Atlas Air Worldwide (AAWW) 2 Aug 192019 Q2 Earnings call transcript

Company Profile

Participants

Edward McGarvey	VP & Treasurer
William Flynn	CEO & Director
John Dietrich	President & COO
Spencer Schwartz	EVP & CFO
Robert Labick	CJS Securities
Helane Becker	Cowen and Company
Seldon Clarke	Deutschebank
Kevin Sterling	Seaport Global Securities
Scott Group	Wolfe Research
David Campbell	Thompson, Davis & Company
Jack Atkins	Stephens Inc.
David Ross	Stifel, Nicolaus & Company
Howard Rosencrans	Value Advisory Services

Call transcript

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Operator

Good morning. My name is Catherine, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Second Quarter 2019 Earnings for Atlas Air Worldwide Conference Call. [Operator Instructions]. Thank you, and I'd like to turn the call over to Atlas Air. begin. Please

Edward McGarvey

call and Worldwide. I'm quarter John Welcome conference On Catherine, for McGarvey, our that Officer; Spencer can XXXX morning, Flynn, in at under Chief Chief be Schwartz, complemented call. by the Air Operating Bill Atlas call Presentations to section. our Officer. viewed good Today's is and Investor you, Executive a Ed President our Dietrich, everyone. Treasurer results our Thank Chief are Officer; and today our Financial slide Information presentation second Atlasairworldwide.com

Slide relate you Securities within Private on performance future and expectations, to the about risks indicated today X, our company's statements the of Litigation As events uncertainties. we'd and Reform like remind the involve statements meaning they that Act to includes of and forward-looking some These discussion XXXX.

Our projected or those differ in materially any actual from actions statements. results may forward-looking

please XX-K are our and to For our are appendix to GAAP information our the business, non-GAAP and to provide SEC supplemented meant today's press by in attached to with in risk that or measures to Form today's meaningful factors about subsequently is Any references amended insights refer reconciled slides. XXXX reports. filed release related as

as to period be time permits. we'd After up we'll question-and-answer participants question additional and accommodate we've to question can queue, to ask one any gone the happy so participants possible. themselves our questions During today, many as follow to like through limit one principal answer that as we

your At Flynn. call Slide to X this to and attention the draw over to like turn Bill point, I'd

William Flynn

time, Chief our Lead as the John role current Chief become succeed my announced Independent John good will that become to and in Bob will early Air this of call. of as the and Board morning, And pleased Ed, we welcome Thank from to Dietrich, board's me Officer at and Board, At our Chairman I Chairman of our President day-to-day retire Officer, I'm the January company. X. Atlas Operating Worldwide Executive July, on Agnew, will you, Director. everyone.

greatest thoughtful serve of and has days to a implement Operating the through board's the person to Officer grow next plan for the ensure One company responsibilities shows. Most CEO or He of road our to work to continues and next thrive, and as know John our interactions, already been is is closely Atlas. nondeal we of our years, Chief you analyst succession investor many John business together.

know and employees. leadership has air has than And our in the of with XX solid with to He's to getting visionary to usher aviation United years others a Operating our Officer. commitment unparalleled John like and invite company, expertise our Airlines, XX customers the key cargo industries, over an and played John including to He Chief driving of XX him, John success. to as our now. in years new For a few words in era more last has company, role the our experience I'd years a XX say and growth.

John Dietrich

have to the many great continuing I'm successor. our look I and selected and and have years, been Atlas company. has and Thank you, to great entire for build Bill's these Bill for foundation over honored been Bill, the hello, to team forward everyone. built on we It working as with strong

has our amazing much ground crew, team We and so have an including accomplished that staff together. team management of professionals,

value and look opportunities our drive competition. shareholders. a service industry deliver I and and future to have also powerful customers market forward that in and second to offerings assets We leverage work none growth with our continuing team our among to our portfolio the to are to the for of position

grow them progress opportunity. here environment work the be as I'm I with Equally also to to employees analysts to investors filled working and we provide rewarding our help time and for spending a at to our into look forward careers this I'm more excited their future. with Atlas. with excited grateful important, opportunities really

it turn I'll to over Bill, that, back you. with And

William Flynn

board his in in Thank John. this I'm I for for and company value company employees driving years, our excited It's outstanding shareholders. XX we to our leadership lead strategic with and create my and members I growth leadership. team value work John, my great have to his agenda as to employees past forward, execute our the partnership you, continue honor our customers, senior as CEO fellow to been and confidence and long-term

Slide X our to and Turning results.

a tensions across took yields widely industry. tariffs and global aviation the reported to volumes impact cargo of quarter the dramatic turn due trade Second and

by addition to through impacted labor-related In managing maintaining service headwinds our and on our strategies drivers. were longer-term these period during disruptions. and growth We're results near-term focus the growth these are factors,

productivity, include increase efficiency to actions Our continuous initiatives ongoing our enhance improvement and grow business.

pilots. our remain to we a Additionally, collective bargaining competitive committed agreement for negotiating

to bargaining progress, want. scheduled upcoming to forward we an parties and toward all made the progress that Our have agreement recent look sessions continue sessions

enterprise; have our the position Despite freight, employees; blocks and the global team scope global leadership in the on world-class and we impacts current for of focus on scale express our in the e-commerce modern, fast aviation efficient customers growing outsourcing. our building and of our services trade and right future, resulting diversified want; aircraft our air tensions markets; that which include

earnings over growth value. driven time, our which in has consistently driven book We've higher

