Atlas Air Worldwide Holdings Inc (AAWW) 2010 Q1 法說會逐字稿

Welcome to the Atlas Air Worldwide Holdings first quarter 2010 results conference call on the 5th of May, 2010. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation there will be an opportunity to ask questions. (Operator Instructions). I will now hand the conference over to Dan Loh. Please go ahead, sir.

Thank you, operator. Good morning, everyone. I'm Dan Loh, Director of Investor Relations for Atlas Air Worldwide Holdings. Welcome to our first quarter 2010 results conference call. Today's call will be hosted by Bill Flynn, our President and Chief Executive Officer. Joining Bill is Jason Grant, our Executive Vice-President and Chief Financial Officer.

I would like to remind you that in discussing the Company's performance today, we have included some forward-looking statements that are within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations. And they 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 February 24, 2010 as amended or updated by subsequent reports that we may file with the SEC for a summary of specific risk factors that could cause results to differ materially from those expressed in our forward-looking statements.

Also in our discussion today, we have included 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 in our related reconciliation in our press releases which are posted on our website, www.atlasair.com. You may access these releases by clicking on the link to Financial News in the Investor's Information section of the website.

I would now like to turn the call over to Bill Flynn.

Thank you, Dan. And good morning, everyone.

We are very pleased to discuss our record first quarter results and our strong earnings outlook with you today. We are also excited about several initiatives that will drive future revenues and earnings.

In March, we were awarded a nine year CMI contract under which we will provide key supply chain support for the production of Boeing's new 787 Dreamliner. The award reflects our proven ability to operate global time-definite networks, is expected to generate substantial revenue and earnings benefits beginning in 2011.

In the Dry Leasing space, our Titan subsidiary acquired its first freighter aircraft and associated customer lease in March, and is continuing to evaluate additional high-return opportunities. As we announced on Monday, we have secured attractive PDP financing for the final 9 of the 12 aircraft in our Boeing 747-8 freighter order, in a market where PDP financings have been quite scarce.

Turning to our current results, this year's record first quarter earnings significantly surpassed our previous record in last year's first quarter, with our net income rising more than 44% to $33.8 million or $1.30 per diluted share. On an adjusted basis, net income in the first quarter rose even more sharply, increasing over 86% to $27.5 million or $1.06 per diluted share. Earnings growth in the first quarter reflected strong market conditions, earnings leverage in our model, and was based on the strategic action that we have taken to transform our business, our operating cost base and our fleet. As a result, we were well-positioned for a strong upturn in market conditions driving by a continued improvement in air freight demand, tight supply environment, continued strength in military demand and robust commercial charter rates.

The significant improvement in air freight demand during the first quarter was in stark contrast to the first quarter of 2009, when air freight demand was falling at a historic rate. International air freight traffic grew at a 28% pace during the first quarter compared with the first quarter of 2009. Traffic during the quarter grew by 30% to 40% in nearly all of IATA's reporting region except Europe with a 10% rate. Asia Pacific which is a key market for the ACMI charter customers, and Latin America which is a key market for our scheduled charter operations, led the growth in air freight demand during the quarter with Asia Pacific rising 36%, and Latin America up 40%.

While global traffic increased 28% during the quarter, global capacity only increased 4%. Global load factors improved to 54% for the quarter, compared with 44% in the last year's first quarter, reflecting tight supply and demand conditions. In the Asia Pacific region, load factors rose to 66%, an increase of about 10% compared with the prior year. As IATA notes, March's global load factor of 57% was the highest since November of 2002. The combination of strong demand, tight supply, and improved load factors supported an increase in our ACMI customer's utilization rates and our charter yields during the quarter.

On average, our ACMI customers flew at more than 103% of their minimum contractual block hours during the first quarter, a strong level compared with the typical seasonally slower first quarter period, and up substantially from an unusually weak 80% in the first quarter of 2009. Charter yields north of $3 per kilo during the first quarter of 2010 were roughly twice what they were during the first quarter of 2009. We expect to see strong air freight demand and a continued tight supply of wide-body freighter capacity throughout 2010. IATA, for example, expects global air freight traffic to glow by 12% in 2010 with wide-body freighter capacity increasing only about 4% to 5%. At the forecast growth rate, global air freight demand in 2010 should approach or exceed its previous high point in early 2008.

Our first quarter results were also characterized by strong military charter demand, including the transportation of MATVs nonstop to Afghanistan. In 2009, we were proud to propose a solution to the Admirability Command that would deliver new production MATVs into theater quickly and efficiently on our 747-400 freighters. During the first quarter we flew more than 100 mission and successfully delivered more than 500 of these vehicles for the AMC.

As we noted in the previous calls our success starts with our number one focus, delivering superior service, value, performance and innovative solutions to our customers, who include the world's top tier international airlines, freight forwarders, and the US Military. I would like to take a moment to comment on that and to highlight another important factor behind our strong earnings performance. That is the continuing contribution of our flight crews and our flight and ground operating staffs in not only meeting but exceeding very high service level commitments to our customers. Based on their dedication and superior performance, we provide continuous reliable high quality service to our customers.

We are ready to respond quickly to our customers' needs when schedules change and to flex our worldwide scale and scope to help them achieve their objectives. The volcanic activity in Iceland provides a good example. We maintained our global operations during that time but we quickly adapted to the situation. We transferred flights down to southern Europe for affected customers. In particular, we worked with DHL and shifted down into northern Spain. We did the same for BA. All flights in and out of the UK were blocked but they had global operations to deliver so we shifted operations to the south and moved freighters in and out of Caude[ph] airport in northern Spain, among others. For the US Military, our 747-400 freighters were the only aircraft that could provide continuing service to Afghanistan unaffected by the volcano.

Since European airspace has reopened, we have experienced a high level of activity, as our customers unravel remaining backlogs and return to normal operations. We do not expect the delays around slowdowns caused by the volcano to have more than a very minor effect on our second quarter results.

I think this is a good time to ask Jason to provide you with some additional perspective on our first quarter results. After that I will have some more color about our outlook for 2010, and then we will be happy to take your questions. Jason?

Thanks, Bill, and good morning, everyone.

Beginning with the fourth quarter of 2008, we reported six consecutive quarters of strong year-over-year earning is improvement in the face of an unprecedented air freight environment. Both our record first quarter numbers and the earnings track record that we are building reflect the strategic transformation of our business to better manage risks, our systematic pursuit of cost reduction, and productivity improvements particularly through our continuous improvement initiatives, and a disciplined approach to fleet management that have enabled us to provide leading edge 747-400 freighter assets and operating solutions to our customers while opportunistically managing our classic fleet and planning for the next generation 747-8 freighters which will deliver greater efficiency, performance, and margins for our customers.

