Atlas Air Worldwide Holdings Inc (AAWW) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Atlas Air Worldwide Holdings, Incorporated third-quarter 2005 earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded Thursday, December 8, 2005.

I would now like to turn conference over to Mr. William Bradley. Please go ahead, sir.

Thank you and good morning. I am Bill Bradley, Vice President and Treasurer of Atlas Air Worldwide Holdings. Welcome to our third-quarter 2005 results conference call. Today's call will be hosted by Jeff Ericsson, our President and CEO, and Mike Barna, our Senior VP and Chief Financial Officer.

Before I turn it over to Jeff and Mike, I would like to remind you that, in discussing the Company's performance today, we've included some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations and involve unknown risks and uncertainties. Atlas Air Worldwide Holdings' actual results or actions may differ materially from those projected in the forward-looking statements. For a summary of specific risk factors that could cause results to differ materially from those expressed in the forward-looking statements, please refer to the Safe Harbor language in our recent press releases and to the risk factors set forth in our annual report on Form 10-K filed with the SEC on June 30, 2005, as updated by our Form 8-K filed with the SEC on September 26, 2005.

In our discussions today, we will also include some non-GAAP financial measures. You can find our presentation on the most directly comparable GAAP financial measures calculated in accordance with Generally Accepted Accounting Principles and our related reconciliation in our recent press releases, which are posted on our Web site at www.AtlasAir.com. You may access these releases by clicking on the link to financial news in the Investor Relations section of the Web site.

At this point, I would like to turn the call over to Jeff.

Thank you, Bill, and welcome, everyone. I greatly appreciate your investment interest in the Company, and we certainly appreciate this opportunity to discuss our strong third-quarter results with you.

I'll ask Mike Barna to discuss the earnings details in the moment, but first, I'd like to touch on a few items before he does that. As our earnings demonstrate, we have an exciting story to tell. We're looking to build upon our market leadership role in global air transportation services. We have a flexible operating strategy that's helping us to both optimize our assets and maximize our profitability, and we see a dynamic future for the air cargo industry and for us.

We're still at the beginning of a new era for Atlas Air Worldwide Holdings, and we are preparing ourselves to take off into an exciting and rewarding future. In the nearer term, we are aiming to further delever our balance sheet, begin phasing out older aircraft, and ultimately replace them with newer-generation equipment. In addition, we will continue to look at potential capital-market transactions with the aim of maximizing our financial flexibility. Beyond that, we will be looking to potentially grow our fleet to take advantage of the expected growth in our industry.

We intend to be on the bow wave of aircraft technology. It provides the latest operating efficiency and reliability that our customers desire. So both near and long-term, our desire is to be an airline without all of the usual risks associated with traditional airlines. For example, by shedding fuel and commercial risk where we can. Both near and long-term, we will also continue to have a particular focus on, first, operating flexibility; second, operational excellence; and three, cost management.

To enhance our business flexibility, we recently entered into amendments of certain outstanding aircraft financing facilities that eased or removed several key restrictive debt covenants. The new terms that we reached with certain lenders will enable us to pursue a broader range of cargo-related passenger opportunities, as well as to further explore potential new services in other aviation-related areas such as passenger ACMI. The amendments also removed restrictions on debt and lease incurrences, contingent obligations, and capital expenditures. They permit an increase in the allowed amounts of investments in liens and eased restrictions on asset sales mergers and eased restrictions on junior payments.

In addition, in addition to enhancing our operating and business flexibility, we also have our eye on some potential cost savings and revenue-enhancement opportunities, and these go beyond the low-hanging fruit of the improvements that we achieved a few years ago during our initial restructuring efforts. They will also require a more determined effort on our part to be achieved. But if these opportunities can be successfully realized, we believe they could potentially benefit our operating performance by more than 100 million over the next several years. As we have said, the prospective savings and revenue enhancements could be realized in 2006 and in 2007, but they would not be insubstantial. It's too early, however, to be more specific about those numbers.

Speaking broadly, approximately one-quarter to one-third of the aggregate potential benefit associated with these opportunities, over the next several years, would be on the revenue-enhancement side. Our focus will be on developing a better scheduled service revenue and capacity management capability. We will also generate cost savings through improved procurement policies and procedures, especially with respect to outsourced maintenance, travel services for our crews, aircraft fuel, and ground handling and trucking. In addition, we are pursuing improved fuel efficiency measures, reducing overhead through process improvement, reducing labor costs through increased crew productivity, and increasing maintenance efficiency through reduced downtime and improved maintenance intervals.

