Atlas Air Worldwide Holdings Inc (AAWW) 2013 Q1 法說會逐字稿

Good morning, my name is Yolanda, and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter earnings call for Atlas Air Worldwide. (Operator Instructions) Thank you. I would now like to turn the call over to Atlas Air. Please go ahead.

Thank you, Yolanda, and good morning everyone. I'm Ed McGarvey, Vice President and Treasurer for Atlas Air Worldwide. Welcome to our first quarter 2013 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 complimented by a slide presentation that accompanies our remarks. If you have not already download and printed a copy of our press release and slides you may do so from our website at AtlasAir.com. You may find the slides by clicking on the link to presentations in the investors information section of the website.

As indicated on slide two 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 may involve risks and uncertainties. Our actual results or actions may differ materially from those projected in any forward looking statements. For information about risk factors related to our business, please refer to our 2012 Form 10-K as amended or supplemented by our subsequently filed SEC reports.

Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release and in the appendix that is attached to today's slides.

You can also find these at our website at AtlasAir.com. During the question and answer period today we would like to ask participants to limit themselves to one principal question and one follow-up question so that we may accommodate as many participants as possible. After you've gone through the queue we will be happy to answer any additional questions that may-- that you may have as time permits. At this point I would like to turn the call over to Bill Flynn.

Thanks, Ed, andgood morning, everyone. Thank you for joining us today. I'd like to begin with a few key take aways on slide three.

We had a good first quarter, in line with our expectations as a result of our business mix, productivity gains and continuous improvement initiatives. We are affirming our full-year outlook. We're driving additional stock holder value through share repurchases and tax planning actions, and we're ready to take full advantage of the operating leverage inherent in our business as the global economy improves.

Turning to slide four, our first quarter results and initiatives demonstrate the benefits of our modern efficient fleet, diversified business mix, and solid balance sheet in a challenging business environment. The actions we've taken to transform our Company, diversify our business model, and develop new customers should enable us to deliver strong earnings and free cash flow in 2013. Operating income in the first quarter reflected the strength of our ACMI operations includingour 747-8S.

Operating income also benefited from new organizational capabilities and the evolution of our business such as our expanding 767 service, growing CMI operations and the efficiencies we have realized through our continuous improvement initiatives. I would also like to highlight two significant actions we executed during the quarter.

We acquired an immediately profitable Triple 7 freighter under long term lease for our Dry Leasing business. And we implemented an accretive share repurchase program. We returned value to our stock holders through late April, acquiring 903,000 shares or 3.4% of our outstanding common stock for $36.5 million. Looking forward we have a disciplined approach to our business. We will continue to explore opportunities to expand our Titan and Dry Leasing platform through investments in aircraft with lease commitments attached and we'll capitalize on our strengths and resiliency to return capital to our stockholders.

Slide five briefly highlights our first quarter results. Our adjusted net income attributable to common stockholders totalled nearly $6 million or $0.22 per diluted share. On a reported basis, net income attributable to common stockholders totaled $20 million or $0.76 per share. Included in our reported earnings is an income tax benefit of $14 million or $0.54 per share related to the tax treatment of extra territorial income from the offshore leasing of certain of our aircraft.

Despite being the seasonally weakest period of the year our first quarter revenue grew 5% to $377 million, and our operating income increased 10% to $23 million. In addition, free cash flow for the period totaled $42 million compared with $1 million in the first quarter of 2012. Reflecting the increase in the number of our 747-8F aircraft, ACMI volumes, rates, and revenues all grew. And ACMI direct contribution rose 65% to $40 million.

Turn to slide six, we expect strong earnings in cash flow in 2013. Led by ACMI each of our business segments is expected to be profitable for the year even in a soft market. Reflecting our ongoing continuous improvement actions we expect that corporate overhead per block hour willbe 20% below our 2009 rate by the end of 2013. And to take full advantage of the operating leverage inherent in our business we're driving productivity gains and efficiencies in all areas of our operations including initiatives that target our engine overhauls, procurement efforts, passenger catering, ground travel, and crew scheduling.

We're also leveraging our core competencies, industry leadership, and deep understandings of markets to deliver advantage and value to our customers and stockholders. As a result we anticipate that our adjusted fully diluted earnings per share this year will total approximately $4.80. This is an increase from our prior guidance of $4.65 reflecting our share repurchase activity. Including the ETI tax benefit our adjusted fully diluted earnings per share in 2013 should be approximately $5.34.

Both our reported and adjusted full year 2013 EPS guidance assume the repurchase of $50 million of our outstanding stock during the year. Should our total repurchases differ from this amount it would impact our earnings per share. Our expectation for full-year 2013 operating performance is unchanged from the outlook we issued last quarter. We expect to fly fewer block hours in our commercial charter segment in 2013 than we previously forecast.

We also expect to lower operating expenses as a result of continuous improvement initiatives that drive productivity and operating efficiencies. Adjusted and reported full-year earnings in 2013 will reflect strong contribution by our Dash-8driven by increase of Dash-8s in service compared with 2012 including the incremental placement with Etihad Airways just announced. This is our second aircraft with Etihad, it compliments the 747-400 freighter already in ACMI service for them. As was the case in 2012, market growth during 2013 should be seasonal and second half weighted.

We anticipate a sequential increase in our adjusted quarterly earnings throughout the year. With approximately 75% of our adjusted EPS and 66% of our reported EPS occurring in the second half. Based on our revised view block hour volumes are expected to total approximately 175,000 hours in 2013. ACMI segment flying should account for about 135,000 or 77% of expected $20.13 block hours. That includes our new 747-8F service for Etihad starting later this month, and it includes our new 747-400 for Chapman Freeborn that began in April.

As previously indicated, the average number of Dash-8s in service in 2013 should increase to more than eight from 4.3 in 2012. About 22,000 or 13% of our block hours this year should be in commercial charter, and 18,000 or 10% in AMC Charter. Passenger flying should account for more than 10,000 of our AMC block hours this year.

