Atlas Air Worldwide Holdings Inc (AAWW) 2015 Q1 法說會逐字稿

Good morning. My name is Phoenix 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 conference call. (Operator Instructions) I would now like to turn the call over to Ed McGarvey, VP and Treasurer. You may begin your conference.

Thank you, Phoenix, and good morning, everyone. Welcome to our first quarter 2015 results conference call. Today's call will be hosted by Bill Flynn our President and Chief Executive Officer. Joining Bill is Spencer Schwartz our Executive 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 downloaded 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 Investor Information section on 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 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 2014 form 10-K as amended or supplemented by our subsequently filed SEC reports. Any references to non-GAAP measures are meant to provide meaningful insight 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 in our website at Atlas Air.com. During our 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 have gone through the queue we will be happy to answer any additional you may have as time permits. At this point I would like to turn the call over to Bill Flynn.

Thank you, Ed. Good morning, everyone. We thank you for joining us today. Beginning with slide three, we are off to a very good start in 2015, and we look forward to a strong year. We now expect our full year results to increase significantly compared with 2014. Earnings in the first quarter reflected our diverse business mix, ongoing demand for our aircraft and operating services, and continuing improvement in the global air freight market. Adjusted EPS in the first quarter totaled $1.03 which is more than double the $0.45 cents we reported in the first quarter last year. We are well positioned to capitalize on the demand for air freight in the trans-Pacific region and other trade lanes, as well as better than expected military cargo and passenger demand.

Results in the quarter also benefited from revenue from maintenance payments related to our dry leasing portfolio, our leadership position in ACMI, and the start-up of three additional 767's in CMI flying for DHL in North America. We also added a fourth 767 for them in April. In total, we now operate nine 767s for DHL in North America and two in the Asia Pacific region. Slide four illustrates the continuing positive direction of air freight demand. Shanghai's PACTL terminal, for example, posted a record first quarter in 2015 following a record year in 2014 with reported first quarter tonnage growing approximately 13%. IATA has also reported that international air freight traffic grew 8.2% in the first two months of 2015, partly reflecting port conditions on the U.S. west coast. For the full year IATA expects international freight traffic measured on a freight tonne kilometer basis, to grow at a 5% rate compared with 4.8% in 2014.

In addition, IATA estimates that international air freight traffic will grow at a compound annual rate of nearly 5% for 2019. Slide five focuses on our earnings framework for 2015. We anticipate significant growth in adjusted EPS this year. As the commercial air freight market has grown our business initiatives and investments have positioned Atlas to be a prime beneficiary. We are encouraged by our strong first quarter performance and continue to have a favorable view about the prospects for overall air freight environment and the demand for our aircraft and services. As noted, forecasts indicate that global air demand will grow approximately 4% to 5% in 2015 outpacing projected growth in global trade. We expect our block hour volumes this year will increase 5% to 10% compared with 2014 with more than 70% of the total in ACMI and the balance in charter.

At the same time recent military demand is holding up well compared with 2014 levels. We are seeing good air freight demand in the second quarter of 2015. On a sequential basis we expect earnings per share in the second quarter of 2015 to be slightly better than our first quarter 2015 adjusted earnings. We also anticipate sequential increases in our third and fourth quarter earnings per share. Visibility into second half air freight demand and yields remains limited at this point, so we will continue to update expectations about the second half as the year progresses.

Taking our current framework and expected first half earnings strength into account we expect approximately 55% of our earnings to occur in the second half. Given anticipated higher flying levels we now expect that aircraft maintenance expense should total approximately $190 million. Depreciation expense for the year should be approximately $125 million, while core capital expenditures, which exclude aircraft and engine purchases, are expected to total approximately $40 million to $45 million for the year. This is mainly for spare parts for our fleet. In addition, our effective income tax rate should be approximately 28% to 30%. We do not expect to pay any significant federal income tax until 2020 or later.

This is a good point to ask Spencer to provide you with some additional perspective on our first quarter. Following Spencer, I will provide some additional thoughts and then we will be happy to take your questions. Spencer?

Thank you, Bill. Hello, everyone. Slide six highlights our first quarter results. Our adjusted net income totaled $25.7 million or $1.03 per share. On a reported basis, net income totaled $29.2 million or $1.17 per share. Results from the first quarter benefited from our diverse business mix and improved contributions in charter and dry leasing. During the quarter we generated free cash flow of $80 million or $3.20 per share compared with $37 million or $1.47 per share last year. Our reported results in the first quarter included an effective income tax rate of 19.4 %. That reflects an income tax benefit of $4 million related to beneficial tax planning regarding the treatment of extra territorial income from leasing certain of our aircraft.

