Business reality check for Polar, Welcome to ACMI

[v1andgo]

Atlas Air swings to first-quarter loss

Friday May 9, 2008
Atlas Air and Polar Air Cargo parent Atlas Air Worldwide Holdings reported a first-quarter net loss of $5.3 million, reversed from a profit of $6.2 million in the year-ago period, but insisted the result reflects high fuel costs from which it largely will be insulated when Polar's blocked-space agreement with DHL begins later this year. "Our business fundamentals are solid and our performance is on track. . .apart from the impact of fuel prices," President and CEO William Flynn said. "Record commercial fuel prices, up nearly 50% over last year, had a substantial impact on our [Polar] scheduled services results during the first quarter." But he noted that "our direct exposure to fuel costs will be largely eliminated in late October when [Polar] commences flying under its long-term blocked space agreement with DHL Express" (ATWOnline, Feb. 28) (http://www.atwonline.com/news/story.html?storyID=11886). First-quarter revenue increased 5% to $373 million while expenses lifted 11.2% to $375.6 million, producing an operating loss of $2.6 million, reversed from a $17.5 million operating profit in the year-ago period.

[EJetCA]

Mr. Flynn concluded: “Since we last provided guidance for 2008 in late February, jet fuel prices have increased over 20%. Based upon the current fuel environment, we now expect our pretax earnings in 2008 to exceed $105.0 million, with our direct fuel-price exposure going away in October. We reaffirm our 2009 pretax earnings outlook of $165.0-$175.0 million.”
Not included in AAWW’s pretax earnings guidance for 2008 is a deferred pretax gain of approximately $152.0 million expected to be recognized as income in the fourth quarter of 2008 upon commencement of the blocked space agreement with DHL

They don't seem too worried.

Back to the useless bickering....

[slooprig]

There are several inaccurate statements in this press release, most importantly, that this fuel price is temporary, it is not. And that ACMI will insulate AAWW from high fuel costs and a down turn in business is nothing more than stock holder spin. The emerging environment is nothing short of a paradigm shift, cheap energy is history. The party is over.

[layinlow]

I thought that DHL's agreement was for Polar block space, which is a far cry from ACMI. Atlas then flies Poalr flights uder ACMI. If that is correct, then it would seem to me that Polar would pay for the fuel, not DHL. Am I wrong on this?
At any rate, it underscores my prediction a while back that things are going to get much much worse. Fuel prices are rising into the stratosphere and it going to come to a point where companies are not going to ship by air and pay the costs. I truly believe we are in for a big shock. Working where I do, I see the ever decreasing loads. It doesn't take a rocket scientist.
Back to the Polar/DHL agreement for a minute. Do you think DHL had anticipated the rapid rise of fuel costs when they signed the block space agreement? Atlas lost 5.3 million due to the price of fuel (according to them), and that was when the fuel prices were lower, much lower.
With the dollar in the tank, Europe is squawking (Financial Times) on how it is hurting their economy and they are finding it harder to sell products. The U.S economy (Europe's biggest customer) grew at an anemic .6% rate for 2 consecutive quarters.
Whether you are ACMI or schedule will make no difference if there is no shipping because no one is buying. This isn't about a DHL/Polar/Atlas connection. It is about survival.

[Intruder]

If DHL will be paying for the fuel for all the flights, the "block space agreement" sure smells more like ACMI than "Polar scheduled service"! THAT is the "spin" or "inaccuracy" in the press release!

Polar will supply the Airplanes, Crews, Maintenance, and Insurance; and DHL will supply [most of] the payload, fuel, ground handling... Yep! ACMI!

[trashhauler]

If you have nothing to ship because of the world economy, would it really matter.

[Po Boy]

Sounds like ACMI to me, but don't say that too loudly, you might hurt a polaroids fragile ego! :}

[BELOWMINS]

It is ACMI. Atlas flys Polar business on an ACMI basis. The customer (Polar) pays for the fuel. Should do wonders for AAWWs bottom line.

[WhaleDriver]

Flynn is selling it to the investor world as ACMI. Polar may still use their callsign to get into places DHL can't. The truth will be told when we see a BIG Yellow 747 flying around.

I agree with the idea that as the economy slows, we'll see it hurt the ACMI market, but Atlas is in the long term ACMI -400 business, some over five years long. It's the short term market that will feel the brunt of the slow down. Southern has a lot of gas guzzling -200's and they are all in the short term market. They may see real trouble ahead.

[Intruder]

If you have nothing to ship because of the world economy, would it really matter.
Yes. With DHL assuming the fuel cost risk and guaranteeing payment for a certain level of payload, AAWW and Polar make $$ regardless.