When we've the affected results not through of combination outlook, have value. happened tension market the always current is to labor environment has adjusted discount this we our tariffs, we time has consistently the and added first while a book it and has managed While market an past, trade and adverse the in disruption encountered and value. this our

operating added that these an contributions X provided operations for XXXs quarter. customer for for We CMI DHL XXXs Slide Amazon, add. to will aircraft Cargo the X. aircraft Airlines. XXX X to and to We asset-light included These Moving our cargo forward additional second Nippon during look the X

results. Turning our financial to

commercial our softening quarter. as second reflected segment yields Our wait-and-see in and anticipated hours hours approach quarter, in and were military than expectations the we trade line and up was with and were cargo Charter, the issues passenger block expected. quarter Charter But tariffs as took be. military demand our In and shippers regarding quarter would anticipated less the first adjusted during a they earnings from manufacturers cargo a for

the occurrences, our XXXX. Slide disputes and uncommon Tariffs framework X highlights situation. current reflects are the our for magnitude current related guidance trade but of

happens, and a in short could relatively We time well. the outlook meaningful in issues whole dynamics part States that in any improvement that particular in our between could see of the within at be also and China a recognize period if freight United time. we air And as addressed or trade

Based hours hours on to balance fly current ACMI about approximately with of conditions the XXX,XXX and Charter. in block XXXX, the and XX% in expectations, we expect in

adjusted also XX% revenue income XXXX We of net our adjusted of billion, income. of approximately adjusted anticipate of $X.X about and million EBITDA $XXX net approximately

is of for In approximately about of million, expense the which for $XXX $XXX about total addition, our capital maintenance $XXX appreciation parts and expected million, expenditures and fleet. year to court is amortization and components for million with mainly

mid- of our anticipate our quarter. will full results. Looking adjusted a represent at income the upper percentage to net that teen We year third

than XX,XXX adjusted approximately more fly expect $XXX of the of million about with We EBITDA hours million. block quarter, and revenue to $XXX in

then a about be add I'll detail questions. After Spencer and results. is our Spencer's a second provide remarks, additional quarter point and to Spencer? take This good additional comments, I for few your happy to John, some Spencer will

Spencer Schwartz

everyone. Thank you, and hello, Bill,

$XX.X of in Our net and unrealized second quarter $XX.X was to to a benefits taxes on earnings income favorable both operations On reported warrants. which million adjusted million, On IRS million million. completion well are of tax related Slide $XX.X of totaled $XX.X Due the an from X. an return basis, benefit. a examination as an of of gain continuing the XXXX income completion income of our favorable IRS million, summarized adjusted included the second tax mainly was on included reported our basis, and net quarter EBITDA tax the outstanding exam, as earnings $X.X noncash

approximately full XXXX we income rate XX%. As expect the a adjusted result, for of to our year be tax

ACMI for X. by customers mainly incremental per CMI rate the related to block the average flying. XXX Slide mostly XXX in decrease hour flying, and a segment offset quarter partially revenue flying, at second increase an the to new and Higher XXX in XXX and startup flying Looking XXX-XXX in XXX growth due smaller-gauge was of in

partially revenue Charter aircraft with rate quarter. was the average return Lower during segment primarily additional lower we block scheduled XXX of per aircraft the noted, primarily flying and the driven Bill in placement customer, decrease the awaiting offset placement leasing by that revenue March period and segment as fourth the by in expect higher is which to dry in of a hour, related a a

flying. and wages work crew heavy million in $XX.X increases to Segment by amortization ACMI costs. were pilots, These Slide primarily higher agreement offset expense Air deferred of XXX Southern and resulting second X. maintenance maintenance totaled interim CMI reflected enhanced including and in additional earnings contribution the with Moving our the from quarter. increased XXX rules costs,

period segment decrease by maintenance by the expense. labor-related also well related that ACMI passenger was Charter the In service of service as additional trade the to of by return were customer aircraft. military partially a leasing, in XXX as impacted contribution March, heavy disruptions lower in quarter scheduled segment additional and disruptions. the segment by volumes In and impact tariffs of due driven primarily contribution freighter during initiatives tensions, was addition, the during placement for was global and the to cargo costs startup in yields decrease dry cargo contribution flying commercial and labor-related Bill Charter growth affected results Lower the offset the noted.

Slide XX. Turning to

for We expect have take and aircraft any business. opportunities. operating be not have of fleet asset-light the our advantage growth year, firm do grown remainder to we to We of in purchase fleet great our commitments CMI our the

remain ratio. net XXXX, for our debt since cash result, first the to our committed a time XXXX exceed full equipment flight flow We our free paying down As year and in expect leverage expenditures. reducing to we

a as ticked than on overall and its quarter expected net leverage our impact lowered in earnings debt of outstanding, Even XX softer our upward second months trailing the ratio we EBITDA. as result

We see by we debt going as repayments as approximately continue million benefit debt per to levels gradual and maintaining lower EBITDA improvement forward increased to we expect from $XX quarter. of levels

turn to Bill. I'd to Now like back it

William Flynn

quarter by of impact were the Results XX. and cargo current affected Slide global second aviation the to on across tariffs the reported widely trade volumes in tensions Moving industry.