Looking at slide seven, higher operating revenues in the first quarter were due to our business mix., and our ability to use our aircraft to take advantage of the strong charter market. The substantial rise in our charter segment revenue was mainly driven by increases in both cargo and passenger flying, partially offset by a decrease in revenue per block hour reflecting the impact of lower fuel prices. Higher block hour volumes and aircraft utilization primarily reflected an increase in commercial cargo demand which was enhanced by congestion issues at ports on the west coast. Both the global and trans-Pacific supply chains were active during the period with the automotive sector, perishables, and the retail and fashion industry adding to the tempo of cargo traffic between Asia and North America.

In addition, our charter revenue benefited from an increase in military cargo and passenger demand. In dry leasing, revenue growth in the first quarter was primarily due to the recognition of revenue from maintenance payments related to the scheduled return of a 737-800 passenger aircraft in our Titan portfolio. As our dry leasing business is still somewhat new, this is the first time that we had revenue from dry lease maintenance payments which can occur at the end of an aircraft lease.

Going forward we expect Titan to generate additional revenue from maintenance payments as it manages its portfolio. Any amounts will depend on the lease terms and condition of the aircraft upon redelivery, et cetera. ACMI revenues during the quarter benefited from an increase in block hours driven by the start up of three additional 767 CMI aircraft and improvements in ACMI aircraft utilizations. These were offset by a reduction of revenue per block hour reflecting higher revenue per block hour in 2014 resulting from customers that flew below their contractual minimums.

The impact of payments received in 2014 related to a customer's return of aircraft and an increase in CMI flying in 2015. Moving to slide eight, segment contribution totaled $86 million in the first quarter compared with $50 million in the first quarter of last year. The pie charts at the bottom of the slide highlight the strong contributions from our charter and dry leasing segments in the quarter, as well as a significant proportion of contribution from our ACMI operations. Contribution in charter was driven by an increase in cargo and passenger revenue and by an increase in aircraft utilization reflecting higher demand.

Charter results also benefited from lower fuel costs and a reduction in heavy maintenance expense. In dry leasing the increase in profitability was primarily due to revenue from maintenance payments that I previously noted. Turning to slide nine, in our balance sheet we ended the first quarter of 2015 with cash, including cash equivalents, short-term investments, and restricted cash, totaling $375 million. That compared with $331 million at the end of last year. Our cash position at March 31st reflected net cash of $91 million provided by operating activities in the first quarter.

That was partially offset by net cash of $52 million used for financing activities which was primarily for debt payments. Net cash use for investing activities in the first quarter primarily related to the purchase of engines and rotable spare parts, offset by proceeds from the disposition of aircraft. Excluding the acquisition of aircraft engines, our core capital expenditures in the quarter totaled $10 million. As slide ten shows, at the end of the first quarter, our net leverage ratio which includes capitalized rents, was five times trailing 12-month EBITDAR, including the benefit of our investments and our outstanding WTCs. That's down from six times at March 2014, 5.45 times at December 31st, primarily driven by the pay down of outstanding debt. During the first quarter of 2015, we paid down approximately $51 million of our overall debt.

Now I would like to turn it back to Bill.

Thank you, Spencer. As reflected on slide 11, we are confident about the outlook for 2015. Our strong and dedicated team is well prepared to leverage our competencies in market leadership this year and beyond. Our fleet is modern and efficient. We provide innovative value-added services. We operate a diversified resilient business model, and we have a solid financial structure. We are focused on seizing strategic opportunities, executing on initiatives and shaping a powerful future. With that, Operator, may we have the first question, please?

(Operator Instructions) Your first question comes from Kevin Sterling of BB&T Capital Markets. Your line is now open.

Thank you, good morning, gentlemen.

Good morning, Kevin.

Dang, congratulations on a really strong quarter. When I look at your updated guidance, with about 45% of your earnings growth coming in the first half of the year, obviously that's stronger than in years past. As you look at the Q2, what in particular are you seeing that gives you the confidence the strength we saw in Q1 will continue? Maybe you can share with us some of your customer conversations, et cetera? Bill, maybe, highlight what you are seeing that gives you that confidence at least as it looked in Q2 for your guidance.