We also anticipate that maintenance expense will total approximately $172 million in 2013, about 60% of which should be incurred in the first half of the year. And our revised outlook for maintenance is primarily driven by our continuous improvement initiatives. This is a good point to ask Spencer to provide you with some additional perspective on our first quarter results and our outlook. Following Spencer I'll provide some additional thoughts and then we'll be happy to take your questions. Spencer.

Thank you, Bill, and hello everyone. Looking at slide seven. Operating revenues in the first quarter of 2013 benefited from increases in block hour volumes in our ACMI business, our military passenger business, and our commercial charter operations. Focusing on the pie charts in the bottom half of the slide you see the revenues in our core ACMI business grew to 48% of total revenue in the first quarter from 43% in the first quarter of 2012.

Revenues in ACMI were driven by our new 747-8 and increased increase CMI flying, partially offset by the redeployment of 474-400 aircraft to other segments. Increased volumes in ACMI were primarily due to the continued ramp up of 767 flying for DHL, and the continuing increase in 747 CMI service for Boeing. ACMI rates during the first quarter primarily reflected the impact of higher rates for our Dash-8s, offset by growth in our lower rate, but profitable CMI business. We operate an average of seven Dash-8 freighters, and 13.1 747-400 cargo aircraft in ACMI during the quarter.

In addition we enhanced the utilization of our 767 passenger aircraft by taking advantage of short termopportunities in the passenger ACMI market. Our CMI operations contribute an average of nine aircraft to the segment, 1.6 Dreamlifter large cargo freighter, 6.4 767 freighters, and one 747-400 passenger aircraft.

In AMC Charter, revenues during the quarter declined 19% primarily reflecting a 41% decline in cargo hours. This was partly offset by a 38% increase in passenger block hours. We flew 2,561 military passenger block hours during the first quarter, an increase of 711 hours compared with the first quarter of 2012, as we combined additional 767 passenger flying with our 747-400 passenger operations. Commercial charter revenues in the first quarter increased 18% reflecting a 28% increase in block hour volumes that was partially offset by a 7% reduction in average block hour rates.

Higher volumes in commercial charter primarily reflected the deployment of 747-400 aircraft from ACMI during our marketing periods. Commercial charter revenue per block hour reflected the impact of lower yields during the first quarter. Moving to slide eight. Segment contribution totaled $45 million in the first quarter of 2013 compared with $48 million in the first quarter of last year. With the pie chart to the bottom of the slide illustrating the increasing proportion of contribution from our core ACMI segment.

Direct contribution in the first quarter reflected higher average block rates in ACMI complemented by lower maintenance expense for our new Dash-8s. Revenue and volume growth in our AMC passenger business which were offset by lower military cargo demand, and revenue and volume growth in commercial charter offset by softer yields and a reduction in return legs due to fewer one way military cargo missions. Results in commercial charter were also affected by volume driven operating expenses associated with flying to more expensive locations.

Slide nine summarizes the updated quarterly detail about our 2013 maintenance expense outlook. As we've noted in the past, the timing of maintenance events is subject to change as these events are conditions based. We've revised our outlook for full year maintenance expense, as Bill noted, and expanding on Bill's comments, our continuous improvement actions generate both earnings benefits as well as positive economic returns.

Turning to slide ten and our balance sheet, we ended the first quarter of 2013 with cash, cash equivalents, and short-term investments totaling $344 million compared with $420 million at year end 2012. The change was driven by net cash of $54 million provided by operating activities and by net cash of $100 million provided by financing activities. That was offset by net cash of $234 million used for investing activities.

Net cash use for investing activities in the first quarter primarily related to the purchase of our eighth Dash-8 freighter for our ACMI operations and our first Triple 7 freighter for our Dry Leasing business. Net cash provided by financing activities during the first quarter primarily reflected proceeds from the issuance of debt in connection with the acquisitions of these aircraft.

These proceeds were partially offset by payments on debt obligations and a $50 million pre-payment under an accelerated share repurchase program agreement, or ASR, that we entered into for the purchase of our shares. As a reminder we have no unsecured debt. All of our outstanding debt is tied to specific aircraft and our fleet. Excluding the acquisition of aircraft, engines, and related capitalized interest, our core capital expenditures totaled approximately $11 million in the first quarter. I'll just quickly note that we expect our core capital expenditures for the rest of the year to be about $50 million.

As expected our net leverage ratio which includes capitalized rents was 4.8 times trailing 12-month EBITDA at the end of the first quarter, reflecting the benefit of our investments in our outstanding AATCs. The increase in our leverage ratio compared with the year end 2012 was primarily due to finances for the Dash-8 and Triple 7 freighters that we acquired during the quarter. We expect our earnings and cash balance to grow throughout the year and lower our net leverage ratio including AATC investment benefits to about 4.1 times at year end 2013.

Slide 11 provides some additional perspective about our ability to generate free cash flow and grow our cash balance. The left side of the slide illustrates that the operating cash flows from our Dash-8s, the favorable bonus tax depreciation benefits that they generate, and the positive cash back that we have received and will receive at their deliveries should enable us to grow our cash balance. Due to the benefits of bonus tax depreciation we don't anticipate paying US federal income tax until 2017 or later. On the right side of the slide you see outlook for free cash flow per share in 2013.

All the business efforts that we've been talking about should continue to generate significant free cash flow per share in 2013 and into the future. Moving to slide 12. Our capital allocation strategy demonstrates our commitment to creating, enhancing, and returning value to our stock holders both through business growth and returns of capital. Reflecting our strong balance sheet and cash flow we commenced a significant share repurchase effort during the first quarter. Between mid-February and late April 2013 we repurchased over 900,000 shares of our common stock for $36.5 million at an average cost of $40.40 per share.

We acquired just over 427,000 of those shares during the first quarter which added $0.01 per share to our adjusted and reported earnings for the period. Maintaining a strong balance sheet is essential for continued long-term growth and capital returns. Going forward our focus will be on the appropriate bounds between balance sheet maintenance, business investment, and share repurchases. With that I would like to turn it back to Bill.

