 3,752 |
|
|
| 8.8 | % |
Passenger and ground handling services |
|
| 36,266 |
|
|
| 34,453 |
|
|
| 1,813 |
|
|
| 5.3 | % |
|
| 40,268 |
|
|
| 36,266 |
|
|
| 4,002 |
|
|
| 11.0 | % |
Travel |
|
| 42,966 |
|
|
| 37,731 |
|
|
| 5,235 |
|
|
| 13.9 | % | ||||||||||||||||
Aircraft rent |
|
| 24,239 |
|
|
| 40,048 |
|
|
| (15,809 | ) |
|
| (39.5 | )% |
|
| 15,485 |
|
|
| 24,239 |
|
|
| (8,754 | ) |
|
| (36.1 | )% |
Gain on disposal of aircraft |
|
| (163 | ) |
|
| - |
|
|
| 163 |
|
| NM |
|
|
| (810 | ) |
|
| (163 | ) |
|
| 647 |
|
| NM |
| ||
Special charge |
|
| 547 |
|
|
| 18,861 |
|
|
| (18,314 | ) |
| NM |
|
|
| - |
|
|
| 547 |
|
|
| (547 | ) |
| NM |
| ||
Transaction-related expenses |
|
| 490 |
|
|
| 324 |
|
|
| 166 |
|
|
| 51.2 | % |
|
| 168 |
|
|
| 490 |
|
|
| (322 | ) |
|
| (65.7 | )% |
Other |
|
| 54,107 |
|
|
| 54,494 |
|
|
| (387 | ) |
|
| (0.7 | )% |
|
| 63,106 |
|
|
| 54,107 |
|
|
| 8,999 |
|
|
| 16.6 | % |
Total Operating Expenses |
| $ | 690,694 |
|
| $ | 649,418 |
|
|
|
|
|
|
|
|
|
| $ | 832,167 |
|
| $ | 690,694 |
|
|
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
Salaries, wages and benefits increased $48.3$37.2 million, or 33.1%19.1%, primarily due to higher pilot costs related to premium pay for pilots operatingour new JCBA since the beginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in certain areas significantly impacted by COVID-19, increased pay rates from our recent interim agreement withnew JCBA (see Note 12 to our pilotsFinancial Statements), and increased profit sharing.
Aircraft fuel increased $98.5 million, or 83.4%, primarily due to an increase in the average fuel cost per gallon and higher consumption related to increased Charter flying. Our exposure to fluctuations in fuel price is limited to the shorter-term commercial portion of our Charter services only, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. 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. Similarly, we generally have no fuel price risk for AMC charters
24
because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Average fuel cost per gallon |
| $ | 2.06 |
|
| $ | 1.35 |
|
| $ | 0.71 |
|
|
| 52.6 | % |
Fuel gallons consumed (000s) |
|
| 105,258 |
|
|
| 87,460 |
|
|
| 17,798 |
|
|
| 20.3 | % |
Maintenance, materials and repairs increased $28.4decreased $13.8 million, or 32.2%11.8%, primarily reflecting $22.9$21.7 million of decreased Heavy Maintenance expense, partially offset by $5.2 million of increased Heavy Maintenance expense and $6.3 million of increased Line Maintenance expense.Non-heavy Maintenance. Heavy Maintenance expense on 747-400 aircraft decreased $24.6 million primarily due to a decrease in the number of engine overhauls and 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 increased $24.9$1.9 million primarily due to an increase in the number of engine overhauls, to take advantage of availability and opportunities for vendor pricing discounts, and an increase in the number of D Checks, partially offset by a decrease in the number of C Checks. LineNon-heavy Maintenance expense increased on 747-400 and 747-8F aircraft primarily due to increased flying.the timing of landing gear overhauls. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended September 30 were:
Heavy Maintenance Events |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
| |||
747-400 C Checks |
|
| 2 |
|
|
| 4 |
|
|
| (2 | ) |
767 C Checks |
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
747-8F D Checks |
|
| 1 |
|
|
| 2 |
|
|
| (1 | ) |
747-8F C Checks |
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
747-400 D Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
CF6-80 engine overhauls |
|
| 5 |
|
|
| 1 |
|
|
| 4 |
|
PW4000 engine overhauls |
|
| 1 |
|
|
| - |
|
|
| 1 |
|
Aircraft fuel decreased $5.0 million, or 4.1%, primarily due to a decrease in the average fuel cost per gallon, partially offset by higher consumption related to increased Charter flying. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Average fuel cost per gallon |
| $ | 1.35 |
|
| $ | 2.27 |
|
| $ | (0.92 | ) |
|
| (40.5 | )% |
Fuel gallons consumed (000s) |
|
| 87,460 |
|
|
| 54,296 |
|
|
| 33,164 |
|
|
| 61.1 | % |
Heavy Maintenance Events |
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| |||
747-8F C Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
747-400 C Checks |
|
| 3 |
|
|
| 2 |
|
|
| 1 |
|
767 C Checks |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
747-8F D Checks |
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
747-400 D Checks |
|
| - |
|
|
| 2 |
|
|
| (2 | ) |
CF6-80 engine overhauls |
|
| 1 |
|
|
| 5 |
|
|
| (4 | ) |
PW4000 engine overhauls |
|
| - |
|
|
| 1 |
|
|
| (1 | ) |
Depreciation and amortization increased $3.1$7.9 million, or 5.0%12.0%, primarily due to an increase in the amortization of deferred maintenance costsdeprecation related to 747-8F engine overhaulsthe acquisition of flight equipment and changes in 747-400 freighter aircraft leases (see Note 28 to our Financial Statements) and an increase in the scrapping of rotable parts. Partially offsetting these increases was a reduction in depreciation related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019, and certain spare CF6-80 engines and aircraft that were classified as held for sale during the fourth quarter of 2019.
Travel decreased $11.4 million, or 23.2%, primarily due to decreased rates and travel related to the impact of the COVID-19 pandemic, partially offset by an increase in flying..
Navigation fees, landing fees and other rent increased $10.6$3.8 million, or 32.8%8.8%, primarily due to increased passenger Charter flying.
27
Passenger and ground handling services increased $1.8$4.0 million, or 5.3%11.0%, primarily due to increased cargopassenger Charter flying.
Travel increased $5.2 million, or 13.9%, primarily due to increased passenger Charter flying partially offset by a decrease in passenger flying.and increased rates.
Aircraft rent decreased $15.8$8.8 million, or 39.5%36.1%, primarily due to a reductionchanges in the amortization of operating lease right-of-use assets related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019.
Special charge in 2019 primarily represented a $18.9 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. Seeleases (see Note 78 to our Financial StatementsStatements) and the acquisition of 747-400 freighter aircraft that were previously on lease to us.
Other increased $9.0 million, or 16.6%, primarily due to an increase in professional fees, which include costs associated with negotiations and arbitration for additional discussion. We may sell additional flight equipment, which could result in additional charges in future periods.a new JCBA (see Note 12 to our Financial Statements), as well as costs for continuing to provide a safe working environment for our employees and higher passenger taxes related to increased passenger flying.