Thanks very much, Kevin. I think the real underlying story here is the continued strength in the international air freight market. We saw really solid growth in 2014. We are seeing good growth in 2015 and beyond. Even as we factor in or factor out the impact of the west coast work issues. We are seeing that growth pretty much broad based across most major trade lanes. And so we participate in that growth as a result of our ACMI operations with all of our customers, many of whom have a track record at growing greater than market over the last several years particularly when we didn't see much growth.

Our charter business is strong and again certainly we took advantage of the issues on the west coast, but we also saw very good strength in other trade lanes including South America, Africa, and other point-to-point operations in that business. Our conversations with -- just another data point, for example, Q1 we operated -- our customers were operating at 4.2% above minimums which contrasted with 2.9% below in Q1 of 2014. The schedules that our customers have given us for the flying this quarter, and as we are now into the IATA summer season, we are looking at the schedules we have for the balance of last year. There are discussions about peak already in the market as we think about 2015 or so. We think the strength is broad based. I will caution as we said in my comments we still have some limited visibility or limited visibility into second half. But I think overall the market feels pretty good and we are well positioned to take advantage of it.

Got you. Thanks, Bill. And, Bill, given the west coast port disruptions -- I would like to follow-up on that a little bit. Given the west coast port disruptions, are you seeing maybe a shift to air freight that might be a little more permanent than say in years past, particularly when you count for the drop in fuel prices as well?

I think That's a really insightful question, Kevin. I think the west coast port issues have caused major companies to rethink their global supply chain. That doesn't mean they're just going to wholesale go from ocean to air, but to digress for a moment, with an ocean, certainly companies will be thinking about re-aligning their supply chain to include gulf and east coast ports. But I think also realigning their supply chain to think about how better to use air or how much more air might make sense, particularly given fuel as you pointed out. If we are in a $60 to $80 range on fuel in some period of time that certainly favors air freight or makes air freight more attractive. As companies begin to think about critical failure points in their supply chain. So I think we could see some shift from freight from sea to air and That's something we will continue to monitor.

Got you. Thanks for the color, Bill and on the military side are you seeing more freight or passenger flying? And what is the mix and how do you think the mix will shake out as the year progresses?

Well, certainly -- from the military operations, 90% of passengers fly on commercial aircraft. That won't change. It will always be an important part of military flying. In terms of the cargo side, we have seen better than we expected, something more consistent with prior years. And even on a go-forward basis as we move past crisis in conflict that we are seeing today, I think there will always be a base level of military flying for cargo in part because the cargo side of craft is an essential part of the country's crisis plans. I think the AMC in particular will want to have cargo carriers flying some base level of operations of continuing basis just to ensure the craft carriers are ready and inter-operable for when they are really needed in a time of crisis, for example.

That's all I had. Thank you so much for your time today. And once again, congratulations on a very strong quarter.

Thank you, Kevin.

Your next question comes from Jason Ursaner from CJS Securities. Your line is now open.

Good morning. Congratulations on a great start to the year.

Thanks, Jason.

Just wanted to start in ACMI. Revenue and direct contribution were both down a little bit year-over-year despite the one extra plane and higher block hours. Spencer, you mentioned a couple other factors from last year. I would have thought it might have been a an easier comp with British Air winding down. So maybe you can just go through those again and if there is anything to add there to help understand the quarter performance year to year.

Sure, Jason. There were several things going on in the first quarter that made the first quarter comparison a little bit unusual. The first is we had higher revenue per block hour in 2014 because customers flew below their contractual minimums. As Bill said, our customers this year on average flew 4.1% above their contractual minimums. The first quarter of last year they flew 2.9% below. So that really inflates the rate on an actual revenue per block hour basis. That is a key part of it. It is also due to mix. Our CMI flying has certainly grown. We now have 18 aircraft that we are operating on a CMI basis.

That is up from last year as you noted. That mix certainly has an impact on both rate and volume with additional craft and block hours in the CMI portion of ACMI. And then from a contribution standpoint it is really a first quarter issue. We expect our ACMI earnings for the remainder of the year to be much more consistent than what you are used to and what we saw in the prior year.

And just a follow-up to that, maybe you can remind investors, incremental direct contribution in the ACMI segment, how do you guys generally think about that internally? And if you look out to the balance of the year with a strong outlook and above minimum flying already in Q1, just what does that do to the incremental margin when you are flying above minimums there?

