Atlas Air Worldwide Holdings Inc (AAWW) 2010 Q4 法說會逐字稿

Good morning. My name is Chrissy and I will be your conference operator today. At this time, I would like to welcome everyone to the Atlas Air Worldwide Holdings fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). I will now turn the conference over to Atlas Air.

Thank you, Chrissy and good morning, everyone. I am Ed McGarvey, Vice President and Treasurer for Atlas Air Worldwide Holdings. Welcome to our fourth-quarter 2010 results conference call. Today's call will be hosted by Bill Flynn, our President and Chief Executive Officer. Joining Bill is Spencer Schwartz, our Senior Vice President and Chief Financial Officer.

As a reminder, today's call is also complemented by a slide presentation that accompanies Bill's and Spencer's remarks. If you have not already downloaded or printed a copy of our slides, you may do so from our website at www.atlasair.com. You may find the slides by clicking on the link to Presentations in the Investor Information section of the website.

As indicated on slide 2, we would like to remind you that our discussion about the Company's performance today includes 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 they involve unknown risks and uncertainties. Our actual results or actions may differ materially from those projected in any 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 filed 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.

In our discussion today, we will also include some non-GAAP financial measures. You can find our presentation on the most directly comparable GAAP financial measures calculated in accordance with US generally accepted accounting principles and our related reconciliation in today's press release and in the appendix that is attached to today's slide presentation. You can also find these on our website at www.atlasair.com. You can access our press release by clicking on the link to Financial News in the Investor Information section of the website.

Again, if you have not already done so, you may download or print a copy of today's slides by clicking on the link to Presentations in the Investor Information section of our website at www.atlasair.com. At this point, I would like to turn the call over to Bill Flynn.

Thank you, Ed and good morning, everyone. We are very pleased to have you join us today. I will start right away with the key Atlas takeaways on slide 3. 2010 was a record year for Atlas and for commercial airfreight in general. In this dynamic environment, we took advantage of our market leadership and operating leverage to maximize our profits as never before. I am proud of the exceptional results that our team has delivered.

Spencer and I will go over some of the details during today's call. Before we do, I would like to spend a moment to talk about where we go from here and our outlook. We have a very clear vision for the future of Atlas and we are very excited to share that with you.

First, demand in our market is solid and freighters, like our industry benchmark 747-400s remain scarce. Second, our business in 2011 is well-established. 20 of our now 24 747-400 freighters will be in our core ACMI business by the end of the first quarter when we expand our existing express network service for DHL Express from six aircraft to eight.

To address customer demand and bridge our capacity needs, we recently entered into leases for two Boeing 747-400 converted freighters to take advantage of market opportunities in our military and commercial charter businesses. And as a result, we expect to report very strong earnings in 2011 with fully diluted earnings in excess of $5.30 per share.

Third, we are in an exciting new era of transformative growth that should drive our revenues and earnings to higher sustained levels over the next few years and beyond as we grow our fleet with next-generation 747-8s, as we ramp up and expand our non-asset-intensive CMI service solution for Boeing, SonAir and others and as we execute on initiatives that capitalize on our industry-leading market position, our global business focus and our innovative value-added customer solutions.

During the past several years, we have aggressively managed and modernized our existing fleet, transformed our scheduled service business to express network ACMI and relentlessly reduced our costs. In short, we have become a more effective and efficient company. Our focus is to build on this momentum to deliver future growth and profitability.

Our strategies and actions grew our pretax earnings to a range of $94 million to $133 million from 2005 to 2009. Now, we are in a period of transformative growth with a balance sheet that is well-positioned to fund that growth. We delivered in excess of $220 million in pretax earnings in 2010 and we expect to do so again in 2011. We also expect to drive our earnings in future years to levels significantly higher than those in 2010 and 2011.

Slide 4 shows our 2011 guidance in excess of $5.30 per diluted share and a pretax earnings margin that we expect to exceed 15%. Our guidance projects that we will receive and place into service three 747-8s from Boeing in the fourth quarter of 2011. As you know, Boeing has announced delays in the delivery of its 747-8s, including the aircraft that we have ordered. While Boeing has provided us with a proposed delivery schedule, we have not yet reached a definitive agreement with them and there is still uncertainty surrounding the timing of the deliveries. For each month that a 747-8 aircraft is in service in 2011, we expect that each aircraft will contribute approximately $0.04 per diluted share to our EPS in 2011.

Moving to slide 5, we continue to be encouraged by trends in the global airfreight market, particularly in the high density, heavy volume trade lanes that we serve, such as the Transpacific, Asia-Europe and Asia- Middle East-Africa. This comprises a substantial part of our business.

IATA indicates that global freight time kilometers increased more than 20% during 2010 from total airfreight tonnage growing to a new record of nearly 44 million metric tons. That compares with approximately 37 million tons in 2009 and the previous peak of about 42 million tons in 2007.

Demand growth in 2011 is likely to be more in line with the industry's traditional 5% to 6% pace. The key points to underscore here are absolute tonnage is continuing to grow from record levels. The supply of wide-body freighter aircraft remains tight and we expect these market conditions to benefit both our ACMI customers and our commercial charter operations.

Turning to recent business developments on slide 6, we can see that the quality and value of our customer solutions and the demand for our wide-body freighter aircraft have recently generated new ACMI agreements on four of our 747-400 freighters. These agreements are a clear indication of the strength of our customers' underlying businesses and our ability to add value to their operations around the world.

Two of these new agreements were in effect in the fourth quarter. One is a new contract with TNT Express that expands our relationships to all four of the world's major global express operators. And the other is the second aircraft that we placed with Panalpina, the leading global freight forwarder, which has enabled Panalpina to introduce comprehensive around-the-world service to its customers.

We are also placing two additional 747-400 freighters into express network ACMI service for the benefit of DHL Express beginning in late March. These two freighters are incremental to the six 747-400Fs through which we currently provide express network Transpacific service for DHL.

The placement with DHL reflects the continuing growth of the airfreight market, the growth of DHL's global express business and our proven ability to support DHL and our freight forwarder customers with high-quality, time-definite service.

One of the 747-400 aircraft serving DHL will come from our charter operations, while the other will come from an expiring ACMI placement and as a result, we will have 20 of our 24 747-400 freighters in active ACMI service at the end of the first quarter.

And as I noted a moment ago, we have also entered into leases averaging approximately 3.5 years for two Boeing 747-400 converted freighters. This provides needed bridge capacity and will enable us to take advantage of market opportunities in our military and commercial charter businesses. We have also closed on permanent financing for our second and third 747-8 aircraft at attractive terms.

Moving to slide 7, both our current earnings and our future growth spring from the strategic actions we have taken to transform our business and reduce our commercial and operating risk, our ability to leverage the global scale and scope of our business to capitalize on profitable market opportunities, and the innovative, value-added solutions that we deliver for our customers.