Thank you, Spencer. Looking at slide 13. We have spoken a great deal about the action we've taken to transform our business. We have a modern efficient fleet, diversified business mix and a solid balance sheet. These provide a competitive advantage that is unmatched in our business.

We're not just managing our business for the present, however, we're committed to generating strong earnings and cash flow this year, next year, and well beyond. Our 747-8s are performing well and they provide a strong foundation for the future. We will grow to nine Dash-8s in our fleet this year and will benefit from a full year's contribution by all nine in 2014. Our CMI business is growing.

Our flying for Boeing is ramping up as the production of the 787 Dreamliner increases. And building on the operation we established this spring, we'll have a full year of 767 service for DHL in Asia in 2014. In addition, our Dry Leasing business is expanding. We've added our first Triple 7 freighter and will explore opportunities to invest in additional aircraft with lease commitments attached to them. We're well positioned to serve our customers in the air freight market.

We're innovative and adaptive responding to external market forces outside our control by developing new customers, focusing on costs, and driving continuous improvement, and pursuing initiatives to improve our profitability and enhance our strategic options. As a result, we're ready to take advantage of improvements in the macro-environment, positioned to return capital to our stockholders even in challenging times, and well positioned to grow our business for the long term. With that, Operator, may we have the first question, please?

(Operator Instructions)The first question comes from Kevin Sterling with BB&T Capital Markets

Hi Kevin

Congratulations on a nice quarter.

(Multiple speakers) Thank you, Kevin

Bill, you just signed a new ACMI agreement with Etihad, and despite all the negativity that we hear about regarding the international markets, can you tell us how important it is for you to partner with customers such as Etihad, DHL, British Airways, who are actually growing their business in times of turmoil and may need additional capacity?

Yes, I think that's a great question, Kevin, and that actually is the Atlas story, if you think about it. When we come to market with a modern, efficient fleet with high quality services and our goal clearly is to partner and enter into these long-term relationships with customers such as you've described. DHL we started with six aircraft in [400], and now we have nine. And we now also fly seven 767s for them on a CMI basis and they grew their business 9% last year.

Mr. Hogan, in a press release today, in a down market described that their volumes cargo grew 19% over the last year on a 14% capacity increase measured by AFTKs. Stephen Gunning from British Airways was recently quoted about their business. And while it doesn't have those kinds of growth numbers, outperformed, one might say, other carriers within Europe or principally serving Asia-Europe market. That's the other half of the story. Right assets, great service, these customer relationships with customers who is are who are growing in spite of a challenging or soft market over all.

Right, thank you. In a follow up can you touch on some of the trends you've seen so far in April, in terms of some of these customers flying above minimum block hours and ACMI, and what type of rates and block hours have you seen in commercial charter in April?

Well commercial charter, just to step back a bit. To January and February most folks like to look at those two months combined because lunar new year is typically moving somewhere between one month and the other, and January and February market seemed pretty good on a seasonal basis with nice yields, I would say seasonally attractive yields coming in to lunar new year. I know there was some concern expressed more generally in the market after lunar new year because the immediate pick-up, or the pick-up after lunar new year didn't seem as strong as I think market expectations were.

I think March 2013 over 2012 was more challenging because March 2012 had a substantial amount of new product introductions principally led by Apple and it was probably the only month back then in the 14 or 15 months that actually showed growth in a year-over-year basis. Sequentially March performed as expected, and as we come into April the charter, spot charter rates are in the $3, mid $3 in the Hong Kong market. Closer to $3 in Shanghai in that range coming out of Inchon or coming out of Korea. I would say a good level of demand, and I think we'll be leading into a good market demand overall as we come through March, April, June, and into the summer.

Okay, that's all I had. Thanks so much for your time this morning, and congratulations once again.

Thank you, Kevin.

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

Hi, guys, it's great to hear from you. I have a couple of questions about your thoughts with the 747s going forward. I noticed that you have fewer 400s year-on-year than you had last year. So is it--is it a thought process to start divesting of those older aircraft, perhaps, and focusing on the Triple 7s or 67s going forward? Can you talk about what your thoughts are with respect to the five-year plan for the fleet?

Sure, Helane. Good morning. I think we talked pretty regularly about one of the--one of our areas of focus in Atlas is managing our fleet, and we've said, I think, managing our fleet aggressively. We did move from the--we moved the 200s out of our fleet and brought the Dash-8s into our fleet. And through CMI operations and passenger operations for the military, we now operate ten 767s where two years ago we had none. My belief is that the 747-400 pure factory freighter is an attractive asset.

You notice we placed just a couple of them in the last several months with Etihad and with Chapman Freeborne and with DHL, and I think the 747-400 will continue to be a competitive asset in the market. At some point as we think about our fleet, we will look to move potentially some of the 400s out and introduce perhaps additional incremental aircraft. But you said five years, and I think it is longer term, not near term. We're not looking to make a near term or immediate fleet adjustment.

The only thing we have said is that the BCFs are going to go back after they run off of lease and we currently do have one BCF part. That's flexible capacity, if you will, but I believe the 747-400 pure factory freighter is a good, attractive, high-contributing useful life ahead of it in the Atlas fleet and for our customers.

Obviously you placed a couple aircraft recently as you pointed out so you're getting questions about the planes?

Yes, we're in discussions with other customers about additional 747-400 placements.

Okay, good. Thanks. You said one and one follow-up. There you go.

Just to expand a little bit more, I mean, the 747-400, is the larger percentage of our fleet. It performs well. It delivers very good fuel burn, and there are quite a number of markets for that aircraft as a very attractive asset.

Okay, thank you.

Your next question come from the line of John Barnes with RBC Capital Markets.