labor-related on have impact future. impacts an from service saw blocks building tensions disruptions. the and trade we the also Despite global for freight, right air resulting We the

to strategies our negotiating drivers. growth focus labor contract on current through and well competitive pilots. we're longer-term manage a and Additionally, headwinds, for to we're We're committed positioned maintaining our our

have question, we the may first please? Catherine,

Operator

Instructions]. [Operator

question first Your comes line Securities. Labick Bob with of the from CJS

Robert Labick

to you congratulations on working forward company we again other look years obviously, move role. done look and quick First a you forward chairman more job, over obviously, last with John. you seeing the closely. Bill, tremendous Bill great for growing John, to the you've working And to been I I it's and Excited the you just wanted to start to I know with a before you. guys. each XX with and

the So it last to of knew about for an talked jumping X hard last talking get be And it it's incremental ACMI. to or it's the We But a took would We it from tough And dollars, hit so. the not Direct just just magnitude. kind the call. quarter. on of contribution dollars, flat, down. the been quarters this margins, sense quarter.

it's you Can for example contribution direct You've question the to the that? us going of ultimate disruptions. to quarters. magnitude X to grow talked change here. ACMI -- about what's maybe been going going change the to dollars grow labor give Or of Because tough an X, last forward? What's

Spencer Schwartz

Bob, it's Sure. Thanks, Spencer.

the around better, question, really and how the higher quarter. biggest below and additional heavy your costs enjoy $XX So the it pilots, flying startup was expense, But within to disruptions, second get million we we the so higher as a quarter, Air be had segment, and all one costs XXXX but for peak contributions that we've of will we'll labor-related the to XXXX. in the more And than the higher second Southern maintenance expense half the is flying of as this half was offset for then ACMI items by expect talked maintenance up heavy service that about, from of noted. with related answer you to integrators,

as So ACMI ACMI you in should see well really the quarter. as especially improving profitability improving, margins fourth

Robert Labick

expected. passenger Can talk about great. cargo. us expectations And was the Or to recovered? little then than a in noted AMC, that Got in completely talked order slightly then up QX, a now? Is my just the what's lower there outlook in you there. on it, I recovery, guess, you the going Is forward? a little it follow And speak, cargo. behind On about just And patterns in we AMC? so change

William Flynn

Yes, is I'll this that. Bob, Bill. answer

in XXXX, as of half second relatively couple second a we and the to volumes year the it flat fleet, last first than half be as AMC substantially a passenger some XXX flat substantially of second was in We've incurred. In last we cargo our XXX cargo XXXX. a due second for volumes, maintenance higher So XXX, cargo, cargo of that had year. than aircraft higher well to also to half half higher to damage passenger, and to added half half XXXX had the year, cargo expect be second but expect last than and to we half somewhat first relatively

got for those an the And so expect service so for in several expect half. now aircraft we flying second the the -- reasons, uptick we've we in all military, an of

Spencer Schwartz

it's Bob, in I'll And around for both flying. entitlement fairly that Spencer. that area passenger just steady, and add cargo XX% remained our

Operator

the comes Becker of from with Your Helane line next Cowen. question

Helane Becker

business if question of percent answer actual what you one is decline? was difference labor versus the I The was wondering could the

Spencer Schwartz

Yes, Helane. Hi, it's Spencer.

not maintenance, and quantify going increase tell was but lower higher tensions is disruptions. a that as as to really benefit, rent in from we're and impact prior in and sure obviously the military at you And heavy crew as thing other due then a that well flying, you that, the know, So we'll also quarter largest Southern tariffs of passenger the followed trade to the prior labor by year looking costs second startup the the alone, had cost I'm years. paid cargo refund

shortfall of quarter. So the of items the in magnitude made various the the second up that's kind that

Helane Becker

X%. technology mean, products I X%, little specifically, just up that little a was noticed up under a Okay. and I over was in X%, June just pharmaceuticals

have I did like sounds in it tech So the would you carry to products from think might some But benefit you tend seen that occur. June. that not

William Flynn

Helane. So Bill, this is

dramatic didn't we -- that $XXX somewhat But way. then to tariffs that came then tranche volumes And tariffs that fairly from implemented. under Just a in It at the went What end through a and us tariffs they continued. between The the a those and of And happen. X then the series of was was was XX%, couple by March were third for of impacted the that of from of a tariffs. third items were to have April. held May worth there of certainly Volumes the And have $XXX tariffs, on then U.S. really on resolution were billion implemented, those XX%. we items saw been tariffs rate as went hoping September announced things. back There that been billion XX% into April somewhat down. as China of of were and came in impact discussions XX. certainly where advance and that most other tranche of tranche

think some Then pretty in up volumes building bit first quickly were really as people perhaps these some volumes a capacity inventories were out. the dropped, I come didn't quarter tariffs. as dropped yields against because buoying

I happened of recent And into cargo and tech. Pharma earnings well. their tech that's that you results. about guidance volume as of very and but we Asian several what context observed their think to Charters, of or seen the volumes We integrators European provided. talked their have large have about about some the and heard shifting -- with already in U.S. recently that their carriers the declines we've here airlines, I that we've certainly in certainly the what said think, said have of we're to the Taiwan, recent cargo kind that's yield several X passenger calls it's calls, offsetting reflecting some framework think And consistent carrying decline and cargo some what reflected Vietnam, we've And tech talked I concurrent not what place. one And have airlines, we're seen into what's the on describing about the earnings we're is, here what of in and large the market shifting and I

Helane Becker

one I you. have unrelated. thank question just other Okay,

I freighters. replace supposed XXX-X or think X still XXX-XXXs with Qantas Is going to for you on X were forward? hold now, that transaction is that is

William Flynn

this expect No, that Those and those up, going we Qantas signoffs. essentially aircraft to lined for forward. transaction's There's some regulatory are quarter. fly