As I hope you can tell, we have a lot to consider in this area. We also have a lot to tell you about our third-quarter results. I will turn it over to Mike Barna to tell you more.

Thanks, Jeff, and good morning, everyone.

I think, as you've seen in our press release today, we have reported net earnings of 29.9 million or $1.44 per diluted share for the third quarter of 2005. Results for the quarter also included a pre-tax insurance gain of 7.5 million. Just as an aside, that gain was about 4.7 million on an after-tax basis.

Our third-quarter performance reflected higher revenues, up about 16% versus third quarter 2004, despite the short-term strike on the Polar side during the latter half of September, a 3% increase in total block hour activity, improved unit revenues in all four of our service types, and lower total operating expenses. Revenues of almost 405 million in the latest quarter were nearly 55 million better then in the year-ago quarter, largely driven by increases in revenue from our ACMI and AMC charter businesses but partly offset by a reduction in scheduled service revenue.

Our ACMI revenues increased nearly $27 million or 30%. That was primarily due to a 22% increase in ACMI block hours and a 6% increase in average ACMI contract rates. In all, 17 aircraft from our operating fleet, including 10 747-400s and 7 747-200s, were under full-time ACMI contracts at September 30, 2005. That compares with 16 aircraft composed of 6 400s and 10 200s on September 30, 2004. Over the course of 2005, we've seen better opportunities for available 200s or classic aircraft on the charter side of our business, notably military charters.

Back to our third-quarter results, our AMC revenues increased 38 million or about 49% during the quarter. That was mainly due to higher volume of AMC charter flights. Total AMC block hours were up 32% and nearly 13% -- I'm sorry, a nearly 13% increase in AMC charter rates. The increase in AMC charter rates was primarily due to an increase in the fixed-rate for AMC fuel, which was pegged at $1.40 per gallon in the third quarter of 2005, compared with $1.01 in the third quarter of 2004.

Scheduled service revenues, meanwhile, were about 22 million or 14% below the year-ago quarter. That was largely due to the restructuring of our scheduled service network, our active efforts to reallocate aircraft to more beneficial opportunities in the ACMI and AMC markets, as well as the Polar strike in the latter half of September. While our actions and the strike reduced capacity in the scheduled service segment by 36% compared with the third quarter of 2004, the continued optimization of the scheduled service network and the impact of higher fuel surcharges helped to improve unit revenues and yield.

In addition, our load factor increased to 66.2% from 64.6% in the third quarter of 2004. Both the reallocation of capacity from scheduled service into ACMI and the AMC charter operations and the reduction in scheduled service flying activity as a result of the Polar strike lowered direct operating expenses during the quarter, including ground handling, landing, and overfly fees.

Excluding the $7.5 million insurance gain, our overall operating expenses totaled 344 million, which was 3% lower than last year's third quarter. Lower maintenance expense, lower ground handling charges and landing fees reduced depreciation and amortization expense and a reduction in other operating expenses all contributed to the improvement. The benefit from these items, however, were partially offset by higher fuel costs, an increase in employment costs, and increased aircraft rent.

Maintenance expense declined about 17 million or 25% compared with the year-ago quarter, primarily few due to fewer C and D airframe checks and a smaller number of engine overhauls. In addition, other operating expenses were about 6 million or 18% lower than last year. The primary factors were a reduction in accruals for potential fines and a reduction in legal and audit fees. These were partially offset, though, by an increase in consulting fees related to our initiatives to document and improve our internal controls.

Fuel expense increased about 17 million or 20%, compared with last year's third quarter. While the average fuel price was up about 35% to $1.64 per gallon, our total fuel consumption declined about 12%, reflecting a roughly 12% reduction in non-ACMI flight hours.

Labor costs during the quarter were about 6 million or 11% higher than during the same quarter last year. About 70% of the increase was attributable to crew salaries, wages and benefits, which increased due to a combination of, first, a rise in block hour activity; secondly, contractual pay rate increases; and thirdly, a $1.7 million charge for retroactive crew salary and bonus items included in the new Polar labor agreement.

Other items that contributed to the increase included provisions for restricted stock expense with respect to awards granted in late third quarter '04 and in the fourth quarter, 2004, as well as profit-sharing and incentive compensation expense, which we did not accrue in 2004 due to losses incurred by the Company.

With revenues rising and operating expenses falling, reported operating income rose to 68 million in the third quarter, which was 72.5 million better than last year's third-quarter operating loss of 4.5 million.