A couple of questions on the fleet as well. First, I think there was an announcement out of Boeing or it flew under the radar a little bit, that they had four Dash-8s that came off the line that were due to be delivered to customers, they changed the tail numbers of those, and you had four Dash-8s that essentially got parked right off the line. Two things, number one, how concerning is that from--is that a big negative red flag that obviously there is still too much capacity in the marketplace, and I guess along the same lines you've talked about moving up in the order book and taking an opportunity at incremental Dash-8s. Does that present an opportunity to you, in that regard?

Yes, good morning, John. Well look, I think we have our order book of nine Dash-8s, and we're executing against that. We certainly have commented in the past that we have these options for up to 13 more aircraft, and we have a long window within which we could exercise those options and take more Dash-8s into the fleet as part of the overall fleet planning. We just talked about with Helane. There are some 747-8s parked.

I don't think it's an asset issue overall. I do think it may have to do with more with the customers of those aircraft, what their plans are and what the timing is for them. But for the eight that we've taken, they're performing well for our customers. They're delivering the fuel burns, the efficiency improvement that they expect, they're delivering the tonnage that they expect. And frankly that was all part and parcel of the conversation that we had with Etihad, our most recent Dash-8 customer, and Mr. Hogan referred to that in his quote today about, what do you expect this aircraft to deliver to his overall over all cargo operations. We think it's a great asset and so do our customers.

Along the same lines then, we've seen this with other asset-types whether it be things like barge industry or other asset types that when customers start to realize the benefits of the new asset, then the attractiveness of the older asset dissipates very quickly. And while I understand that the 400 is still the workhorse and it's still a very good asset do you foresee the customer life span of the 400. I'm not talking about what it can actually fly, and how long it can be in service, but customers' acceptance of the 400 shrinking given how good the economics have been on the Dash-8.

I think, John, if you step back and you look at it, I think it will take clearly some time before the 400 become -- I want to be clear, before the 400 pure factory freighter becomes obsolesced. There is a finite number of 400s in service, there's a finite number of Dash-8s delivered in on the order book. That's even true for the Triple 7. The MD 11s are in service but challenged, the 200s are essentially gone. In our own analysis we look at markets and, routes, and demand, and potential customers, suggests to us we'll have good utilization of our 400s.

Moving forward we've got to make the decisions around what the fleet composition should look like. Should there be more Dash-8s? If we want to retire 400s beyond the BCFs that will be exiting our fleet in the nearer term, when and how and what's the right form to do that? And we're in that process. But I also think we've increased the optionality for Atlas by moving into the 767 fleet within CMI operations. I think there is more CMI operations for us there. We could invest why in 767s, we haven't other than the three passenger planes we have to date.

And we have one now, Triple 7 freighter in our Dry Leasing business. We have a good -- a deep understanding of freight and international freight flows. We've created optionality in our fleet and strategic options for the Company as we go forward, and at some point that 400 is going to be a 20-year-old aircraft or more, then you're starting to get towards the end-- I won't say the end of useful life, but an inflection point on the contribution from the asset. But we're not there yet.

We certainly have time to work through our fleet planning and make choices for growth.

John, it's Spencer, I'll quickly add that as you know the 747-200s were flying a very long time after the 747-400s came out.

We operated a number of those for a very long time, and so did our competitors. It was not until fairly recently that those planes started coming out. They flew a very, very very long time and were a workhorse. We think the 747-400 similarly is quite a workhorse. As Bill talked about, we placed three of them with very strong customers very recently, and we're in discussions with a number of potential customers to place additional 400s.

All right, very good. Nice quarter guys. Thank you for your time.

Thank you, John.

Thank you, John.

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

Hey, thanks. Good morning, guys. I want to first ask about the Triple 7 that you took on and how we should think about you guys and that aircraft going forward. Would you think about it at some point starting to make a bigger investment in those, in ACMI, in those kinds of planes or does that not make sense?

We acquired the one aircraft, as we've noted and it's in Titan in our Dry Leasing business. It's got a good tail on the lease that's attached to it. And we've talked about potentially making more investments both in Titan and in particularly looking at the Triple7 asset. I think one of the strengths that Atlas has as compared to a dry lessor particularly with freight -- with freighters, pardon me. We can service and/or otherwise operate the aircraft. We have that ability to toggle should we think it's the right thing to do or should we need to.

So building on the discussions with John and Helane in the last several questions, we're evaluating the fleet. We're evaluating what the fleet make up should look like from a strategic perspective and thinking forward. We certainly could acquire more Triple7s for our Dry Leasing business. As we think about the ACMI market and other operations it could be opportunities for us to acquire and operate Triple7s in ACMI as well.

That's helpful. I want to ask--I saw a report last week about Qantas planning to return one of its 400s and I wanted to hear from you guys if you're expecting it to be one of their planes or all three of their planes. And then with that what is in the guidance? Are you assuming that you replace that Qantas plane with another ACMI or does that move into charter?

A couple of thoughts. Qantas did announce that they are going to internalize or operate this A freighter which would return one to us in 2014. That's not a 2013 event. Perhaps going back to John's earlier question, I would point out that they have leased a 747-400 freighter as opposed to an other aircraft type so that aircraft typecertainly works for them in the routes that they choose to operate.

I believe we will continue to operate for Qantas going forward but if you look back at the history of Atlas now over 20 years, customers change over time. Several have grown recently. Others have reduced the level of business we have with them, but I think that's pretty normal in most any other business. Customers, while we would like them to be forever, aren't always forever.

If you think about where the fleet is today and even going back to Kevin's question about growth and where customers are headed, we've got, sticking with the pure -- the large wide bodies we have nine with DHL, three with Qantas, three with BA. Two now with Etihad, one with Chapman Freeborne, and two with Panalpina. Emirates, who was a long customer of ours has returned the last aircraft that we had with them. That is and was in our guidance as we said, 20-plus. And our view is at end year we'll be 20-plus aircraft at end year 2013 and into 2014.

Okay, that's great. And just one last thing if I can on the maintenance side. You lowered the guidance for maintenance by $20 million. What is the offset there to keep the net income guidance unchanged, and then is that maintenance that you think permanently goes away based on efficiency or should we think about that getting pushed out to 2014.