It is ACMI. Atlas flys Polar business on an ACMI basis. The customer (Polar) pays for the fuel. Should do wonders for AAWWs bottom line.
However, starting in October, Polar will fly DHL business on an ACMI basis. The customer (DHL) will pay for the fuel. It WILL do wonders for AAWW's bottom line!

[Aftershock]

As I understand it the DHL deal only involves US-Asia Polar flights or am I wrong? When AAWW says that the direct fuel-price exposure will be largely eliminated, what does that mean for the 'scheduled service' flights that fly US-Europe on 5Y flight numbers and Atlas aircraft for example?

[trashhauler]

IF DHL has a block space agreement, is it amendable? With the U.S. economy in the tank and the EU squawking over the weakness of the dollar causing a downturn for European economies, DHL may not need all that space. No cargo, no money, same schedule. Recipe for disaster in this time of high fuel costs.

[Polar 744]

Oh no, the sky is falling!

[Intruder]

As I understand it the DHL deal only involves US-Asia Polar flights or am I wrong? When AAWW says that the direct fuel-price exposure will be largely eliminated, what does that mean for the 'scheduled service' flights that fly US-Europe on 5Y flight numbers and Atlas aircraft for example?
Initially the current Polar routes between Asia and the US, plus some continuing flights within the US, will be "DHL" routes. How AAWH will deal with the current Atlas-Polar ACMI flights HKG-LEJ, we'll see in the future. Same with any expansion of the DHL contract when AAWH receives their 747-8s in another 18 months or so...

I suspect "scheduled service" US-Europe 5Y flights will succumb to the economy, unless they remain profitable.

[layinlow]

I agree with you there Intruder. The economy will definitely hurt the scheduled carreirs. I am not sure how it will affect ACMI though. I was under the impression that when a customer signs an ACMI the carrier is basically "on demand". If the economy heads south, as it seems to be doing world wide the on demand work will dry up no matter who picks up the tab. No customer would want to fly around an aircraft empty. I could be wrong but I don't think so. I cannot imagine a carrier not having some sort of an "out clause" or some other instrument to protect them. I have seen in the past a lot of ACMI carriers be the first to go in the eras of downturns, then start up again as the economies are in an upturn. This cycle seems to lag about 6 months behind the real economic situation. To dispute whale, I am not sure the long term and short term makes that much of a difference.
As far as the -800 that is so touted by some, if you look at the numbers the -800 stills uses a whole lot more gas than the 777 with a little more payload, the only advantage being the cubic space.
At any rate, this next year is going to be interesting. I would hate to see anyone furloughed due to short sighted management decisions.

[L-38]

"This cycle seems to lag about 6 months behind the real economic situation."

As Allen Greenspan had said - Think of the economy as a large starting /stopping freight train - when the front engine first pulls out of the station, the last of it's cars are standing still.

In the aftermath of cheap energy, two engine airplanes should prove more viable than four, regardless of concessions..

[layinlow]

Exactly my point L-38. I do not think the -800 is going to be the panacea everyone thinks it will be. Right now fuel is running about 3.18/gal here in Memphis.. I have no idea what is is overseas but eventually all this will have to catch up to the industry.

[Intruder]

I was under the impression that when a customer signs an ACMI the carrier is basically "on demand". If the economy heads south, as it seems to be doing world wide the on demand work will dry up no matter who picks up the tab. No customer would want to fly around an aircraft empty. I could be wrong but I don't think so. I cannot imagine a carrier not having some sort of an "out clause" or some other instrument to protect them.
As I understand basic ACMI contracts, the customer guarantees payment for a minimum number of block hours per month, even if they are not used. The customer pays the contracted price for any hours used over that minimum. In return, the customer has full scheduling authority for the airplane, within the ACMI provider's legal constraints. So, if the customer has no load to send, he can keep the airplane on the ground, therefore not incurring the fuel cost.

As for any "out clause," I suspect those are very dependent on the individual customer and contract.

In context, I have no clue how AAWH and DHL constructed their "block space agreement" to address the times when DHL decides they don't want to pay for the airplane to move. IF it is constructed such that AAWH/PAWW is obligated to fly the "scheduled service" run anyhow if there is other load, then it may have an element of "scheduled service" to it. OTOH, IF DHL controls the schedule and can tell other freight forwarders/shippers that the airplane will not make a particular run, then it appears to be strict ACMI.

[atpcliff]

Hi!

The airline I fly for just signed an ACMI PAX agreement. The co. is paying us for 1600 hours for the year. We provide the A/C, crews and maintenance.

They provide the money for the 1600 hours, the fuel, airport fees/taxes, and the PAX processing costs (ticketing, etc.).

So, we get the money for 1600 hours this year, regardless of how much we actually fly (unless we're OVER 1600, then we get more), and they pay all the fuel costs.

cliff
YIP