In addition, EBITDAR as adjusted, which excludes insurance gains and prepetition and post-emergence costs and related professional fees, increased to 110.4 million, more than 2.4 times greater than EBITDAR as adjusted in last year's third quarter. As a result, for those of you looking at the details, bookings (indiscernible) expense in the third quarter of 2005 and the first nine months of the year were 19.6 million and 55.4 million, respectively. Cash interest expense was somewhat less, the difference being the amortization of the debt discounts, which occurred as a result of fresh start accounting, which we've talked about before.

For the quarter, we had an effective income tax rate of 41% on pretax income of 50.6 million. On a related note, we do not expect to pay significant cash income taxes before 2008; that's principally due to our available NOLs. Our effective rate differed from the U.S. statutory rate due to non-deductible professional fees related to our reorganization and the effects of incremental tax reserves.

I'd also like to highlight the continuing improvement in our cash position during the quarter. At September 30, our cash and cash equivalents totaled 277.8 million, which was up 143.9 million from December 31, 2004 and up 85.3 million from June 30, 2005. Since June 30, our cash position has also benefited from the receipt of 12.6 million in insurance claim proceeds and from the release of 15 million in restricted funds from the Polar Creditor Trust. As you may recall, the Trust was established to hold funds for the payment of allowed general unsecured claims against our Polar Air Cargo subsidiary. Funds in excess of the amounts that are required to be paid out the holders of allowed claims, such as the 15 million that was released in July, are returnable to the Company.

After giving effect to the July release, the Trust has a balance of just over $1 million, which is expected to be sufficient to satisfy any remaining unsecured claims allowed against Polar.

With regard to our outstanding debt, our balance sheet debt and capital lease obligations totaled 600.5 million, including current maturities of 48.8 million on September 30. On that date, we also had 110.7 million of unamortized discount related to a fair market value adjustments (sic) recorded against our debt as a result of application of fresh start accounting. Putting all that together, the unamortized base or economic value of our on-balance-sheet debt and capital-lease obligations on September 30 totaled 711.2 million, in contrast with approximately 725 million on June 30 and 763 million at year-end, 2004.

Finally, we anticipate that we will file a Form 8-K report tomorrow with financial statements for the third quarter of 2005, including our balance sheet and statement of operations and cash flows. In addition, we expect to report full-year results for 2005 approximately mid to late April of 2006. We will also be looking at putting out some preliminary information with respect to 2005 at an earlier date.

With that, I'd like to turn it back to Jeff.

Okay, Mike. Thanks very much.

Operator, I think we'd like to go to questions now from our listeners, please.

Thank you. Ladies and gentlemen, at this time, we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Bob Labick.

good morning. It's Bob Labick from CJS Securities. Congratulations on a strong quarter.

My first question -- I wanted to ask you to help us understand the biggest drivers behind the yield improvements and revenue per block hour. If you take out fuel, could you just walk us through the big drivers there and help us understand the trends? Are they sustainable? Is there room for improvement there or how should we look at that, particularly going into Q4 and then into next year?

Sure. Well, overall, I think, as we said throughout the year, but the Company has absolutely benefited on the charter side from our military charter operations, which is a very high-margin business for us. On the ACMI side, pricing as well as the fact that fuel is paid for by our customers have really enhanced the yields and margins on that business as well.

Okay, so on ACMI, you're seeing improved pricing, so for all new contracts, as you sign them on, they're coming on at higher prices? Is that fair to say?

Actually, that's correct. Our portfolio is such that we don't have all of our contracts coming up for renewal at the same time, but when contracts do, we've had the benefit of demand in the marketplace, which our customers have felt strongly that they needed to lock up the capacity they believe they need for the future.

Great. So, in other words, it sounds like at least those trends appear sustainable right now. In terms of the yield on scheduled service and the other -- just talk about the market and the sustainability of the strong trends.

Sure. As we said in the past, with respect to scheduled service, the Company undertook an optimization of the network starting back in late 2004, and that has continued through calendar year 2005. In particular, we have focused around our favorable, limited access rights in the Far East, notably in China. Clearly, we have seen the benefit of those rights. That has clearly helped to optimize the yield and load factors in the scheduled service segment.

Just as a reminder, we did three additional weekly route rights at the end of March, which takes us from our existing 9 per week to 12 per week, so we look to continue to tweak our scheduled service to take advantage of those added group rights.

