Atlas Air Worldwide Holdings Inc (AAWW) 2007 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Atlas Air Worldwide Holdings, Inc 2007 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Wednesday, February 27, 2008.

I would now like to turn the conference over to Bill Bradley, Vice President and Treasurer. Please go ahead, sir.

Thank you and good morning, everyone. I am Bill Bradley, Vice President and Treasurer of Atlas Air Worldwide Holdings. Welcome to our 2007 earnings review conference call. Today's call will be hosted by Bill Flynn, our President and Chief Executive Officer. Joining Bill is Jason Grant, our Senior Vice President and Chief Financial Officer. I would also like to remind you that in discussing the Company's performance today we have 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. Our actual results or actions may differ materially from those projected 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 March 15, 2007, and as will be updated by our upcoming 2007 form 10-K filing, for a summary of specific risk factors that could cause results to differ materially from those expressed in our forward-looking statements. In our discussion today, we 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 website 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'd like to turn the call over to Bill Flynn.

Thank you, Bill, and welcome, everyone. 2007 was a very exciting year for us. We achieved record pretax earnings of nearly $133 million. And we are equally excited about our future. We are well positioned operationally, financially, and strategically to build on our 2007 performance. Based on our current initiative and strategies, we expect pretax earnings in 2008 to exceed 2007. We also expect pretax earnings to accelerate to a range of $165 million to $175 million in 2009, which will be the first full year of our express network ACMI service for DHL. We are building from strength. And our achievements in 2007 demonstrate this. We reported record earnings for the year in the face of record high fuel costs. We considerably enhanced our balance sheet and strategic flexibility, ending the year with a large cash balance that exceeded our net debt and attractive PDP financing on five of our new 747-8 freighters that complements our launch customer pricing.

We completed a landmark, strategic transaction with DHL that will transform our scheduled service aircraft assets into ACMI-like contributors with predictable revenues and margins without commercial load and fuel price risks. We improved our operational execution, maximizing the utilization of our aircraft, exceeding our year-end target for continuous improvement, and driving our margins and earnings while contracting our 747-200 fleet. Moreover, we implemented tax strategies that have minimized cash taxes and reduced book income tax provisions. As a result, our pretax earnings increased to $132.7 million in 2007, which is a 41.5% improvement over our 2006 pretax results. We also exceeded our prior record 2005 pretax earnings of $124 million, despite a 24% reduction in AMC block hours compared with that year and substantially higher fuel costs. In addition, our 2007 net earnings were a record $132.4 million, or $6.17 per diluted share, both of which are more than double our respective 2006 figures.

Before Jason discusses the numbers, I'd like to spend a few moments on the fundamentals underpinning our business success and to highlight exciting growth in both our fleet and our relationship with DHL Express. We have been working over the past two years to substantially de-risk our business and focus on more profitable, long-term contracts, improving revenue and earnings streams visibility. Our focus is on the bottom-line. Our efforts to optimize our asset base, our product mix, and our operations combined with our continuous improvement initiatives are driving significant expansion in margins and earnings. Our strategy is focused on leasing and outsourcing new, efficient freighter aircraft that will drive long-term earnings growth. In addition to our compelling assets, we provide the most cost-effective outsource solutions and services to our customers in the global air freight market.

We provide scale and scope efficiencies that our customers are able to integrate with their cargo operations and drive their results. We serve all global markets with the majority of our flying outside of the United States. We serve customers who are focused on world markets in Asia, Europe, the Middle East, South America, Australia, and New Zealand, where demand is strong and will grow in the long term. Our capacity, our intellectual capital, and our high-quality, reliable operations have resulted in enduring strategic relationships with our customers, such as DHL, Emirates, British Airways, Quantas, Air New Zealand, the US military, and leading global freight forwarders. As an example, you may have seen a press release from Quantas today announcing a six-year term renewal for the three aircraft that are currently placed with them. We are very pleased with this development.