In addition to the operating leverage in our model, our first quarter results also highlight the complementary nature of our business segments and our ability to optimize capacity allocations among our military, commercial charter, and ACMI segments. Total direct contribution by our reportable business segments improved to approximately $77 million in the first quarter from about $50 million in the first quarter of 2009. Improvement in direct contribution was primarily driven by strong AMC charter and commercial charter block hour volumes and revenue yields.

Block hour volumes in AMC Charter reflected an increase in flying activity related to US Military activity in Afghanistan. AMC revenue rates driven by a higher peg fuel price as well as a premium rate for mix specified 747-400 freighter aircraft. Block hour volumes in the Commercial Charter segment primarily reflected charter demand generated by the deployment of 747-400 freighters in the segment, and our 747-400 charter service to and from South America. Block hour rates in commercial charter were driven by a significant increase in demand for air freight out of Asia and a tight supply in global wide-body freighter capacity.

We reported a modest reduction in contribution from the ACMI segment versus the year-ago period which was primarily a function of customers flying significantly below minimum guarantee levels in the first quarter of 2009. Average ACMI revenue rates in 2009 reflected minimum guaranteed revenue generated on unflown block hours.

During the first quarter of 2010, one 747-400 ACMI aircraft was returned by a customer whose contract had expired. Taking advantage of market conditions, and strong pricing in the charter market relative to longer-term lease rates, we close to profitably deploy that aircraft in high-yielding AMC charter and commercial charter activity for the time being.

We expect that we will continue to see a high level of military and commercial charter demand in 2010. Based on that expectation we decided to perform a heavy maintenance C check on one of our 747-200 freighters that was previously intended to leave the fleet after the first quarter. Reflecting our decision, we now expect to operate six 747-200 freighters through the remainder of the year. Also on the fleet we are very pleased to note that Titan Aviation Leasing acquired its first aircraft during March, a Boeing 747-200 special freighter. This aircraft had been dry leased to a Chinese airline for a five year term.

On the expense side, line item operating expenses in the first quarter, especially aircraft fuel, were higher than the same expenses in the first quarter of 2009, largely reflecting the significant increase in our block hour volumes and our consolidation of GSS.

Turning to our balance sheet. We remain focused on leverage, and continue to manage an already strong balance sheet. We ended the first quarter with cash, cash equivalents and short-term investments totaling $563 million, compared with $636 million at year end 2009. Since the third quarter of 2009, we have advanced our deleveraging efforts with the acquisition of approximately $121 million of public EETC certificates that financed 12 of our 747-400 aircraft. These certificates were acquired at a meaningful discount and provide a long-term attractive return to the Company. The purchase of the certificates will be reflected as a long-term investment on the balance sheet and will have the effect of reducing net leverage.

The acquisition provides increased fleet flexibility for the company, and will provide annual incremental earnings of approximately $0.40 per diluted share through 2015. The earnings will be driven by a combination of interest income and the accretion of the purchase discount. These incremental earnings will be reflected in the interest income line of our income statement.

Our balance sheet debt totaled approximately $556 million on March 31, and the face value of the debt totaled $637 million. Our net leverage ratio, including capitalized rents, remains approximately three times annual EBITDAR, putting us in good shape heading into the 747-8 deliveries. Including the benefit of our investment in our EETC certificates, our net leverage ratio is less than 2.9 times annual EBITDAR.

Our capital expenditures totaled approximately $22 million, which included about $3 million of capitalized interest related to the Boeing 747-8 order. We expect that cash capital expenditures for the remainder of the year to be $159 million. Included in that total is approximately $115 million of progress payments on our new Dash-8 freighters, about $60 million of which will be funded through the existing PDP financing facilities.

On Monday, as Bill noted, we announced the closing of a second PDP financing facility that completes PDP financing for all of the 747-8 deliveries. Although PDP financing has generally not been available in the marketplace, the lender community has been receptive to both Atlas and the 747-8 asset. It also reflects the strong working relationship with have with our lender group. In line with our strong balance sheet and credit quality, we continue to focus on securing attractive permanent financing for our new aircraft during 2010 and look forward to the introduction of the new Boeing 747-8 freighters into service in early 2011.

With that I would like it turn it back to Bill.

Thank you, Jason. We are well positioned to deliver value and generate continued growth in 2010 and beyond. Our 2010 outlook reflects the encouraging trends in air freight, strong demand, and tight supply, sustained demand in AMC charter, robust commercial charter market yields and continuing economic recovery. We will operate a fleet of 22 747-400 freighters and 6 747-200s through the remainder of the year.

In ACMI, we continue to expect that 18 of our 747-400 aircraft will be operating in our wet lease segment by year end. We are confident about our opportunities to place additional aircraft in ACMI service. But, as Jason noted in his comments, we will consciously evaluate the timing of any longer term aircraft placements against the benefits that high yielding commercial and military market opportunities present.

Based on current schedules and plans from our ACMI customers, we anticipate that they will fly about 6% above minimum contractual block hours over the course of 2010. In AMC charter, our expectation continues to be that military demand will total about 21,000 hours for the year or about 10% higher than in 2009. In commercial charter, we expect continuing demand and tight supply to support strong overall yields. We do not at this point, however, expect to see fourth quarter 2010 yields peak at the same level as fourth quarter 2009. We continue to execute on initiatives that will drive additional revenues and earnings. As previously discussed, Titan has acquired its first aircraft accompanied by long-term dry lease, and it continues to evaluate additional high return opportunities. We also plan to commence outsourced premium passenger CMI aircraft operations for SonAir very shortly, using two customer owned 747 passenger aircraft. This opportunity will have a more tangible impact on our 2011 results, as will our CMI flying for Boeing beginning later this year.

We will operate four 747-400 Dreamlifter aircraft for Boeing in support of its 787 Dreamliner production program. Utilization of the Dreamlifter aircraft is expected to ramp up over the next few years, as Boeing increases its output of 787 aircraft. Currently, we expect the Dreamlifter fleet to average approximately two aircraft worth of flying in 2011, increasing to approximately three aircraft in 2012 and a full four in 2013. Additional growth will occur with the delivery of our 12 next generation 747-8 freighters starting in early 2011. Although risks remain, based on our framework assumptions for 2010, we currently expect adjusted net earnings to exceed $4 per diluted share.