Operator

comes of question the next Your from Seldon Deutschebank. with line Clarke

Seldon Clarke

just only by talk moving whether For shortfall make XX%, pieces the lowered think for you you and by about Can can revenue guidance up XXXX? your you you hour lowered full guidance there you in EBITDA X%. year block and but the EBITDA, that

Spencer Schwartz

to the June really happened will Seldon, and shapes so like. some half point. starting help to hear at positives, this I could plays fourth yields Hi, see how it's May, see Spencer. this to that to up to in remainder some we're of the positives then starting so July. be ready so are see. year, second about and what have The We're XXXX of we We talk still think how need decline out. the to we're going But hear we into quickly don't peak quarter and now

of maintenance expense. your to question, reimbursed then regard are other for some And With that expenses certain customers. there play that and into there's

mentioned to benefit before, year, And so expect and lower expense, that Maintenance the EBITDA. so second should of the really in I we as half

Seldon Clarke

my is changed I that really guidance hasn't from So guess your question. initial more

by XX%. revenue block you somewhere billion the block guidance. your per as revenue in EBITDA XXX,XXX $X.X hour the around hours, same So lowered imply But previous

your lowered as forecast You've expense for well. maintenance

what is curious disconnect just there. I'm the So

Spencer Schwartz

sure. Okay,

variances which softness, market our year, guidance take look international due to a the full versus tariffs guidance, the the includes our previous the current So and tensions. greatest if of and yields volume impacts are you trade at

as because from into then and lowered in or The the And by we will the could then peak. assume the over be improve before, really Those We fall, any with impact of also disruptions. will summer will We continue months volumes there few yields. labor developments yields said think are declines far guidance passenger that and the what over tariffs during the current volumes, items, then negotiations question like. is conditions peak past and the trade military be impacts positive will outlook. our biggest Bill

Seldon Clarke

then, customer-specific, on. of not you new these that And asking but business some these, Okay. winds some of bring

I the costs with starts normal, generally think you X that year, first how have or or startup does especially more they in than profitable Year inflect to But XXXs. are something is Or that Year X? the in work? exactly that

Spencer Schwartz

and varies. little fleet a pilots We different, and type. was of customer it XXXs a were quickly. to have had bit Every them are very We costs in trained there's The customer quickly, is arrangement didn't were quick in more a a really that normally, startups. get depends. it new a that payback new unusual turnaround scale agreements So there so with period fleet. accretive yes, startup that so fairly there little we've other bring and needed than and But

Seldon Clarke

last segment? rate new affect Okay, business are and than negotiations? lower from than maybe contracts new now, on last it Would those in on up longer-term cyclicality like Or that? stickier year? is you bring your you at up that. a a would it ACMI one have market me you signed just signing little the softer So How a does in

William Flynn

Even XX We're that Fed and here ago. seeing But then that's is unusual. we're we're are on a couple condition and XXXX-XXXX anything than what again. seen commented like what that market of us than back not -- tensions industry, the It's market. every Seldon. Flynn, yesterday and chairman, a because is that affected this we Bill well. as in talking about that not seeing collapse was that. stickier ever a trade Powell, Clearly, none stickier tariffs, the saw What had It's years

over at placed. an going a temporarily So looking value situation we're of time. describe or And our ACMI we're just contract. we're deeply in. service That's able that the to we're not to levels that provide, period a ability to that or and discounting customer, with at, to be extended got place perform a something contract the We've not CMI we'll get discounting the to

Operator

comes question from the of Your Seaport Global next Sterling with line Kevin Securities.

Kevin Sterling

congratulations -- you've if on back more how ask when your air step traditional on heavy retirement. want freight, because would help congratulations you've you transitioning like the exposure how sounds guys to e-commerce picture and out. about new quarter I I model Bill, your talked exposure guess, offset it then less freight your Bill, that international question be, and played and role. your outlook, a to air look pending time longest And big and been for don't John, the mind, your on But at of international to your heavy market. e-commerce reliant none to of some this and you I

once help reconcile think -- But as So this ugly years going you the you market don't its say, it on? head it were, you're can Because X like as does quarter. to ago. reared seem I not just you're X, exposed obviously international what's quite

William Flynn

accurate. Yes. what Thank think you I Well, initially is described you, Kevin. that

market. I market, the look volumes that and certainly and of commercial But the volatility really We shows But when Charter. Charter was really have in period Charter, now we've military. happened pressure about quarter we've XX% model there and we the And results. some Charter we terms this time quarterly seen always the in think saw in at Spencer in several think yes, happened had exposed in on our to commercial kind part items our and And with there, ACMI-CMI express we transitioning operations, in focus been I consistently these over while on. of core of e-commerce, a a business, less play and a that segments, stable in commercial quickly. mid-May our contribution, of saw of there discussed them, but from pretty it were It and it in

of the business think consistent, That's So is large Charter model the XX%. at business holds. but part a it's the still thesis when I in

Kevin Sterling

quarter. I And we maintenance we about talked at, couple look that, Okay. expense But in Can to the maintenance? the heavy the next getting too say, And I of, that. Spencer, you think, knew as expect year, maybe maintenance high expense year XXXX, of that, heavy maintenance a next in we potential worked tends this to some really maintenance, be the have another more of of scheduled. you year? switch or heavy specific, you guys kind years, higher lot do think, heavy that without heavy Can through