Great. While we are on it, you touched on the opportunity to -- for your broad cost savings and revenue enhancements; you mentioned that part of those would be from the scheduled service. What are some of the potential changes in scheduled service that would enable you to get 25%, you know, $25 million I guess essentially in enhanced revenues on your existing fleet?

In large part, revenue management systems have been available on the passenger side of the business for some time, and they're very sophisticated. But they're not necessarily off-the-shelf applicable to our side of the business. We believe that we can successfully implement the revenue-management system in the near term, and that will add great sophistication to our ability to price in that marketplace.

I guess what I would add to that is we are redoubling our efforts in the backhaul liens back to the Far East, where we think we can also get some improvement as well. Typically, aircraft do very well coming from Asia and any other direction, and vice versa. I think there's opportunity there for improvement.

Great. My last question and then I'll get back in queue -- just if you could help give us a sense in terms of maintenance to be expected in the fourth quarter. Obviously, you had a much lower maintenance in this quarter. Is it fair to look at it as, last half of last year, you had about $120 million in maintenance and maybe with a slight increase you would be roughly there for the second half of this year and therefore look at Q4 in that light, accordingly, or how should we think about Q4 maintenance, given the lower maintenance in Q3?

Well, in all honesty, that number is still coming together because there are a few weeks left in the year and depending on scheduling and the availability of getting equipment into the shop, that number may move around a bit.

I think what we are attempting to do is, in the past, we've often said that when we describe how our quarters compare, we typically say fourth quarter is the strongest. We see a bit of -- it's the likelihood of a bit of attenuation there in 2005, given the timing of the way the maintenance is going to happen.

Okay, so Q4 -- like, I guess, just on that note, block hours in Q4, should they still be up? Or because of the maintenance, is it -- I'm trying to understand, in terms of maintenance, is maintenance really just an expense that you can do it very quickly and it doesn't really impact block hours, or is it both impacts block hours and obviously has the added cost of actually doing the maintenance? Where do you see block hours Q4, you know, as kind of the related -- (multiple speakers)?

Right, I think our best estimate at this time is it's going to be relatively flat.

To Q3?

Yes.

I don't think we can go beyond that at this point, Bob.

Okay, well, congratulations on the great quarter and I look forward to seeing you at our conference in January.

Craig Peckham.

Good morning, calling from Jefferies & Company. I wanted to ask a couple of questions about the balance sheet that -- Jeff, you had mentioned that one of the objectives here is to continue to delever. Can you give us a sense of what you see as the optimal debt-to-cap for the Company going forward?

Well, those sorts of numbers we haven't released, Craig, but we do have internal targets on leverage ratios. One of my goals is to continue to delever the Company. We did a pretty good job through the restructuring, given that it was only a six-month period, so kind of everything that we do, every opportunity that we have going forward to continue to delever it, we would do that. We have internal targets; they just haven't been released so I'm not able to do a very good job with your question.

I guess what I would add is, clearly, we key on the word "flexibility" because we think we have a very bright and exciting future, and some of that does require further capital investment down the road.

Additionally, we as we've said, this is a new era for this company, and we are positioning the Company today to weather any and all downturns that will come our way in the future, and we know they will come. They're always out there; you just can never predict exactly when they will come. But we're going to be much better prepared and in position to weather those times well.

Okay. On the topic of flexibility, obviously you were able to make some adjustments to the terms of the bank debt. Can you walk us through what the costs of that are? I understand what the benefits were but we're trying to get a better read on what the economics of that were.

Well, we actually have not made public any of the associated fees with that amendment. I think the way you should think about it is it was something that we needed to take action with to have the flexibility to move this company to the next level. Some of the amendments I think we've released, in fact, the full-blown amendments into the public domain. If you took a look at them, you'll see that some of those amendments are sort of very standard or traditional amendments for companies that have gone through a restructuring and a bankruptcy. For anybody who knows anything about the aviation business, to stay on the leading edge, as we intend to do, periodically, there are requirements to make some fairly sizable capital investments.

Okay. My last question -- it sounds like your cash is building a lot better and more rapidly than maybe you had expected. I think at the end of last quarter, you had said you were looking at something better than $225 million for the end of the third quarter. Obviously, we're well above that in here. Over the next few quarters, how are you thinking about deployment of that cash?

Well, as we've talked about, we have plans, some of which we've talked about publicly, for example the conversion slots. That would require downpayments and progress payments on aircraft that would then be put into the program to be converted. You know, we've also talked about the need to refleet over the next several years, and that is not a short-term proposition; that's something you have to plan well in advance, so it's something we're looking at very seriously, even as we speak. Once you begin moving in that direction, clearly downpayments and soon-to-be-followed progress payments occur as well.

