Atlas Air Worldwide has entered into a definitive agreement to be acquired by an investor group led by funds managed by affiliates of Apollo together with investment affiliates of J.F. Lehman & Company and Hill City Capital in an all-cash transaction with an enterprise valuation of approximately $5.2 billion.
Under the terms of the agreement, Atlas Air Worldwide shareholders will receive $102.50 per share in cash, representing a 57% premium to the 30-day volume-weighted average trading price per share of Atlas Air Worldwide common stock as of July 29, 20221. Upon completion of the transaction, Atlas Air Worldwide will become a privately held company and shares of Atlas Air Worldwide common stock will no longer be listed on the Nasdaq stock exchange.
Committed financing in support of the transaction was provided by Goldman Sachs, Barclays, Apollo Capital Management, Mizuho, and Credit Agricole.
Morgan Stanley is serving as exclusive financial advisor to Atlas Air Worldwide, with Cravath, Swaine & Moore acting as legal advisor.
Evercore is acting as lead financial advisor to the consortium. Barclays, Goldman Sachs, and Mizuho Bank are serving as financial advisors to the consortium, and Paul, Weiss, Rifkind, Wharton & Garrison is serving as legal advisor to Apollo and the consortium entity, and Jones Day is providing legal advice to J.F. Lehman & Company and Hill City Capital.
Atlas Air Worldwide will continue operating under the Atlas Air Worldwide name, be led by John Dietrich and the current executive team and maintain its global presence.
“We believe this transaction will deliver immediate and certain value to Atlas Air Worldwide shareholders at a substantial premium, and we are pleased to reach this agreement with the Consortium,” said Duncan McNabb, Chairman of the Atlas Air Worldwide Board of Directors. “The Board’s decision to unanimously approve this transaction follows a careful evaluation and thoughtful review of value creation opportunities for shareholders. We believe this transaction is the right next step to maximize value for our shareholders and the best path forward to accelerate the company’s ability to execute its strategic plan and achieve its long-term growth objectives.”
“Over our 30-year history, Atlas Air Worldwide has grown to become a global leader in airfreight, delivering high-quality services to our diverse roster of customers around the world,” said John Dietrich, President and Chief Executive Officer of Atlas Air Worldwide. “Following the closing of the sale to the Consortium, we will seek to leverage their resources, relationships and industry expertise to build on our strong financial and operational performance. Their investment in our company demonstrates their confidence in our people and our culture as we serve the growing needs of the global supply chain.”
“Atlas Air Worldwide is a market leader that continues to set higher standards for excellence within the airfreight industry,” said Apollo Partners Antoine Munfakh and Jason Scheir and J.F. Lehman & Company Partner Alex Harman on behalf of the Consortium. “With the strong market demand and long-term secular tailwinds for global air cargo services, Atlas is poised to capitalize on many opportunities for continued growth as a fund portfolio company of Apollo, J.F. Lehman and Hill City. We look forward to leveraging our resources, capital and experience in the sector to support the talented Atlas team, alongside our partners in this exciting next phase.”
The transaction is expected to close in the fourth quarter 2022 or first quarter 2023, subject to customary closing conditions, including approval by Atlas Air Worldwide shareholders and receipt of regulatory approvals.
Atlas Air Worldwide has also announced its financial results for the second quarter ended June 30, 2022, today. The company has reported net income of $88.3 million, or $2.65 per diluted share, compared with net income of $107.1 million, or $3.53 per diluted share, in the second quarter of 2021.On an adjusted basis, EBITDA totaled $215.6 million compared with $243.7 million in the year-ago period. Adjusted net income totaled $97.3 million, or $3.36 per diluted share, compared with $121.8 million in Q2 2021.
“We delivered second-quarter results in line with our expectations,” said Dietrich. “Through the first half of the year, global airfreight volumes exceeded pre-pandemic levels, while capacity remains constrained, particularly on key long-haul cargo trade lanes.”
Revenue grew to $1.2 billion in the second quarter of 2022 compared with $990.4 million in the prior-year quarter. Volumes in the second quarter of 2022 totaled 83,922 block hours compared with 93,190 in the second quarter of 2021.
Atlas Air announced that block hours decreased primarily due to a reduction in less profitable smaller gauge CMI service flying and the operation of fewer passenger flights, as well as operational disruptions related to an increase in COVID-19 cases late in the second quarter. The increase in cases adversely impacted crew availability and the company’s “ability to position them due to the widespread and well-publicized cancellations of commercial passenger flights”.
Atlas Air also reported an increase in costs with an increased in pilot costs related to a new collective bargaining agreement (CBA), higher premium pay for pilots operating in certain areas significantly impacted by COVID-19, as well as higher overtime pay related to an increase in COVID-19 cases late in the second quarter. However, the company adds that these items were partially offset by higher yields (net of fuel), including the impact of new and extended long-term contracts, as well as lower heavy maintenance expense.
Atlas Air’s dry leasing segment revenue was relatively unchanged compared in the second quarter compared to the prior-year period and the higher segment contribution was primarily due to lower interest expense related to the scheduled repayment of debt.
For the six months ended June 30, 2022, Atlas Air’s reported net income totaled $169.8 million, or $5.03 per diluted share, compared with net income of $197.0 million, or $6.59 per diluted share, in the first half of 2021 (which included $40.9 million, $31.9 million after tax, of CARES Act grant income).
On an adjusted basis, EBITDA totaled $418.4 million in the first half of 2022 compared with $425.0 million in the first half of 2021. First-half 2022 adjusted net income totaled $186.0 million, or $6.35 per diluted share, compared with $194.0 million, or $6.55 per diluted share, in the first half of 2021.
During the second quarter, Atlas Air took delivery of the first of four new 747-8Fs. The remaining three aircraft are expected to be delivered throughout the balance of this year. As announced in February 2022, all four of these aircraft are placed with customers “under attractive long-term agreements”.
Atlas Air also noted the deliveries and placements of the four new 777-200LRFs, for which “we are in advanced negotiations”. The first aircraft is expected to be delivered late in the fourth quarter of this year and three more throughout 2023.
As previously disclosed, Atlas Air is purchasing five of its existing 747-400Fs at the end of their leases during the course of this year, the first of which was acquired in March and the second in May. The remaining three aircraft acquisitions will be completed between August and December 2022.
“Acquiring these widebody freighters underscores our confidence in the demand for international airfreight capacity, particularly in express, e-Commerce and fast-growing global markets, and will drive strong returns for Atlas in the years ahead,” said the company.
On June 1, 2022, Atlas Air’s Convertible Notes issued in 2015 reached maturity. To settle the Notes, Atlas delivered to holders $216.6 million in cash and 138,509 shares of its common stock. For the value above par, Atlas received 25,957 shares from the bank hedge counterparties, resulting in a net issuance of 112,552 shares.
At June 30, 2022, Atlas Air cash, including cash equivalents and restricted cash, totaled $616.9 million compared with $921.0 million at December 31, 2021. The change was due to $216.6 million related to the settlement of the 2015 Convertible Notes, $146.3 million for pre-delivery payments for the new aircraft and $100.0 million for its ASR, partially offset by cash provided by operating activities.