Scott, it's Spencer. We also lowered our block hours. We lowered our block hours primarily in commercial charter. You'll see that impact as well, as the maintenance impact. We affirmed our guidance, you're right. There are other offsets that offset the maintenance expense.

As far as whether that goes into the future as we talked about earlier we're putting in place a number of continuous improvement initiatives that will permanently reduce our expenses some of which are in the area of maintenance, and some of those will be permanent. So others are simply based on timing because maintenance is due when it's due, and needs to be incurred when it has to be. There will be maintenance reductions but I want to point out that it doesn't necessarily mean that if you're modeling going forward, you have to model the impact of plane by plane, engine by engine, and what their maintenance schedules requires.

All right, thanks guys, appreciate it.

Your next question comes from the line of John Godyn with Morgan Stanley.

Hey guys, thank you for taking my questions. It wasn't that long ago when you used to talk about a $20 million annual contribution for each Dash-8 in ACMI, and I believe there is a $6 million contribution for each Dash-4 in ACMI. I was hoping given the market dynamics have evolved with the themes that we've been talking about on the call on saturation of Dash-8 freighters and substitution of Dash-4 freighters as well as the evolution of maintenance costs. Are those still the right numbers to be thinking about as we model ACMI for the next few years here, or are the incremental deals you're signing very different from those levels?

Yes, thanks John, good question. As far as the Dash-8s go, I think we affirmed last quarter that in the early years the Dash-8s certainly are delivering about $20 million of pre-tax income. It declines a little bit in the next few years primarily because of C-checks and line maintenance. But years three and four are still in the neighborhood of say, $18 million to $19 million. Yes, those numbers are holding up Dash-8 profitability is doing extremely well.

We're really pleased with the investments we've made in those fuel efficient assets. They're really paying off. As far as the 747-400s we traditionally talked about a pre-tax on a direct contribution basis of between $5 million and $7 million, and they remain in that $5 million to $7 million. So we're continuing to go see strong performance from both.

As we think about modeling the next handful of years, how long do you think--or how do you think about how many cycles it takes before the Dash-8s converge to the Dash-4s in incremental contribution?

It will take some time, John. If you step back and you think engines are coming -- engine maintenance-- heavy engine maintenance comes at 5.1years, 5.2 years. D-check at 8 years. There will be C-checks through the cycle, and line maintenance may increase slightly as more cycles occur and years go by, but not dramatically. Those aircraft will clearly perform for some time. That's beyond, in my mind, the fleet planning window that Helane was asking about over the next five years. Certainly a good run of time for this Company to think about its business, its mix, its segments and its fleet.

Got it, thanks. And if I could ask one more, when you think about signing up ACMI customers, what kind of return hurdles do you apply for those leases?

Well, we've talked about, you know, thinking about what other returns we've generated on the 400 fleet. And the 400 fleet, combination of the lease plus the revenues, and earnings on service from an IIR perspective have been in the 20% range. We said that our Dash-8 fleet is going to produce in excess of that, and I think we were saying something approximating 24% or greater. Particularly now with the excellent financing that has been put on a fair number of assets in the fleet.

We believe those are the numbers. Again, and that triangulate back to the numbers that Spencer just reviewed on the $20 million that may drift towards $18 million, $19 million over the next couple of years and the $5 million to $7 million over the life of what we generated with the 400, I think those numbers will true up as you think about it.

Great, thanks a lot, guys.

Thank you, John.

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

Hi Bill, Spencer. Bill, you were pretty optimistic, or favorably inclined anyway towards cargo--commercial cargo demand in March and going into the second quarter, but you've reduced your estimate for the year by 10,000 block hours in that sector of the business. I'm curious as to why--why you're less optimistic than you were three months ago.

I think-- well, we are optimistic about the freight market over all, David. We're seeing growth, well, we're optimistic about our business within the freight market, and we're optimistic about the freight market, and to come back to what we talked about earlier. Our key customers are growing at-- are growing even in quarters where the market is not, and their growth overall some multiple of what overall market growth was, and that's what drives Atlas' business particularly in our core ACMI.

That's what is driving to utilization, our ability to place and the earnings we derive from that. We tempered our view on commercial charter markets, but it's still overall growth, and some of that is tempered by I would say, some of the experience, David, of recent or last quarter product introductions that didn't have the up take that they had. We tempered that. We certainly focused on cost to make sure we're delivering the earnings that we said we would deliver, but we have that capacity available to us should the market spike greater than what our expectations are or greater than what current-- what general thoughts are about the market.

So it's not-- it's not based upon company surveys or your surveys of forwarders or anything like that in terms of what they think the fourth quarter demand will be?

Oh, it absolutely is. No we're saying ACMI is 77% of our overall flying, and that we did take commercial charter down to something more like 13% from I guess that would have been 14%, maybe 16% above. But we're talking to all the major freight forwarders, and charter brokers on a routine basis. The very large freight forwarders, as you know, Panalpina is a customer, Chapman Freeborne is now-- was a charter broker customer, now is an ACMI customer, so we have dialog with them on a regular basis. I don't think anyone is calling an inflection point.

There is in the market quite a good level of discussion about product introduction, about flying between now and mid-July when it tapers off before the peak begins again later in August. What we're calling for is growth certainly in our ACMI segment, in our commercial charter segment. We've tempered that a bit and we're addressing cost and other areas of productivity as a result. Yes, it is about discussion. It is based on discussions, but the charter brokers, freight forwarders, and of course our ACMI carrier customers who have their own discussions as well.

Okay, thank you very much.

Thank you, David.

Your next callcomes from the line Jack Atkins with Stevens.

Good morning guys, thanks so much for your time. To start off, if we could go back to the ACMI segment for a moment and your expectations for 2013. I think it would be helpful to know how many planes are currently being remarketed because you talk about the Emirates planes that have been returned to you and I know we'll have the Qantas plane coming back later this year. How many planes are being marketed for release in the ACMI segment that currently don't have a home, and then what is your expectation for the number of ACMI aircraft in the core ACMI business that will be flying for the remainder of the year?