Spencer Schwartz

it's due. kind when of maintenance, Heavy due it's

And it they're engine check, so those when on due, and airframe it various it maintenance an really how on depends on depends on, due. standpoint, depends And on cycles, due things and many really events. for taken these they're landings. depends we've when takeoffs really from heavy aircraft And an From really are time. just it when

and As the on cost event, event operational very some efficiencies that recently, focused seen achieve have we far as to there. the our of are teams cost an trying and increase in per

work, we Some and more of work the than performed had more maintenance heavy greater did estimated. work previously being and saw so we require scopes

bring on quite are in trying teams operational John's to So costs down. that focused those

John Dietrich

stability if and of really, a additional more getting towards event as you tremendous you're to focused events predictability And bringing focus that have have looking Kevin, per you that could, on costs There's big we're to some said. following very to on Yes. Spencer on from basis, But on when so what going open to an we data when And just predictability working that find, increases can know, build occur. findings, to more those never when the trends, much a which for time. engine. what example, I time you up

Kevin Sterling

you more I that guess anything the there has gotten higher -- talked seems may costs these year. it I because mean, the of you've I maybe it there this be continue the been rate terms mean, service to we Okay. should a anything run It Has to see costs Could aircraft mean, planes? next maybe I higher led been in, or unusual? it quarter. to year? have spike it this about unusual? high-level in now just "normalize"

Spencer Schwartz

down. Heavy actually year-over-year expense is expense is maintenance down a basis. actually on Kevin, maintenance

you on we're to and managing that's that. But cost, a not strip seeing We're maintenance, hours. really out of which course, So have very variable closely. yes, is based very, it line

increase, XXXX at costs hours heavy increase. if just as it'll maintenance maintenance expense, XXXX. expect than in actually But we be line So you look that lower

John Dietrich

add could familiar engines, number we had some I that the system once point, first cycle, including additional program, the for time, you our the through just because put have some through expecting them for our overhauls, aircraft stability operation, and also now a airframes, get of and we're into example. come there an through engine engines And are we more going with If the aircraft, and themselves.

Operator

of Scott question next from with Research. the Your Wolfe line Group comes

Scott Group

nicely despite fourth tough has to grow earnings I pretty really with Bill us a to echo congrats guidance quarter because year tariff the comp, pull to and John. want I quarter was again ask. good The last fourth implied forward. starting

earnings in and in to also so we this I then ask And So earnings growth quarter? XQ what to XQ changes go assuming that wanted dramatically are from decline to fourth out the less reduction in Is back expense side, heavy maintenance the a maintenance flying less or maintenance, that we the years? so 'XX from there's some deferring guidance. on maintenance into are the

Spencer Schwartz

Thank the flying. of second which Spencer. that lower Scott. It's part I'll is first, you, take

to maintenance were regard leads question the it and there quarter, You what right. so effect, about then there. with happened there. things lower your Lower fourth to several cause And that's costs, got flying and

and military, year, this the fewer that Offsetting which one is heavy more during flying we CF-XXX starting That passenger costs, quarter the soon; have versus we're maintenance fourth year yields more expecting to C-check. lower and prior for due XXX-XXX effect. issues. military; overhauls, flying has fewer trade course expected In a the the for NFL, looking for are at really results ex-Asia of tariffs peak dramatic have we flying really the X lower the season

those So biggest are impacting the items fourth quarter. the of that some are

Scott Group

around things conditions -- you're to like sort return that. of It's a timing not better. so maintenance of Okay, costs the getting just and things market assuming more

Spencer Schwartz

there be we we're change, years. yields think are we've We Scott. but what much expecting the that seen may during volumes will at peak, that's That right now, that lower past few will than anticipating But be point. over this

John Dietrich

Yes, and could, It's if I Dietrich. John Scott.

where fourth in be a able that generally get rush, number rates you as of well. season, season during think the will the higher a to areas contributor so to I peak we're peak quarter see

William Flynn

Yes, integrators that the going be doing that do to for year. flying that's we're we the every

John Dietrich

an we exactly. example, flying do is and -- customers, the integrators for that Yes, the other Charter

Scott Group

secondly, and point just Is it your free it no planes cash? on cash plans stock? Okay, debt? about flow. the free buying back thanks. your with What to Is Spencer, are And order

Spencer Schwartz

Yes.

Our capital not changed. are the same. allocation plans They're

We disciplined have and balanced. been

strong assets. to focus continue investing the balance the in We on maintaining sheet, right

a of average rate low X.X%. average of coupon cost weighted weighted have debt, our We

and been our to want, focus a share balance overall continue attract ratio year, So same to lower lowering customers want the more leading in leverage But have our and things. assets, invest although We maintain invest the a really, then to but to to debt where hopefully priorities we our has or no purchase. we this balance want remaining potentially assets net investors. X be strong is commitments sheet, in

Operator

Davis line Thompson, the & with next Your comes from of question Campbell Company. David

David Campbell

be north your to There data Bill, offsetting you've growth have ask you southeast want done Asia. in indicating flexibility And the I much wondering manufacturing. cargo and decrease markets advantage Malaysia there so to the into Do as opposed some such is years. Asia, terrible. region in cargo that to It as partially fleet where thoughts about the aircraft the north great I about demand of the situation. move that? forth, is Asia in and any and that industry demand have was to and the on to Vietnam Indonesia, movement increasing congratulations Asia over you for you take in of Singapore, how job southeast seems is

William Flynn

of you Yes. for and comments first all, the thank for David, you question. your thank

a very right I question. good think it's and

move lever product manufacturing permanent to the really. Vietnam volume seems, operations, Hanoi. more flights and have Several have coming the of Chi in Vietnam of around So companies We're our not, particularly there. certainly are growth already that. whether as out seeing seeing seeing know, ability has We're been manufacturing. Charter consumer existing of it's certainly flows some well And down that we move places, but volumes relocated large new and Ho relocated, increased. beneficiary production or quickly into don't I Korean a got, They've more some Minh. capacity it two