Sure. So we want our customers to fly as much as possible, of course. We have modern efficient assets. Bill talked about the low fuel rate environment which really helps our customers want to fly more with the assets that we have. So when customers fly above their minimums that accretes to the bottom line pretty easily. We certainly want to do whatever we can to get our customers flying more. And the performance we saw in the first quarter, obviously it was very different than the first quarter performance we have seen in prior years. As Bill said in large part it was due to the west coast port congestion. But it is much more than that. We have seen a broader market pick up, so it is not just that.

I'll go back in the queue and give some others a chance. Great quarter, guys.

Thank you, Jason.

Your next question comes from it Jack Atkins of Stephens. Your line is now open.

Great, thanks, guys. Just a couple questions here and I appreciate the time this morning. Spencer, just to piggy back on what you just said in your last comment there and what Bill was saying earlier, it certainly sounds like underlying air freight demand even outside the trans-Pacific which clearly benefited from the west coast port congestion, is doing much better this year. When you look at the economic data points, it is mixed in some areas. Europe is doing better, but it is not exactly a rosy economic picture in terms of what's happening. So just sort of curious if you can maybe comment on what do you think is really -- maybe two or three things that you think are driving a better outlook for air freight this year than what we have seen in the last several years?

Well, I think the first thing, Jack, is it is broad based. Generally you are seeing growth across almost every major trade lane with some concern about parts of the European trade lane. I think we are seeing good exports from Europe with a particularly low Euro now, and into Asia and other markets. Just the net cost to the customer in terms of the lower fuel environment and how persistent that will be and where fuel settles, no one really knows. But it seems reasonable to think that the $60 to $80 market is probably something we'll see over the next couple years. I think that is favorable to air freight overall.

When we talk about air freight being maybe 50 tons in terms of weight -- sorry 50 million tons in terms of weight is the market, and the earlier question from Kevin about are we going to see some shifts? It doesn't take a lot of shift in terms of weight when viewed from the ocean side, to make a meaningful impact in terms of weight on the air side. So a couple of million tons of weight coming out of a sea freight is not that perceptible. But two million tons into air freight would be perceptible, and would be meaningful. And I think that's another important part of it.

Jack, Spencer, I will give a little more color to that as well. During the quarter we flew a lot for the automotive industry which you know is very much focused on just in time deliveries. We flew gear boxes, engines, electronics for the automotive industry. There was a lot between Japan and various destinations in the U.S. as well as Korea to the U.S. and to a lesser degree China to the U.S. As I mentioned earlier we saw some other industry segments like retail and fashion, that had reduced inventory levels. And so we were flying more for them particularly from China, Hong Kong, and Vietnam to the U.S. Midwest. We flew food and some things that we don't normally fly but some perishables which we normally fly, but some other things for the food and beverage industry from Asia. And so as Bill said it really was broad based. We saw this different segment and different parts of the globe.

Just to add -- Jack, just to add one additional point, Spencer and I commented about the market overall in broad terms. But I think the other part of -- an important part of the answer is the Atlas customer base. Many of our customers have a very well demonstrated track record of growing above market, what ever that market was. Even in markets of 2012 and 2013 where we saw no growth at all. Many of our customers reported growth and strong growth. And so I think they've got that track record and then in a more buoyant market they should be able to take even better advantage of that. And that will accrue to us through our ACMI and certainly through our charter, given the brokers and freight forward we work with.

That's really helpful, guys. And to follow-up on that, given the market is seeming to recover here in a broad base way, your net leverage is coming down pretty nicely with the cash flow you are generating. How do we think about capital allocation going forward? What are the investment opportunities that you see in the business with your cash flow? And perhaps would you maybe think about reaccelerating the buy back program at this point?

Sure, Jack, very good question. As you know we ended the quarter with about $375 million of cash. We paid off over $50 million of debt during the quarter and we still grew our cash balance. What we have really been trying to do, and we've talked about this, we really tried to achieve a balanced approach when it comes to capital allocation. Our cash prioritization really has not changed. Our focus is on three things. We want to ensure that we maintain a strong balance sheet, which we have been doing. We want to continue to invest in modern, efficient assets that our customers want. And we want to return capital to our shareholders. And so we have been focused on all of those. Last year we bought three777s making it six 777s over the last couple of years. You know about the 747-8's we purchased.

Our cash balance has been strong, our net leverage ratio has been coming down, and we did buy back 8.3% of our stock over the last two years. We are really committed to creating, returning, and enhancing value, and our focus will continue to be on trying to do all three of those. So I didn't completely answer your question. I realize that. I think we have been balanced and we will continue to be balanced.

I'll give you a pass, Spencer. Thanks again for the time.

Thanks, Jack.