I would like to focus on the global nature of our business for a moment. We are headquartered in the US and we operate two US-certificated airlines. Our earnings though are not solely defined by the rise and fall of US GDP. We are a global corporation serving customers who themselves are largely global operators and our earnings and prospects benefit from the breadth of international commerce.

Together with many of our principal customers in the airline, express delivery and freight forwarding communities, we provide a vital link between people and businesses across continents, powering global trade and enhancing the quality of life and powering our earnings growth at the same time.

As slide 8 indicates, we have a track record of delivering on our commitments. We have transformed our business over the last several years. Our global leadership is growing with the ramp-up of our new CMI service for Boeing and SonAir and the opportunities we see to serve other customers around the world. And we are delivering on our key initiatives, including our continuous improvement efforts that have provided us with substantial upside operating leverage in our business.

This is probably a good point to ask Spencer to provide you with some additional perspective on our fourth-quarter and full-year results. After that, we will provide some more color about our initiatives and direction and then we will be happy to take your questions. Spencer?

Thank you, Bill and good morning, everyone. Slide 9 recaps full-year 2010 earnings. We delivered record results with adjusted net income increasing 102% to $150 million or $5.75 per diluted share. We also achieved an operating margin of 18% on an adjusted basis, as well as an adjusted pretax margin of 17.7%, more than 6 percentage points better than 2009.

Full-year operating revenue of more than $1.3 billion represented a 26% increase compared with 2009. The improvement was primarily due to improved ACMI and commercial charter volumes, as well as higher AMC charter and commercial charter rates. For the year, our ACMI customers flew about 8% above their contractual minimums.

As slide 10 illustrates, our fourth-quarter earnings were sharply higher than 2009 results. On an adjusted basis, net income in the fourth quarter increased 23% compared with last year, rising to $41.4 million, or $1.58 per diluted share. The 17% operating margin confirms our efficiency of operations and our strength of earnings.

Operating revenues increased 12% during the quarter while operating expenses on an adjusted basis were 14% higher than in the fourth quarter of '09. Revenue growth during the quarter was primarily due to an increase in ACMI volumes and stronger ACMI and commercial charter revenue per block hour rates.

Looking at expenses, line item operating expenses in the fourth quarter, especially aircraft fuel, were generally higher than the same expenses in the fourth quarter of '09, largely reflecting an 11% increase in our block hours.

As we previously announced, we also decided to extend the life of our 200 fleet by performing additional heavy maintenance to meet anticipated levels of military and commercial charter demand in 2011. While this expense impacted our fourth-quarter results by $0.43 per diluted share, we expect this investment to earn a swift payback and contribute to earnings growth.

Looking at slide 11, our fourth-quarter revenues highlight the complementary nature of our business segments and our ability to optimize capacity allocations among them. ACMI revenues increased 30% compared with the fourth quarter of '09 as we reallocated 747-400 assets into our core long-term ACMI business from service in our charter operations. We had 19 full-time 400 freighters in ACMI during the fourth quarter compared with 17 in the year-ago period. In addition, the ramp-up of our CMI operations added an average of 1.5 aircraft to the segment during the quarter compared with none last year.

As illustrated on slide 12, total direct contribution by our reportable segments increased to $91 million in the fourth quarter from about $85 million in the fourth quarter of last year. The improvement in direct contribution primarily reflected an increase in both block hours and rates in our core ACMI business, which more than offset a moderation in AMC charter volumes and rates. Contribution from commercial charter remained fairly steady during the quarter as modest reductions in average aircraft and block hours were mostly offset by an improvement in revenue per block hour.

Slide 13 shows block hours and revenue per block hour in our ACMI segment. ACMI block hours largely reflected the continuing improvement in airfreight demand during the quarter, which led our customers to fly nearly 7% above their contractual minimums during the period. In addition, block hours benefited from our CMI operations, as well as by new placements with Panalpina and TNT Express as Bill previously discussed. The increase in block hour rates reflected strong market conditions and customer demand for our ACMI service solution.

As slide 14 highlights, AMC charter block hours reflected a moderate reduction in flying to support US military activity in Afghanistan. Revenue per block hour rates reflected the cessation of premium rate mission-specified 747-400 flights of M-ATVs to Afghanistan.

Moving to slide 15, we see a modest decline in commercial charter block hours in the fourth quarter compared with the fourth quarter of '09, in line with an average of 4.1 aircraft in the segment during the quarter compared with 4.3 last year. Significantly higher block hour rates in commercial charter, however, were driven by continued strong demand for airfreight out of Asia, the impact from one-way AMC charter flights, which allowed us to capitalize on lower costs and higher-yielding charters out of Asia, as well as a tight supply in global wide-body, long-haul freighter capacity.

Turning to slide 16 and our balance sheet, you see that we ended 2010 with cash, cash equivalents and short-term investments totaling $595 million. We generated $66.5 million in cash flow from operations and $280.5 million for the full year. Capital expenditures during 2010 totaled approximately $70 million, including about $16 million of capitalized interest related to our Boeing Dash 8 order. We expect capital expenditures in 2011 to be about $73 million, excluding purchased deposits and related capitalized interest. As we have previously discussed, progress payments on our Dash 8 order have been suspended until we reach an agreement with Boeing on a new delivery schedule.

Our balance sheet debt is down to approximately $487 million, which includes some debt we took on during December when we purchased the owner participant interest in one of our EETC financed aircraft. This was an opportunistic action that reduces ownership costs and that will enhance our ability to manage our 400 fleet going forward. We purchased the interest at a discount and it will provide an attractive long-term return for the Company.

As a result of the purchase, we added $60 million of debt related to this aircraft to our balance sheet. Previously, we had classified that obligation as an operating lease. At present, we have an ownership interest in 7 of our 12 EETC financed aircraft. Our focus remains on leverage and we continue to manage an already strong balance sheet. Our net leverage ratio at year-end, which includes capitalized rent, was a very healthy 2.5 times annual EBITDAR, which positions us very nicely with respect to the growth opportunities we see ahead. Including the benefit of our investment in our EETC certificates, our net leverage ratio is even stronger, 2.2 times annual EBITDAR.

Now I would like to turn it back to Bill.

Thank you, Spencer. We are well-positioned to deliver value and generate continued long-term growth for our shareholders. We see a strong outlook for Atlas and for airfreight in 2011. Demand in our market is solid. Airfreight volumes are expected to grow from their record levels in 2010 and we expect continued tight supply of wide-body, long-haul freighter aircraft in the key Asian trade lanes important to our ACMI and our commercial charter customers.

We continue our transformative growth with a balance sheet that is well-positioned to fund that growth. As we continue to execute on our initiatives to grow our fleet with next-generation 747-8 freighters, as we further ramp up our CMI service for SonAir, Boeing and other potential new customers and as we capitalize on our core competencies and market leadership in other ways, we expect to drive our earnings to levels significantly higher than 2010 and 2011. With that, operator, may we have the first question, please?