When you Asia, say north distinction. one there's

relocation other Taiwanese in from in of they've fact, and Taiwan is manufacturing of near-term in lot production companies, The the that consumer PRC pulled Taiwan. manufacturers has location product are, as well. some benefited A

and locations, established We've freight ultimately to flexible, else remains those products well how importantly, operating example, the serve of well and time. itself have rise having regulatory are the but seen, Asia, you And we're those and made Everywhere are of root southeast and for Singapore, we in the out a in of operations, freight consideration Vietnam authority, where Malaysia, fleet where in been in be to capability and and in is. network in So place. similarly flying the well mentioned certainly resolves long the this the know-how and Taiwan. terms for

the have freight have we wherever and we the certainly we fleet, the the capabilities, can freight So serve originates.

I not volume equivalent for is point. up China seeing those one locations. some to That'll some time. take haven't If permanent, be not in one that what of we're and moving production out for yet. were those take more time David, to a of we What product would seen offset. it Vietnam capabilities to Taiwan, but build out other one one there's Certainly, think one it's

David Campbell

But Is big could year. results a be your that to also next benefit possible?

William Flynn

is, it absolutely. Yes

Operator

from question next the line Atkins Inc. Jack with Stephens, of Your comes

Jack Atkins

you in you, and me just with both I've Bill, to forward working John, congratulations enjoyed John. Bill, working with everyone's and to looking you the to echo Let you future.

So I good point. earlier, could Kevin's guess go if I back to was a I thought it question

the around and certainly the the the changes and that today, Bill, driven decade. company all Just business you've understand this I of cyclicality appreciate over with last

XQ lowest 'XX. EPS looking. just EPS, since was But and going back I'm XQ the this

think of a of is how the that. a think just result you on decade a about today? the today do the how Was hitting or cyclicality this today a things you As of your sort one get sort versus versus about number curious just ago? thoughts ago, function all would time, do cyclicality the think lessened you decade has business of be I at to business of you constructed

William Flynn

Thank about I our your beginning a and were flights last than arrived a here. point we the were Jack. express Yes. couple fleet different Well, took I an much are in had get We XXX-XXXs, we We we we of for you, first ago, extra to go DHL. operations hadn't were and But of we order ago, when very think XXX-XXXs get moving company had and essentially smaller decade the of comparison. a out years just a a back decade X XXX-Xs a and had that we fleet. for

think we about we've substantially the when with company DHL. today, grown So

We different in network-type hoc, Those startup kinds we into aircraft than certainly operations, scheduled have our standards are ACMI not for operations ad networks operations. of Amazon. saw numbers with of even large and with growth dedicated

The us offer basically acquisition of any need array for operations the all they to services the business. for the us of want their our and aircraft of Southern customers buy with the they that XXX in allow XXX network and and the fleet from to right

And impact here, volatility with was that important this beyond is. our business. decline market, hit. the precipitous fairly and But real an our particularly disappointing significant Spencer the it the while which clearly, yields this in several starts and a quarter, quarter, then the contributing through indeed in part a we volumes, factors, took in Charter So volumes, of market saw is talked the

some potentially model's And earlier tariffs, individual At anticipation is volume absolutely a that I elsewhere. a of and there it's moved And trade recently And on. quite transformed. been not the of tranched of it's Scott impact have it. mentioned about for Germany back, lot But companies. flows believe out bit probably had commentary a There's of, part of in might but between impact be on the some least just. it of was German Asia certainly may

of right have Spencer to customers, that's as and scope, ability about. array book build more XXXX, The them. now, business talked us We nice although we just the provide the scale That gives exist get of and we that overall have and asset-light growth, CMI in a the it the services and productivity. didn't does diversification

we talked see now, And about so also fellows it what our what but of out reflects we've with other guidance here several the reflects on the call.

peak, typical anticipate flows. terms will more there We a peak a of volume in be

the yields year. as so that more through the where we'll question And do actually about we is And out. learn fall go the

of ago, ease we pointed does those a that operations fourth Dietrich and put for many integrators help in we an and we part or cargo, really and them. large And John a just the peak we moment volatility market. our the out the years. them, of fly big is quarter prenegotiated As dedicated aircraft have that cargo, into many, And provide open that might experience are some been contribute cargo for

Jack Atkins

Okay.

your Okay, just you against had And thank elsewhere a in questions other that quarter, the Bill. issues labor my of an the to you guys regard then union. that, was injunction the I for business. guess couple in understanding With

the what's secondly, front. Then actions just are So I sort you've if it's seen talk disruptive there? Bill, what still past the you and happening different can guess the these you than I'm and that ongoing. of why labor with there, do in disruptions confused on Can

for the bit in get a I optimistic sooner Your a to later. potential done guess be rather towards that than working tone comments competitive and your around just pilots, around more fair deal deal seemed maybe little to a

just how could regard to sort getting your thinking timing with on now new you pilot touch about if contract in you're of So place.