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (225 | ) |
| $ | (653 | ) |
| $ | (428 | ) |
|
| (65.5 | )% |
| $ | (159 | ) |
| $ | (225 | ) |
| $ | (66 | ) |
|
| (29.3 | )% |
Interest expense |
|
| 28,524 |
|
|
| 30,117 |
|
|
| (1,593 | ) |
|
| (5.3 | )% |
|
| 27,173 |
|
|
| 28,524 |
|
|
| (1,351 | ) |
|
| (4.7 | )% |
Capitalized interest |
|
| (203 | ) |
|
| (853 | ) |
|
| (650 | ) |
|
| (76.2 | )% |
|
| (2,335 | ) |
|
| (203 | ) |
|
| 2,132 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| 7 |
|
|
| 559 |
|
|
| (552 | ) |
| NM |
|
|
| - |
|
|
| 7 |
|
|
| (7 | ) |
| NM |
| ||
Unrealized loss (gain) on financial instruments |
|
| 43,604 |
|
|
| (83,175 | ) |
|
| (126,779 | ) |
|
| (152.4 | )% | ||||||||||||||||
Unrealized loss on financial instruments |
|
| - |
|
|
| 43,604 |
|
|
| (43,604 | ) |
| NM |
| |||||||||||||||||
Other (income) expense, net |
|
| (62,689 | ) |
|
| 1,434 |
|
|
| 64,123 |
|
| NM |
|
|
| 3,136 |
|
|
| (62,689 | ) |
|
| (65,825 | ) |
|
| (105.0 | )% |
Interest expense decreased $1.4 million, or 4.7%, primarily due to the scheduled repayment of debt.
Capitalized interest increased $2.1 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft from Boeing (see Note 2 to our Financial Statements).
Unrealized loss (gain) on financial instruments representsin 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
25
earnings are no longer affected by changes in the fair value of our customer warrant liability.
Other (income) expense, net increased $64.1 milliondecreased primarily due to $64.2 million in CARES Act grant income of $64.2 millionin 2020 (see Note 3 to our Financial Statements).
Income taxes. The effective income tax expenserates were 23.4% and 32.8% for the three months ended September 30, 2021 and 2020, respectively. The rate for the three months ended September 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 September 30, 2020 differed from tax at the U.S. statutory rate primarily due to $9.6 million of nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements). The income tax benefit for the three months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $18.2 million of nontaxable changes in the fair value of a customer warrant liability.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended September 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
ACMI |
| $ | 42,822 |
|
| $ | 33,401 |
|
| $ | 9,421 |
|
|
| 28.2 | % | ||||||||||||||||
Charter |
|
| 136,619 |
|
|
| 36,339 |
|
|
| 100,280 |
|
|
| 276.0 | % | ||||||||||||||||
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Airline Operations |
| $ | 265,260 |
|
| $ | 179,441 |
|
| $ | 85,819 |
|
|
| 47.8 | % | ||||||||||||||||
Dry Leasing |
|
| 9,627 |
|
|
| 12,028 |
|
|
| (2,401 | ) |
|
| (20.0 | )% |
|
| 10,435 |
|
|
| 9,627 |
|
|
| 808 |
|
|
| 8.4 | % |
Total Direct Contribution |
| $ | 189,068 |
|
| $ | 81,768 |
|
| $ | 107,300 |
|
|
| 131.2 | % |
| $ | 275,695 |
|
| $ | 189,068 |
|
| $ | 86,627 |
|
|
| 45.8 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
| $ | 34,409 |
|
| $ | 93,507 |
|
| $ | (59,098 | ) |
|
| (63.2 | )% |
| $ | 120,219 |
|
| $ | 34,409 |
|
| $ | 85,810 |
|
|
| 249.4 | % |
ACMIAirline Operations Segment
ACMIAirline Operations Direct Contribution increased $9.4$85.8 million, or 28.2%47.8%, primarily due to increased Yields, net of fuel, including the impact of new and extended long-term contracts, lower Heavy Maintenance and our ability to increase aircraft utilization reflectingas demand for our services increased. Direct Contribution also benefited from the strong demand from our customers,operation of one 747-400BCF aircraft reactivated in the fourth quarter of 2020 and a reductionan increase in aircraft rent and depreciation.passenger flying related to the CRAF activation in August 2021. Partially offsetting these improvements were higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates resulting from our recent interim agreement withnew JCBA (see Note 12 to our pilots. In addition, ACMI Direct Contribution reflected higher heavy maintenance, including additional engine overhauls to take advantage of availability and opportunities for vendor pricing discounts, and the redeployment of 747-400 aircraft to Charter to support long-term charter programs with customers seeking to secure committed cargo capacity.
28
Charter Segment
Charter Direct Contribution increased $100.3 million, primarily due to an increase in commercial cargo Yields, net of fuel, and demand reflecting a reduction of available capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Charter Direct Contribution also benefited from a reduction in aircraft rent and depreciation, the redeployment of 747-400 aircraft from ACMI and the operation of a 777-200 freighter aircraft in our Dry Leasing business. Partially offsetting these improvements were higher heavy maintenance, including additional engine overhauls to take advantage of availability and opportunities for vendor pricing discounts. In addition, Charter Direct Contribution reflected higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates resulting from our recent interim agreement with our pilots.Financial Statements).
Dry Leasing Segment
Dry Leasing Direct Contribution decreased $2.4increased $0.8 million, or 20.0%8.4%, primarily due to a reduction in revenuelower interest expense related to changes in leases and the dispositionscheduled repayment of certain nonessential Dry Leased aircraft during the first quarter of 2020.debt.
Unallocated expenses and (income), net
Unallocated expenses and (income), net decreased $59.1increased $85.8 million, or 63.2%249.4%, primarily due to $64.2 million in CARES Act grant income.income recognized in 2020 and a $15.2 million increase related to adjustments to paid time-off benefits in our new JCBA in 2021 (see Note 12 to our Financial Statements).