As a result of our strong financial capability and our ability to act quickly on opportunities, we have recently agreed to acquire two additional 747-400 freighters to expand our fleet and generate incremental revenues and earnings starting in 2008. These aircraft are expected to join our fleet in the second quarter and in the third quarter of this year and enable us to expand our relationship with DHL in advance of the October startup date for our express network service. Beginning March 29, we will commence flying two 747-400 freighters for DHL on an ACMI basis for a three-year term in the transpacific. These aircraft will be in addition to the six aircraft specified in our original agreement with DHL. In October, we will commence the full expressed network ACMI service for DHL deploying a total of eight aircraft. Our partnership with DHL will significantly enhance the profitability of the six aircraft that are currently deployed in our scheduled service operations.

When the new service begins, we expect these assets to generate an ACMI-like profit contribution. We are looking forward to the launch of our 747-8 freighters in 2010 and 2011. These aircraft will benefit -- this aircraft will benefit from its scarcity value, payload and fuel efficiency, and our first to market ACMI capability. Jason will now take you through our latest financials. Following Jason, I will provide some additional color about our outlook for 2008 and for 2009, the first full year of our express network ACMI service for DHL. After that, we'll go to your questions. Jason?

Thanks, Bill, and good morning, everyone. As Bill has highlighted, we reported a strong increase in pretax earnings and a record net earnings for 2007. We reported operating income of nearly $155 million on total operating revenue of $1.56 billion. After adjusting for pretax gain on sale of assets, we increased our operating earnings by 6.2% compared with 2006. Our asset optimization and continuous improvement initiatives drove cost savings and utilization improvements that helped us overcome the impact of continued high fuel prices and a reduced fleet size. Key to our performance in 2007 was a 9.9% improvement in aircraft utilization, which we achieved on an 8.8% reduced fleet size. Through year-end our continuous improvement efforts have achieved $68.4 million in annualized savings against an addressable 2005 cost base of about $800 million.

Continuous improvement has become an integral part of our cultural here at Atlas. We continue to deliver results from our efforts. We continue to expect that we will exceed our goal of $100 million in annualized benefits in 2008. Earnings in 2007 also benefited from actions that reduced our nonoperating expenses, which included -- a $24.3 million reduction in our net interest expense, which included the impact of early debt retirement in 2006; The absence of a $12.5 million noncash charge related to that debt retirement in 2006; And net tax benefits totaling $50 million or the equivalent of $2.33 per diluted share. Our tax benefits were related to the DHL Express investment in Polar Air Cargo Worldwide, as well as our ability to claim a deduction for extraterritorial income on our federal income tax returns for 2004 through 2006.

In addition to the tax rate and cash tax savings that we have achieved in 2007, we are continuing to actively evaluate income tax planning opportunities that may reduce our effective tax rate and cash tax liability in the future. These opportunities are not yet fully developed, so we cannot quantify the potential tax rate reduction and cash tax savings at this time. However, we do expect to utilize tax loss carry-forwards to offset most taxable income generated during 2008. Returning to operations, revenues increased 5.9% in 2007, reflecting an increase in non-ACMI block hours and unit revenues. Operating expenses, meanwhile, increased 6.3% in 2007, mainly due to higher fuel costs, which were partially offset by significant continuous improvement cost savings. Aircraft fuel expense of nearly $532 million in 2007 was $77 million, or 17%, higher than 2006 due to an increased mix of non-ACMI flying and an increase in fuel prices.

Fuel consumption increased 10.5% in 2007 compared with an 11.7% increase in non-ACMI block hours. Average fuel prices increased steadily over the course of the year and negatively impacted our scheduled service segment, which is where we are most directly and significantly exposed to the impact of changes in fuel price. We continue to benefit from our fuel-wise continuous improvement initiative, which focuses on improving fuel burn for Atlas and our customers. As a result of our fuel-wise program we reduced fuel burn in our non-ACMI businesses by about 37 gallons per block hour or 1.1% in 2007. Our fuel expense in 2007 also reflects a net benefit of $5.6 million from our fuel hedging activities related to our scheduled service business. Other key expense items include maintenance expense which, consistent with our prior commentary, totaled $149.3 million in 2007, up about $5.2 million or 3.6% compared with 2006.