With that, I think it is a good time to take some questions. Operator, can we have the first questions, please.

(Operator Instructions). The first question comes from Bill Green from Morgan Stanley. Please go ahead with your question.

Hi there, good morning. Bill, or Jason, wondering if you could comment at all on the second quarter, how the charter rates are, particularly if you could add any color by market. How Pacific versus LatAm or other markets might look?

Good morning, Bill. One anomaly also to comment on has been the volcanic activity that's occurred. Charter demand remains strong, Asia Pacific, just driven by new product introduction, the iPad and other consumer electronics that are coming into the market, and the continued tight supply of capacity. Certainly freighter and belly capacity. Latin America overall has held up very strong throughout the cycle and there continues to be good demand for capacity in both directions in Latin America. And there has been a substantial backlog created as a result of the volcanic activity as I noted in my comments and so there have been Asia Europe charters and other charter activity driven by the interruption that the volcano caused continuing to support a good charter demand and good charter yields.

But if we look at kind of the trends that you are seeing now here in the second quarter, you mentioned by the time you get to the fourth quarter you don't think you will see those kind of peak levels. How should we think about how this evolves? Are we seeing a year over year sort of deceleration in that growth because first quarter was such an easy comp or how do you think about how those evolved through the course of the year?

The first five months of 2010 will be an easy comp over the first five months of 2009. And then we all have that image in our mind of what growth looked like accelerating through the year and then strong market demand continuing into first quarter and beyond. And I think the comment was making and I said yields to peak, you know, on a given week or two in the fourth quarter of 2009, we saw, you know, $7 kinds of cost per kilo coming out of Asia which is exceptionally high, and hadn't seen anything like that really since the port lockout in 2002.

I think yields are strong. If you look at first quarter, $3 a kilo in first quarter is pretty much in my mind unprecedented over the last several years. The yields continued to be strong. They will be strong in the fourth quarter. What we have said is we are just not sure about that $6 or $7 yield going forward. Forwarders and shippers aware of the -- are aware of the capacity constraints and the demand forecast going forward. I think shippers, to the extent that their product allows them to, will look to perhaps move a little bit more inventory in than they have in the past and so I think it is a strong market. The yields will be what they will be but they should be very good yields on a historic basis.

That's helpful, thank you. Can I also ask you if we look at the blend of flying that you are doing and you did decide to put something into the -- some aircraft into the charter market instead of renewing in ACMI, as we think about the deliveries of the 800 and some of your customers taking her to aircraft, should we think about you sort of changing the mix of flying that you are doing away from ACMI given the strength or given that those customers may have an aircraft that is similar to what you offer? How do you think about that mix going forward?

So, key for us is to maximize the earnings that we generate per aircraft. And you will see in this quarter and the kind of guidance that we have given for the year that we are going to deliver very strong earnings on a per asset basis. And we are asset constrained now until we begin to take delivery of the 747-8s. In earlier calls we talked about if the military surges or the market surges what would you do? And we had 200s parked in the market and pulled them out and C checked them and put them into service to take advantage of the demand.

Long-term our core business is ACMI so we will manage the fleet and we will manage the long-term placements based on really in our view of the market. Now, it is certainly advantageous to have capacity to take advantage of the charter demand to survey MC and at the same time we are beginning to see the rates in ACMI improve and strengthen and that process is happening now.

As we come to the end of the year and look into next year, we will, one, have aircraft in ACMI. We will have at least 18 in ACMI. We feel very good about the placement of our 747-8s as they deliver as well as our 400s. And so and again we need to determine, Bill, you know, what we think about that charter market and where pricing is going to occur. Our core business is ACMI and we will place assets in ACMI.

Great, thank you for the time.

Sure, Bill, thank you.

The next question from Bob Labick from CJS Securities.

Good morning. And congratulations on a great start to the year.

Thank you, Bob.

A couple questions. First I wanted to ask If you could elaborate a little more on the ACMI revenue per block hour, it was below the 6,000 we are traditionally used to seeing. I understand it the anomaly last year by being below minimums. Talk about is 6,000 still the expected average on a go-forward basis and what happened in the quarter?

Well, we have one contract that we talked about in our last call and Jason talked about in his comments as well where the customer basically trues up on an annual basis as opposed to a monthly basis. That customer flew substantially below minimums in the first quarter and had the mathematic effect of increasing the average rate per block hour in 2009. Now, that customer is able to fly substantially above minimums and as such consumed some of those hours not flown or used some of those hours not flown and so that had an anomalous effect on the Q1 block hour rates in ACMI. The rates are strengthening. That trueup is completed as of March 31 and so you will see arithmetically rates move up and we are seeing with demand increasing overall our rates improving to $6,000 through the course of the year.

Okay, great, that's helpful. And I guess just switching over to military, you have mentioned on previous calls and again today that when you fly the 400s you have gotten I guess a special return, presumably because you are giving the military a better asset and they are saving money as well. Can you help us think about how to model on a go-forward basis? The potential direct contribution return is 33% seen in the quarter sustainable on a go-forward basis or was there anything unusual there?

Well, the military pays -- I think you got the basics of it. The 400 is a more capable aircraft in terms of range and capacity and so under the contract now the military has recognized the capabilities of the 400 and when they specify or the requirements specify a 400, they pay a different rate for the asset. The 400 was heavily employed in the first quarter. About 50% of the flying we did for the military was with the 400 and a lot of that was about delivering MATVs direct into Afghanistan or to Kyrgyzstan to support the buildup.

Going forward, the military is it going to increasingly have a bias for the 400. We need to see how that mix is going develop over the year as the MATVs are not fully delivered but well advanced in the delivery program and so we are going to need to take a look at that as we go forward, Bob, on a quarter by quarter basis.

Great. And I will just ask one more and then jump back in queue. Could you elaborate a little more on the new aircraft for Titan and the economics as we should be thinking about that, if there is more to come this year in Titan? Obviously with Titan at this point in time I would expect more to come?

Bob, it's Jason. It is a really attractive investment for us. We have been cautious about the growth in that segment. We have been cautious about asset values in particular. And this was an opportunity where both the asset and the customer, the lease customer for the asset, were very attractive to us. This is generating, I think we talked in the past that we had high expectations and hurdle rates for where we will put money, the balance sheet to work. And I can tell you that this is a deal that exceeded those hurdle rates that we have talked about historically.