(Operator Instructions). Bob Labick, CJS Securities.

Good morning, congratulations on a great quarter and year.

Thank you, Bob.

A couple questions. First, just wanted to start with the Dash 8s. The I guess guidance that you have given now for three in Q4, is that new information you have gotten from Boeing since last time it was a midyear or is that conservatism on your part and when should we know more definitively about that timing?

Well, Bob, I think there is a couple of perspectives in that guidance. First of all, we know that you really and our investors wanted us to put as much dimension and context as we could around the Dash 8s as we think about 2011 and going on into 2012. So part of what is embedded in the guidance today is kind of our earnings expectations around that aircraft and we wanted to be as granular as we could be so that you could think about that in your models and really the future.

We have -- as we have said, we have not agreed on a definitive schedule with Boeing. They have given us a schedule. It suggests that more aircraft could be delivered, but Boeing is still in flight test certification. And so our sense is really what we have put in the guidance -- that deadlines have been missed before, definitive schedule isn't agreed to, but we do expect that we could be operating three aircraft in 2011. And then we would be looking to take deliveries later in 2012 and 2013.

Okay, great. And then I just wanted to I guess verify I heard you correctly, $0.04 per aircraft per month on a Dash 8, is that kind of an initial projection? Is it Q4 only? Is it because of the maintenance holiday? It's fantastic. I am just trying to get a sense of (multiple speakers)

Well, it is a couple of things. It is $0.04 per share per month. It does talk about the earnings power that we have talked about in the past on the Dash 8. It certainly does reflect the maintenance holidays that we enjoy on the aircraft in the first six years or so of the aircraft life and so it has got all of that into it. The startup costs that we have in 2011 and any other additional ramp-up costs are considered in the number.

Great. And then I will ask one more. I'll get back in queue. Could you give us just a sense of the charter demand you have built into the 2011 outlook and how you come about -- are you looking at your ACMI customers' requests and getting your outlook for charter demand there or how do you get comfortable with -- it appears to be still very robust demand coming off a record year in 2010.

We are looking at good charter demand in 2011. Both the military, which we have talked about before still looking at 17,000 hours going forward, but also in commercial charter. It was a good season coming off of the fourth quarter, strong volumes on a relative basis, but strong volumes nonetheless leading up to lunar new year. The factories kind of got back into production and shipping last Thursday, last Friday, so we are just a few days past the lunar new year shut-down. But we are seeing pretty good demand across our three principal charter markets -- Hong Kong, Shanghai and Inchon.

The rates that we are seeing in the market seem reasonable for the year. We talk not only to our ACMI customers because they, of course, give us schedules and we can see what kind of utilization they are looking at, but we talk to the freight forwarders because they are certainly our customers and charter brokers. We have regular dialogue with the large integrators. We serve DHL. We certainly also work with UPS and TNT in particular.

So looking at several data points, we are looking at good product releases coming out of Asia. We have got strong military demand that will tee us up for one-way charters through the balance of the year and we feel generally good about the charter market.

Bob, this is Spencer. Maybe I will just add a couple things. We have talked about yields that we saw during the fourth quarter and just as we previously talked about, yields were about [4.50] a kilo in the fourth quarter, which was pretty consistent with what we saw on average in the fourth quarter of '09. And as Bill said, it has been widely reported that companies such as Nike, Intel, Indotex, H&M, The Limited, Victoria's Secret, a lot of these companies continue to talk about how they are shifting large parts of their transportation demand from ocean to air to meet consumer demand within specific time windows. So it is really creating a nice environment to keep a healthy price point for their products and it is also great for us.

You know well that the companies are still running on low inventory levels and therefore, they are trying to sort of appropriately time their inventories and focus more on their supply chain models. So overall, the demand looks good. The market environment looks good. Capacity is still really tight. And as Bill talked about, some great new product introductions coming out with the new iPad, new iPhones and their competitor solutions that are coming out. So overall, it is a good environment for demand in the charter market, so we feel good about where things are.

Great, congratulations again. Thanks.

Alex Brand, SunTrust Robinson.

Humphrey. Good morning, guys. Bill, I promise I am not slow, but you never said specifically that I know of, so can I just clarify again every Dash 8 would be $0.48 a year accretive to earnings? Every single plane?

We have not given that kind of specific guidance on the aircraft before. That is correct, Alex. But that is what we are looking for and expecting from the aircraft as they deliver and the caveat that we just clarified is within that maintenance holiday, right?

Right. And so as you know, there is uncertainty, as Bill talked about, there is uncertainty surrounding the Dash 8s, so we wanted to provide some clarity. We have included in our guidance for '11 three planes in the fourth quarter. And if you believe that there will be more than that, you can up that. If you believe there will be fewer than that, you can certainly revise that. So we wanted to provide that so investors would understand. That is how we are looking at it. And the maintenance holiday, of course, is a key factor.

Right, understood. All right, so good segue there, Spencer, because you had unusually high maintenance in the fourth quarter, but when you enter the first quarter, you normally do a lot of maintenance in the first quarter, so can you help us out with kind of what that progression might look like this year?

Sure. I guess the first thing I would talk about is the 200s. As you know, we spent about $24 million on maintenance for the 200s, heavy maintenance for the 200s throughout 2010. About $18 million of that was in the fourth quarter and we talked about that. We realized a tremendous return on our investments throughout the year and we expect that we will do so again in 2011.

For 2011 for the 200s, we expect about $22 million of heavy maintenance. That is compared to the $24 million in 2010, but we think it will be more evenly spread throughout the year and more heavily weighted towards the first half of the year. So maintenance overall is more heavily weighted traditionally, as you said, it will be more heavily weighted to the first half of 2011.

Okay. And then how should we think about the ramp-up in average CMI aircraft because I guess we have got, what, now two SonAirs as one and then the four Boeing? How should we think about how many average CMIs that turns out to be?

Well, we've guided -- well, the SonAir is pretty much a flat operation. That is consistent -- we are looking at about 400 hours a month and that is three rotations a week between Houston and Luanda and that is pretty steady and that is the way that is going to run.

The LCF for Boeing has got a certain amount of unknown to it depending on how Boeing resolves the issues with the 787 and how they ramp up the build schedule. We are looking at something just north of 4700 hours of LCF in 2011. I think back on our Investors Day back in May of last year, we said, based on what we know at a full ramp-up, that would be something like 13,800 or 14,000 hours. But for this point, we are looking at something just north of 4700 hours.

Okay, and then Bill, can I just ask you one more question? So on the one hand, you obviously have great demand for the aircraft and you placed two more with DHL. And I guess I am just wanting some color from you as to your thoughts about that kind of customer concentration versus potentially placing the aircraft with new customers. Is it just a decision that you guys made based on the highest rate of return or comfort level that DHL is just that high? I mean how should we think about that?