It sounds like we shouldn't be looking for a share repurchase, then.

Not yet.

Okay, thanks Jeff. Thanks, Mike.

Helane Becker.

Thank you very much, Operator. Thanks for taking my call. I'm with the Benchmark Company. Jeff, the question on the passenger -- two questions actually on the plane refleeting and the passenger ACMI business. I'm kind of interested in what you think the allure of the passenger business is using 747s, or maybe it's not; maybe it's a different plane type. Maybe you can talk to how that would fit into your current ACMI and other cargo businesses, which seem to me to be a better business than the passenger business.

Then on refleeting, what plane types are you considering? I mean, is it looking to the 777 or an Airbus or could you just kind of walk us through those two?

Okay, thanks Helane. Obviously, our primary business is an outsourcer of lift. We do it primarily on the cargo side. Certainly, we've been discussing, internally, ways to grow the universe of customers in that business. One way to do it and still describe it as a core business is simply to do passenger ACMI. So, if there's no commercial risk, no fuel risk, just as we see on the cargo side, we would have to amend our certificate to add the passenger piece. But still, we don't have to worry about reservation systems or ground handling of the passengers or for that matter filling the airplane; all that associated risk is with our customers. So, it's attractive in two areas; it's attractive on 747s. I will give you the scenario where we acquire a shrinking fleet from a foreign flight carrier where it becomes subscale, and we operate in passenger ACMI for them using their flight attendants, and then as they continue the phaseout because they're moving to newer equipment, we run it into the conversion program either for our use or to sell to somebody else.

The other piece that kind of fits into the refleeting, Helane, where we look at large airplanes out there -- and certainly you've got the 777; you now have the 747-8; there may be a passenger side to that, will have to see, but it's attractive from a cargo perspective. We have the very large A380, so we're looking at all those airplanes and we're looking at them in terms of their applicability as a freighter and also whether we can continue to grow the fleet size to optimal levels by having a passenger piece.

But again, it's kind of a -- it's still a core business, and as we look at new fleet types on the passenger side, again, we would be looking to solve a subscale problem for the smaller foreign flight carriers to look at something like an A380 and they can only manage two of them. Well, it's too small to do internally, and if we can outsource to a number of carriers, you know, we would have a large fleet.

Right, so you wouldn't look at it as taking on risk for Atlas. It would be more like solving someone else's problem?

Precisely.

I got you, okay. Then in terms of amending your certificate, is that a long, expensive process or is that easily done?

That is easily done.

Okay, and then on pilots, do you have scope issues or would it be contractual issues, you'd have to amend the contract to let them do passenger planes?

No, there are no scope issues; all we have to do is train them to make announcements. That's the only different.

I got you, okay. Well, what a great job you guys have done in the past six months! Thanks for your help.

Thanks, Helane. Buy the stock!

May be I already own it.

David Campbell.

This is David Campbell from Thompson Davis & Company.

You had estimated revenues earlier this year, I think, of six months or so ago. Can you give us any update on what the revenue estimates might be for this year?

David, I don't think, at this stage, we're going to speak to that. You know, it's been -- as we've said, it's been a very strong year. I think we will leave it at that.

Back to the maintenance issue, in answer to a question, you said that maintenance would be flat in the fourth quarter, and I couldn't remember sort of flat versus last year or flat versus third quarter?

I think, David, we said the block hours would be flat. We are not saying any more about fourth-quarter maintenance other than some of it is accelerated for a couple of reasons, but in part because we've been flying a lot, but more than that we are not prepared to say at this time. We still haven't determined exactly how much maintenance we will do in the last half of the month.

Right. I think, David, the best way to couch it for you is to probably say we expect to be somewhat higher than last year's fourth quarter.

All right. On a longer-term basis, would it be fair to say that the maintenance costs per block hour -- for block hour, for 2005 -- whatever they turn out to be -- would that be a sustainable number going forward, or would you, because of this new program, expect to make some savings in that on a per-block-hour basis?

Well, I think, in general, David, as our portfolio of aircraft age, maintenance costs tend to increase, not too dissimilar from your automobile. As aircrafts age, the cost of maintaining them and keeping them in flight where the conditions go up -- so, there sort of -- I guess what I'll say a continuous crawl, until you bring newer aircraft into the fleet and then the weighted average cost drops back down again.