2926
Nine Months Ended September 30, 20202021 and 20192020
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the nine months ended September 30:
Segment Operating Fleet |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
ACMI* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Airline Operations* |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 8.6 |
|
|
| 8.3 |
|
|
| 0.3 |
|
|
| 10.0 |
|
|
| 9.9 |
|
|
| 0.1 |
|
747-400 Cargo |
|
| 13.0 |
|
|
| 18.1 |
|
|
| (5.1 | ) |
|
| 34.3 |
|
|
| 32.2 |
|
|
| 2.1 |
|
747-400 Dreamlifter |
|
| 2.7 |
|
|
| 3.6 |
|
|
| (0.9 | ) |
|
| 1.0 |
|
|
| 2.7 |
|
|
| (1.7 | ) |
747-400 Passenger |
|
| 5.0 |
|
|
| 5.0 |
|
|
| - |
| ||||||||||||
777-200 Cargo |
|
| 8.0 |
|
|
| 6.8 |
|
|
| 1.2 |
|
|
| 9.0 |
|
|
| 8.5 |
|
|
| 0.5 |
|
767-300 Cargo |
|
| 23.6 |
|
|
| 25.2 |
|
|
| (1.6 | ) |
|
| 24.0 |
|
|
| 24.0 |
|
|
| - |
|
767-300 Passenger |
|
| 4.9 |
|
|
| 4.8 |
|
|
| 0.1 |
| ||||||||||||
767-200 Cargo |
|
| 9.0 |
|
|
| 9.0 |
|
|
| - |
|
|
| 2.7 |
|
|
| 9.0 |
|
|
| (6.3 | ) |
767-200 Passenger |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 0.2 |
|
|
| 1.0 |
|
|
| (0.8 | ) |
737-800 Cargo |
|
| 5.2 |
|
|
| 1.8 |
|
|
| 3.4 |
|
|
| 8.0 |
|
|
| 5.2 |
|
|
| 2.8 |
|
737-400 Cargo |
|
| 3.5 |
|
|
| 5.0 |
|
|
| (1.5 | ) |
|
| - |
|
|
| 3.5 |
|
|
| (3.5 | ) |
Total |
|
| 74.6 |
|
|
| 78.8 |
|
|
| (4.2 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Charter |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
747-8F Cargo |
|
| 1.3 |
|
|
| 1.6 |
|
|
| (0.3 | ) | ||||||||||||
747-400 Cargo |
|
| 19.2 |
|
|
| 15.3 |
|
|
| 3.9 |
| ||||||||||||
747-400 Passenger |
|
| 5.0 |
|
|
| 4.0 |
|
|
| 1.0 |
| ||||||||||||
777-200 Cargo |
|
| 0.5 |
|
|
| - |
|
|
| 0.5 |
| ||||||||||||
767-300 Cargo |
|
| 0.4 |
|
|
| - |
|
|
| 0.4 |
| ||||||||||||
767-300 Passenger |
|
| 4.8 |
|
|
| 4.9 |
|
|
| (0.1 | ) | ||||||||||||
Total |
|
| 31.2 |
|
|
| 25.8 |
|
|
| 5.4 |
|
|
| 99.1 |
|
|
| 105.8 |
|
|
| (6.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
| 7.0 |
|
|
| 7.3 |
|
|
| (0.3 | ) |
|
| 7.0 |
|
|
| 7.0 |
|
|
| - |
|
767-300 Cargo |
|
| 21.0 |
|
|
| 21.2 |
|
|
| (0.2 | ) |
|
| 21.0 |
|
|
| 21.0 |
|
|
| - |
|
757-200 Cargo |
|
| 0.2 |
|
|
| 1.0 |
|
|
| (0.8 | ) |
|
| - |
|
|
| 0.2 |
|
|
| (0.2 | ) |
737-300 Cargo |
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
|
| 1.0 |
|
|
| 1.0 |
|
|
| - |
|
737-800 Passenger |
|
| 0.2 |
|
|
| 1.0 |
|
|
| (0.8 | ) |
|
| - |
|
|
| 0.2 |
|
|
| (0.2 | ) |
Total |
|
| 29.4 |
|
|
| 31.5 |
|
|
| (2.1 | ) |
|
| 29.0 |
|
|
| 29.4 |
|
|
| (0.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
| (21.0 | ) |
|
| (23.1 | ) |
|
| (2.1 | ) |
|
| (21.0 | ) |
|
| (21.0 | ) |
|
| - |
|
Total Operating Average Aircraft Equivalents |
|
| 114.2 |
|
|
| 113.0 |
|
|
| 1.2 |
|
|
| 107.1 |
|
|
| 114.2 |
|
|
| (7.1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out-of-service** |
|
| 2.7 |
|
|
| 0.7 |
|
|
| 2.0 |
|
|
| - |
|
|
| 2.7 |
|
|
| (2.7 | ) |
| * |
|
| ** | Out-of-service includes aircraft that are either temporarily |
Block Hours |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Total Block Hours*** |
|
| 248,742 |
|
|
| 236,651 |
|
|
| 12,091 |
|
|
| 5.1 | % |
|
| 272,076 |
|
|
| 248,742 |
|
|
| 23,334 |
|
|
| 9.4 | % |
| *** | Includes |
30
Operating Revenue
The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
|
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
ACMI |
| $ | 873,451 |
|
| $ | 902,869 |
|
| $ | (29,418 | ) |
|
| (3.3 | )% | ||||||||||||||||||
Charter |
|
| 1,296,011 |
|
|
| 944,839 |
|
|
| 351,172 |
|
|
| 37.2 | % | ||||||||||||||||||
Airline Operations |
| $ | 2,762,815 |
|
|
|
| $ | 2,169,462 |
|
| $ | 593,353 |
|
|
| 27.4 | % | ||||||||||||||||
Dry Leasing |
|
| 123,572 |
|
|
| 157,328 |
|
|
| (33,756 | ) |
|
| (21.5 | )% |
|
| 121,694 |
|
|
|
|
| 123,572 |
|
|
| (1,878 | ) |
|
| (1.5 | )% |
Customer incentive asset amortization |
|
| (28,414 | ) |
|
| (26,018 | ) |
|
| 2,396 |
|
|
| 9.2 | % |
|
| (33,256 | ) |
|
|
|
| (28,414 | ) |
|
| 4,842 |
|
|
| 17.0 | % |
Other |
|
| 14,021 |
|
|
| 13,122 |
|
|
| 899 |
|
|
| 6.9 | % |
|
| 16,579 |
|
|
|
|
| 14,021 |
|
|
| 2,558 |
|
|
| 18.2 | % |
Total Operating Revenue |
| $ | 2,278,641 |
|
| $ | 1,992,140 |
|
|
|
|
|
|
|
|
|
| $ | 2,867,832 |
|
|
|
| $ | 2,278,641 |
|
|
|
|
|
|
|
|
|
ACMI27
Airline Operations
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
ACMI Block Hours |
|
| 175,064 |
|
|
| 182,060 |
|
|
| (6,996 | ) |
|
| (3.8 | )% |
ACMI Revenue Per Block Hour |
| $ | 4,989 |
|
| $ | 4,959 |
|
| $ | 30 |
|
| NM |
|
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 255,296 |
|
|
| 232,681 |
|
|
| 22,615 |
|
|
| 9.7 | % |
Passenger |
|
| 13,474 |
|
|
| 12,452 |
|
|
| 1,022 |
|
|
| 8.2 | % |
Total Airline Operations |
|
| 268,770 |
|
|
| 245,133 |
|
|
| 23,637 |
|
|
| 9.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
| $ | 10,279 |
|
| $ | 8,850 |
|
| $ | 1,429 |
|
|
| 16.1 | % |
Cargo |
| $ | 9,809 |
|
| $ | 8,355 |
|
| $ | 1,454 |
|
|
| 17.4 | % |
Passenger |
| $ | 19,187 |
|
| $ | 18,107 |
|
| $ | 1,080 |
|
|
| 6.0 | % |
ACMIAirline Operations revenue decreased $29.4increased $593.4 million, or 3.3%27.4%, primarily due to decreased flying. The decrease in Block Hours flown was primarily driven by the redeployment of 747-400 aircraft to Charter to support long-term charter programs with customers seeking to secure committed cargo capacity, partially offset by an increase in CMI flying and aircraft utilization. In addition, Block Hours were negatively impacted from flight cancellations by certain of our ACMI customers caused by the COVID-19 pandemic. Revenue per Block Hour was relatively unchanged.