Well, a couple of factors there. Certainly when we look at placements, we look at rate of return, absolutely. With DHL, we have six aircraft that are in a very long-term agreement with DHL and these are shorter terms and I don't want to get into term-specific, but they are not the 10-year to 20-year agreement that we have on the core six.

We are DHL's Transpacific network for all intents and purposes. They, as an express operator, continue to outsource the majority of their fleet whereas FedEx and UPS operate. And if you have been following the DHL and the Deutsche Post earnings information, they have -- DHL has absolutely rebounded back in North America and has a very strong and growing presence in North America.

So given the unique characteristics that I've just described around DHL, I think we feel it is a reasonable and a prudent decision for us to continue to grow with DHL, particularly in their core Transpacific market. The fleet will -- the schedules, as we understand it, will link back in in Japan and some intra-Asia markets. So we think the aircraft are going to perform very well for DHL.

Now speaking more broadly, obviously, we are glad that TNT joined our customer ranks in the fourth quarter. We are glad and delighted that Panalpina expanded from one to two aircraft and are now thinking in terms of their own proprietary global network serving their customers across all continents. We do look to grow other new customers to Atlas over and above what we have. And I think the fundamentals haven't changed.

Even though when you look at the IATA reports on the monthly year-over-year change in demand and the monthly year-over-year change in capacity and those lines are more approximated, particularly in Asia-Pacific, which I think about, there is still a huge gap of demand that came into the market and supply that still hasn't fully caught up. I don't think it catches up for a while and we are seeing record high utilization of the freighters. Even better westbound loads coming out of North America and eastbound loads coming out of Europe back to Asia.

So I think, and obviously, we have guided and talked about here in our conversation, there is a very strong market, good fundamentals and we think the 400s and then the Dash 8s will put Atlas in very competitive position.

That's great color, Bill. I appreciate your time.

George Pickral, Stephens Inc.

Hey, good morning, guys. I had to jump off, so sorry if I missed this. But on the -- excuse me. Well, I will come back to that question. A question for you, Spencer. How should we think about the bonus depreciation holiday in 2011 or 2012? If you get to depreciate 100% of the deliveries this year, 50% next year, would you actually want Boeing to accelerate the delivery so you could depreciate more? And then on top of that, what are you going to do with the extra, call it, $200 million to $300 million of cash you will have to work with this year?

Thanks, George. That's a great question. You must be spending some time in DC or following. So no, it's great. We are excited about the bonus depreciation, as you said. Our Dash 8 order qualifies for the bonus depreciation and so all the deliveries that we take and put into service during 2011, we will be able to take a 100% depreciation deduction for those and any that we take in 2012, we will be able to take a 50% deduction for those.

So the other part of your question was, well, what do you do with all that expense and we have net operating losses and the net operating losses can be carried back a couple of years and then carried forward for 20 years. So those losses will help us offset cash taxes and it should shield our cash tax payments into the foreseeable future. So we are excited about it. I think it was a great move overall for the economy and it is going to help Atlas.

Okay and does it impact at all how you make decisions on or off balance sheet for the new Dash 8s?

Sure, it does. It absolutely does. And so we are constantly thinking about what Dash 8s we want to own, what Dash 8s we might want to enter into another financing arrangement. But we want to make sure that we take advantage of the bonus depreciation. We want to make sure that we can take advantage of those deductions and basically lower the cash that is required to be paid to the IRS, which just continues to enhance our already strong balance sheet and reduce our overall debt balance.

Great, that's great color, Bill. Thanks for that. And then the question that I just blanked out on, you are leasing two BCFs, you have got 20 of your 24 planes in ACMI now. Does the fact that you are leasing two and putting them in charter and military imply that you could be diversifying your ACMI division and actually growing your customer base there?

We entered into the leases, as we pointed out in our comments, we need bridge capacity. There is just very strong demand in both the military and the commercial charter markets. And over time, the military is going to continue to express a preference for our 400 versus a 200. Given the delay on deliveries in the Dash 8s, given the strong demand that we have in the 400 market, we were finding ourselves out of 400 capacity to take advantage of what our real 400 capacity over -- real 400 demand, I should say, over the next couple of years and we want to be able to take advantage of that.

I think in terms of the diversification of the business, there are several components. ACMI is core. I think there will be, for some time to come, a good charter market and we can take advantage of that charter market because there is not a short-term solution to the capacity shortfall that exists. We will diversify through our CMI operations and we are certainly looking to grow CMI operations and bring other customers on. And to the extent that there are good opportunities in a very focused (inaudible) set of opportunities through Titan, we will look to grow that as well.

Military will contract over time. We have talked a lot about that. We don't see that immediately. In terms of the earnings that go away with that, that is really where we think the Boeing LCF operation comes in with that nine-year contract to substantially offset the contribution that goes away. And as we provided some color today on what we think the earnings expectations are in the 747-8s, when you add all that math together, you can see how we can really catalyze earnings growth once we get more of our complement of Dash 8s into our fleet.

Got you. And last question here, just so I am sure on the guidance, you said three Dash 8s to be placed into service in Q4. Does that mean that you will have three for the full quarter or that you are getting the three placed throughout the quarter so you don't get the full benefit of all three in the fourth quarter?

That is for the full quarter.

For the full quarter. Okay.

That is essentially nine months of flying at $0.04 a share.

Okay. But in terms of the three delivered, you are essentially saying you will have them all delivered by October 1 and they will be flying for the entire fourth quarter?

That's right, George.

Okay, thank you, thank you.

John Barnes, RBC Capital Markets.

Hey, good morning, guys. A couple of things. One, with taking the two new I guess BCFs on lease and forecasting the delivery of the Dash 8s in the fourth quarter, can you talk a little bit about what that might mean for the classic fleet and what your -- how you kind of anticipate beginning to phase the classic fleet out over maybe the next 18 to 24 months?

Thanks, John. Well, that is really the right question. We have invested a fair amount in the 200 fleet over the last 18 to 24 months that we wouldn't have expected we would have done. You may recall we had a couple parked and we brought them back into service. The investments have had huge payback in terms of our ability to take advantage of military demand and commercial charter command, but right now, we see the 200 fleet running -- the majority of the fleet will run out through 2011. A couple would carry over then into 2012. And at that point, we would be back doing the same math again. It doesn't make sense to continue to invest in that fleet or given the deliveries we expect to take from the Dash 8s, the 400s we have and the BCFs that we will be operating will lead us to make the right fleet decision.

So in a long-winded way, we will be phasing out the 200s and the BCFs give us bridge capacity for military and commercial charter markets, not only today, but also helps us manage our fleet into '12 and may allow us to get into a single fleet type with the efficiencies and benefits that a single cabin cockpit would offer us.