The increase was principally due to an increase in line maintenance expense, as well as three additional heavy airframe check events and four additional engine overhauls. The impact of these events was partially offset by improvements in outside repair expenses and reductions in borrowed parts expenses related to our continuous improvement initiatives. In addition, salary, wages, and benefits expense increased about 2.4% or $5.8 million compared with 2006. The change was mainly due to an increase in performance based incentive compensation and profit sharing for 2007 relative to 2006. Other operating expenses were sharply lower in 2007, declining $22.3 million or 21.8%, due primarily to our ongoing continuous improvement initiatives. The significant improvement reflects reductions in legal and professional frees, contractor fees, insurance, and other general and administrative expenses.

Turning to our balance sheet, we ended the year with a cash balance of $477 million, which represented a 106% increase over year-end 2006. We ended the year with debt and capital lease obligations totaling $394 million. The face value of our debt and capital lease obligations amounted to $469 million. This included $75 million of unamortized discount related to fair market value adjustments associated with fresh start accounting. This compared with a face value balance of $501.5 million on December 31, 2006. Free cash flow, defined as cash from operations less capital expenditures, totaled $134 million in 2007 compared with $77 million in 2006. Cash from operating activities totaled approximately $197 million versus $147 million from 2006. Capital expenditures totaled $63 million, which included approximately $31 million in Boeing progress payments related to our future aircraft deliveries.

Net cash provided by financing activities totaled $103 million, reflecting proceeds of $98 million from DHL's investment in Polar and $30 million from a refundable deposit from DHL, offset by $32 million in debt repayments. Subsequent to year-end we received an additional $38.6 million from DHL, reflecting further investment proceeds. The final payment from DHL of $37.5 million plus interest is scheduled to be paid in November of 2008. Looking forward, we expect that capital expenditure for 2008 will total approximately $45 million to $55 million, excluding predelivery payments of $247 million related to future aircraft deliveries and excluding the purchase price of our two incremental 747-400's that Bill had referenced previously. We were pleased to announce last month that we have entered into a $270 million PDP financing facility with respect to the first five 747-8 freighters to be delivered to us between February and July of 2010.

PDP's on these five aircraft totaled $202 million in 2008, which is about 80% of our total PDP requirements for the year. As of February 1st, we had borrowed approximately $63 million under this facility. Our PDP facility complements our launch customer pricing on the aircraft and it reflects the financing community's positive perceptions about the -8's and their compelling operating advantages, the quality of our customers and our relationships with them, and our strong operating performance, balance sheet, and prospects for growth. We are working on the next tranche of financing arrangements with respect to our order for the -8's and we are confident about our ability to make further progress on this in 2008. With that I'd like to turn it back to Bill.

Thank you, Jason. As I noted at the beginning of my remarks, we expect pretax earnings to exceed $133 million in 2008 and to grow to a range of $165 million to $175 million in 2009. It is important to note that in the 2009 range, we have conservatively assumed AMC revenues of $200 million, or a nearly 50% reduction from the $376 million generated in 2007. Based on our outlook and the full impact of our DHL partnership, about 84% of our expected 2009 block hour capacity will be under predictable, long-term, take-or-pay contracts. Taking into account our forecasted military charter business, about 92% of our capacity will be tied to fixed price contracts. The first half of 2008 will be challenging. Fuel will continue to impact our scheduled service business until we commence the express network ACMI service for DHL in the fourth quarter. In addition, we expect lower military volumes. Nonetheless, our business is well positioned for growth and improved performance.