Charter
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Charter Block Hours: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
| 57,749 |
|
|
| 37,084 |
|
|
| 20,665 |
|
|
| 55.7 | % |
Passenger |
|
| 12,320 |
|
|
| 15,379 |
|
|
| (3,059 | ) |
|
| (19.9 | )% |
Total |
|
| 70,069 |
|
|
| 52,463 |
|
|
| 17,606 |
|
|
| 33.6 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter Revenue Per Block Hour: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
| $ | 18,560 |
|
| $ | 17,379 |
|
| $ | 1,181 |
|
|
| 6.8 | % |
Passenger |
| $ | 18,199 |
|
| $ | 19,530 |
|
| $ | (1,331 | ) |
|
| (6.8 | )% |
Charter |
| $ | 18,496 |
|
| $ | 18,010 |
|
| $ | 486 |
|
|
| 2.7 | % |
Charter revenue increased $351.2 million, or 37.2%, primarily due to increased flying and an increase in Revenue per Block Hour. The increase in CharterHour and increased flying. Revenue per Block Hours flown wasHour rose primarily driven bydue to an increased demand for freighter aircraft reflecting aproportion of higher-yielding flying, including the impact of new and extended long-term contracts, the impact of the ongoing reduction of available cargo capacity provided by passenger airlines in the market, the continued disruption of global supply chains due to the COVID-19 pandemic and higher fuel costs. Partially offsetting these increases were lower commercial cargo Yields, net of fuel, compared with the higher commercial cargo market Yields during the early months of the COVID-19 pandemic, specifically April and May of 2020. The increase in Block Hours flown was primarily due to our ability to increase aircraft utilization.utilization as demand for our commercial cargo services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the factors impacting commercial cargo Charter noted above. Due to this increasedstrong demand, and to support long-term charter programs with customers seeking to secure committed cargo capacity, we redeployed 747-400reactivated four 747-400BCF aircraft from ACMIthroughout 2020 that had been temporarily parked and began operation ofusing a 777-200 freighter aircraft that was previously in our Dry Leasing business. Partially offsetting these improvements was lowerIn addition, Block Hours increased as passenger Charter reflected an increase in demand related to the CRAF activation in August 2021 and an increase in flying by the AMC passenger flying for 747-400 aircraft as the U.S. military tookhad taken precautionary measures to limit the movement of military personnel. Revenue per Block Hour increased primarily due to higher commercial cargo Yields driven bypersonnel since the factors impacting commercial cargo demand noted above, partially offset by a reductionearly days of the COVID-19 pandemic in passenger charter Revenue per Block Hour related to a decrease in higher-yielding 747-400 flying for the AMC and lower fuel costs.2020 through June 2021.
Dry Leasing
Dry Leasing revenue decreased $33.8 million, or 21.5%, primarily due to $22.3 million of revenue in 2019 from maintenance payments related to the scheduled return of a 777-200 freighter aircraft, changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.was relatively unchanged.
31
Operating Expenses
The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
| $ | 534,600 |
|
| $ | 432,911 |
|
| $ | 101,689 |
|
|
| 23.5 | % |
| $ | 642,417 |
|
| $ | 534,600 |
|
| $ | 107,817 |
|
|
| 20.2 | % |
Aircraft fuel |
|
| 594,458 |
|
|
| 309,673 |
|
|
| 284,785 |
|
|
| 92.0 | % | ||||||||||||||||
Maintenance, materials and repairs |
|
| 379,086 |
|
|
| 305,331 |
|
|
| 73,755 |
|
|
| 24.2 | % |
|
| 356,499 |
|
|
| 379,086 |
|
|
| (22,587 | ) |
|
| (6.0 | )% |
Aircraft fuel |
|
| 309,673 |
|
|
| 351,611 |
|
|
| (41,938 | ) |
|
| (11.9 | )% | ||||||||||||||||
Depreciation and amortization |
|
| 189,005 |
|
|
| 190,669 |
|
|
| (1,664 | ) |
|
| (0.9 | )% |
|
| 207,918 |
|
|
| 189,005 |
|
|
| 18,913 |
|
|
| 10.0 | % |
Travel |
|
| 114,749 |
|
|
| 140,513 |
|
|
| (25,764 | ) |
|
| (18.3 | )% | ||||||||||||||||
Navigation fees, landing fees and other rent |
|
| 109,909 |
|
|
| 110,468 |
|
|
| (559 | ) |
|
| (0.5 | )% |
|
| 138,918 |
|
|
| 109,909 |
|
|
| 29,009 |
|
|
| 26.4 | % |
Passenger and ground handling services |
|
| 98,355 |
|
|
| 97,138 |
|
|
| 1,217 |
|
|
| 1.3 | % |
|
| 121,837 |
|
|
| 98,355 |
|
|
| 23,482 |
|
|
| 23.9 | % |
Travel |
|
| 120,585 |
|
|
| 114,749 |
|
|
| 5,836 |
|
|
| 5.1 | % | ||||||||||||||||
Aircraft rent |
|
| 72,522 |
|
|
| 122,271 |
|
|
| (49,749 | ) |
|
| (40.7 | )% |
|
| 53,928 |
|
|
| 72,522 |
|
|
| (18,594 | ) |
|
| (25.6 | )% |
Gain on disposal of aircraft |
|
| (6,878 | ) |
|
| - |
|
|
| 6,878 |
|
| NM |
|
|
| (794 | ) |
|
| (6,878 | ) |
|
| (6,084 | ) |
| NM |
| ||
Special charge |
|
| 16,481 |
|
|
| 22,130 |
|
|
| (5,649 | ) |
|
| (25.5 | )% |
|
| - |
|
|
| 16,481 |
|
|
| (16,481 | ) |
| NM |
| |
Transaction-related expenses |
|
| 2,286 |
|
|
| 3,585 |
|
|
| (1,299 | ) |
|
| (36.2 | )% |
|
| 486 |
|
|
| 2,286 |
|
|
| (1,800 | ) |
|
| (78.7 | )% |
Other |
|
| 157,929 |
|
|
| 160,548 |
|
|
| (2,619 | ) |
|
| (1.6 | )% |
|
| 183,366 |
|
|
| 157,929 |
|
|
| 25,437 |
|
|
| 16.1 | % |
Total Operating Expenses |
| $ | 1,977,717 |
|
| $ | 1,937,175 |
|
|
|
|
|
|
|
|
|
| $ | 2,419,618 |
|
| $ | 1,977,717 |
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits increased $101.7$107.8 million, or 23.5%20.2%, primarily due to higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19, increased pay rates from our recent interim agreement withwe provided to our pilots beginning in May 2020 and higher pilot costs related to our new JCBA since the beginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in our new JCBA (see Note 12 to our Financial Statements). In addition, pilot costs reflected increased flying and increased flying.profit sharing.