Okay. All right. And then with the leasing opportunity here of the BCFs, do you see the opportunity to do more of that or is this just two aircraft, it is a bridge and because it is a BCF, it is a little different from what you have run in your normal fleet and therefore, it is really not a longer-term answer?

Yes, I think really right now we found ourselves with the ability to place 20 aircraft into ACMI and when you think about the long-term nature of ACMI and that is a core component of our business, we were concerned that we might be losing other opportunities with the shortfall on the Dash 8s. If they don't deliver towards -- delivering towards the end of the year, it was really painful to be thinking about the fact that we may not have capacity that would give us long-term places that would build a bridge to placing Dash 8s and just growing our overall market going into 2011 and into 2012.

We think the BCFs on the contract that we have, we have got them at an attractive rate. I won't tell you exactly what it is, but we have it at an attractive rate and it allows us to be flexible in terms of how big the 200 fleet is, how long we operate it, if the military specifies an even greater percentage of missions to be 400s. We now have sufficient 400s to take advantage of that very high yielding freight and not turn away opportunities in the charter market.

So I think it is giving us that bridge for the overall growth in demand that we see in the market and the ability to make sure that we secure the relationships we want to have with our customers going forward.

Does the BCF satisfy the military demand for a 400?

It does.

So versus an OEM 400, it is considered the same -- pretty much the same thing?

It is considered equivalent.

John, it's Spencer. I will just add that these 400s have loading capabilities that are similar to a production 400, so we are excited about that.

Okay, all right. And then, Spencer, in terms of -- you indicated you had closed financing for the first three 747-800s. Given you have still got this ongoing dialogue with Boeing right now on the placement of the remaining order, where do you stand on looking for additional financing? Is that kind of on hold at this point waiting on a more solid delivery schedule from Boeing or is that something you continue to do and might go ahead and lock up now?

Great question. Well, let me just give a little bit more detail. So last week, we closed on a $240 million facility to permanently finance the second and the third Dash 8 deliveries. It was with a consortium of European banks, led by NORD/LB was the lead agent, but also Credit Agricole, BNP Paribas and DekaBank. So financing is pretty similar to the first permanent financing that we entered into, so the terms are pretty consistent. The current sort of floating rate is below 3.4% and similar to the first aircraft, we will determine whether we want to lock it in at a fixed rate.

So then to get to the rest of your question, really we continue to look at financing all of the planes. It is certainly more challenging that we don't have an agreed-upon delivery schedule. If we did, it would make it my easier, but we continue to look at all of our options. We are in active discussions with our great commercial bank partners and also with some of the other options that are out there, including the US Export-Import Bank, sale-leaseback partners and the like.

Okay, and Bill, one last thing on guidance. Does your guidance that you just provided, the [538] number, is that -- is your ACMI assumption that your customers fly at a similar overage versus the contracted minimums as they did in 2010?

Yes. In our guidance, we are assuming that our customers will fly between 5% to 7% above minimums for the year.

All right, very good. Nice quarter, guys, nice year. Thanks for your time. I appreciate it.

Bill Greene, Morgan Stanley.

Hey, good morning. Can I just ask one sort of follow-up here? There is all these questions on bridge capacity and this and that. Does any of this and the delays in the 747, etc., does any of that lead you to ask the question whether or not you should look at other non-747 freighters or is that just sort of still off the table?

Well, I don't know that it is off the table. It is more that we still believe that, for our business, for the long-haul inter-continental freight, the 747 is the best platform just given its performance and the economies and the efficiencies it produces. So just starting there.

The BCF provides bridge capacity. It is not wholly equivalent to a freighter, but -- a pure factory 400 freighter, but we can take that aircraft, we can put it to work in markets and we can make good returns on that aircraft over the period of time.

In terms of the Dash 8, the Dash 8 will deliver when it delivers. What we are really dealing with now is flight certification issues, not issues, but just the timing to get the aircraft certified more than anything. That will introduce then the next stair-step improvement in terms of fuel efficiency and load factor. And that is really what drives the economy.

So I mean there have been questions asked about the 777. From our perspective, 777 is a great freighter. We think it is more appropriate in serving the integrators and that is where the majority of the aircrafts seem to be going. It does provide distance or range, but that is with fairly light payload factors. And I fully understand why FedEx wants to fly that from Guangzhou to Memphis, but that is not the normal routing of freight flows.

And so being able to carry 139 tons with a great fuel burn along the routes, the logic of international freight flows, we think that the Dash 8 and the 747 platform overall is the right platform for Atlas and our business.

Okay, and then on the military side, so we have got some puts and takes here, right, so we have got -- there is some instability again in the Middle East, although this is probably less relevant for your military business, but certainly raises the question about well maybe that ultimately creates some longer-term demand from military services around the world. And then we have got all these budget constraints in Washington being discussed now. So when you sort of do the puts and takes here, I realize there is not much change in your outlook, but are there upside or downside risks from your perspective for military?

So on military, I think there is two perspectives. We have guided to 17,000 and I will spend a moment on upside. Secretary Gates has asked that the Air Force cut $0.5 billion of fuel spend out of its budget. And so I think that, among other things, will inform a preference for the 400 versus the 200 for the missions and that is essentially where we would like to see that going because we will retire our 200s. We will be operating 400s whether they are BCF or freighter and I think we will have the best fleet and the largest fleet in terms of marketshare entitlement within AMC to deploy. So that I think offers some potential upside.

The other I think consideration is the military is clearly seeing that they can absolutely get a better load factor on the 400s and when freight was moving very quickly over the last couple of years, first in/first out, load factors aren't always that great and I think that that will also argue well for the 400.

Now one other consideration on the upside, the budget is going to be constrained and the ability to go out and acquire more C-17s isn't very likely and the C-17s with a design consideration of about 1100 hours to 1200 hours a year and that is how the military thinks about the use of that aircraft and then they project the life of that aircraft.

Through Iraq and Afghanistan now, these aircraft have been flying at over 2400 hour a year for that seven or eight-year period of time. And so they have consumed the useful life of the aircraft much quicker than the plans would have called for. And so perhaps the least expensive way to extend the life of the aircraft or recapture some of what is characterized as overfly would be to use more civilian aircraft, use more of the craft program for lift post-Afghanistan than might have originally been contemplated or was the historical norm pre-9/11. So I think those are kind of the upside.

The downside would be if, for whatever considerations, the military draws down faster in Iraq -- sorry -- since we have drawn down in Iraq, faster in Afghanistan than we may be planning for or than what they have told us today. We just don't know that. I think, overall, we are well-positioned within Transcom and with the craft and I think there are other DoD opportunities we can pursue.

Okay, that's great. Thanks for the time.

Ed Wolfe, Wolfe Trahan.

