Air Transport Services Group (ATSG), which leases wide-body freighter aircraft, air cargo transportation and related services, has a 21% increase in revenue to $177.4 million. Excluding revenues from reimbursed expenses, revenues increased 18%. This increase included contributions from five more dry leases of Boeing 767 cargo aircraft with external customers, and expanded air network operations for ATSG's newest customer, Amazon Fulfillment Services (AFS), a subsidiary of Amazon.
Pre-tax Earnings from Continuing Operations were $12.1 million, versus $14.5 million in the prior-year period. Adjusted Pre-Tax Earnings increased 13% to $16.1 million. That metric excludes non-cash charges associated with pension costs, debt issuance costs at our European affiliate, and the effects of financial instrument transactions. Factors affecting pre-tax results this year included higher expenses for scheduled heavy maintenance checks and costs to prepare flight crews and other personnel for expanding airline operations. Additionally, the prior-year quarter benefited by $1.6 million from the completion of the non-cash amortization of a note payable to DHL.
Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) from Continuing Operations increased 11% to $51.3 million, a first-quarter record. Adjustments to EBITDA in 2016 are the same items excluded from Adjusted Pre-Tax Earnings.
Net earnings from Continuing Operations were $8.2 million, or $0.13 per diluted share, versus $8.9 million, or $0.14 per diluted share. Operating loss carryforwards for U.S. federal income tax purposes offset much of the company’s federal tax liabilities. ATSG does not expect to pay significant federal income taxes until 2019 at the earliest.
Joe Hete, President and Chief Executive Officer of ATSG, said, “Under its key multi-year agreements with global leaders DHL and Amazon, and with an increasing number of our freighters deployed under long-term dry leases, ATSG is on a sustainable, diversified growth trajectory, reflected in a 21 percent increase in revenue and our highest Adjusted EBITDA for a first quarter. Margins were affected in part by revenue/expense timing factors, including those associated with scheduled maintenance services, fleet transition and costs to spool up resources to serve Amazon. We project margins to improve in the second half as we complete more dry leases and deploy additional freighters into the Amazon network.”
ATSG extended its key commercial arrangements with DHL for four years effective in April 2015, and executed significant long-term agreements with AFS in March 2016. Commercial agreements with each customer cover aircraft leases and air network services provided by ATSG's businesses. The new five-year air transportation services agreement with AFS took effect in April 2016, following a successful six-month trial of a dedicated U.S. air network utilizing ATSG-owned Boeing 767 freighters. Additionally, an investment agreement with Amazon signed in March grants them warrants over a five-year period to acquire up to 19.9 percent of ATSG's common shares.
ATSG says that its increasing customer diversification is evident in the year-over-year comparison of quarterly revenues. In the first quarter of 2016, DHL accounted for 36 percent, Amazon 19 percent, and the U.S. Military 15 percent of ATSG's revenues. In the first quarter of 2015, DHL accounted for 52 percent, and the U.S. Military 16 percent of revenues. Amazon became an ATSG customer in September 2015.
First-quarter capital expenditures were $71.7 million, up $28.2 million from the first quarter of 2015. That included $52.8 million to purchase four Boeing 767-300 aircraft, and for freighter modification costs for those and other aircraft. Capital spending is now projected to total $290 million in 2016, of which $215 million is for fleet expansion.
ATSG also spent $3.1 million to repurchase 269,662 shares of its common stock in the open market during the first quarter.
Cargo Aircraft Management (CAM) revenues increased 21% to $51.7 million for the first quarter of 2016. Lease revenues from externally leased freighters and aircraft engines increased 29 percent, driven by revenues from five more external dry leases of Boeing 767s than were leased in the first quarter of 2015. Externally leased freighters increased to 29 as of March 31, from 24 a year earlier.
Pre-tax earnings for the quarter increased 35%. Revenue gains and lower interest expense offset increased fleet-related depreciation and transitioning expenses.
At March 31, 2016, CAM owned 56 Boeing cargo aircraft in serviceable condition, two more than at the same period last year. Five more CAM-owned 767-300 aircraft were awaiting or in passenger-to-freighter modification, and one 767-200 freighter was being prepared for re-lease to an external customer.
CAM will lease twenty 767s to Amazon by mid-2017; twelve 767-200s and eight 767-300s. Three of those 767-300s will be leased during 2016, and the last five in 2017. Seven of the 767-200s are currently in operation and leased to Amazon. Five other 767-200s will be leased to Amazon by year-end. CAM has agreements to purchase and has reserved conversion slots for all of the aircraft it will deploy under the Amazon agreements.