We see continued strong demand for our 747-400 freighters, especially given the fuel and maintenance burden of older 747 classics, MD-11's, and DC-10's. We have recently formed a wholly owned subsidiary in Ireland to focus on the acquisition, sale, dry leasing, marketing, and servicing of aircraft and related equipment. This subsidiary has already dry leased one 747-200 freighter aircraft to a third party. In closing, we achieved solid operating performance and record net earnings in 2007. We are focused on execution and we have a solid platform for earnings growth in 2008, 2009, and beyond. We will continue to build on our strength and we will continue to build an exciting and winning future for our customers and for our stockholders. With that, I think it is a good time to take some questions. Operator, may we have the first question, please.

Thank you, sir. (OPERATOR INSTRUCTIONS) Our first question comes from Bill Labick from CJS Securities. Please go ahead.

Good morning. It's Bob Labick, congratulations on a good quarter.

Thank you, Bob.

Hi, a couple of questions. First, I wanted to focus on ACMI. You alluded to the drop in revenue per block hour in the quarter relating to some supplemental flying. Could you just expand on that and explain what the outlook for ACMI revenue per block hour would be in '08 and if this fourth-quarter reduction should influence that trend at all.

The -- Bob, in prior years, we have done short-term ACMI flying for FedEx and U.P.S. A good number of aircraft in 2006 and 2005. Aircraft that they contracted for over a two or three-week period during the holiday peak to supplement their fleet. What we experienced -- we didn't get that level of short-term flying with U.P.S. and FedEx this year. And that's what's affected the rate per block hour in a quarter over quarter comparison. Going forward, we believe in our core ACMI business, the business where we have the aircraft contracted out for multi-year terms, those rates are, are strong, and, and solid.

Great. That's very helpful. Then also you mentioned you're procuring two additional 400's in Q2 and Q3. Could you comment on the pricing and the supply out there. Is this going to be an issue for -- industrywide is there a lot of 400's available or just the dynamics going on in that regard?

Well, let's take that in reverse order. There are not a lot of 747-400's pure factory freighters available. We've acquired one, are acquiring one factory freighter and one 747 BCF. Demand is still very strong for the aircraft. We were just in a position where we could take advantage of the opportunity where the aircraft had a -- that was available and we had a very -- we had several placement opportunities. And as we've, as we've announced, we will place additional aircraft with DHL. There's not a lot of aircraft available, as I've said. There are some BCF aircraft coming into the market, but a BCF is not, does not have the same performance characteristics as a freighter, as a pure factory freighter. We've not disclosed the price that we've paid for the freighters, however, Bob.

Okay. And then skipping to scheduled service. I know it's short lived on your P&L for the time being. But you mentioned some hedging activity where you were able to mitigate some of the fuel price increase. Could you also just discuss the fuel surcharges and any ability to recapture some of the continued increase in fuel for the next eight or nine months, until it's under the ACMI agreement with DHL Express.

Well, fuel is really the, one of the key questions, isn't it? If you go go back and you look at last year, kind of the lowest cost per gallon was experienced in the first quarter of 2007. And then coming out, starting in March, the cost per gallon just continued it climb. And that hasn't stopped. We are increasing our fuel surcharges in the marketplace. But the fuel surcharges do not recover 100% of the delta. First they lag, so there's a time lag. And secondly, you are priced to what the market will absorb. So right now we're looking at something in the range of a 66%, 65% kind of recovery. That's something we continue to monitor and we continue to test the market with pricing. Both on underlying rate and on fuel surcharges.

Okay. Great. Then looking ahead, you mentioned minimal cash taxes in '08. Have you decided on or are ready to disclose, I guess, the amount of -8's you expect to purchase outright and then use as accelerated depreciation as a tax shield for '09 and beyond? Or where are you in that process for purchasing versus leasing the -8's, I guess?