Hey, guys. So again, I just want to make sure I am getting the math right here. If I just look at the revenue for 2010, about 41% of your revenue came from ACMI, and if I take 41% of your [578] in earnings for the year and divide it by the 20 aircraft in ACMI, I am getting about $0.12 per plane for the current configuration, your Dash 400s, but you are saying that $0.12 is going to be $0.48 a plane for the Dash 8Fs, four times as profitable as the current planes. Am I thinking about that right or am I doing something wrong there?

No, that's right, Ed. And to get there, you have to remember that that is not on a normalized basis. That is -- there is a maintenance holiday for about a six-year period on the Dash 8s, so that includes the maintenance holiday and that is why that number is elevated.

But I remember when you moved from the Dash 2s to the Dash 4s and you had that maintenance holiday 10 years ago, and I don't remember four times the profitability. I remember a nice improvement in margin. Is there something special about this move from the 4 to the 8 relative from the 2 to the 4 10 years ago?

What we were trying to do in providing the $0.04 is, as I said before, there is so much uncertainty around when these will be delivered that we are just trying to provide you and investors with the ability to try to scale that up and down. The $0.04, of course, does not include heavy maintenance, as I said. The $0.04 also does not include fixed costs. This is on an incremental basis assuming that the fixed costs are already included in the rest of our guidance. So that is an important element as well. And the $0.12 you are looking at, that is just sort of an all baked-in number. So they are a little different.

The other thing I would point to is that we continue to focus on lowering our ownership cost and it is a primary driver here. It is why we recently purchased another owner participant interest. It is why we continue to purchase the pass-through certificates on the EETCs. We continue to focus on lowering the ownership cost so more profitability related to our current fleet.

Spencer, what fixed costs are not included when you say fixed costs? Are you talking about financing costs? What kind of costs are you talking about?

So for the $0.04, it really is on a variable rate basis and so keeping the lights on in this facility, for example, that is already included in our guidance. And so if we take on more Dash 8s, there won't be any additional cost for the lights here. So what I am trying to say is that the $0.04 is not an all-inclusive number that you are looking at when you are comparing it to the rest of the business.

It is really the operating leverage we have built in the business and so we can expand and take on these additional aircraft with very little incremental cost other than the cost of the pilots and then the maintenance cost -- the line maintenance cost, etc. to run the -- the operate the aircraft. So they come in highly accretive leveraging the core that exists in their company.

That makes sense.

Then when you do the math and divide the total number of aircraft, you will see that the overall average is floating up on the 400s as well.

Okay. So if I do that -- I just want to make sure I am getting in this right. So I have got $0.36 in your guidance for the three 8-Fs for the full fourth quarter. Does that assume that those placements go to BA as previously assumed and does it assume that the BA three 400s are placed or not placed at that point?

It does assume they go to British Airways as we have discussed as our launch customer. And so now we are saying, Ed, that we have got 20 of our 24 400s are in ACMI. And so as we look at year-end, assuming we take the three deliveries, we are looking at 23 of our then 27 aircraft in ACMI. So whether BA retains and expands or we place elsewhere, that would be what we would be doing that is contained in the guidance and I'll just put one caveat. If it makes more sense to keep one of those aircraft, say 22 instead of 23, in commercial charter because of the demand and the yields and the returns or because of the military demand that we see and we want more aircraft available for military, that is the flex we will exercise.

Okay. And what is the expectation now for deliveries for '12 and '13? Assuming they do those three in the fourth quarter, does that change what you had already said for '12 and '13 or what do we expecting now of those deliveries?

That's a good question and I think the best way for me to answer that is to not directly answer it and say we've not agreed on a definitive time schedule with Boeing. And there is some more work for us to do with Boeing over the next couple of months. And so rather than give guidance for '12 by saying how many come in '12, I'd rather not do it at this point simply because we need to work with Boeing to get the schedule down. And when we have a more definitive schedule from them we'll certainly share it with you and the other folks that cover us.

But in terms of the way Boeing is going to deliver these planes, is it whenever those first three come it's at least X number of months until the next three come? Or does one not impact the timing of the other? In other words, if you were going to take six you could get six all at once whenever they finally make the delivery? How many are they manufacturing at a time I guess is what I'm saying.

Well, they've got a number built already that are on the runway in Everett. They're continuing to do the flight test certification. We can't predict when that certification will be done because of the things they need to do to get done and just the time it takes to complete that. So there could be the ability to deliver a number of aircraft early into 2012, but again we're in discussions with Boeing, we're in negotiations with Boeing and so I don't want to get much beyond that. And as I said a moment ago, when we have more specifics on the actual delivery dates we'll be very happy to share it.

Okay. And then you have 20 planes in ACMI and so if they average five years that's, give or take, four should come up a year. You talked in the past about 2011 being a somewhat light year. How do we think about '11 and '12 relative to the normal, give or take, four a year that come up for renewal?

'11 is a very light year.

Are you done with that or are there more that could be replaced at this point?

I'll just say that we have a very light year and '12 is not an exceptionally heavy year either. The question though is, okay, but you have got to place the Dash 8s, which would be incremental placements to rolling over 747-400 leases. And our view is, given the market as we have described it, given the kind of tardy introduction of new capacity, particularly in the markets that we serve, the long-haul Asia-based intercontinental markets, we think there is good demand to place that aircraft in.

Okay, and Bill, what do you make of this trend that your last four planes went to freighters and they were somewhat shorter than normal in terms of DHL, TNT and Panalpina relative to passenger airlines? Is that a coincidence or is there some trend that you see?

No, I don't -- well, a couple of things. One, I think we clearly wanted to diversify the customer base, so having a good position with the airlines, passenger airlines where freight is an important part of their business and now growing our position with first the integrators and then subsequently a freight forwarder, I think it actually increases the customer base for Atlas, the addressable customer base. I don't think it is a trend away from -- by the major passenger airlines away from cargo. We are out of capacity. We had to get in those BCFs. We are waiting to get the Dash 8s. So I think it actually -- it strengthens our addressable customer base.

When you see someone like a Panalpina taking two aircraft, and when you think about potentially other forwarders out there in the market who have large marketshares of global airfreight who have 10,000 tons or more in identified trade lanes, once you get to that kind of identified demand and buy that freight forward as had, it is not hard to envision ACMI networks just assuming 50% of that demand would ride on a freighter. So I think it is a very good trend.

Okay, last one and I will let you guys go. When you think about these Dash -- the BCFs that are coming in, typically you buy your planes, you don't lease them. How do we think about is there a difference in the incremental margin to you leasing them and then reletting them on the ACMI or how do we think about the economics of that marginwise?

I think in this case it was just a matter of this is bridge capacity. This is shorter term in nature. Typically, we own our planes. They are longer term in nature. These planes are shorter term in nature. It really is bridge capacity. We are very happy with the economics that we are getting and we are very comfortable with how we will be able to utilize those planes. So we are happy overall with the economics.

So don't model them any differently than we would the normal planes?

I think that is right. You can model a very similar contribution. That is right.

Okay, thanks so much for the time.