From a P&L standpoint I think it is a five year lease so the -- obviously the effectiveness is embedded into your outlook. It is not a material effect of the bottom line. It is one aircraft so I don't want to overstate that this single aircraft is going make a material difference to earnings. But in terms of an IRR around return on investment we think it is an attractive investment for the company and a good start for Titan and I think a good indication of how we are thinking about potential growth there.

Great. Thanks very much.

Thanks, Bob.

The next question comes from Ed Wolfe from Wolfe Trahan. Please go ahead, sir.

Thanks. Good morning.

Hi, Ed.

Just to follow up on the last question about Titan. What is the idea of Titan? I thought you guys were doing 747s. What types of planes and what is the strategy?

So, Ed, when key talked about Titan over the last 18 months or so, we believe that there is an opportunity in global air freight that we can exploit and take advantage of. Of course, when we first conceived of Titan it was before the market contracted and before -- and obviously that changed some of the timing. But our view on Titan is that we will grow Titan opportunistically. We will look to find aircraft and/or customer opportunities where we will hold any investment in Titan to the same kind of hurdle rates that we experience in the core business.

We think there is a freight market that we understand very develop. There is a customer base, including some of our current customers, who do have need for and want to have mid to small sized freighters in their fleets, 757s, 767s, and ultimately there is a vehicle in Titan as we think about managing our 400 fleet. We think we have good insight on the market, how aircraft can be put to use. And as we grow Titan, again opportunistically, we can simply leverage all of the existing overhead and capabilities within Atlas.

To build this business we need certainly a couple of well seasoned executives who understand dry leasing and the nuances of dry leasing versus wet, but technical operation, accounting, support activities, et cetera, already exist in Atlas. and so we can add planes in Titan really without adding anything into the overhead and we can exploit our core competencies, our customer base, and what I would argue is our deep insight in knowledge of the global freight market.

Do you need different pilots or different training or different maintenance contracts?

Ed, this is dry leasing, not wet leasing so we dry lease the aircraft to the carrier and they are operating the aircraft. And in the other thing that it does do is it expands our potential customer base. We are not operating this aircraft at all.

When did you purchase it?

We closed in March.

March.

Did you say what you paid for it?

We did not. But we had $20 million in the CapEx in the quarter and it was just over half of the total CapEx.

Okay. And how do we model that going forward? I'm guessing it is not then in your block hours and so forth. Where is it going to show up in the income statement?

It will be -- you're right that there will be no hours tied to that or reported. It will show up in other revenue, Ed, going forward. Again, it will have a relatively modest effect. It is one aircraft, a relatively modest effect on income going forward but that is where it will be reported for revenue and earnings.

And there was any in that for the first quarter?

No.

Okay. So going forward any kind of run rate you can give us?

Well, Ed, as Jason said, it is one aircraft now. It is with a Chinese carrier. We do have a couple of engines or some number of engines that we are leasing out there. And so I think what we are trying to say is it is something that -- it is an opportunity for us that we are exploring. How big that opportunity is, how much we want to scale that remains to be seen. But it is creating, if nothing else, option value for us as we think about growth over the mid to longer term in the company. And it also tees up a market presence for us should we want to dry lease versus wet lease 400 as we move forward in managing our fleet. And I suspect there will be more opportunities in the mid to small freighter category that we are going to want to take advantage of it.

And Ed, just to put a range on the impact, the total pretax income, if you think about pretax income for this, would be something just under $1 million dollars a year impact. So, just to give you a sense of the range.

That's helpful, thank you, Jason. Jason, I heard you saying something about $0.40 annually from the $100 million debt security purchase. Can you get to more details on how you get to $0.40?

Yes, so this is EETC certificates that we had an opportunity to acquire in the marketplace -- the opportunity really came to us -- that were bought at a meaningful discount to the obligations that they represent.

The $0.40 a share per year effect is a combination of the interest income that is yielded on those certificates and the accretion of the discount to the purchase price. So we will hold these securities as held to maturity securities and over the life of the security we will benefit from the accretion of the discount in which we bought them. When we give you the $0.40 expectation for earnings, it is a total of those two effects and that will be reported as interest income on the income statement as a credit to interest expense.

What is the life of the maturity of the asset?

They average -- so the average is out into the sort of 2018-2019 time frame. What we have said is that we would expect $0.40 a share per year through 2015. Certain of the securities begin to mature after that, so the effect on EPS after 2015 begins to diminish. But that is our run rate annually through 2015.

And is that evenly or do you receive, I guess you accrue for it evenly and the cash comes in how?

Correct. We accrue for it evenly. And the principal is repaid over time. The interest is paid mostly currently, there is some nuances to the subordinate tranches of this debt. The principal is mostly back-end loaded. There is some current principal to get paid this year and that is probably about you will see in the 10-Q -- that is about $5 million that we will get paid back this year. The remainder of that gets paid back voter remaining period of this investment. But I will say that portion of this is more back end loaded in the subordinate tranches.

The timing when this begins -- is it full for second quarter?

This is now. This is full for second quarter and the impact was reflected in a partial quarter impact in the first quarter results.

Okay. Switching gears, could you just talk a little bit about seasonality and how we think of first quarter versus the rest of the year? You know, historically you would think first quarter is a much weaker quarter than the rest of the year but things have been pretty strong coming out of peak season and so forth. What is your view of how we should think about first quarter?

Well, a couple of things. First quarter, certainly as you see in our press release, and you will see in our Q, benefited from very strong military demand as well as strong charter demand because of just the dynamics of the market and the capacity that's being withdrawn in the market overall. What you will also see is very high utilization on a per aircraft basis. I would expect this year is going to look fairly smooth quarter over quarter because we are forecasting very high utilization of all available assets. What will change quarter to quarter, of course, would either be topline driven by yield that we earn in the market, mix, AMC, commercial charter, for example. And then, you know, the timing of maintenance, is the timing of maintenance.

Okay. The AMC charter if you grew 25% this quarter in terms of block hours and the guidance for 10%, the implication is that it is a lot less than 10% the remainder of the year? Is that how we think about that?

We said a couple of things. We said that we expected 21,000 block hours for the year which is 10% over last year's 19,000 block hours and last year's 19,000 block hours was heavily loaded to the second half of the year after President Obama announced the first surge of 30,000 troops which was more second and third quarter oriented and then the second surge of 30,000 troops which was fourth quarter MATVs and then coming into the first quarter. So at 5,500 block hours roughly for Q1 suggests about 5,000 or so block hours for each of the remaining quarters, Ed.

Okay. And has anything changed from when you first gave that guidance in terms of our guidance? You are giving the same guidance or has something given you more or less confidence in that number since then?