So Jack, we've said 20-plus, and I went through the numbers just a moment ago, the placements by customer, that's at 20 right now, and 20-plus for 2013 is our forecast. The Qantas aircraft, when it does come back is in 2014, not in 2013. Our aircraft other than one BCF all have a home. They're flying either in ACMI or they're flying in commercial charter. The BCF we talked about last quarter, given the level of charter demand, it made sense to us to park that. It's available for air-- to fly should we need it, should the market snap back. We haven't changed our guidance on the number of aircraft flying and the number of aircraft flying, excuse me, in ACMI, and what we expect to fly at the end of 2013 coming into 2014.

Okay, that's helpful commentary there. And then with regard to the maintenance expense reduction, when you look at the different buckets that that expense falls into, I noticed a pretty significant reduction in the number of engine overhauls. My thought was that in the past that was more of a function of the number of hours you put on the aircraft not something that could be moved around. Just curious what drove that reduction, and then how much of the reduction of maintenance expense is more fewer block hours versus better procurement on the maintenance side?

Your point is right, you can't-- when aircraft engines need to be maintained as we've always said, our maintenance conditions-based. So when they need a shop visit, or a hospital visit, or an overhaul, they need it. You can't punt it or decide to defer it. You have to do it. So some of the maintenance expense is, indeed, conditions-based as Spencer said, it has to be.

And so we've taken the maintenance forecast down this year to $171 million, but certainly some of the savings in maintenance this year is the result of the continuous improvement initiative that we've implemented with our focus on cost reduction and productivity. That requires a bit of a more detailed explanation, and that's something that we certainly intend to address at our investor day here later in May, but clearly some of that savings is permanent, and it is-- it is as a result of continuous improvement, and we'll-- we'll want to spend time talking to you and other analysts and investors later in May when we get together.

That's great. And one last quick housekeeping item. Spencer, what is the correct share count to use for the second quarter?

Second quarter, we're at on average basis we're at about $26.4 millionfor the first quarter. That number will be lower because of the share repurchases during the first quarter. I don't have that math at my finger tips, but it will probably be somewhere between $26.4 millionand about $26 million. So somewhere just above $26 million.

Okay.

That's very helpful. Thanks so much.

Thank you.

Your next question comes from the line of Jason Ursaner with CJS Securities.

Good morning.

Good morning, Jason.

First wanted to ask about military cargo. If you can repeat anything you said on the outlook for the full year and if there was anything seasonal about the 1900 block hours in Q1, and how that should trend seasonally going forward.

When in military said 18,000 hours about 10,000 hours would be passenger, and 8,000 hours would be cargo. So 1900 is close to a quarter. Based on the estimates we have, and the work that we have, excuse me, the ongoing dialogue that we have with the military, we think that 8,000 hours for the full year of 2013 is the right number.

Okay. I just want to try to follow up on the question from before about reconciling the full-year guidance with the revised outlook for maintenance. It's being revised down over $20 million, and it had been the single larges factor contributing to the view on flat year-over-year performance. So obviously it's not a small change, and the previous guidance has been given in February, so I guess I'm unclear in that short of period of time, A, How it changed so rapidly, and, B, What the offset would be given that it's over $0.50 on a full-year basis and $0.20 just in the quarter alone?

So as we enter the beginning of 2013, Jason, clearly we have our view on the market. But also we had our view on the things that we can control. The market we can't control. Demand is what demand is going to be. We looked to provide-- the right assets and the highest quality of service we can to our customers, secure our customers, and grow as our customer grows.

But we also stayed very much focused on cost and productivity. We implemented a number of initiatives at the end of the year that have gained good traction, and are delivering bottom line benefits to us through this initiative called continuous improvement that has many sub component parts to it. We've been able to achieve good cost savings and good productivity gains that have offset or offset to some extent the softness in the market, and we have capacity available should the market up tick this year in the second half, and be able to go out and capture it. Spencer, you might have some additional perspective on that.

Yes, I think that's-- I think that's right. Our continuous improvement initiatives, we are focused all across the organization, numerous areas. We're looking to focus on cost efficiencies, and as you noted, there is some softness in the market. We lowered our commercial block hours as Bill just said. But we've been able to offset that with our focus on efficiencies. So a lot of the maintenance reductions, you'll see will be on a permanent basis, and we've been extremely focused on this, Jason, and during the period from last earnings call to this earnings call we were able to put some things in place that allow us to lower our maintenance forecast.

Okay, great, appreciate it. Thanks, guys.

Your next question comes from the line of Mark Reber with Foundation Asset Management.

Hey guys, thanks for slipping me in. I just have a question -- just trying to understand the interplay between AMC Charter and the commercial charter business. It was something about -- the charter cargo block hours were down 1300 hours and the commercial charter was up about 1000 hours. I have seen a piece of it, I think you talked about it in the past, the loss of the one-way routes covering the back haul to Asia. As you think about, you added $14 million in commercial charter in the revenue but your direct contribution declined $10.5 million. So as you look at 2014, what are you anticipating for in the military cargo business and what are your options for replacing the one-way business that you had covering you to Asia, and how should we think about any profitability impacts from that.

Thank you, Mark, we talked quite a bit that military cargo would indeed come down, and it has. And of course it's all driven by boots on the ground, and so it will--military cargo will continue to contract beyond the 8,000 miles as we come into 2014 and beyond. We've also talked about offsetting a large part of that impact through, in the near term, the passenger business, military passenger and that, indeed, has happened. That will come down as well, but less because we'll still have a fair amount of troops outside of the US, more so in the Pacific than in central command, but that will continue. Commercial charter is more seasonal and operates to a different market demand than certainly military does. First quarter is the seasonally weakest quarter of the year in commercial charter.