But we are always looking to offset that, David, by more efficiencies in terms of who does heavy maintenance for us, how much we put into our (indiscernible) facilities as that matures, so we always look to offset the natural growth in maintenance based on aircraft aging with more efficiencies and getting the work done.

Right, and that can include competitively bidding outsourced maintenance services, as well as where you position that servicing around the world and how it fits into your network. You know, the more you can minimize downtime and ferry time, the better.

Okay. Lastly, Jeff, you talked earlier about the $100 million enhancement of profits program. I guess you call it that -- and then said I think 70% of that would be from improving revenues for block hour, or something like that? Is that right?

David, it's kind of a menu out there. We've done a lot of work in recent months identifying what I will call process excellence, performance excellence opportunities, trying to get this company to world-class. Some of it, some of it I think is readily achievable with not a high degree of risk; some of the 100-plus million gets a little bit more problematic. It's not all in 2006. I really can't say with any better certainty how much is going to be on the revenue side and how much is going to be on the cost side, but what I can say is that, for the next two years, it is our primary focus in turning better numbers. But just generally speaking, I think, on the revenue side, is going to be 25%, a quarter to a third of the opportunity whereas costs would be on the two-thirds to three-quarters of the total piece. But you know, we have a nice pie out there that we are anxious to dig into and we think we have a lot of opportunity.

Thank you very much.

Steven Ruggiero.

Yes, good morning, gentlemen. It's Steve Ruggiero from CRT Capital.

The first question, we will you be able to meet your incremental scheduled service demand from route expansion in China from your existing fleet, or should we expect that you're going to shift capacity from your AMC business?

We will do it with our existing fleet.

Okay, so no necessary shift at all?

No.

Okay. You may not be able to answer this following question in light of your last answer, but for cost saves, can you give us any examples of some of the labor productivity initiatives you plan on implementing?

Well, a lot ties into just better scheduling and travel opportunities. You know, we look very closely at where our crew is based, particularly as our scheduled service evolves, so there's opportunity there.

Okay, just a couple of housekeeping items -- are you still targeting a mid-2006 current filer timing?

Yes, yes we are.

Last question is the specifics regarding the $7.5 million insurance gain.

That's with regard to with respect to aircraft that had an incident in Dusseldorf earlier this year. The insurance proceeds exceeded the book value of the aircraft. It's quite simple.

Great. Thank you very much.

Alex Yackmich (ph).

Venner (ph) Capital. I would like to reiterate everyone else's congratulatory remarks. A quick question on the ASL 3 term -- (technical difficulty) -- I mean, what would you foresee as a refinancing possibility of that piece of debt?

Well, I think, as I said previously, we're looking at pretty much the entire landscape of capital markets' potentially transactions, and obviously that one would fall into that picture as well. It's something that we do look at, and as we evaluate every other opportunity, we would be evaluating if there was reason to reshape that.

I assume that would be likely in the context of your refleeting plans?

Could be.

Could be. I mean, obviously all of our capital markets and balance sheet transactions lead towards greater flexibility for the future, so yes.

Great. Thanks very much.

Todd Gellem (ph).

It's Todd Gellem from Varde Partners. I just want to get an update on or if you could tell us where your cash is at currently, or where you expect it to be at year-end?

We are really not prepared to disclose anything further than what we've already said.

Okay, thanks.

No problem.

Sorry we can't do better.

Abe Joseph (ph).

It's Abe Joseph from Delaware Street Capital. Congratulations on a great quarter. Most of my questions have been answered, but I'm just wondering if you could give us some color on how the peak season here is shaping up here in the fourth quarter.

Well, I think that we are seeing a fairly normal peak that typically runs from mid-September to mid-December, leading into the December holidays. Last year's peak was a little bit abbreviated, but this is more traditional. We are busy; we are carrying a lot of Xboxes and other things, so I would describe this year's peak season as fairly normal.

Okay, great. Thanks guys.

(OPERATOR INSTRUCTIONS). J.T. Brecht (ph).

This is J.T. with Cross Cap (ph). congratulations on the quarter. I wanted to ask about the fuel as kind of where you all are seeing fuel costs sort of through this year, through 2006. I understand that you all don't have a lot of exposure to that but on the scheduled services side, obviously that is a component of your costs. Have you all been able to pass the surcharges through? Has that been working, or kind of where do you see -- do you think it will be kind of similar to where it was in the third quarter, or --?