On the military, Ed?

Yes.

Well, we have the first quarter under -- the first calendar quarter done where we are halfway into the second quarter and we meet regularly with the military. And in fact, we had a pretty good meeting with them yesterday. So I think what we are suggesting is here fairly flat in terms of quarter to quarter sequentially and with the buildup of troops and with the activity levels that exist we think those numbers are good forecast.

Last topic. The ACMI, if I look at the yields that somebody else noted, they don't seem to be as strong as the volumes and, you know, you have got more planes and more block hours but less revenue. And you made the conversation about that one customer who has got some quirks about it. But it also seems like another customer you let move into the charter market so clearly the charter market at this point is ahead of the long-term market. And I guess my question to you is when do we start to see the ACMI go black in 16 to 18. I would guess at some point customers start getting nervous if they don't sign a lease it is not going to be there for them. How long until we start to see somebody signing, do you think?

I think that is a great question building on what we talked about here. What you are really talking about it conviction for customers to sign up for a multiyear lease. What is happening now, in the charter market and what has happened with the capacity, I should say the demand market, and with the capacity reduction that's occurred -- you know, as I at least indicated if I is didn't say specifically in the prior question, that conviction is clearly returning to the market. And we will see I think very good conviction by carrier customers, about entering into long-term ACMI contracts at the higher rate levels this year.

So am I right we are at 16 ACMI down from 18 in the fourth quarter, and you think we will get back to 18 by year end?

We are down 16 from 17 and we will be at 18 by year end.

Okay. Thanks for the time. I appreciate it.

Thanks, Ed.

Thanks, Ed.

The next question comes from Jerry Revich from Goldman Sachs. Please go ahead with your question.

Good morning.

Good morning, Jerry.

Jason, based on your purchase of the EETC certificate, it sounds like you are seeing more attractive asset-backed financing terms on the 747-8s versus the 747-400 assets, is that fair? And can you talk about how the purchase impacts your financing plan on the New York --

It is the right question to ask. Jerry, if you go back over time I think we have been very consistent in saying that our goal has been to reduce the aggregate and net leverage in the Company. We look actions last year to do that. This opportunity presented itself to us which allowed us to further deleverage the company. This is really I think another step in a sequence of steps that we have taken and now really also driven by meaningful earnings improvement that we are seeing in the business.

So the goal here was, an opportunity was presented to us to take advantage of a discount in the market. I don't think that is an, at least from my perspective, is not an indication of the prospects on the 747-8. I think we feel very good about the financing market for the 747-8. The primary issuance market for EETCs has opened up later in 2009 and has stayed very strong since then. I think if you listen to commentary in the aircraft finance market, the bank market has begun to improve. I think we really have been able to show the real evidence of that which was the PDP facility that we closed Monday.

I think for those who aren't following the aircraft finance market as closely, the PDP market has really been shut since Lehman. That has been a market that the bank community has really withdrawn from. And so we think it is a strong statement that we were able to achieve this financing, which we think is one of the few financings that has been achieved since Lehman that is not backed by export credit guarantees from the US or Europe.

So we feel very good about the financing market for the 747-8. That continues to improve as time goes on, and we were pretty excited that this opportunity presented itself on the outstanding certificates. And we think for shareholders this is a meaningful accretion for them and an economic return on the investment.

Just another way to ask the question is by reducing our leverage as a result of this purchase, are you able to put more leverage on that 747-8 aircraft than you otherwise would be able to? Is that the way to think about it?

That's fair. That's fair. I think our modeling has always assumed that we will maximize the leverage on the 747-8s as we introduced them just from a cost to capital optimization standpoint. And I think they will be attractive and efficient assets to finance in the market. I think that is a fair way to think about it.

Bill, can you talk about the maintenance requirements on the 200s beyond this year?In have any D checks coming up? And sounds like the C checks coming up in 2011 might probably get done if the freight environment remains as strong as we are seeing. Is that fair?

Thanks, Jerry. We talked several calls ago about potential recovery of demand and what would we do with resurgent AMC demand? And our answer to them was we had several 747-200s parked and we could recall them and C check them. And that is what we have done. The C-checks extend the useful life of the aircraft 18 months. As the C-check times out, we will be evaluating again demand and fleet and if there is adequate demand we would continue to invest in the 200s as long as we have an adequate fleet size and demand that supports it.

And Bill, the question on D checks on these six that are in the fleet --

Jerry, we would not envision a D check. At the time that the aircraft would time out for D we would retire the aircraft.

When do they come up for D checks? Is that over the next couple of years?

Jerry, it's Jason. I think we have flexibility in managing that so I don't think that D checks will become a constraint to our classic fleet plan is maybe the way to answer it.

That is very helpful. Thanks, Jason. And can you gentlemen talk about the CMI opportunities that are out there in broad terms? Obviously you don't want to talk about any specific potential customers. Are there still a bunch of follow-on opportunities that you are looking at? Or have you really executed on everything that was in front of you?

I think there are clearly more CMI opportunities for us. Initiating SonAir will be the first time that we are providing services whether it is ACMI or CMI in passenger. And, you know, I believe that the level of service and quality that our operations will deliver is something we can demonstrate to other carriers that could create CMI opportunities for us in passenger. We feel, Jerry, really delighted that Boeing selected us for the LCF Dreamlifter. This is an 800 unit production that they have sold that they have teed up and they are going to rely on high quality Dreamlifter services to power that supply chain. I think we will be able to demonstrate the service quality and capability through Dreamlifter that will allow us to market CMI to other operators and there are in freight certainly other CMI opportunities that we are evaluating today.

Terrific. Thank you very much.

Thanks, Jerry.

Thank you, Jerry.

The next question comes from Alex Brand from Stephens. Please go ahead with your question.

Hey, good morning, guys.

Good morning, Alex.

All right, let's see -- just a quick one here on the maintenance CapEx from the first quarter. I guess you did a little bit more than you thought you were going to do so to -- did we kind of front end load a little bit of the CapEx and so we got some benefits to cash flow for the rest of the year?

I don't think so, Alex. I think we said when we talked prior we talked about a $40 million to $45 million really -- we talked about in the past $35 million to $45 million run rate CapEx excluding the deposits on the new aircraft. We had a higher CapEx in the first quarter but most of that -- half of that was driven by the acquisition of the aircraft. So I think if you look at something that is below $10 million for maintenance CapEx in Q1, based on the full year guidance we gave of $159 million including the 747-8s you would probably solve for $45 million roughly for maintenance CapEx. And I think it is probably the $45 million to $50 million range with the new business that we added drives a little more CapEx. But again we don't own the aircraft on the CMI businesses so that is a limited CapEx requirement. Still thinking about the range of $45 million is where we are at right now for the year.