Thank you, Jack.

Your next question comes from Scott Group from Wolfe Research. Your line is now open.

Hey, thanks, guys, good morning. Can you help us with some of the drivers of the second quarter earnings growth and how it breaks out between the segments? Meaning, how much of the profit improvement comes from ACMI versus charter versus dry leasing?

In the second quarter, Scott? So we've provided that --

Yes.

We think that the second quarter earnings should be slightly better than the first quarter earnings as you know. I think that the ACMI segment as I mentioned earlier, you should see -- you should expect to see growth on the -- on a direct contribution basis in the ACMI segment. We had the first quarter kind of anomaly and you expect to see that to grow. Commercial charter obviously had a very, very strong first quarter. We expect it to have another strong second quarter, but probably not as strong as the first quarter, but we'll see. And in dry leasing, we have a fairly steady contribution in dry leasing. We did have a plane that came back during the first quarter and so that generated some maintenance payment revenue, but other than that the dry leasing business in general is fairly steady other than any maintenance return conditions.

So in your report on ACMI, should we expect year-over-year growth in contribution in the second quarter or more sequential or maybe both?

I think you should expect to see a little bit of both. Sequentially certainly, and then compared to the prior year should be in line with or a little better than the prior year.

That's very helpful. And then just in terms of the earnings framework on 55% in the second half and it is typically 70%, is that because the first half is so -- that's not a -- that's the first half is so strong so it skews the seasonality of it. I am not reading this as a cautious view in the second half. It is just a -- this is a first half really strong comment. Is that a fair way to characterize the guidance?

Yes, Scott. That's a fair way to read the guidance. Strong first quarter; we talked about the elements that drive that. We wanted to provide a perspective of what that means full year. And I think the broader story is I think a good, solid 2015 and looking forward to 2016 given what we believe will be the continuing industry fundamentals.

Last just real quick thing if I can, anything -- any upcoming plane placements we need to be thinking about? Any changes in the quarter to share?

No, Scott, there is nothing -- if we had something we would have shared it.

And then in terms of going forward anything coming up or is that done for the year at this point?

Oh no. I'm sorry perhaps I misunderstood your previous question. I think you are asking on a contractual basis how the year looks. Perhaps That's what you are asking?

Correct.

Okay, I'm sorry. I misunderstood. This year we talk about a typical year is three to four renewals. This year is a typical year. So from that perspective it's a typical year. We are in constant discussions with our current customers as well as potential new customers. That's what I thought you were asking, whether we had a big announcement with regard to that. Those discussions are ongoing. Obviously the market is strong. Our aircraft are modern, efficient and those conversations are ongoing with our customers and we will talk about it when things transpire.

Great, thank you, guys. Appreciate it.

Thank you.

Your next question comes from Helane Becker of Cowen. Your line is now open.

Thanks very much, Operator. Hi guys, thank you so much for the time. Bill, probably a question for you. There is -- I don't know if you want to call it a trade war, but there is certainly a dispute between the three passenger airlines and the UAE airlines. I am just kind of wondering your thoughts on it and how it could potentially affect Atlas Air in your -- if at all and your relationships with your customers?

That is certainly a hotly discussed topic these days. I think our views are pretty straightforward. We have communicated our views as several other airlines have, to the various secretaries of transportation and state and commerce. We believe -- we have been successful as a country and all of our society has more broadly benefited from the open skies agreements that we have, over 114 that are in place. Each agreement provides for consultation mechanisms. If one or the other side or multi parties in an agreement believe that consultations are warranted. So from that perspective we believe the government should follow the process that is outlined in the open skies agreement with the United Arab Emirates and with [Qatar] and shouldn't deviate from that process or act outside that process. We believe these agreements are incredibly valued -- valuable to the U.S., to the U.S. economy and to us as consumers and certainly to the airlines that operate underneath them. We'll see how that plays out, but I think it would be a very bad precedent if our government acted outside of the agreements that we've signed.

Yes, I'm sure I agree with you. It is kind of an interesting issue and I'm not sure where it goes. And then -- and thank you for that. I appreciate your response. Spencer, maybe one for you. Maybe you said it and I missed it and I apologize if that's the case. Maintenance is increasing in 4Q from 3Q. Is that normal? I always feel like maintenance is up in the first quarter.