It's also while our maintenance is less than we had expected it is the quarter where we performed the majority of our maintenance. We have a larger number of aircraft allocated into commercial charter, so that fleet in charter, if you will, the virtual fleet in charter is bearing a higher percentage of the maintenance cost over all. We also said ACMI is 70% of the business and growing. So full year we expect commercial charter to be profitable. We certainly look for opportunities to position aircraft into Asia to maximize the yield-- the achieved yield and return on this businesses. And there are opportunities.

Moving heavy-- moving manufactured goods and materials for oil refining and resource extraction anywhere into the Middle East, anywhere into Africa or Near East Asia gets the aircraft within six, seven hour positioning flight into Asia. We're pursuing that and we'll continue to develop that. I think the commercial charter results this quarter do indeed reflect the seasonal nature of the commercial charter and all commercial markets overall and reflects our maintenance strategy as well.

Okay, great. Thanks for taking my question.

Your next question comes from the line of Chris Robertson with Cardinal Capital.

Hi, I just wanted to clarify some math to make sure that I heard everything correctly. With the EPS guide up that was essentially related to the share repurchases, and that with lower maintenance expense forecasted I'm assuming that that's just a function of flying less commercial charter, for example, and therefore getting less revenue there. And then I wanted to see how you look at the market in general as it relates to the price at which you can market a 400 given that currently people are able to acquire 400s for lower rates and therefore operate them, I would assume, at a lower rate than you could, and how that is impacting your search for new 400 customers.

Why don't I take the first couple of those? Chris, your first question was about our earnings per share guidance. And so yes, our guidance on an operating basis is the same. We've affirmed our guidance, but $0.15 additional per share is related to the actual and expected share repurchases. And so we've taken our guidance from $4.65 to $4.80 as a result of share repurchases. With regard to maintenance, I think we've talked a lot about the maintenance, and so I think you're asking if we've taken maintenance expense down, what is offsetting that, I think is your question?

Correct.

To get to a similar EPS range? We said we took 10,000 -- we reduced our commercial charter block hour forecast by 10,000 hours so that comes down as well. There is a softer commercial charter yield environment as we've seen in the first quarter, so there are some offsets to that. Our continuous improvement initiatives are extremely helpful which allowed us to affirm our guidance and raise it for the shares repurchases.

So in the market, Chris, if we were simply a dry lessor of aircraft, it could be a race to the bottom on the monthly lease rate for a BCF or the lease rate for an older 400. But with the 400 that's not the market we're in. We're in the ACMI market. Yes, the underlying cost of the aircraft and the A component of the ACMI rate is important.

But what Chapman Freeborne, for example, was a acquiring when we entered into the ACMI contract with them, what Etihad acquired when we entered into the ACMI market for them with the 400,was the CMI scale, the scope, the service, and the other capabilities that we bring to bear as a package. And Spencer was asked a question earlier in the call so tell me about your contribution on the 400, is it still on the range that you historically talked about? The answer is yes.

We're able to place the 400s at the kind of earnings that we've described-- at the earnings we've described, not kind of, at the earnings we've described because it is ACMI and not just a straight dry lease. We are in additional conversations with other customers for the 400s, and I believe we'll place 400s this year with our customers at the kinds of returns we're discussing.

Thank you for that. And the second question I had, I don't know if you saw the article in the Journal the other day about the Dash-8 and 400-- 747 in general that that might be shorter lived on the Boeing production line because of the extended Triple7 they're talking about, and clearly you are talking about looking at Triple7s as an opportunity. Would you be able to frame that for us, and whether that could end up being a good thing for the Company with less Dash-8s over the course of the program?

Sure. I did read the Wall Street Journal article. I think a lot of the focus was on the 747 Dash-8I, the intercontinental.

Which is the passenger version.

Excuse me. Thank you, Spencer. Which is the passenger version. And talking about the market acceptance of the passenger version. The Triple7-8x and/or Triple7-9x are probably a couple of years away. So that's a planning horizon, I think we'd want to factor in. Focusing on the 747-8 freighters. We'll have nine, and we have options to buy more. The aircraft is performing well, leading the expectations that our customers have around fuel burn and around load. So a smaller fleet of Dash-8 freighters isn't global fleet that is, I think you're hinting at isn't there a scarcity value on a fuel-efficient, modern asset like that? I believe there is. I believe that scarcity value will [inure] to our benefit and certainly benefit our customers going forward in the market.

Thanks. I appreciate the time. If I could ask one date question before I let you go. When were the two remaining Emirates aircrafts, when did those leave the books, so to speak? Thanks.

The most recent one was in March.

Was that the last one.

Yes.

As I talked about earlier, our customer relationships change over time. We've had a lot of growth with a number of customers, but as I think most of us know back in 2006 Emirates placed an order for a very large fleet of aircraft. And we've continued to operate with them over these past seven years. So it's certainly been in our planning horizon that ultimately they would internalize their fleet, wholly. And they have.

Chris, customer relationships as you know change and evolve over time. We expect that Emirates will continue to be a customer of ours.

I appreciate the time. That was a bookkeeping one. Thanks.

Sure.

The next question comes from the line of Bob McAdoo with Imperial Capital.

I just want to go back over the commercial charter thing one more time. I understand what you said about trends and how maintenance might have been a little heavier in the first quarter. And if I understood what you're saying because you had extra airplane time available, that the maintenance that went on those planes got charge to commercial. I'm trying to understand in my head why in the first quarter of commercial charters did not make a positive direct contribution? It was actually a meaningful negative, and how we should be thinking about what that contribution level should be on a per hour basis going forward for the rest of the year.

Sure, Bob, it's Spencer. I tell you withregard to commercial charter, this was the first quarter, the seasonally weakest quarter which typically has the lowest demand for the year. We had a lot of maintenance expense and so as you pointed out we had a lot of maintenance expense allocated to the commercial charter segment. On a full year basis we expect all the aircraft in our commercial charter segment will be profitable. You're asking about level of profitability. I think probably single digit direct contribution margin in the commercial charter segment is probably the way to think about it. Last year that segment had a direct contribution of about 7%, and I think we'll see this year, but probably a little bit less than that, but somewhere in that neighborhood.