William Flynn

a I addressed think, you different parts. since -- John address it, and I'll I take and can, Well, then

union the court court we upheld to was the have and that and to that court, seeing district judge, disruption and decision the the of went some That ago So of injunction we in union D.C., -- behavior. court obtained injunction proper XXXX an went leadership that there -- concerted a an those in disruptive that causing court It going a about ruled appeals demonstrate seeing indeed back were was disruptive few informally in but we're weeks do by and challenged judge. the injunction against by still preliminary the behavior That behaviors. We just to behavior have the in place. and to and was in disruptive in able an was we directed to appealed we're injunction business, injunction has notified increase the behavior and now, improved, that union. on the we the

thinking discussions impact service might kind in us disruption, a how any are behavior, John, weather with we we disruption, where affects we're "Well, costs that?" impact about the some have impact about, affects there's and and how of moving around. we into it's from forward cost cost. to in serve And a about crew It need it costs us it you It fly should cost disruptions. really XXXX. additional a But is We And our case and the these could whether disruptive you of questions maintenance more. impact, a the departure. is customers. labor our what's know be pilots about see talk and disruption think into I that's we And have when disruption, us this the of Any operation. a move may late we schedule because more disruption, adds that, how

John Dietrich

we reasonably committed as And Bill focused has next agreement and Sure. our possible. labor as as getting to remain mentioned, soon

have of procedural you have procedural the some of the disputes. the merger And path our terms some along of of the forward, we're As seen, is way what disputes agreements in filing bargaining whether there collective that's really of been many or ultimate been the focus not. provisions

this each those last decision point. on those among up disputes. of are company one to prevailed in We've We a as waiting

last We to the negotiate and one. table. outstanding we've be in continued to at the expect But prevail nonetheless,

next fact, team agreement. In is bargaining the towards collective our and making together speak progress we as negotiating

get two to reason a agreement. to there's bargaining, bargaining. takes it an any In It they call

with process is we have, focused merger a through together that's operation in piece that to that truly this moving to will of any they are we need we're number continuing to careers under that a collective working have at our to we continue have build strong mean, said, total all can their can, extent have and we for very resolved which customer conclude, quickly the here quality to issues, communication. And have and in looking as and dialogue our the the to on as be an a We the into union go agreement think for crew So the the while value improvements bargaining hopeful optimistic and that's unresolved members agreements, say great important we we next we're the we're the union. have of I them. working competitive the committed that sessions, And and we'll as them, The well, pilots, things possible. on as a attractive life and with a our tremendous Atlas get so fleet we them a future. base. for proposition just for given diverse global, have I package they we proposition cautiously

Jack Atkins

AMC the last that's from PAX then And just goes Okay, flying. one color. to Really helpful me.

in of or year-over-year I'm quarter you flying broadly, a plane by trying did just half an unexpected it out sequentially. service? you more military what understand the was about the maybe the second Was could speak improved talked specifically? But of to and just You flying have what both in caught you surprise happening in second to reduction year, there.

John Dietrich

just mostly on was a demand in that I'll It that, Jack. comment for of period This time. John Dietrich. is the softening

over year. out to one about, levels first year, an last capability, it'll year. this more that first mentioned. be service increase, Bill but that which have the added as expect the an additional we couple We was more both half resume we've certainly of and that a one was over will that airplanes, talked And last of Bill There half

Operator

line comes question Stifel. Ross with David from of next Your the

David Ross

How about bit cargo May issue, the decline. precipitating the the it XX%, to terms at April-May-June? or then X% it utilization of I Was lot more go the will, in breakdown trend XX% just sand little when segment a around line and a year-over-year. if about XX you XX%? tariff The Charter to quarter in that down was a the down the ask how drew you of did occurred, the XX% want to in ended through Charter

Spencer Schwartz

were you impact year, quarter, you Spencer. back go It and of to a June it's to really the and change but but started impacted, beginning beginning very if quarter asking then so I strong. if know at to the then really the certainly and first the started months more look half second couple of little as to of May, July. David, you're about said, get Bill into started Things the year, progressed, the as bit, yields the of

David Ross

and the the on trend comment any ended they to that you've side the the guess, to say, I were then, through you're cargo air second of start then off And yields, is up seeing quarter things? Yes. still XX% seen in XX%, trend If flattest July? the down

Spencer Schwartz

Yes, but really have than we the the May, We much said, in you year. the then in about-- saw think beginning yields, pickup not yield, like and in stronger as in much prior then, April yields expect previous And But lower were stronger. when year do much I yields years. been a beginning in the of the

William Flynn

that When the the times think to the them commercial, we've we have David, which rates a placements the of done going already. quarter fourth I'm independent with just is point every integrators, make certainly we've part made a are market, big couple we yields, in confirmed with that we about of that that negotiate year.

David Ross

That makes sense.

that's, there's those impact And of or that side, issues about new talked, impact is prevented growth On How has impact. the something Bill, service in the guess, you cost a I service contracts? stunted mentioned labor the severe any been? any way and

John Dietrich

closely as We're David. mentioned, a has about to to flying look in doing terms hours, caused continuing it, fact you with customer the and them here. effect. continuing We're to creates virtue forward disruption, additional that tells has customers. the have see. you maintaining improvement we're The as to into and rises it kind of it future of of about have been what the work they when but we're that work bill it disruption, it ripple we disruptive our John, level hours. adjust, as impact, the And the we talking it's you we're We're go So with impact. to it, continuing hours, And by can

David Ross

just of the that know into current I average do varies your fleet? next And trend Thanks. Spencer, type, quick. year? expect What's how And real And it going plane you to age cetera. et by

Spencer Schwartz

there, Yes. a fortunate Dave. in We're pretty position

a young. flew our freighters, Our We old. look On if fleet is their XX were you XXs. into And about others. well it that relatively is at years our fleet from for young XXX-XXXs, they -- compared to is average, pretty XX,

anything have that. needs or like we So imminent no refleeting

old. our -Xs only They're course, are or young. X X years really Of

great overall, about XXXs or X XX, fleet is freighters. same, about have which our old. X We years are is that old, And XX the for years