Okay. As we think about the outlook for the rest of the year and your comments about Q4 yields, can you tell us where you guys think the market is now in terms of capacity? How much parked 400 capacity is there that hasn't been brought back, if any? And, you know, how short do you think the market is of wide-body freighter capacity that the point? I'm trying to get a feel for whether or not there is any likelihood over the next year or maybe even two years that supply could match up with demand.

So our best estimate today, Alex, is that there still are about 7 747-400 freighters that are parked. Because I think that is really the competitive asset that we would want to focus on. The two were the last to come off the line for load air cargo and they remain parked. I believe UPS may still have two parked. So if you think about just those two, it reduces the number to five because I don't believe they would be in the commercial revenue service. So you've got a couple parked. One from China, one from Nippon cargo and one from Singapore Airlines. So there's not a lot of capacity to come flooding back in. And again, if you have seen the resurgence in demand and the kind of forecast that IATA has put out for returning capacity, we are kind of comfortable with that forecast.

There are a number of 747 SSs or BCFs still parked. We think that is about 11, at least that's what the (inaudible) database would suggest as of April. So and those in our view are truly marginal assets. They perform a lot more like the 200 than the 400. So, at this point there is not a lot of capacity that can come flooding back in. So I think the question on yields is how much freight can be moved earlier or how much of a bet may the importers put on their inventories and move some of that stuff in ahead of peak to try and average down the cost. And that really kind of is the note I was sounding about how peaky will the peak rates be in the charter market in the fourth quarter..

That segues nicely into my next question which is -- I would think that given how tight it is that some freight forwarders would have already approached you to try to lock up capacity before the rates spike up later in the year. Have you seen any of that from the forwarders?

I think the forwarding community is certainly looking to lock up capacity in the market. We have, you know, we have -- the same thing we did in 2009, we had the sense that the market was recovering and that we wanted to optimize the spot market. You know, we are in that same position this year. We have requests already to lock up capacity, but we think there is more margin, more yield left in the markets than what we are currently seeing for commitments people want to make today for capacity four months from now.

And just one more question for me. When I think about your choosing to take sort of spot opportunities over longer term deals right now, does that have any impact on the discussions on the 747-8 in terms of, you know, placing the aircraft and/or the pricing part of that discussion? Or is that just sort of a different asset and a different discussion?

It is clearly a different asset and it is a different discussion. It is the game changing asset that is coming out. We have got discussion ongoing with a number of carriers and I think as we deliver the first several of those units that interest in the 747-8 is going to certainly increase. On the 400, you know, with the reduction in capacity in the 200s, and limited new production capacity coming back in, I think the useful economic life for the attractive economic life for the 400 is clearly extended.

Now on the comments we have made on placement of the aircraft versus are we going to play the spot or are we going to take ACMI opportunities -- and I think Ed and Bill asked the questions earlier or maybe it was Bob, when it the conviction coming back that you going to see the ACMI rates for long-term contracts that are -- we're at the higher end of the spectrum where we want them to be? And that is starting to happen now. Our core business is ACMI and we will have our aircraft placed in ACMI where we are I think well positioned to take advantage of the opportunities that exist in the market now and work with the ACMI customers as to timing of the placements.

Jason, one thing I would add is that our customers are seeing the same kind of earnings that we are here. Their freight divisions are seeing the same spot yields that we are seeing in our charter business. So we really couldn't ask for a better dynamic heading into the placement of the aircraft to have their contribution spiking in the way that it is. I think for us is this tradeoff between -- I know folks would like to have more certainty sooner, but really, we get two benefits from the way we have played this which is we get to reap the benefit of the charter market and then I think achieve higher ACMI yields than we would have been trying to force it into the market sooner. We see it as a positive from both sides. And I hope we are conveying that conviction here. I think the customer profitability is going to be meaningful to their willingness to price the asset.

Absolutely.

That's very helpful. Thanks for the time, guys.

Thanks, Alex.

The next question comes from Kevin Sterling from BB&T Capital Markets. Please go ahead with your question.

Good morning, gentlemen.

Good morning, Kevin.

Hey, Kevin.

Let me follow up on Alex's question about supply and maybe ask it a different way. And Bill you talked about supply being held in check because of an aging fleet. As we see mergers among the passenger airlines will this help keep passenger capacity tight? I recall, I believe Delta after they merged with Northwest sold their freighter fleet. I'm just curious, if you can talk about what happens when the passengers get together and merge does that help keep capacity tight?

It is a good question, Kevin and I think the answer is it does.

You know, when IATA is reporting on capacity returns to the market, they are reporting on available ATKs. And that includes both passenger and belly capacity. So capacity returning to the market is tight, to the extent that if JAL dramatically reconfigures its network and takes capacity out and/or that this pending merger, when approved, will affect aircraft and how many aircraft they are actually flying the net result of capacity reductions overall, both passenger and freight, I think all add to the story of tight supply in a robust returning demand market.

Two other points. We looked at the market closely over the past 12 months and sponsored some research in that market. What is coming out of that research that has told us several other key observations, but one is there is a very resilient demand in air freight that I would say it modally insensitive. The demand itself could contract or expand based on what is going on in the markets but real fundamental modal shift air to ocean is just not something we are seeing in the core demand air freight. And there are issues, as you well know, in the ocean freight with the slower steaming schedules that the carriers are running.

And finally, the long haul intercontinental markets, Asia to North America. Asia through Middle East into Europe, those long haul continental markets while freight traditionally or historically is run 50% on belly and 50% in freighter the long haul markets closer to 80% on freighter and 20% on belly just because of the sheer volume moving out of the production centers in China and other production centers in Asia. So as capacity is constrained, older capacities come out and there is a slow pace of new product introduction, we think the favorable trends for the freighters are going to be there for some time to come. We see that just in the utilization of factors that IATA is reporting right now.

Thank you, Bill, that is helpful. Do you have any planes that are now parked or is everything in service? I believe you said you brought in one 200 for the C check. Is everything in service now?

If they are not in a maintenance C check, they are all in service.

I think, Kevin, the question is there still capacity in the desert that's right could be activated for additional -- I think the answer is that there is potentially I think that the capacity that is in the desert we have been man damaging opportunistically. So I wouldn't want to put too much weight on, you know, the likelihood that additional units come out of the desert.