28
Aircraft fuel increased $284.8 million, or 92.0%, primarily due to an increase in consumption related to increased Charter flying and an increase in the average fuel cost per gallon. Our exposure to fluctuations in fuel price is limited to the shorter-term commercial portion of our Charter services only, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. 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. Similarly, we generally have no fuel price risk for AMC charters because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Average fuel cost per gallon |
| $ | 1.90 |
|
| $ | 1.42 |
|
| $ | 0.48 |
|
|
| 33.8 | % |
Fuel gallons consumed (000s) |
|
| 312,662 |
|
|
| 217,507 |
|
|
| 95,155 |
|
|
| 43.7 | % |
Maintenance, materials and repairs increaseddecreased by $73.8$22.6 million, or 24.2%6.0%, primarily reflecting $73.5$54.6 million of decreased Heavy Maintenance expense, partially offset by $22.1 million of increased HeavyLine Maintenance expense and $9.9 million of increased Non-heavy Maintenance expense. Heavy Maintenance expense on 747-400 aircraft increased $65.8decreased $59.2 million primarily due to a decrease in the number of engine overhauls and a decrease in the number of D and C Checks, partially offset by an increase in Heavy Maintenance expense on 747-8F aircraft of $4.2 million primarily due to an increase in the number of engine overhauls,C Checks. Line Maintenance expense increased primarily due to take advantage of availability and opportunities for vendor pricing discounts, and an increase in the number of D Checks. Heavyincreased flying. Non-heavy Maintenance expense on 747-8F aircraft increased $5.8$7.8 million primarily due to an increase in the numbertiming of D Checks, partially offset by a reduction in the number of C Checks.landing gear overhauls. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:
Heavy Maintenance Events |
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
| ||||||
747-8F C Checks |
|
| - |
|
|
| 3 |
|
|
| (3 | ) |
|
| 4 |
|
|
| - |
|
|
| 4 |
|
747-400 C Checks |
|
| 13 |
|
|
| 15 |
|
|
| (2 | ) |
|
| 11 |
|
|
| 13 |
|
|
| (2 | ) |
767 C Checks |
|
| 6 |
|
|
| 3 |
|
|
| 3 |
|
|
| 5 |
|
|
| 6 |
|
|
| (1 | ) |
747-8F D Checks |
|
| 4 |
|
|
| 3 |
|
|
| 1 |
|
|
| 2 |
|
|
| 4 |
|
|
| (2 | ) |
747-400 D Checks |
|
| 6 |
|
|
| 1 |
|
|
| 5 |
|
|
| 4 |
|
|
| 6 |
|
|
| (2 | ) |
CF6-80 engine overhauls |
|
| 18 |
|
|
| 10 |
|
|
| 8 |
|
|
| 5 |
|
|
| 18 |
|
|
| (13 | ) |
PW4000 engine overhauls |
|
| 2 |
|
|
| - |
|
|
| 2 |
|
|
| 2 |
|
|
| 2 |
|
|
| - |
|
Aircraft fuel
Depreciation and amortization decreased $41.9increased $18.9 million, or 11.9%10.0%, primarily due to a decrease in the average fuel cost per gallon, partially offset by higher consumption related to increased Charter flying. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the costacquisition of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
| ||||
Average fuel cost per gallon |
| $ | 1.42 |
|
| $ | 2.29 |
|
| $ | (0.87 | ) |
|
| (38.0 | )% |
Fuel gallons consumed (000s) |
|
| 217,507 |
|
|
| 153,764 |
|
|
| 63,743 |
|
|
| 41.5 | % |
Depreciation and amortization decreased $1.7 million, or 0.9%, primarily due to a reduction in depreciation related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019, and certain spare CF6-80 engines and aircraft that were classified as held for sale during the fourth quarter of 2019. Partially offsetting these decreases wasflight equipment, an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements) and changes in 747-400 freighter aircraft leases (see Note 8 to our Financial Statements).
TravelNavigation fees, landing fees and other rent decreased $25.8increased $29.0 million, or 18.3%26.4%, primarily due to decreased ratesincreased Charter flying.
Passenger and travel relatedground handling services increased $23.5 million, or 23.9%, primarily due to the impact of the COVID-19 pandemic, partially offset by an increase inincreased Charter flying.
Travel increased $5.8 million, or 5.1%, primarily due to increased flying.
Aircraft rent decreased $49.7$18.6 million, or 40.7%25.6%, primarily due to a reductionchanges in the amortization of operating lease right-of-use assets related to the 747-400 freighter asset groupaircraft leases (see Note 8 to our Financial Statements) and the acquisition of 747-400 freighter aircraft that was written down during the fourth quarter of 2019.were previously on lease to us.
32
Gain on disposal of aircraft in 2021 and 2020 represented a net gain of $6.9 milliongains from the sale of certain nonessential assets that were classified as held for sale during the fourth quarter of 2019 (see Note 75 to our Financial Statements).
Special charge in 2020 represented a $16.5 million impairment charge related to fair value adjustments for assets held for sale, including spare engines and 737-400 passenger aircraft for training purposes. Special charge in 2019 primarily represented a $19.6 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. See Note 7 to our Financial Statements for additional discussion. We may sell additional flight equipment, which could result in additional charges in future periods.
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). Transaction-related expenses
Other increased $25.4 million, or 16.1%, primarily due to an increase in 2019 primarily related to professional fees, which included costs associated with negotiations and arbitration for a customer transaction with warrantsnew JCBA (see Note 512 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.
Other29
decreased $2.6 million or 1.6%, primarily due to a reduction in commission expense related to decreased revenue from the AMC.
Non-operating (Income) Expenses (Income)
The following table compares our Non-operating (Income) Expenses (Income) for the nine months ended September 30 (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Non-operating (Income) Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
| $ | (929 | ) |
| $ | (3,975 | ) |
| $ | (3,046 | ) |
|
| (76.6 | )% |
| $ | (559 | ) |
| $ | (929 | ) |
| $ | (370 | ) |
|
| (39.8 | )% |
Interest expense |
|
| 86,749 |
|
|
| 90,515 |
|
|
| (3,766 | ) |
|
| (4.2 | )% |
|
| 81,345 |
|
|
| 86,749 |
|
|
| (5,404 | ) |
|
| (6.2 | )% |
Capitalized interest |
|
| (528 | ) |
|
| (1,943 | ) |
|
| (1,415 | ) |
|
| (72.8 | )% |
|
| (5,456 | ) |
|
| (528 | ) |
|
| 4,928 |
|
| NM |
| |
Loss on early extinguishment of debt |
|
| 81 |
|
|
| 804 |
|
|
| (723 | ) |
|
| (89.9 | )% |
|
| - |
|
|
| 81 |
|
|
| (81 | ) |
| NM |
| |
Unrealized loss (gain) on financial instruments |
|
| 73,351 |
|
|
| (78,900 | ) |
|
| 152,251 |
|
|
| (193.0 | )% | ||||||||||||||||
Unrealized loss on financial instruments |
|
| 113 |
|
|
| 73,351 |
|
|
| (73,238 | ) |
|
| (99.8 | )% | ||||||||||||||||
Other (income) expense, net |
|
| (112,081 | ) |
|
| (596 | ) |
|
| 111,485 |
|
| NM |
|
|
| (41,174 | ) |
|
| (112,081 | ) |
|
| (70,907 | ) |
|
| (63.3 | )% |
Interest expense decreased $5.4 million, or 6.2%, 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 $4.9 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft from Boeing (see Note 2 to our Financial Statements).
Unrealized loss (gain) 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.price until the exercise of certain warrants in October 2020 and January 2021.
Other (income) expense, net increased $111.5decreased $70.9 million, or 63.3%, primarily due to a $43.4 million decrease in CARES Act grant income of $84.4 million (see Note 3 to our Financial Statements) and a $32.9$28.3 million refundreduction in refunds of aircraft rent paid in previous years.years (see Note 7 to our Financial Statements)
.
Income taxes. The effective income tax expenserates were 23.5% and 30.7% for the nine months ended September 30, 2021 and 2020, respectively. The rate for the nine months ended September 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 nine months ended September 30, 2020 differed from tax at the U.S. statutory rate primarily due to $16.0 million of nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements). The income tax benefit for the nine months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to $59.8 million of tax benefits related to the favorable completion of an IRS examination of our 2015 income tax return, and to a lesser extent, $17.3 million of nontaxable changes in the fair value of a customer warrant liability.