So last year -- That's a good question, Helane. Last year we saw a similar situation where maintenance was increased toward the end of the year which actually put us -- it is conditions based and so it needs to be performed, but it put us in a position to operate as much as we did in the first quarter of this year. So it was very, very helpful. And then we announced -- or Bill said earlier that we are increasing maintenance expense for the full year to $190 million, and that's a result of the higher flying we did during the first quarter as well as the higher flying that we now expect for the remainder of the year. It's conditions based and based on the increased block hours and cycles ups and downs. We expect the maintenance will increase.

The other thing too, Helane, it is a very different fleet. If we were to dial back to the 747 freighter only operation that the Company had so many years ago, there was that more typical seasonal nature to maintenance with as much we can get done in the first half, the first quarter so we had all the capacity available in the second half with a focus on the peak period. Now with the combination of aircraft we have in ACMI and CMI, passenger, and freighter, some of the special aircraft that we operate for some other customers, 767's, the maintenance is changing a bit. To be clear, we seek to accomplish as much of the maintenance as we can in the lower periods of the year, but it may tend to more smooth over time given that mixture in the fleet and the 50 plus aircraft that we now operate up from the 25-ish or so, 27 or so when we were at our lowest fleet count back around 2008.

That's really helpful. Thank you very much. I appreciate your guidance. Thanks.

Thanks, Helane.

Your next question comes from Nathan Hong of Morgan Stanley. Your line is now open.

Thanks for taking the question. I'm actually having a tough time reconciling some of the comments you made about the market in general. First you say that you are confident about the 2015 outlook, but there is also a lack of visibility into the second half. I'm just curious, wondering if you can elaborate on what you mean about having confidence in the 2015 outlook.

A couple things. We have our ACMI aircraft and our ACMI operations along with our CMI operations. That's 70% of our flying as we talked about. We have schedules and forecasts from our ACMI customers. And so have a strong sense of what that is going to provide for us in terms of levels of activity and the pricing for that. That's the first part of it. Our dry leasing business is not dependent on market demand -- sorry. Not dependent on air freight flow. Just simply the aircraft are placed with our customers, we have monthly -- as you know we have monthly rentals and we collect the rentals and that is the other part of our revenue stream. We have had a strong charter market so far.

We anticipate a strong charter market throughout the balance of the year. And so I guess it is a question of degree, but when we factor that in, I think we have a good handle on costs, and we provided on the call and in our release, a bit of an increase in maintenance spend driven by hours flown and hours expected to be flown. That gives us our confidence around where we expect the year to end up.

Got it. And I think you mentioned also that seasonally we should be seeing better earnings as we head into peak season, but I recall historically that you guys probably mentioned the first half was seasonally lower than the 45%, the full year EPS than you mentioned today. I'm wondering if you can offer thoughts on why normal seasonality wouldn't hold this year.

Because the first quarter was so strong. It was 100% plus beat of the first quarter last year, in part driven by the west coast port issues that we had and some other issues in charter market. I think as Scott asked a similar question earlier in the call, is it just this year because Q1 was so strong given the external factors that existed? And that's in large part yes. That's the key to it. We want to give you -- it is a sense of how to think about the two halfs and balance them. Over the long run first half typically has been and likely will be closer to the 30-ish kind of percentile. I think the larger (inaudible - background noise) I think we are at an inflection point in the market, good growth in 2014, good growth in 2015 and I think that trends forward into 2016 and beyond, and we are well positioned to take advantage of it.

Thanks for the time.

Thank you.

Your next question comes from John Barnes of RBC Capital Markets. Your line is now open.

Hi, guys, thanks for taking my question. Just looking at the fleet going forward, how are you thinking about aircraft additions, whether it is ACMI or dry lease? I know you are talking about a very strong air freight market, but I think you returned the last of the leased BCFs. Do you feel the need is sufficient enough the you need to add additional aircraft into the ACMI fleet? And along with that, Boeing is down to just a few orders on the 747-8. I guess the military or the government's request for a new Air Force One probably keeps the line around a little bit longer. Is there any concern that potentially the 747-8 as a freighter model goes away, and in the event that occurs what's your next step?

Thank you, John. Just a couple of things. In terms of the fleet overall as we have said, That's something we monitor quite closely and manage aggressively through these fairly challenging years we have had over the last several years, 2011, 2012, 2013, really into the first half of 2014. We had good utilization on the entire fleet. Yes part the BCF out of the whole fleet, but that is available to bring back if the demand warrants it. We have the flexibility on that asset if it makes sense to do that. If we needed short-term capacity in the 747-400 or 747-400 BCF, short-term capacity, that is available at very good prices.