Carter Leake, Davenport & Co.

Good afternoon. I don't know if you gave this. Did you give us CMI block hours in the quarter?

No, we did not.

Would you be willing to or at least speak to rev per block hour ex-CMI at least directionally?

Okay. So you saw that we reported a revenue per ACMI block hour north of $6,000. I think it was $6196 or something in that range. There is some CMI effect there, although there wasn't -- there weren't a lot of LCF hours, they were mostly certainly more SonAir hours as we have talked about, about 400 a month for SonAir, so 1200 SonAir hours in the quarter is about right. But I think to -- maybe if I understand your question, we are looking at higher ACMI rates as we place the aircraft into a better market. And that is reflected in our fourth-quarter ACMI numbers.

And Carter, this is Spencer, maybe I'd just add to it. I think, as you know, we only currently have two CMI customers and so we are reluctant to provide too much information because it will become customer-specific information, so that is the reason why we don't provide more. But I think from a SonAir standpoint, you can generally model that one. It is fairly predictable.

For the LCF, you know that Boeing has been a little behind with the 787 deliveries of subcomponents, but we think both of them going forward -- SonAir is pretty predictable, but going forward, the LCF flying, the large cargo freighter flying that we are doing for Boeing will really grow our CMI business and will lead to some more CMI business we think for us as we go forward to sort of fuel our growth.

And maybe you said this before, but are there min utilization rates on the LCF contracts?

Well, the contract for SonAir is really quite --

I'm sorry. Just on the Dreamlifter?

We have minimum guarantees on the Dreamlifter with Boeing until they ramp up to full production.

Okay. And just following up on the 8-F discussion earlier, the discussions with Boeing, do -- they have put rights use, so if they could give you more in 2011, are you obligated to take them? Or do you have the choice or put differently, is there a maximum amount of aircraft that you'd be willing to take in a given quarter?

First of all, it's difficult to get into the details of the Boeing contract. We have a nondisclosure agreement and we can't get into a lot of depth about that contract. We would be stepping over the line in terms of our contractual obligations. I think the safest thing to say is we have a delivery schedule with Boeing. Boeing has proposed a revised delivery schedule and we will negotiate and confirm a revised delivery schedule with Boeing.

Okay. The six-year maintenance holiday seems a little bit long. I am thinking more in the two to three-year range. Is there -- could you clarify that?

Well, the maintenance holidays, basically it is driven by when, by calendar date, we have to perform heavy maintenance on the aircraft and on the engines.

Oh, I am thinking of just say so warranty is more, pure warranty is more of the two to three range, right?

Yes, the warranty is in that range. It might be higher than that, maybe closer to 4. It will depend on the specific warranties associated with the aircraft.

What we are referring to there, Carter, is the heavy letter checks that are required.

Okay, all right. And then, again, maybe you mentioned this, but the BCFs, when will they be in active service? And then if you could provide any color on upfront or lease termination costs that we might need for our models?

Well, the aircraft will be in service around the beginning of April. As we have said, they have an average lease of 3.5 years and we expect to operate them for 3.5 years and then I would imagine we would return the aircraft at the end of the lease. Based on our demand and our ability -- if we extended them, it would be because there would be a good business reason to do so.

Well, I guess so. So for example, are the crews currently trained on those aircraft or is that still to come in the quarter? Just because it is a short-term lease, I would think that -- that is a pretty short-term operating lease, are there any sort of -- is it a mirror in/mirror out structure or anything that we should be concerned about?

There are small costs associated with that, Carter. We might have to train a few more pilots. I mean the beauty of taking in a BCF is it simply leverages the cores that we have? It leverages the -- it builds on the operating leverage I should say that we have in the business. And so it is a few more pilots. We have -- they are the same engines that we operate today. So there is a lot of attributes that make them the right aircraft for us.

All right. And then just last one. On the 12 Dash 8-Fs, just looking out, any color on what percentages of these aircraft you might think will be new customers versus current customers and I will stop there?

I think the better way to answer that is, in the totality of the fleet, we expect to operate between 747-8s and 747-400s, there will be new customers. Which asset type the customer wants to use or likes to use will depend on their specific business, their routes and rights and their business model for their cargo business.

Okay, great. Thank you.

Helane Becker, Dahlman Rose.

Thanks very much, operator. Hi, gentlemen. Thanks for taking my question, for squeezing it in here. So, Bill, can you just say where in the mediated negotiations the pilot contract is and when you think that gets done and do the numbers you are providing for guidance for 2011 include some number for that contract?

Thanks, Helane. So to recap, we were in negotiations with our pilots and formal negotiations have concluded. We reached a tentative agreement on a very large majority of the sections in that negotiation and among the sections that we have reached a tentative agreement on or agreement on are wage and benefits, as well as the productivity and work rules, both of which are critical to running our operation.

A few sections then went in to binding arbitration and so we have presented -- both sides have presented testimony through the binding arbitration process. The arbitration is completed. Both Atlas and then the unions will be submitting briefs to the arbitrator and we expect that the arbitrator will issue a decision. In other words, a new contract will come into effect later in the year.

In terms of our guidance, we have, in fact, included the anticipated increases that the contract would provide in the guidance. I can't get into that rate at this point until we have a contract because I would then be out ahead of the pilots and ahead of the arbitrator. That wouldn't be a good position for us to be in. But our expected rate increases are in that guidance.

Okay, that is very helpful. Thank you. And then my other question, completely unrelated, is your margins are pretty high, not that I am complaining obviously as an analyst, I think it is pretty cool, but do you ever worry about your customers complaining about your margins and trying to negotiate rates that are more favorable to them rather than to you?

That was a pretty big discussion in the first quarter of 2009 as the whole market was collapsing and people were really feeling the pressure. But I think the way it stands is our customers are aware of what our margins are. We are a publicly reported company. They see that. Our customers are all themselves doing very well. And I think that the conversations we have with our customers are really about the level of service quality we provide for them, the value we create for them and how we can help them improve their margins and their business.

For example, we have had a very strong multiyear initiative called Fuel Wise and so under ACMI, our customer pays the fuel. We have worked with our customers to drive their fuel burn down in some cases north of 3%. And we worked with our customers in 2008 and 2009 to help offset the impact that they were feeling as a result of the dramatic downturn in the market.

So it is a customer-by-customer discussion when we get into rates. Supply demand curves right now are very favorable for us and a lot of the margin improvement that you see and the strength of the margins that we have really are driven by our operating team here and the efficiencies they are able to drive out of the network and the scale and the scope that we operate.

Helane, this is Spencer. Maybe I will just add to that, that I mean we are basically an extension of our customers' business and so none of this works unless our customers are obviously doing well and satisfied with what we are delivering for them. So together, I think we are both earning nice returns.

Okay, all right. Great, that is really very helpful. Thank you very much.

Ray Neidl, Maxim Group.