William Flynn

on acquiring them I fleet that them conversion XX, the and we're going at just XXX we're Yes. XX, PAX to done is flying XX add, built left. year XX through or manufacturing the to then was that's running have up, years, freighter. purposely in many from And we've XX, -- the still conversion, those while all of aircraft work they really many, years

Operator

of the comes Rosencrans Advisory Howard next from from Value Your Services. question line

Howard Rosencrans

Thank to so quarter, the and so just I quarter. severity you. to see where factors, the exactly slight that that's the wanted improving. do but because weighted saw to earlier, you But more mix. in recap you it's you the just and a understand areas the quarter, a I be fourth going to I in various recap impacted of I guess wanted the the mentioned which them integrator guess on dramatically negativity quick

Spencer Schwartz

of second seemed you beginning but you question, like about the seemed your quarter. then asking with a quarter, In Spencer. it the like were question ended fourth it about it's Howard, Okay. the

second that below being and you So the asking things quarter results the previous to were the the our with expectations. are regard quarter, what biggest about drove

largest So revenue costs which maintenance the quarter. higher right on goes big impact then trade by a had that to bottom the impact tensions, the tariffs and heavy the yields. followed to was during And due line,

flying, costs them increase the talked previous benefit crew we've in some the startup second refund quarter had military we costs in had cargo about. big letter And pilots September. in then last last agreement an a put year, years. There prior were paid rent customer that had Southern disruptions following new and of We for to was from lower labor And related we that of the year, passenger received, flying. a that place with we our then a that interim

the surrounding issues the are second those So quarter.

then the second much be And really quarter. your question in help in heavy the we was lower that and fourth asking part fourth of will of year, expect about the so also I to half especially maintenance the think quarter. And

has expect the and We segment. that the quarter the for highest do we do in flying that the commercial integrators, fourth flying we in usually that then the yields Charter

our so and well. of have would then moving, benefit and a developments And nice there's are as if course, there positive And benefit that trade to positive impact had on company. if tensions, expect U.S. -- positive a regard to would if -- from China for then, any with any that that there tremendous we really positive the goods developments the

Howard Rosencrans

severity, and the order because of -- get to in that before. part trying was had just really you I you given Okay. had

second severity, So the in followed maintenance dramatically. improve a really is terms order maintenance. the it trade higher was And just tariffs, half which heavy tensions, of will as pretty in that of heavy transitory, higher

a cargo like passenger. was the that. want get the and negative a thing lumpy little both that the The and more want clarity I clarity. cargo the just third get thing on I in to quarter quarter on was passenger, sounds just That to and the military

get Thank so just I on biggest the point, you. third to that's want So clarity that.

John Dietrich

Thank you. Howard, it's John Dietrich.

with the military. is characterization I think your to regard fair

Howard Rosencrans

which Okay. fifth clear not There's Amazon customer. on be new not And new startup the item, then Amazon in we're they're want customer, there? Because talking the I crew there? incremental is a just for about the no that. fourth, in and to incremental then so is

Spencer Schwartz

to new So the costs startup related flying. are

earlier, XXX-XXXs aircraft So new don't for And a the scale the XXXs as type. that Amazon, type I new aircraft Atlas. mentioned We have flying. that for it is was in is

that and pilots, train to had unusual that get try timeframe we Amazon to had We so pilots. training had those And we some that to the costs in done wanted. related to to in bring

startup So bit a than were higher costs normal. those

startup about also want costs had for million basis. we some item, just quarter-over-quarter sure, quarter million, DHL. XXX Since $X was then $X.X I on other last that on in year. or the just And basis, to We under received was about the to refund asking second is income a somewhat you a the large flying it the net related magnitude, rent of make that were about

Howard Rosencrans

-- little It's well, I was customer, for same about new confused Okay. it's just customer. the Amazon. it's just largely equipment. startup a in new It's the the that

And then the Okay, that was and helpful. trying up to understanding cleared severity, the factor in mix Am it in the the factor, get was of That them labor referenced? up. that, I least was to I in correct X last you very terms items significant disruption.

Spencer Schwartz

receiving The to that may areas, that penalties impacts it we result of might we it a as have not may labor and hours or pay, that several Yes. delays. impacts received, it not other impacts or might otherwise we have have so flown impacts cancellations bonuses

different in impacts areas. has it So

end. listed we've that why that's at one so And the

Howard Rosencrans

question. really in my But Yes. magnitude of terms is

new other new for tariffs, just I and increase in of crew terms The heavy to military magnitude factors, it get startup the for passenger, severity. with customer. of lower want costs Southern trade maintenance, tensions, contract, their in cargo

labor to disruption the mix. the that fair So in least Is say? was the

Spencer Schwartz

is top it, too the said. were into want as the labor get handful There disruptions quarter. but Certainly and one our John part of this of in labor I think call, much to at bargaining issues midst, be during we people to certainly don't right are the disruption labor careful. of this want table We're the the all now. factors

Operator

in you Atlas turn gentlemen, to the back like for Air. the over and participating Q&A. call now thank to I'd Ladies

William Flynn

call Okay. today. in who and Thank John, Catherine. everyone And I to Spencer participated want the you, thank

appreciate much. we again we in future. interest questions, to look the company your in with near we your appreciate always, As our soon you Thank you speaking very forward and

Operator

this concludes gentlemen, today's call. and Ladies conference

disconnect. You may now

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