That said, look, I think, I think there is 200s in the market if we deem we need 200s. We are being measured about it. We have taken on that sixth unit now. I think what we said before is we are really going to let the military business drive our need for classic and I don't think our position has changed on that.

Thank you. One last question. Bill, you talked about the military and seems like they have the bias to the 400 and I think particularly you were able to demonstrate that with the volcano and able to fly around Europe and not have to refuel in Europe and go directly to Afghanistan. Have you having longer term discussions with the military about possibly becoming maybe an ACMI customer or something along those lines?

I think to just go back to what the military requirements. The military will have requirements for 400s. They will it continue to have requirements for 200s and they will still have continued requirements for the 86-ton MD-11 load. They'll have a mix of requirements. Clearly the military has really come to understand the benefits of the 400, what the 400 can deliver and they I expect will have growing requirements for the 400s but they are not necessarily going to be exclusively going forward.

We have ongoing discussions, Kevin, with the military with their long-term demand and their long-term forecast and how they may contract. At this point I don't see the military moving into an ACMI environment the way that the commercial customers do. Some of that just has to do with the nature of government contracting and the rules and regulations under which they can contract and/or are allowed to enter into multiyear agreements. I think we are -- where we are today the nature of the contracting, the nature of the kind of spot market rate cost plus rate in effect which the military pays, under craft is advantageous to Atlas going forward.

Okay. Thank you, Bill. And Bill and Jason. Thanks so much for your time today and con and congratulations on a great quarter.

Thanks, Kevin.

The next question from Helane Becker from Jesup and Lamont. Please go ahead with your question.

Thank you very much, Operator. Hi, gentlemen. Just a question on Japan Air Lines 747s. I guess they have six aircraft that are going to be grounded around the end of October. Are those planes that you would consider operating on their behalf? Have you talked to them about that? Can you just talk to that in terms of capacity?

What is going on at JAL is traumatic for JAL, and I think they are still working on where they are ultimately going to shake out. Of the fleet as we understand it, there are two 747-400 freighters and four BCFs and it is not clear where they are going to settle. I think rather than being customer specific, to answer your question more broadly, we are talking to all carriers if you will or most carriers who are in the freight markets and seeing what opportunities could exist for us to work together on a go-forward basis.

Okay. And then I notice Cathay is bringing three back. So that is not in your numbers and response to one of the other questions, right, on the seven that were parked that are coming back?

Yes.

It is 7 after Cathay, right?

Helane, they are bringing back some BCFs which is the three you are referring to are converted 400 freighters.

Oh, okay.

The numbers we reported to you are what is reported as parked as of the end of April.

Okay.

And I think we have all said and I think we expect that much of that capacity is in a state of coming back into the market now, certainly the production 400 freighters as Bill said. The three that you are referring to, I believe, are converted freighters. And again I think we expect the capacity to -- the 400 capacity will come into the market. It is just that there is a fairly limited total size of what that capacity can be.

Okay. And then you talked about the fact that the Latin American market is very, very strong right now in both directions. Can you just talk about the things that are being shipped?

Sure, I think all of us have some historical perspective any time there was a regional or a global recession. It seemed like Latin America was the first, the deepest down, and the last to come out. We haven't seen that. The BRIC countries have generally performed well. So the southbound market is pretty much dominated by finished products, industrial products, inputs to manufacturing that go south to Brazil and the northbound are the more agricultural products that are coming out of Chile, Peru, Ecuador, Colombia, just depending on the market. There has not been a lot of capacity addition in the market, and so the economies have performed very well and that has driven the high utilization of our aircraft in that market. It is not just US exports. It is freight coming from Europe and coming from Asia that is trend shipped or reloaded in Miami on the southbound leg.

I would think that with Brazil in a major construction phase for the Olympics that should be a big opportunity over the next three years.

Well, I think that is part of it. Just the manufacturing that exists in Brazil and continues to expand in Brazil. The wealth that is being created in Brazil is bringing in a lot of consumer products. A major importer of LED-TVs coming out of Korea and handhelds coming out from Korea through Manaus. All of the riding tide of the Brazilian economy is bringing in demand from all sectors and Olympics could continue to extend that.

Great, thanks very much, bill.

Thanks, Helane.

Thanks, Helane.

The next question from Steve O'Hara from Sidoti & Company. Please go ahead with your question.

Hi, good morning. Just some questions in terms of demand and talking about capacity being constrained -- I mean at one point or some point do you think about adding additional 400s if the rates are better? And, you know, to kind of going back to the bond deal do you think the rate would have been better, you know, the term would have been better on additional air aircraft given kind of the capacity restraint in the industry right now?

So this is something that we have evaluated, really through 2009 and 2010 -- several scenarios about improving demand and what would be our best fleet response. And all that recognized is the fairly substantial increase in capacity that begins to deliver in 2011, in early 2011 as we begin to take on 747-8s.

From our point of view the best cost -- the best alternative to increased capacity was to C check the 200s, to bring those several out of the desert and continue to invest in the 200s with subsequent C checks as demand warranted it. The aircraft are fully unencumbered when if either they time-out or whether the demand peters off, you know, we simply park them, cut them up and sell them for parts. And we are not encumbered with a longer term lease on a 400F or 400 BCF that may not have good demand and good utility and our labor contracts are such that we can -- we can adjust our crew force fairly flexibly which we did back in the first quarter of 2009 when demand dropped significantly.

As we go forward it is not likely that between now and the next six months that there is going to be demand that supports us entering into lease agreements to bring on 400 freighter capacity into our fleet above what we already have today. It could, but it would have to be very short-term, very flexible terms for us or it wouldn't just -- just wouldn't pencil out from that perspective.

In terms of I think the second part of your question, you know, the EETC transaction that Jason discussed, we believe there is a very substantial return on the investment in those EETCs that will deliver over the next five years as Jason pointed out the economics and we think that was a very good use in investment of those dollars.

Okay. And then secondly in terms of, you know, you have talked in the past about kind of, you know, reasserting yourself into the Asian ACMI business. I'm just wondering if that is still one of focuses and you see any progression on that front and maybe I missed some commentary already on that?

The act's -- the market's Asia. It is product that is made some where essentially in Asia and moving to the consumption markets as we talked about in North America, Europe, Middle East and even into Africa. And if you kind of just draw a T, some where between, you know, London or Heathrow across the northern up to say the west coast and then just straight down and you think about the kind of markets around on the Indian ocean and the Pacific, that is our market.