Yes, on the aircraft financing in the current markets, I was just curious about a couple of things that you said. You said bank financing is available. I know the capital markets, the EETC market is open. I have been looking at the secondary market for trading in those bonds. They look pretty favorable for the airlines. But you also did mention that financing would be available from the Export-Import Bank and I was wondering how you qualified for that being a US company.

Good question. I don't want to get into too much of the specifics, but just wanted to point out that all of our options are open. We are talking with numerous parties who potentially can help us provide financing for the Dash 8s. We have a nice relationship with all the big players in this space, especially the European banks. We have a really nice relationship. We have had discussions with the US Export-Import Bank. We continue to have discussions on sale-leasebacks with those providers.

To specifically answer your question, it really is -- I will just say a little I guess. It is because of the nature of what we do. We are providing a leasing service and that leasing service generally would qualify, but it depends and we will need to work closely on that.

Okay, great. And just a very general thing as far as fuel goes, the sectors of your business that might be affected by volatile fuel costs, you didn't comment on that at all. Is there any risk there or what level of risk would there be?

I think it is a small level of risk. Where we have direct fuel exposure is in our commercial charter business because, in the ACMI business, about 70% of our flying customer covers fuel. In the military AMC business again, fuel is covered in a cost plus model in terms of pricing with the military and that is about 20% of our flying roughly. So it is about 10% of our commercial charter business or our commercial charter business represents about 10% of our flying where we have fuel risk.

Because charter is really short term in nature, because we are quoting on a flight, both we and our customer at the time we make the quote know what the fuel prices are and so we can certainly incorporate that and do incorporate that. Where we have what I would call programmatic charters, charters that are over a period of months, we quote rates that do not include fuel, more ACMI-like charter rates or we quote them with a fuel surcharge and an ability to index up price based on the then fuel price. So while we always have some fuel exposure, it is not substantial fuel. It is really a very minimal fuel exposure.

That is a good position to be into. And then just finally, I know most of your business and concern is with Asia, but I was just wondering about what you are seeing in freight and other areas of the world. The IAT just came out with their forecast for the next couple of years and they said that Europe is in the doldrums, but what I am seeing is South America, North America, some other areas are coming back strongly also. Is that what you are seeing?

Absolutely. We are running a scheduled charter operation in Latin America that has performed exceptionally well for us. It is probably the first time in the last 50 years when there was recession Latin America didn't really get affected. Historically, it has been affected pretty severely, but Latin America markets are strong. Middle East is strong, Africa is strong and I think that the one that is somewhat weak is the Transatlantic trade. That is not -- it's certainly a trade our customers do fly in, but it is not a heavily trafficked trade for us. Ours are more the routes between Asia and Europe, Asia and North America, then north and south routes with South America and North America, Asia into South America because of the strength of the economy there and then the whole Middle East Africa route. So really across the board, we are seeing very good demand growth.

Great, thank you.

Scott Malat, Goldman Sachs.

Good morning, thanks. Just on the AMC business, just wondering about the rates in 2011.

Well, rates are cost plus. The rates are adjusted every year and so we are looking at similar levels of margin in 2011 as in 2010.

Okay.

What we had in 2010 at the beginning of the year and at just the tail end of 2009 were these shipments of the M-ATVs, the all-terrain vehicles that were surged into Afghanistan along with the surge of the troops into Afghanistan. There a premium was paid by the military for 400 aircraft, 747-400 aircraft and to expedite the move into theater so that the vehicles and equipment would be there as the troops were arriving. We talked about that in our prior earnings call. That did inflate the perceived margin, but now we are back at more typical margin levels and they will look very consistent as we come from 2010 into 2011.

And then the new contract kind of started January 1 and then you will have another contract coming up in September I guess? It's a nine month for you.

Yes, it's an annual contract and it historically has been tied to the government fiscal year starting October 1, but because of some evaluation the military was doing in the craft program 2011 actually runs calendar, but we have been advised by the military that 2012 will run calendar or at least won't start until January. Whether that is a nine month or a 12-month contract remains to be seen for 2012.

That's helpful. And then just an industry question, lastly. We have all been hearing kind of small package rates moving up. How do we think about this and does demand move into freight from small package?

Well, I am not sure how to answer that one. Small package is small package and once you're above a certain weight break, you are into heavy freight anyway. I think what it says though is what we have been saying as well in the heavy freight. There is strong demand, capacity has not come back to match what demand has grown and there is pricing strength for both the integrators and for our ACMI customers. And that is what sustains the kind of current level of charter rates that we have been seeing and continue to see.

All right, thanks.

David Campbell, Thompson Davis.

Hi, most of my questions have been answered, but in the last three or four years, there have been times when you said that peak demand or the next month demand looked very strong and it didn't happen. Not often, but sometimes. Is there a possibility that that could happen in March? I mean I know what you said about strong demand, particularly in the Asia-Pacific market, but how visible is that demand? Is there a possibility that the growth in March will be disappointing?

If we were missing forecasts on demand, I think that might have happened in 2008 and 2009 when the market crashed below what anybody would have expected. Coming out of that though, the market demand has been pretty good and I think we have had good insight to it because we get insight to market demand from three perspectives. We certainly get it from IATA and the other entities that study the market and forecast that. And so we look to that.

We do certainly get a window on demand based on our ACMI customers because they truly serve global markets and they give us schedules and we can also look at their load factors because we need to know how much tonnage is in the aircraft when we take off.

And then through our charter business, we have regular ongoing dialogue with the freight forwarders and also the integrators. So where are we today coming off a lunar new year? The factories just got back to work really last Thursday. We were running some extra sections over the weekend, which is kind of a good sign, I would say. When we looked at cancellations and just slowdown over the lunar new year, it was only about a five to six-day slowdown. In the more challenging years, that was like a 14-day slowdown. So we are kind of back to full flying within a week of lunar new year and we think that is where the market is and we think that looks pretty good.

Rates are in the $3 and above range out of the core markets -- Hong Kong, Shanghai and Inchon. So from what we know right now, combining the forecasts, combining what our ACMI customers are telling us and what we are hearing from and seeing in the market, we feel pretty good about the demand in 2011.

I would say so too. If there was only a five or six-day slowdown, normally a lot more than that.

Well, in some years, it has been more like two weeks and in 2010, it was a couple of days, but this market is more like a week and it looks -- it looks like pretty good demand going forward. In fact, I mean I think the three key messages are we think demand is very strong and we think capacity is tight and that positions us well. We think our core business is well-positioned and as I mentioned earlier in the beginning of the call, we think it is a transformative stage for Atlas.

Thank you very much. I appreciate it.

Are there any closing remarks?

Yes, just briefly, operator. We would like to thank all of you for participating in our call today and we thank you certainly for your interest in Atlas Air Worldwide Holdings and we look forward to speaking again with you soon. Thank you.

This concludes today's conference call. You may now disconnect.