It is something we could easily do and would do or would only do if we believe we have the demand that can generate the returns on that. Consistently we said we like the 747-8. It is performing very well. We do plan to acquire more 747-8's going forward. I think there is enough run rate or room in the Boeing line to accommodate that and get back to your question. But if we go and acquire new aircraft and make an acquisition like that, we will have a clear view of how that aircraft is going to be utilized, and a strong sense of the returns that we will generate on that aircraft and the individual purchase like that overall. Now on the dry-leasing side of the house, Titan, we've made a lot of investment in there and I think there are -- there continue to be opportunities to invest in Titan as well. Just as we've done along the way we would not buy aircraft into Titan where -- speculatively. We would not be buying aircraft, acquiring aircraft into Titan if we didn't know where it was going at the time we took delivery of the aircraft and have a sense of the returns we would generate on it.

Okay. And then just the longevity of the 747-8?

I think that -- now that would be speculative comments on my part, to a point. For the aircraft fleet we have a Boeing is committed to support that aircraft over the life of the aircraft. If they were to shut the line down or when a line shuts down on an aircraft type at some point, Boeing is committed to support that aircraft. I'm not sure if you asked the question, but I think it is an important point to make. We are confident in Boeing's requirement and their ability to support whatever size fleet of 747-8s we have going forward. Again, I think there is a run rate in that production line such that if we require or wanted to show aircraft I believe we could get to the fleet size we would want to be at.

Very good. All right, guys, nice quarter, thanks for your time.

Thanks John.

Your next question comes from David Campbell of Thompson Davis. Your line is now open.

Hi, Bill. Hi Spencer. Thank you for all of your answers. A lot of my questions have been answered. I just wanted to delve in a little about the month of March. IATA hasn't reported it but it is probably going to be up about 2% year to year in global air freight in March. Do you think there was any benefit in March from the port disruptions on the west coast, or was that all in January or February?

I think there was some benefit in March, David because even once the agreement was signed on the west coast it took time to ratify. There were quite a few ships at anchorage waiting to get in, and then the supply chain had its disruptions with containers maybe out of position, certainly chassis in the wrong place, and then the ability to flow the trucks through the gates, into very congested yards, get the right container, and get it out. So I think there was some benefit in March as well. But sitting where we are at the end of April, I think as we talked about in our comments and maybe in the release, we have seen good air freight demand in this second quarter. I would say most of the port disruption freight has worked its way through by the end of March, but good traffic flows in April.

I hear you talk about that, and of course some of the forwarders have said the same thing. They talk to customers and their customers say that they are going to have increased demand for air freight in the second quarter and beyond. I am not surprised that you see the same thing. I am just trying to figure out where it is. Because March was not very impressive. Suddenly we have -- we still have a lot of confidence in say 3% to 4% growth in the second quarter, so I'm trying to figure out where it is. You pretty much said it was pretty broad-based, but it certainly wasn't broad based in the month of March.

I think maybe to go back to a comment I made earlier. If the question is -- you are asking more broad about the market and I will come back to it in a second, but if we are thinking about Atlas, the other part of the equation here is our customers. As I commented on earlier in the Q&A. Our customers have -- many of them have a very strong record of -- track record of growing at above market, and that's driving utilization. The market is moving 1% or -- which is a lot. But if it is moving 100 basis points up or down, that's something we want to be aware of. Our customers -- and they are reporting their results, they're way out-performing the market, driving high utilization of the aircraft. If it is an ACMI, some of those customers also are CMI customers. Boeing as a CMI customer is driven by its production rate not by market. And in our charter business, the freight forwarders and brokers we work with are among the leading freight forwarders and brokers with good, solid market shares. I think we need to peel the onion a bit to kind of get to what does it mean for Atlas?

Right.

I'll take your comments on trans-Pac, and frankly I don't remember how strong a month March 2014 was over March 2013. I don't know if that's a tough comparison or not. I just don't recall the numbers. Other trade links like South America with all of the political issues that are going on in Brazil continues to be a very strong market with very high yields. Same things in Argentina and particularly north-bound out of South America has been strong. Africa even in spite of the impact of energy prices or the reduction of energy prices on some of the larger economies there, there is still good air freight flows there. So when I say broad brush, it's some of those trade lanes, and those are the trade lanes our charter market serves but also our ACMI customers -- some of our ACMI customers serve as well.

Thanks. My last question is, the -- I know we have to get through 2015 first, but looking ahead to 2016, the first quarter is obviously going to be a tough comparison. This may be running ahead too far -- too fast, looking at it too far, but what would you say your offsets could be next year?

