FYI
Atlas faces SEC investigation & renegotiates leases
Brendan Sobie, Washington DC (28Feb03, 18:43 GMT, 654 words)
The US Securities and Exchange Commission (SEC) has started formal investigations of the parent of Atlas Air and Polar Air Cargo as it drafts restated financials and tries to renegotiate aircraft lease payments.
Atlas Air Worldwide Holdings, which has not reported financials since the second quarter of 2002, today provided revenue figures for the fourth quarter. The carrier also revealed today it has negotiated with Boeing a three-year deferral on the delivery of its one remaining 747-400 on order from October 2003 to September 2006. This aircraft was previously deferred from early 2003 to late 2003 as part of an earlier deal with Boeing that included the on-time delivery of two new 747-400s in 2002.
Atlas also reports that it “has begun negotiating with some of its aircraft lessors to reduce or defer operating lease payments relating to five Boeing 747-200 and one Boeing 747-300 aircraft”. The carrier has already missed lease payments on these six aircraft.
It also stopped paying the lease on a sixth 747-200, prompting the lessor to send Atlas a lease termination notice. Atlas is complying with the notice and is in the process of returning the aircraft.
The return of this aircraft will give Atlas Air Worldwide Holdings an all-747 fleet of 50 aircraft, but the company has dry leased four of these aircraft to other carriers because its fleet size exceeds current demand. Of the 46 aircraft in revenue service, 31 are operated by the company’s Atlas Air subsidiary and 15 by its Polar Air Cargo subsidiary.
The two carriers combined generated $414 million of revenues in the fourth quarter of 2002, a 46% increase over the fourth quarter of 2001. This increase was driven partly by the addition of Polar, which Atlas acquired in November 2001, in the 2002 financials. Atlas says it also benefited in the fourth quarter from strong charter demand as a result of the military build-up in the Middle East and labor disruptions at US west coast maritime ports.
In fact, charter revenues more than doubled from $75 million to $153 million. However, revenues from Atlas’ core wet lease operation dropped by 68% to $84.5 million. Revenues from scheduled services increased from $37 million to $140 million, but this was mostly driven by the Polar acquisition. Polar operates a mix of scheduled, wet lease and charter services. Atlas has traditionally focused on wet lease services, but has expanded its charter operation over the last two years to offset plummeting demand for wet leases.
“Although Atlas’s traditional [wet lease] market is still depressed, we have adapted to today’s market by shifting our operations towards maximizing military and commercial charter opportunities,” says Atlas chief executive officer Richard Shuyler. “Military charter demand has continued into the first quarter of 2003, and our fleet remains at near capacity operation as a result.”
Atlas first revealed in October it had discovered an accounting error and would have to restate its earnings for 2001 and the first half of 2002. The SEC immediately began an informal investigation and Atlas today reported that a formalized investigation is now underway. As part of this investigation, Atlas is providing the SEC with documents. The carrier says it is “cooperating fully” with the SEC.
The company also has had to delay reporting any results from the second half of 2002 until it finishes drafting new financial reports for 2001 and the first half of 2002. The delay in reporting these results has forced Atlas to default on debt from banks that required as part of covenants the timely reporting of financials. Atlas earlier this year secured a waiver from these covenants that give Atlas until 31 March to comply. But the carrier today reveals: “It is likely that the company will also have to seek additional waivers to extend the requirement for providing financial statements beyond such date.”
Atlas says it has begun negotiations with its lenders to try to secure such waivers.