Right, you're absolutely right. The only area that we are really have fuel exposure is on the scheduled service side of the business. Just to make sure everybody is aware of that situation, in the industry, fuel surcharges are very well expected and received and virtually all the players in the cargo and freight industry work off of the Lufthansa index, which is a published index of fuel prices. There is a bit of a lag; it gets updated every several weeks. But essentially, the fuel surcharge recaptures approximately 60 to 65% of increases. Hence, when you look at the how that falls out for our company, scheduled service represents approximately 25% of our block hours, which suggest, of that 25%, maybe in the neighborhood of 12.5% of our block hours have true fuel exposure. So, it's a relatively small amount for our company.

Okay. Also, I know we've been dancing around the issue the whole call, but just to kind of maybe help me ask a question, as far as the maintenance, (indiscernible) say that the maintenance you did kind of recently was due to aircraft frame checks and some engine overalls. Would you say that maintenance decline, because we are at a cyclical low of engine overhauls and aircraft checks, you know, is this something you do every two years and you just happen to have a bunch of planes that didn't need it this quarter? Or you know, are we setting things -- do you think it's fairly flat?

I think, typically, maintenance is on a relatively scheduled basis. Some is determined by actual usage or flight hours, cycles, and some other maintenance is literally controlled by the calendar. You know, there is a little -- there is some ability to adapt when you're doing an incredible amount of flying. You might be able to have it -- (multiple speakers) -- for a brief period of time or accelerate it if you know you need the plane sooner, so there is a little bit of flexibility. But typically, it's an ongoing, normal operating occurrence in this business.

Okay. One thing that you all talked about is sort of the ability to increase your flexibility with the fleet and being able to move between various sort of your revenue segments -- (technical difficulty) -- ATM and charter business and even sometimes dipping into scheduled service with any plane kind of in your fleet, obviously with some focus on various age of craft going -- (technical difficulty) -- different processes. But on the passenger kind of I guess thing you're trying to go after, do you think that having -- obviously having the seats in the planes -- I mean can you convert them pretty quickly between, say, and go from the military service to the passenger business? I mean, is there a fairly quick time to turn around or does -- (multiple speakers)?

No, we would not acquire convertible airplanes, so if there was a passenger fleet, it would operate just as that.

So I mean you need to make sure that you could keep those passenger planes flying, because you would lack -- actually decrease your flexibility with the fleet -- (multiple speakers)?

Yes, well, what would happen is a passenger ACMI program with a foreign flag carrier would likely to be a longer-term lease, maybe five to ten years, where we contract to fly a set schedule. If we can't negotiate an efficient schedule where we can turn nice margins, we simply will not do it.

Okay, understandable. Well, thanks a lot.

Bill Fogel.

This is Bill Fogel from JL Advisors.

I just wanted to follow up on some of the variances. Aside from the 100 million in potential cost savings in terms of the numbers, how we should think about kind of '05 to '06, what the variances will be. Because I know, coming out of bankruptcy, your estimates for '05 earnings were in the -- EPS were in the $1.80 a share range. It looks like you're going to print (ph) potentially over $3; a lot of that has to do with an improvement in the cycle and also great cost controls and revenue enhancements. But going into '06, what should we be thinking about, not in terms of guidance but in terms of (indiscernible) items that we know currently?

Well, Bill, we're still actually working on our tactical plan for 2006, so we're not really prepared to comment much on that. Obviously, we're coming off a period in 2005 that has been a really stellar year and I guess hold on tight and as we get further into that process, we will see what we can help tell you about '06.

Okay. Then just in terms of the China frequencies, how many do you have in aggregate versus how many have been issued?

We currently fly -- (multiple speakers).

We fly 9; we are going to 12. I think the other three incumbent carriers are FedEx, UPS, and Northwest. I can get you the specific answer, but it seems to me that all of the carriers with these new allocations are at about a dozen or so. We can separately get you the actual number.

Okay, great. Thank you, guys.

Chuck Harris (ph).

It's Chuck Harris from Seranet (ph) Capital. Just a question looking at the fourth quarter, we just want to try and make sure I understand it. Mike, you were commenting about how the surcharge works on the Polar scheduled service business, which will offset about 65% of the change in fuel. As you are looking at it, is the jet price relative to aggregate pricing? Are you getting full cover so that we do see the normal seasonal pick-up from Polar that usually really helps the fourth-quarter type numbers? Or, when we add it all up, it doesn't quite get there, so that the bump from Polar that we saw last year in the fourth quarter historically is where you see it and may be more muted this year in the fourth quarter than we might otherwise expect, despite Jeff's comment that, from a revenue standpoint, it's a pretty normal type of season?