33
Segments
The following table compares the Direct Contribution for our reportable segments for the nine months ended September 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
| 2020 |
|
| 2019 |
|
| Inc/(Dec) |
|
| % Change |
|
| 2021 |
|
| 2020 |
|
| Inc/(Dec) |
|
| % Change |
| ||||||||
Direct Contribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
ACMI |
| $ | 109,624 |
|
| $ | 114,048 |
|
| $ | (4,424 | ) |
|
| (3.9 | )% | ||||||||||||||||
Charter |
|
| 373,371 |
|
|
| 79,554 |
|
|
| 293,817 |
|
| NM |
| |||||||||||||||||
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Airline Operations |
| $ | 666,203 |
|
| $ | 482,995 |
|
| $ | 183,208 |
|
|
| 37.9 | % | ||||||||||||||||
Dry Leasing |
|
| 30,046 |
|
|
| 58,646 |
|
|
| (28,600 | ) |
|
| (48.8 | )% |
|
| 31,765 |
|
|
| 30,046 |
|
|
| 1,719 |
|
|
| 5.7 | % |
Total Direct Contribution |
| $ | 513,041 |
|
| $ | 252,248 |
|
| $ | 260,793 |
|
|
| 103.4 | % |
| $ | 697,968 |
|
| $ | 513,041 |
|
| $ | 184,927 |
|
|
| 36.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
| $ | 173,439 |
|
| $ | 255,569 |
|
| $ | (82,130 | ) |
|
| (32.1 | )% |
| $ | 284,218 |
|
| $ | 173,439 |
|
| $ | 110,779 |
|
|
| 63.9 | % |
ACMIAirline Operations Segment
ACMIAirline Operations Direct Contribution decreased $4.4increased $183.2 million, or 3.9%37.9%, primarily due to higher heavy maintenance, including additional engine overhaulsour ability to take advantage of availability and opportunitiesincrease aircraft utilization as demand for vendor pricing discounts. In addition, ACMIour services increased, reflecting growth in airfreight volumes from pre-pandemic levels, as well as lower Heavy Maintenance expense. Direct Contribution reflectedalso 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 commercial cargo Yields, net of fuel, compared with the higher commercial cargo 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 fromwe provided to our recent interim agreement with our pilots. We also redeployed 747-400 aircraft to Charter to support long-term Charter programs with customers seeking to secure committed cargo capacity. Partially offsetting these items was an increasepilots beginning in CMI flying, a reduction in aircraft rentMay 2020 and depreciation and an increase in aircraft utilization.
Charter Segment
Charter Direct Contribution increased $293.8 million primarily due to an increase in commercial cargo Yields, net of fuel, and demand reflecting a reduction of available capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Charter Direct Contribution also benefited from a reduction in aircraft rent and depreciation, the redeployment of 747-400 aircraft from ACMI and the operation of a 777-200 freighter aircraft in our Dry Leasing business. Partially offsetting these improvements were higher heavy maintenance, including additional engine overhauls to take advantage of availability and opportunities for vendor pricing discounts, and lower passenger demand from the AMC as the COVID-19 pandemic disrupted the movement of military personnel. In addition, Charter Direct Contribution reflected higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates resulting from our recent interim agreement withnew JCBA (see Note 12 to our pilots.Financial Statements).
Dry Leasing Segment
Dry Leasing Direct Contribution decreased $28.6increased $1.7 million, or 48.8%5.7%, primarily due to $22.3 million of revenue in 2019 from maintenance paymentslower interest expense related to the scheduled returnrepayment of a 777-200 freighter aircraft, changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.debt.
30
Unallocated expenses and (income), net
Unallocated expenses and (income), net decreased $82.1increased $110.8 million, or 32.1%63.9%, primarily due to a $43.4 million decrease in CARES Act grant income.income (see Note 3 to our Financial Statements), a $28.3 million reduction in refunds of aircraft rent paid in previous years and a $15.2 million increase related to adjustments to paid time-off benefits in our new JCBA (see Note 12 to our Financial Statements).
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 from continuing operations, net of taxes 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 |
|
| For the Three Months Ended |
| ||||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| Percent Change |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| Percent Change |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net Income |
|
| $ | 74,054 |
|
|
| $ | 59,974 |
|
|
| 23.5 | % |
|
| $ | 119,535 |
|
|
| $ | 74,054 |
|
|
| 61.4 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
CARES Act grant income (a) |
|
| (64,211 | ) |
|
|
| - |
|
|
|
|
|
|
| - |
|
|
|
| (64,211 | ) |
|
|
|
| ||
Customer incentive asset amortization |
|
| 9,858 |
|
|
|
| 12,796 |
|
|
|
|
|
|
| 11,332 |
|
|
|
| 9,858 |
|
|
|
|
| ||
Adjustments to JCBA paid time-off benefits (b) |
|
| 15,150 |
|
|
|
| - |
|
|
|
|
| |||||||||||||||
Special charge |
|
| 547 |
|
|
| 18,861 |
|
|
|
|
|
|
| - |
|
|
| 547 |
|
|
|
|
| ||||
Leadership transition costs |
|
| 2,176 |
|
|
| 2,852 |
|
|
|
|
| ||||||||||||||||
Noncash expenses and income, net |
|
| 4,527 |
|
|
|
| 4,696 |
|
|
|
|
|
|
| 4,821 |
|
|
|
| 4,527 |
|
|
|
|
| ||
Unrealized loss (gain) on financial instruments |
|
| 43,604 |
|
|
|
| (83,175 | ) |
|
|
|
| |||||||||||||||
Unrealized loss on financial instruments |
|
| - |
|
|
|
| 43,604 |
|
|
|
|
| |||||||||||||||
Other, net |
|
| 462 |
|
|
|
| 2,371 |
|
|
|
|
|
|
| (204 | ) |
|
|
| 2,638 |
|
|
|
|
| ||
Income tax effect of reconciling items |
|
|
| 11,731 |
|
|
|
| (8,859 | ) |
|
|
|
|
|
|
| (5,189 | ) |
|
|
| 11,731 |
|
|
|
|
|
Adjusted Net Income |
|
| $ | 82,748 |
|
|
| $ | 9,516 |
|
| NM |
|
|
| $ | 145,445 |
|
|
| $ | 82,748 |
|
|
| 75.8 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Weighted average diluted shares outstanding |
|
| 26,619 |
|
|
|
| 25,854 |
|
|
|
|
|
|
| 30,547 |
|
|
|
| 26,619 |
|
|
|
|
| ||
Add: dilutive warrant |
|
| 2,478 |
|
|
|
| - |
|
|
|
|
|
|
| - |
|
|
|
| 2,478 |
|
|
|
|
| ||
effect of convertible notes hedges (e) |
|
| (717 | ) |
|
|
| - |
|
|
|
|
| |||||||||||||||
Adjusted weighted average diluted shares outstanding |
|
| 29,097 |
|
|
|
| 25,854 |
|
|
|
|
|
|
| 29,830 |
|
|
|
| 29,097 |
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Adjusted Diluted EPS |
|
| $ | 2.84 |
|
|
| $ | 0.37 |
|
| NM |
|
|
| $ | 4.88 |
|
|
| $ | 2.84 |
|
|
| 71.8 | % |
31
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2021 |
|
|
| September 30, 2020 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 316,578 |
|
|
| $ | 176,319 |
|
|
| 79.5 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant income (a) |
|
|
| (40,944 | ) |
|
|
| (84,378 | ) |
|
|
|
|
Customer incentive asset amortization |
|
|
| 33,256 |
|
|
|
| 28,414 |
|
|
|
|
|
Adjustments to JCBA paid time-off benefits (b) |
|
|
| 15,150 |
|
|
|
| - |
|
|
|
|
|
Special charge |
|
|
| - |
|
|
|
| 16,481 |
|
|
|
|
|
Noncash expenses and income, net (c) |
|
|
| 14,239 |
|
|
|
| 13,372 |
|
|