So I am correct that commercial charter in the first quarter got penalized, and got more than it's pro rata share of maintenance for the year because that's where the spare time was, and it's the time of year where you do maintenance, is that a reasonable way to think about it?

I don't think any of our businesses get penalized, Bob. The costs are allocated the way they should be. When you look at the segment profitability, that's where it landed. I don't want you or anyone else to get too excited. It's the first quarter. It's the seasonally weakest quarter. We expect that segment will be profitable for the year.

And costs are allocated on a number of tails in the segment so that you can see and understand the allocation. I think we have a good description of that in the K and in the Qs.

All right, very good. Thanks.

Ladies and gentlemen we have time for one more question. Your final question will come from the line of John Mims with FBR Capital Markets.

All right, good morning. I guess good afternoon now. Thank you for squeezing me in. I jumped on a little bit late. Spencer, let me ask you, on the guidance, going back to this buyback. When you are guiding to $50 million for the year. You put in $36.5 million and that's $17 million in the first quarter about $19 million for the second quarter, when you've got $500 million in free cash for the year as your guidance, why not use the full-- isn't the full authorization to $100 million? Because if this is implying there is only 13.5 million left that you're going to buy back this year is what you put in your guidance.

Sure, John, so we had originally-- there was approval from the board for a $100 million program back in 2008. $18.9 million of that was repurchased. And then as you talked about, we repurchased $36.5 million thus far. That leaves under that board authority that leaves about $44.5 million. We have yet to determine the exact amount of a share repurchase this year.

But what we said was for guidance purposes and forecasting purposes we have assumed that the share repurchases this year would be approximately $50 million, and if they are more or less than that amount, the guidance, the results would change accordingly. Your question is why not go for all of it now? There are a number of reasons. We will make that determination.

It could be higher than the $50 million. It might not be the $50 million. It depends on a number of factors. We're constantly looking at this. We are absolutely focused on investing in the business. We are insuring that we maintain a strong balance sheet, and we also want to return capital to investors.

We want to show investors that we're committed to supporting the stock over the long term. I'm sure you know, John, there are all sorts of requirements about minimum levels that can be repurchased, 10B-18 rules and so forth, and we watch all of that very closely, and we'll be careful about how we buy the stock back.

Sure, no, that's helpful. That's just a question I've been getting a lot, as far as can you be more aggressive with the buyback? Would you consider a dividend? Is this the right--you purchase the one Triple7, but are there enough investment opportunities in this market to justify not doing the dividend or more aggressive share buy back given this-- given where your balance sheet is and cash flow.

Yes, thank you for that. On another note, just quickly, looking near term on the commercial charter business, have you seen any impact positively-- any positive impact from the strikes in Hong Kong as far as supply chain disruptions? The port strikes there have been going on for five weeks. Has there been any shift to air freight just as supply chains have been twisted and disrupted because of that, or has it been a non-event from your side?

We've seen a little bit of shift, but not meaningful. You know there, is a disruption in Hong Kong, as you well noted, and that is still probably the largest single container port in the world in terms of annual TEU throughput. But there is the ability to ship up into Guangdong province, out of Yangtian and then ship -- if you think about where things are made -- where things are made they can be diverted from within Guangdong province and further to the west come out via Zhuhai and the Pearl River delta. There has been perhaps a little bit of it but at this point not meaningful because of the alternative ports of exit available to the Chinese manufacturers nearby.

That's helpful. Let me jump back to the buyback quickly. Do you have, as far as this authorization and getting the Board to extend the authorization potentially, how much does opportunistic share buying, looking at where the shock is trading now, how much does that play in to how much leeway you get and how aggressive you can get versus your broader capital thoughts in terms of do we buy planes because planes are cheap now or do we buy stock because stock is cheap now? If you could just help -- some color on that, on that thought process would be helpful, thank you.

Sure, John, you're right, all those things are extremely important. Ultimately those are all things that the Board management consider. We think about returns on all of our investments whether we invest in the Company, whether we invest in other assets. Obviously the low share price right now is something that we see that we consider. The extremely low multiples that the stock is trading at, all those things play into that. We think we are very aggressive during the first and then into the second quarter with the accelerated share repurchase program that we implemented and we think we'll continue to look at all of those uses for our cash, we'll evaluate all of that.

I don't think this Company has made a bad investment. We've been very smart about every investment that we made. Our extremely efficient fleet has done incredibly well both for the Company, for its investors and for its customers. We'll be smart about those assets. We'll be smart about investments that we make in the Dry Leasing space, and we'll be smart about any decisions on share repurchases.

Sure. No, that's helpful. I see the way the stock has traded despite how aggressive you've been in the first half of the year there has been more sellers than buyers in the last two months. I don't know if that gives the wrong signal to say that suddenly-- or if it appears that way now that looking forward for the rest of the year that you would back off some on that pace given that the stock is still--

I wouldn't characterize it as backing off. What we wanted to provide was an assumption that you and others could look at so we could talk to among other things an earnings per share. Without that assumption it's somewhat nebulous. And so what we've said is we're authorized up to $81 million under the current authorization. We've bought back $36.5 million. For today's call and today's release, and our current discussion, let's use $50 million as a reasonable assumption, and what does that do to earnings per share, and it also allows us the opportunity to talk about that as well as do what we did, reaffirming our guidance for 2013.

Sure, that's very helpful. I appreciate it. Thank you for the time.

Thank you, John.

Thank you, John.

There are no further question.

Okay thank you very much, Operator. Spencer and I would like to thank all of you for your interest in Atlas Air Worldwide and certainly for your participation and I think a good question and answer session we had after our prepared remarks. We certainly hope those of you who can will indeed join us for our investor analyst day on May 30th, and if you cannot we hope you'll listen to the webcast. Please contact Dan Lowe in Investor Relations for any more information. And we look forward to speaking with you again soon. Thank you very much.

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