Bob, it's Jason. We're fairly advanced in the process. I think the area where we've made the most progress is in the sale lease-back opportunities for the aircraft that will end up being off balance sheet. I think it's probably premature for us to give you a specific split between what we expect will be on and off. But, I think it's fair for you to assume that there will be a material portion of the aircraft which end up being financed on balance sheet. And -- and I think part of it becomes the market and the environment as we move forward. But as it stands now, we envision that there will be a significant portion of the aircraft on balance sheet and that we would benefit from that tax benefit. I guess to put it in context of the 12 aircraft that we have firm orders on, we had, as we said, four backed up sale lease-back financings on those aircraft. We've been in discussions, more advanced discussions on an additional two aircraft as sale lease back to kind of give you a context today in terms of what's lined up as potential off balance sheet. But again, I don't want to commit to a specific number because there is some optimization I think left in this process. But fair to say that we expect that there will be some tax benefits here.

Great. Very helpful. Congratulations again on a good year and a great outlook. Thanks very much.

Thank you, Bob.

Thanks, Bob.

Thank you. Our next question comes from David Campbell from Thompson Davis & Company. Please go ahead.

Yes. Thank you very much. Just a few questions. Just to clarify the -- your comment about capacity and block hours in 2009, 92% being in fixed rate business. Does that mean that there will be about 8% of the revenue block hours in charter, commercial charter and scheduled operations?

That's correct, David.

That seems like quite a decrease from current levels. But I guess that's part of your plan to reduce the impact of higher fuel costs.

That's exactly right. It is a substantial decrease and it is the plan that we've been executing on going forward.

Right. And you're not ready to forecast your 2008 tax rate, I assume from the comments.

Well, I think, David, to focus on the cash tax, as we've said, our expectation is that our NOL position will effectively defer taxes, cash taxes for 2008 and I think the book tax provision we have not given any guidance on and we will not on this call.

Okay. And how about in case of your net interest expense, you will be borrowing the money this year. Do you have anything you can disclose in terms of what the net interest cost might be this year?

I think, David, the place you want to be focused for that calculation is really the PDP's. And we will have effectively an incremental $246 million of PDP requirements in 2008. And that is a -- an amount -- a portion of which will be financed, a portion of which will come out of equity. For the portion that's paid out of equity, we record capitalized interest and capitalized interest on the PDP interest we pay to the lender, as well. So I think you want to think about a lot of that interest up front as -- as being capitalized and end up flowing into the capital base of the aircraft going forward. Otherwise, we have no incremental at this stage financing activity beyond the two 400's, which we will have -- we will want to find permanent financing solutions for.

And the two -- the two 400's, you haven't -- you are not willing to give us a capital expenditure forecast for 2008 including the 400's and the progress payments.

No. I think given the sensitivity of the procurement process for these aircraft, we're not at a stage where we can disclose that yet, David. And I think we -- as we get farther down the process, clearly there will be more disclosure. At this stage we cannot.

But you are planning on purchasing the two 747's. Or that hasn't been decided either?

Yes. I think -- I think there's -- an open question to us here is how much of this ends up on the balance sheet and off the balance sheet. Frankly we're testing the market for that right now. And we're going to let the market partly tell us what the better answer is between the two.

But I think, if I heard the other part of your question, we are moving forward to acquire the aircraft.

Right. Right. And your dry lease on the 747-200's, the -- you have said that there wasn't much demand for 747-200's. So I guess I'm surprised that you would find it profitable to -- to go into a dry lease with one.

Well, we've said the 747-200 is challenged in the ACMI market. We operate the 747-200's effectively in our military charter and in our commercial charter unit. There are other operators there who have uses and applications and customers for the 747-200 and they make money with it. And that's how we manage these assets, particularly these eight 747-200's. We manage them tail by tail and we take advantage of the opportunity that's out there for them.

Okay. And what about the current, the status of the current market for scheduled service, particularly in the Asia Pacific region? That impact was the early Chinese new year and so forth. In disclosing that you will have a difficult first six months, you didn't say that the -- the commercial market would be difficult. You related it mostly to military charters. But so what do you think about the commercial market?