|
|
|
Unrealized loss on financial instruments |
|
|
| 113 |
|
|
|
| 73,351 |
|
|
|
|
|
Other, net (f) |
|
|
| 821 |
|
|
|
| 2,088 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| 222 |
|
|
|
| 10,170 |
|
|
|
|
|
Adjusted Net Income |
|
| $ | 339,435 |
|
|
| $ | 235,817 |
|
|
| 43.9 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 30,117 |
|
|
|
| 26,256 |
|
|
|
|
|
Add: dilutive warrant |
|
|
| - |
|
|
|
| 826 |
|
|
|
|
|
effect of convertible notes hedges (e) |
|
|
| (442 | ) |
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 29,675 |
|
|
|
| 27,082 |
|
|
|
|
|
Adjusted Diluted EPS |
|
| $ | 11.44 |
|
|
| $ | 8.71 |
|
|
| 31.3 | % |
|
|
| For the Nine Months Ended |
| ||||||||||
|
|
| September 30, 2020 |
|
|
| September 30, 2019 |
|
| Percent Change |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
| $ | 176,319 |
|
|
| $ | 117,132 |
|
|
| 50.5 | % |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant income (a) |
|
|
| (84,378 | ) |
|
|
| - |
|
|
|
|
|
Customer incentive asset amortization |
|
|
| 28,414 |
|
|
|
| 26,018 |
|
|
|
|
|
Special charge |
|
|
| 16,481 |
|
|
|
| 22,130 |
|
|
|
|
|
Leadership transition costs |
|
|
| 5,933 |
|
|
|
| 3,393 |
|
|
|
|
|
Noncash expenses and income, net (b) |
|
|
| 13,372 |
|
|
|
| 13,743 |
|
|
|
|
|
Unrealized loss (gain) on financial instruments |
|
|
| 73,351 |
|
|
|
| (78,900 | ) |
|
|
|
|
Other, net (c) |
|
|
| (3,845 | ) |
|
|
| 4,653 |
|
|
|
|
|
Income tax effect of reconciling items |
|
|
| 10,170 |
|
|
|
| (12,540 | ) |
|
|
|
|
Special tax item (e) |
|
|
| - |
|
|
|
| (54,272 | ) |
|
|
|
|
Adjusted Net Income |
|
| $ | 235,817 |
|
|
| $ | 41,357 |
|
| NM |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
| 26,256 |
|
|
|
| 26,909 |
|
|
|
|
|
Add: dilutive warrant (d) |
|
|
| 826 |
|
|
|
| - |
|
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
| 27,082 |
|
|
|
| 26,909 |
|
|
|
|
|
Adjusted Diluted EPS |
|
| $ | 8.71 |
|
|
| $ | 1.54 |
|
| NM |
|
35
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| Percent Change |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| Percent Change |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net Income |
| $ | 74,054 |
|
| $ | 59,974 |
|
|
| 23.5 | % |
| $ | 119,535 |
|
| $ | 74,054 |
|
|
| 61.4 | % | ||||
Interest expense, net |
|
| 28,096 |
|
|
| 28,611 |
|
|
|
|
|
|
| 24,679 |
|
|
| 28,096 |
|
|
|
|
| ||||
Depreciation and amortization |
|
| 65,595 |
|
|
| 62,499 |
|
|
|
|
|
|
| 73,468 |
|
|
| 65,595 |
|
|
|
|
| ||||
Income tax expense (benefit) |
|
| 36,120 |
|
|
| (8,282 | ) |
|
|
|
| ||||||||||||||||
Income tax expense |
|
| 36,583 |
|
|
| 36,120 |
|
|
|
|
| ||||||||||||||||
EBITDA |
|
| 203,865 |
|
|
| 142,802 |
|
|
|
|
|
|
| 254,265 |
|
|
| 203,865 |
|
|
|
|
| ||||
CARES Act grant income (a) |
|
| (64,211 | ) |
|
| - |
|
|
|
|
|
|
| - |
|
|
| (64,211 | ) |
|
|
|
| ||||
Customer incentive asset amortization |
|
| 9,858 |
|
|
| 12,796 |
|
|
|
|
|
|
| 11,332 |
|
|
| 9,858 |
|
|
|
|
| ||||
Adjustments to JCBA paid time-off benefits (b) |
|
| 15,150 |
|
|
| - |
|
|
|
|
| ||||||||||||||||
Special charge |
|
| 547 |
|
|
| 18,861 |
|
|
|
|
|
|
| - |
|
|
| 547 |
|
|
|
|
| ||||
Leadership transition costs |
|
| 2,176 |
|
|
| 2,852 |
|
|
|
|
| ||||||||||||||||
Unrealized loss (gain) on financial instruments |
|
| 43,604 |
|
|
| (83,175 | ) |
|
|
|
| ||||||||||||||||
Unrealized loss on financial instruments |
|
| - |
|
|
| 43,604 |
|
|
|
|
| ||||||||||||||||
Other, net |
|
| 462 |
|
|
| 1,474 |
|
|
|
|
|
|
| (204 | ) |
|
| 2,638 |
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 196,301 |
|
| $ | 95,610 |
|
|
| 105.3 | % |
| $ | 280,543 |
|
| $ | 196,301 |
|
|
| 42.9 | % |
|
| For the Nine Months Ended |
|
| For the Nine Months Ended |
| ||||||||||||||||||||||
|
| September 30, 2020 |
|
| September 30, 2019 |
|
| Percent Change |
|
| September 30, 2021 |
|
| September 30, 2020 |
|
| Percent Change |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net Income |
| $ | 176,319 |
|
| $ | 117,132 |
|
|
| 50.5 | % |
| $ | 316,578 |
|
| $ | 176,319 |
|
|
| 79.5 | % | ||||
Interest expense, net |
|
| 85,292 |
|
|
| 84,597 |
|
|
|
|
|
|
| 75,330 |
|
|
| 85,292 |
|
|
|
|
| ||||
Depreciation and amortization |
|
| 189,005 |
|
|
| 190,669 |
|
|
|
|
|
|
| 207,918 |
|
|
| 189,005 |
|
|
|
|
| ||||
Income tax expense (benefit) |
|
| 77,962 |
|
|
| (68,072 | ) |
|
|
|
| ||||||||||||||||
Income tax expense |
|
| 97,367 |
|
|
| 77,962 |
|
|
|
|
| ||||||||||||||||
EBITDA |
|
| 528,578 |
|
|
| 324,326 |
|
|
|
|
|
|
| 697,193 |
|
|
| 528,578 |
|
|
|
|
| ||||
CARES Act grant income (a) |
|
| (84,378 | ) |
|
| - |
|
|
|
|
|
|
| (40,944 | ) |
|
| (84,378 | ) |
|
|
|
| ||||
Customer incentive asset amortization |
|
| 28,414 |
|
|
| 26,018 |
|
|
|
|
|
|
| 33,256 |
|
|
| 28,414 |
|
|
|
|
| ||||
Adjustments to JCBA paid time-off benefits (b) |
|
| 15,150 |
|
|
| - |
|
|
|
|
| ||||||||||||||||
Special charge |
|
| 16,481 |
|
|
| 22,130 |
|
|
|
|
|
|
| - |
|
|
| 16,481 |
|
|
|
|
| ||||
Leadership transition costs |
|
| 5,933 |
|
|
| 3,393 |
|
|
|
|
| ||||||||||||||||
Unrealized loss (gain) on financial instruments |
|
| 73,351 |
|
|
| (78,900 | ) |
|
|
|
| ||||||||||||||||
Unrealized loss on financial instruments |
|
| 113 |
|
|
| 73,351 |
|
|
|
|
| ||||||||||||||||
Other, net |
|
| (3,845 | ) |
|
| 3,156 |
|
|
|
|
|
|
| 821 |
|
|
| 2,088 |
|
|
|
|
| ||||
Adjusted EBITDA |
| $ | 564,534 |
|
| $ | 300,123 |
|
|
| 88.1 | % |
| $ | 705,589 |
|
| $ | 564,534 |
|
|
| 25.0 | % |
| (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) | Adjustments to JCBA time-off benefits in 2021 are related to our new JCBA (see Note 12 to our Financial Statements). |
(c) | Noncash expenses and income, net in |
|
| Other, net in 2021 primarily related togain on the sale of aircraft partially offset by leadership transition costs. Other, net in 2020 primarily related to leadership transition costs and costs associated with our acquisition of Southern Air. |
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(e) | 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). |
(f) | Other, net in 2021 primarily related to leadership transition costs andcosts associated with our acquisition of Southern Air, partially offset by a |
|
|
|
|
Liquidity and Capital Resources
The most significant liquidity events during the first three quarters of 20202021 were as follows:
In February 2020,March 2021, we refinanced two secured term loans that were originally due later in 2020, with two new term loans. One term loan is for 126 months in the amount of $82.0borrowed $16.2 million at a fixed interest rate of 3.27% with a final payment of $12.5 million0.93% under an unsecured five-year term loan due in July 2030.January 2026 for GEnx engine performance upgrade kits and overhauls. The other term loan is for 130 months in the amountsubject to customary fees, covenants and events of $82.0default, 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 3.28% with a final payment of $12.5 million0.91% under an unsecured five-year term loan due in November 2030.