Our customers are not US carriers because of the scope clauses that exist. They are carriers that are committed to freight, freight it an important part of their overall business mix and their profitability. Freighters drive incremental contribution on belly capacity. So we believe if we talked about 16 going to 18, the geography of those placements, you know, are most likely to be Asia, Middle East, in particular.

Okay. Thank you.

The next question comes from Carter Leake from Davenport & Company. Please go ahead with your question.

Good afternoon. Sorry to return to Titan but the 757 does change the 747-AAA thesis that I found attractive and gives rise to questions relating to traditional lessor risks that I was previously not considering. So to that end, a quick multipart question. One this was a sale leaseback from the Chinese customer in question or a purchase from other owner or lessor? Two are you collecting maintenance reserves? And three, going forward, do you plan on taking pure asset risk, i.e. no leases attached?

Let me come address that first and then I will turn it over to Jason for additional commentary.

I hope we have consistently talked about Titan as being purely opportunistic. I think we in our call said that it's not our goal to run out and buy 40 aircraft as quickly as possible to build a portfolio and take risk. What we do think, though, is that there is an incremental opportunity which leverages our core, our core knowledge and expertise, and leverages the existing platform that we have in Atlas. We are not interested in taking substantial risk beyond the fleet risk that we have in the 747-400s and in the 747-8s in the ACMI business.

As we build up 757s and/or 767s, if we choose to do so, those aircraft will have to pay, pass high hurdle rates in our analysis would almost always come with a lease stapled or a certainty of a lease. And they are not new assets, as you know, they are converted assets and almost always are modeled with pricing to scrap at the end of lease term before we would consider investing in a 757 or a 767.

And I think the specifics, you know, we just to give you the specifics on the aircraft, we -- we acquired from the lessor. We are collecting maintenance reserves. As Bill said before, this is a -- to us, we are not speculating in the metal market. We think building a capability around dry leasing out air freighter aircraft is important for the company in the long run as we manage the tail of the liability on aircraft as they age. And to the extent that we can use that to develop customer opportunities that may leverage our 74 platform and may leverage other opportunities then to us it as win-win. Again, we have not said that this becomes the major component of our business. It is an opportunistic component of the business and to the extent that we develop out the dry leasing capability it has advantages to the franchise beyond just what is a relatively small plane in the case of this asset.

Okay, great. Let's see. Moving on to the AMC rev per block hour. I think I've got this model correctly. If I strip out the fuel on that number, I could do see a very impressive 32% year-over-year gain and a 22% sequential gain. And the question is -- is this the type of yield improvement in AMC we can expect going from a 200 to a 400 from my numbers are, correct?

Certainly reflects the incremental value that the 400 achieves in AMC. And about 50% of the block hours in Q1 were 400 and 50% of the block hours were 200. And we have been working hard with the military now over -- or at least two years to illuminate the benefits that the 7 747-400 can create for them going forward. And so yes, as the military uses more of the 400s relative to the 200s, we will have improved returns on a net block hour basis from the military. It will depend on the mix of demand in the near term, i.e., the mix of 400 requirements versus 200 requirements.

And then sort of segueing off that, this is a macro question on AMC Charter. Can you just give color or address concerns that AMC Charter could face significant headwinds in sort of the 2011, 2012 time frame once troop and material levels start to reach a steady state?

We have always talked about the fact that as we move to a nonconflict environment, AMC demand is going to reduce. It won't go to zero but it's going to reduce for all the obvious -- all the obvious reasons. It seems that the administration is committed to moving the 50,000 troop level in to Iraq this year. I think that is firmly on course. I don't know -- what I don't know is yet really clear as to how long that troop level may exist in Iraq. That is something that really -- that really the administration defines and to some extent I'm sure that is a bit close to the vest.

Afghanistan is ramped up. I suspect that continues for a number of years. How long, again, remains to be seen but I think General Petraeus has said that it is sometime late in 2011 when they will evaluate the opportunities to begin withdrawals in Afghanistan. And that is the current commentary from the administration and reflected in GAO estimates around budget and supplementary budget and things of that nature.

But at some point whether that is 2012 or whether that is 2013, the demand, you know, in our estimate, in our forecast we are planning that demand begins to ramp down. Doesn't go to zero but begins to ramp down. It may not go or contract as dramatically as it did after Gulf War I because what the military has done in seven years of activity, or operations, they have heavily utilized the C 17s and C5 -- the C17s in particular, and the C5s are getting more utilization as they become reengined. And there is no new apparent budget dollars to replace that fleet. And that aircraft is flying well north of 2000 hours a year and has a design life of 1000 a year. They are burning up the anticipated life of the aircraft at a rate faster than they anticipated.

So my expectation is that even in a nonconflict environment, the military will look to lower utilization on their own aircraft to extend the useful life and use a higher level of craft, of civilian fleet than they might have otherwise anticipated. But all that said, you know, that is one of the reasons we are very excited about the Dreamlifter contract that we have with Boeing because as you can begin to trend down when ACMI demand may begin to contract and begin to trend down, that could time very nicely, or could time very neatly with the ramp up in the LCF.

And so the LCF will replace or substitute a substantial amount of the earnings we currently have in AMC and we have earnings growth then in the model with the 747-8 and some of the other initiatives that we are working on as those aircraft deliver and other market opportunities that we have. That nine year contract with Boeing, we think answers, if not wholly, in large part the question of okay, so tell me about what happens to your earnings stream as military comes down.

Very helpful. And one more. Maybe you have done it before but can you reaffirm the delivery time frame of the firm 747-8s and could you provide any color on the option aircraft such as a best case delivery time frame on those aircraft?

We haven't modified the delivery assumptions. We are assuming the first aircraft delivered in early, very early 2011. And that the 12th aircraft will deliver in the second quarter of 2013. We have not modified that. The option aircraft, we have 14 aircraft. One is an option aircraft and 13 of those are purchase rights. And those would have to be, the timing of those would have to be settled with Boeing to the extent that we were looking to exercise those. I would say all of that is premature, and will depend on a lot of factors, including what their production rate looks like for other freighters and the passenger aircraft. It is probably early to give too much speculation about that on the timing of the option aircraft but you can expect it would be after the 2013 deliveries.

Thank you, very helpful.

Thank you.

There appears to be no further questions. Please continue with any other points you wish to raise.

Thank you, operator and on behalf of the entire team here at Atlas Air Worldwide Holdings I would like to thank all of you for your participation today. It was a great call and we appreciate the depth and insight of your questions. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.