We said two things. The biggest overhang on the scheduled service market right now is fuel. I had us put out statistics, Asia Pac in the second half of '07 actually grew 8.1% in terms of freight demand. You'll see our numbers later in the k and we had a good fourth quarter in scheduled service, which wasn't only Asia Pac. But as we've talked about, David, on other calls, we've got a very strong position in the South American trade, both north and southbound, as well as transatlantic. Now to your more specific question, there was pretty good demand in January leading right up to lunar new year. Even in spite of the snowstorms that affected Shanghai and other air freight markets in China around lunar, or just before lunar new year and then there shortly thereafter. The pricing was reasonably strong, as was our ability to push the fuel surcharges out into the market. And on military, we've historically said that we've used the term enormalized volume of military, volumes around 1,450 hours a month. And that's -- that's kind of what we see.

Okay. So -- but January was a good month in general for commercial demand. February will be influenced by the new year, Chinese new year?

Sure, as it always is. Whether lunar new year falls in February or falls in March, you clearly see that in trade statistics because of the 10 or so day shutdown that the factories take.

Okay. Right. Okay. Thank you.

Thank you, David.

Thanks, David.

Thank you. Our next question comes from Evan Ratner from Credit Suisse. Please go ahead.

Good morning, gentlemen. Two quick questions. Actually one quick one and one more overall question. I'll start with that one. On the ACMI market, can you just talk about your competitive position, better, worse, same, and what you see going forward from that perspective in 2008 and beyond?

I think our position, Evan, is absolutely better, because we -- we still are the carrier with the almost 90% of the 747-400 freighters that are available in the market for ACMI operations. We are in the process of converting the scheduled service to ACMI with DHL. We've gone and acquired, are in the process of acquiring two more aircraft. One is a pure factory freighter. One is a BCF, which will again increase our size and our scale in the market. and our able to continue to deliver scale and scope efficiencies to our customers. The other 747-400's that are either in the market or are coming into the market are essentially BCF's, which while we have acquired one for our own use, they are not the same aircraft as the 747 freighter. And we believe that our scale advantage, as well as the kind of the sterling or platinum credit quality of our customers, really do position us in a very strong position in the ACMI market. Beyond that, our renewal rate has been exceptional. If you just kind of think it through, we've got six aircraft with DHL in the long-term ACMI agreement that we've talked about on several calls now. Another two aircraft which are coming into DHL this year on a three-year term. Last year, BA announced the five-year renewal of the three aircraft that we have placed with them through our subsidiary, GSS. Minority shareholding in that subsidiary. And Quantas announced today another three aircraft on a six-year renewal, which is one of our longer term renewals. So as we come into more of an uncertain market in 2008 and 2009 given global conditions, we have very few aircraft that are coming up for renewal. And so we don't expect to have aircraft coming back to us and parked or unused for some period of time as a result of a renewal that didn't happen or something of that nature. We think we're very well positioned in ACMI with our aircraft, well placed, as we look forward through the next several years.

Thank you. And I was also going to ask about the Quantas extension. Generally, you guys, I'm assuming, are anticipating some upward trend in ACMI rates going forward? Is that a fair estimate?

Well, we do get inflationary increases and we are pushing the rates as hard as we can. Our customers, though, who bear the fuel risk are dealing with their challenges around fuel surcharges. So there's a -- there's a point at which you push price and then certainly as you get into long-term negotiations, you get increases or can get increases, but you kind of balance that to some extent with the certainty of long-term placement on these assets.

Okay.

And, Evan, it's Jason, the one other point I would make on the year-over-year comp that you referenced for the competitive picture is when you look at supply, supply has been relatively unchanged as there are really limited 400's still to be produced. But what has changed significantly is fuel price. And -- and really the other operators in the market are almost exclusively operators of the older 747-200 equipment. And it's clear that today, the business case today is much more stressed than it was a year ago. Higher fuel prices I think don't help anyone. But certainly on a relative basis, we have the assets that were compelling a year ago, they were compelling two years ago. And when we talk about $1.00 a gallon or $0.75 a gallon increase in fuel price, that relative -- that relative economic benefit of the 400 is only exacerbated relative to the competitive options out there.