Well, I think the story about Atlas is how are we performing overall? What is the trajectory of the business? How well are we positioned? How does the underlying market feel? So we've portrayed very good growth or projected very good growth for 2016 on a year-over-year basis. The story of our Company is not the story of our -- of one quarter and as we look forward to 2016 we are encouraged about 2016 as well. For all of the factors that we talked about.

Okay, thank you.

Thanks, David.

Your last question comes from Bob McAdoo from Imperial Capital. Your line is now open.

Good quarter, guys, thanks. You talked very briefly with Dave about Brazil, and I am just curious about South America because it has been such a weak place for a lot of people. I'm just curious as what you are seeing in South America both north and south bound. Is it getting that much better, or with all of the weak currencies and Brazil issues is that still kind of a problem?

Well, yes, there is a lot going on in Brazil to put it mildly. But a lot of the traffic we are carrying southbound into Brazil, it is supporting for example, the manufacturing. The aviation sector and the manufacturing that is going on in Brazil. There are capital goods, intermediate parts and components that are going down to support aviation sector. There is an aircraft engine sector there. Rather than going customer by name, customer by name, but I think you have a sense of who they are. And there is other manufacturing that goes on in Brazil overall. It is -- yes consumer sentiment is off and the weakened Real is going to reduce some of the consumer imports there, but they still go on.

Argentina again with the issues that occur there, are going on there, still we have seen good growth or I should say good steady demand, is a better way to characterize it, in Argentina. On the north bound sector there is seasonal impact. It's been good seasonal -- good north bound flows across all of the north bound countries, Chile, Peru, Ecuador and Columbia. We are well positioned there. We actually provide -- well not actually, but we do, we provide a very high quality service and customers know our service, like the modern fleet that our charter division is operating in South America. So we have a very robust market share there, in that market as well. So that's how we see South America, Bob.

Okay. And then a couple of airplane questions. One, on the plane that came back, what's the likelihood that you're going to end up holding that plane for a while? Is there a lot of demand for that particular airplane? And the other one is, as to the 747-8s are there grounded 747-8 freighters out there that people may have bought for their own internal -- maybe airlines themselves, scheduled airlines, might have bought that are on the ground somewhere, that might be available? And would you ever think about taking a used 747-8 versus buying new?

I'll take the first part of that, and you can take the second part. Bob, your question about the 73800 that came back, that aircraft we actually sold. So we acquired that back in 2011 , it had a lease attached to it. At the time it was a vintage 2006 aircraft, so it was about eight years old when it was sold. It allowed us to exit that investment that was really, for us, a non-core, narrow-body passenger asset. (inaudible - background noise) helped us raise cash. So on the -- just quickly on the economics of that aircraft sale, both the -- we look at it on an after tax levered IRR basis, performed better than we had thought when we acquired it. Cash flows were better, the pre-tax was better. So all in all we're happy with the lease that we had, and we're happy with the aircraft that we sold.

(inaudible -- multiple speakers) We bought that aircraft back at a time when we got a good price on the aircraft. It was a very challenging market, and it made sense to do it, but our view for Titan has always been to be freighter-centric. We'll be freighter exclusive because from time to time there might be an opportunistic play that would make sense. But all the acquisitions we've made over the last several years have been freighters. And that's where we think we can add value, and have a -- have insight on the market overall.

As to 747-8s, yes, if we needed aircraft and more 747-8s, and there was an opportunity to acquire a 747-8 that was excess to some other carrier's fleet, if there was a good deal to be had there, we would certainly look at it.

Are there airplanes -- are there 747-8s on the ground somewhere? Right now?

Well, there's one, a very early vintage 747-8 on the ground. It was -- that I'm aware of. I think it was one of the three that we elected not to take. And there may be another one pending delivery, it might be temporarily parked. I'm not sure of the condition of that, although I think -- I think that's just maybe a timing issue, with the company that will ultimately take it.

So it's not like there's several -- it's not like there's several sitting out--

No. No there really aren't. And even, as I said, the early one isn't something that's attractive to us. The other one is I think just a timing issue on delivery.

Got it. Okay, thanks a lot.

Thanks Bob.

Thank you.

There are no further questions over the phone lines. I will turn the call back over to the presenters.

Okay, well thank you, Operator. Spencer and I would like to thank all of your for your interest in Atlas Air Worldwide. We really very much appreciate your sharing your time with us today, and we certainly look forward to speaking with you again. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.