36
In April 2020, we borrowed $14.6 million related toMay 2026 for GEnx engine performance upgrade kits and overhauls under an unsecured five-yearoverhauls. The term loan at a fixedis subject to customary fees, covenants and events of default, with principal and interest rate of 1.15%.
In May 2020, we entered into the PSP Agreement with the U.S. Treasury that provided us with payroll support funding in three installments through July 2020 totaling $406.8 million, of which $207.0 million is in the form of direct payroll support and $199.8 million is in the form of the Promissory Note. The Promissory Note is due in May 2030 and bears interest on the outstanding principal amount at a rate equal to 1.00% per annum until the fifth anniversary of the PSP Closing Date and the applicable Secured Overnight Financing Rate (“SOFR”) plus 2.00% per annum thereafterpayable quarterly (see Note 38 to our Financial Statements).
In August 2020, we borrowed $22.9 million related to GEnx engine performance upgrade kits and overhauls under an unsecured five-year term loan at a fixed interest rate of 0.95%.
Operating Activities. Net cash provided by operating activities was $608.9 million for the first three quarters of 2021, which primarily reflected Net Income of $316.6 million and noncash adjustments of $265.2 million for Depreciation and amortization and $96.1 million for Deferred taxes, partially offset by a $43.3 million increase in Prepaid expenses, current assets and other assets, a $19.4 million decrease in Accounts payable, accrued liabilities and other liabilities and a $15.8 million increase in Accounts receivable. Net cash provided by operating activities was $782.7 million for the first three quarters of 2020, which primarily reflected Net Income of $176.3 million, noncash adjustments of $240.8 million for Depreciation and amortization, $75.3 million for Deferred taxes and $73.4 million for Unrealized loss on financial instruments, a $208.1 million increase in Accounts payable, accrued liabilities and other liabilities, and a $23.1 million decrease in Accounts receivable, partially offset by a $39.8 million increase in Prepaid expenses, current assets and other assets.
Investing Activities. Net cash provided by operatingused for investing activities was $193.3$403.1 million for the first three quarters of 2019, which2021, consisting primarily reflected Net Income of $117.1$346.0 million noncash adjustments of $241.3purchase deposits and payments for flight equipment and modifications and $64.1 million of payments for Depreciation and amortization, $78.9 million for Unrealized gain on financial instruments and $68.6 million for Deferred taxes and a $11.0 million increase in Accounts payable, accrued liabilities and other liabilities,core capital expenditures, excluding flight equipment, partially offset by a $69.3$9.5 million increase in Prepaid expenses, current assetsof proceeds from the disposal of aircraft. Purchase deposits and other assets.
Investing Activities.payments for flight equipment and modifications during the first three quarters 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 $101.4 million for the first three quarters of 2020, consisting primarily of $102.8 million of payments for flight equipment and modifications and $45.1 million of payments for core capital expenditures, excluding flight equipment, partially offset by $45.7 million of proceeds from the disposal of aircraft. Payments for flight equipment and modifications during the first three quarters of 2020 were primarily related to spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2020 were funded through working capital and the financings discussed above.
Financing Activities. Net cash used for investingfinancing activities was $208.8$278.0 million for the first three quarters of 2019, consisting2021, which primarily of $153.7reflected $271.1 million of payments on debt, $35.6 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for flight equipment and modifications and $107.6 millionpayment of core capital expenditures, excluding flight equipment,taxes, partially offset by $38.1$23.9 million of proceeds from insurance. Payments for flight equipmentdebt issuance and modifications during the first three quarters$13.5 million of 2019 were primarily related to 767-300 passenger aircraftcustomer maintenance reserves and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits.
Financing Activities.deposits received. Net cash used for financing activities was $65.4 million for the first three quarters of 2020, which primarily reflected $353.8 million of payments on debt, $175.0 million of payments on our revolving credit facility and $14.4 million in payments of maintenance reserves, partially offset by $401.4 million from debt issuance and $75.0 million of proceeds from our revolving credit facility. Net cash used for financing activities was $136.5 million for the first three quarters of 2019, which primarily reflected $273.1 million of payments on debt, including a $66.2 million repayment of three term loans, and $9.3 million related to treasury shares withheld for payment of taxes, partially offset by $93.7 million from debt issuance and $50.0 million of proceeds from our revolving credit facility.
In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, limited ground staff hiring, 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, (excluding Payroll Support Program proceeds to be used exclusively for the payment of certain employee wages, salaries and benefits of the PSP Recipients), 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 2020. Commitments to acquire engines are approximately $95.0 million.2021. Core capital expenditures for the remainder of 20202021 are expected to range betweenfrom $25.0 to $35.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of 2021 are expected to be $48.2 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, and agreements to acquire spare engines).
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
33
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.
37
We do not expect to pay any significant U.S. federal income tax in this decade.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. The U.S. and numerous other countries are currently considering tax reform, which could result in significant changes to U.S. and international tax laws. The potential enactment of these laws could have a material impact on our business, results of operations and financial condition. We continue to monitor developments and assess the impact to us.
Contractual Obligations and Debt Agreements
See Notes 3 andNote 8 to our Financial Statements for a description of our new debt. See our 20192020 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, 20192020 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 nine months ended September 30, 2020.2021.
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, 2019 and our Form 10-Q for the period ended June 30, 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
ThereExcept 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 nine months ended September 30, 2020.2021. 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 20192020 Annual Report on Form 10-K.
34
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 September 30, 2020.2021. 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 September 30, 20202021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
38
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended September 30, 2020,2021, 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
Except for the risk factor disclosed in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which is hereby incorporated by reference into this Part II, Item 1A of this Form 10-Q, thereThere have been no material changes in the Company’sour risk factors from those disclosed in our 2020 Annual Report on Form 10-K for the year ended December 31, 2019.10-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.
3935
EXHIBIT INDEX
Exhibit Number |
| Description |
|
|
|
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 |
| |
|
|
|
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 September 30, |
4036
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: November |
| /s/ John W. Dietrich |
|
| John W. Dietrich |
|
| President and Chief Executive Officer |
|
|
|
Dated: November |
| /s/ Spencer Schwartz |
|
| Spencer Schwartz |
|
| Executive Vice President and Chief Financial Officer |
41
37