Right. Chuck, that is a very detailed question. You know, directionally, scheduled service benefits during the peak period, and that is consistent with what we have seen this year. In terms of exactly how it compares to prior years' periods is a little more difficult to comment on at this moment. The one thing we can tell you is we have fewer aircraft in scheduled service at this moment over the comparable period from last year, so in an absolute sense, there will be a difference.

It won't be as big. I guess I'm just worried that, you know, just in terms of what the overall price environment is out there for lift versus -- are you taking up that extra 35% that's not covered under the surcharge I guess is really the question?

Well, again, I think, directionally, pricing definitely firms during the peak period and we have seen that once again. Exactly how it measures out, you know, we will know better in another 45 days.

Okay, thanks much.

David Campbell.

Jeff, you probably can't answer this question, but you mentioned one of the revenue enhancements over the long-term could be better yield management, which would involve better pricing, particularly on exports where obviously your aircraft aren't as full as you are on the imports into the United States.

Can you tell me anything about what the differences in revenue yields are per block hour coming in versus going out? I guess -- and we are talking here of scheduled service rather than charters.

Yes, we're talking scheduled service. David, we just kind of want to take it away from an art form or the shoot-from-the-hip type of thing that we've got an airplane leaving from Chicago later on today; it's not full. So we chase down stuff at the last minute and you're willing to accept almost any price. That starts to program the freight forwarders that we deal with, so we just can't extract the right revenue. That's in part what the pricing discipline and a revenue management system is designed to do -- just take it kind of from an art form to a more analytical-based decision. That's the sort of thing that we want to implement, and I think it'll be very helpful.

Yes. The last question is I'm a little mixed up on aircrafts and operations. I thought, through this strike period, that you had taken some aircraft out of operation as a result of the Polar situation, sold some, releasing some. I see I have 39 aircraft in October and that's the same number you had in July.

That's correct. What we did, David, is we had some Atlas airplanes that were operating on the Polar side; we were simply able to move them back onto the Atlas side on a temporary basis, primarily doing military flying. What actually shut down during that brief period was the scheduled piece. But the nice thing about it is, when we started back up, the marketplace fully embraced our return and as you've seen by our results, we've done well.

All right, so all things being the same, you'll have the same number of aircraft next year as you had this year?

Well, we have an aircraft pending sale; it's not sold. We have a couple of older prop-powered airplanes that don't fit in the rest of the fleet and cause us some commonality problems, so we may look to move those aircraft out.

Okay, thank you.

Scott Tillman.

Scott Tillman from Harbert Management. I have just a quick question related to the potential (indiscernible) passenger (indiscernible). Would that also kind of be a back-door way of getting into some AMC military stuff on the passenger side, if you guys chose to?

Well, yes, Scott. I mean, potentially, as we move to new equipment, you look at the 777. That has applicability, both as a freighter and as on a passenger airplane. I can certainly see a scenario, although it's not available right now, of an A380, which is a double-deck airplane where are you are carrying troops in a passenger configuration on the top and you have all of their supplies and armament on the rest of airplane, so that certainly could be very attractive to the military.

Also, looking out from that, depending on what happens with this whole controversial tanker situation, there may be an opportunity for a multi-use commercial side where you have an airplane like the 777, which can operate as a tanker, can operate as a freighter, and you have other 747 -- other 777s that are in a passenger configuration. You know, there are a lot of things out there that we think about in how to grow the military business, how to expand the universe on the ACMI side, be it passenger or freight, so a lot of things we want to try and accomplish.

Okay. Mike, you did not want to disclose the current cash balance, right?

Yes, Scott, that was correct.

Okay, fair enough. Thank you, guys.

Bill (indiscernible). Please state your company name, followed by your questions.

We have no further questions. I'd like to turn the conference back over for any concluding comments.

Okay, thanks very much, Operator, and thank you, everyone, for your participation today and for your investment interest in the Company. I would like you to remember, when you think of air cargo, think of us and think of our market leadership, think Atlas Air Worldwide Holdings. As you can tell, we're very excited about our business and where it's going, and we hope you are, too.

That's all for now. We will talk to you next time. Thank you.

Thank you. Ladies and gentlemen, this concludes the Atlas Air Worldwide Holdings Incorporated third-quarter, 2005 earnings conference call. Thank you for participating in today's conference. At this time, you may now disconnect.