Right. Yes. I agree wholeheartedly. Bill, can you also talk briefly, I know we can talk a whole lot about this. But the -- the consolidation in the US commercial marketplace, how does that affect you if at all? Is it a benefit, a negative? Are you guys indifferent?

You talking about the softening demand?

No, I mean like a Delta and Northwest getting together or other consolidation, US and globally?

I'm sorry. I misunderstood initially. Well, the only operator out there who has freighters of any amount or frankly any freighters is Northwest. And our customers, as you know, other than the military, are essentially all non-US airlines for the ACMI business. With the exception of the maybe a seasonal placement that we have with the FedEx or UPS. So we remain, we'll remain generally unaffected by consolidation. I think the question that's out there, and I don't know what the answer to that is, is what will Northwest ultimately do with those freighters? If there's consolidation, will the new entity continue to operate the freighters? What are they going to do? That's all pure speculation until something's actually announced.

Okay. Thank you very much. Very, very good quarter.

Thanks, Evan.

Thanks, Evan.

Thank you. (OPERATOR INSTRUCTIONS) One moment, please, for the next question. And our next question is a follow-up from David Campbell from Thompson Davis and Company. Please go ahead.

Yes. The substantial decrease in scheduled revenue, scheduled block hours in commercial charter block hours that you have in your plans for 2009, particularly, how does that -- how does that affect the -- the market for ACMI? Doesn't that increase the, somehow or other increase the market for ACMI? Because somebody's got to -- some airline is going to want to fly their freighters more.

Well, I think there's a couple ways to think about it. As we talk about our fleet, what's going to change between now and 2009, we're going to go from 20 to 22 747-400's, all of which will be in an ACMI-effective operation. That's our expectation in the forecast. And we will be taking down our 200 fleet. Now in the 200 fleet, we'll have at a $200 million forecast on AMC revenues, we'll have about four aircraft, three to four aircraft in AMC, three aircraft in a dry-lease situation and then the remaining will be in commercial charter and/or could fly in scheduled service. To the extent that the commercial charter market is under, certainly has unmet demand, there are a large number of 747-200's out there that other parties could put to work to serve that market. But that 747, that excess 747-200 capacity is not likely to be a competitive threat to us with our customers with whom we have the aircraft placed. One, we don't believe the aircraft works for them given the nature of their -- of their business strategy and their -- their routes served. And two, we have the long-term placements through contracts with our customers already with very limited renewals to occur in that cycle.

So in 2009, your plan will have -- will not have 34 aircraft? How many -- how many aircraft would be -- would you be operating?

And David, I think -- I think just to give you some rough numbers on that, as Bill said, we're going from 20 to 22 400's. I think if you think about the 200's, today we have 17 in total. There are two of those aircraft which are subject to de-check, the big, heavy maintenance events, in the next 24 months. Those will be clearly targets for potential reduction. And then there are three aircraft that are currently under operating lease, which -- in which those operating leases expire by the first quarter of 2010. So to put in context that's probably the minimum amount of fleet that are in question here on the 200 side.

Meaning roughly 12? Meaning you've got 17 and there's five -- there are five that are -- three come down automatically, two are due D's and we'll have to make that decision.

So you've got roughly 12 plus 22. So the fleet's 34, but of course the introduction of the two 400's changed the -- make a substantial difference in terms of our earning power with the adds.

Okay. Right. Okay. Thank you very much.

Thank you, David.

Thanks, David.

Thank you. At this time we have no further questions in queue. I would like to turn the conference back to management for any concluding comments. Please go ahead.

Thank you, operator. This is Bill Flynn. I would like to thank everyone for taking the time to participate in the call and for your questions. And to thank you for your interest in Atlas Air Worldwide Holdings. Thanks, operator.

Thank you. Ladies and gentlemen, that does conclude Atlas Air Worldwide Holdings Inc.'s 2007 results conference call. If you would like to listen to a replay of today's conference, you may dial 303-590-3000 or 1-800-405-2236. And use passcode 11109461-pound. Thank you again for your participation today. You may now disconnect.