Air Transport Services Group (ATSG), the medium wide-body aircraft lessor and ACMI provider, has reported an 8% increase in customer revenue to $409.9 million, largely due to a surge in pandemic-related charter operations last year. Aircraft leasing and related revenues from external customers for the quarter increased $16.7 million from seventeen more leases of Boeing 767 freighters since June 2020, including five in the second quarter this year.
The re-measurements of financial instrument values, including warrants to purchase ATSG shares, increased ATSG's second-quarter after-tax earnings by $27.6 million in 2021 and reduced them by $107.6 million in 2020.
Government grants intended to mitigate pandemic effects on ATSG's passenger airline operations added $29.5 million to ATSG's second-quarter 2021 net income, compared with $7.6 million a year ago. Results for the second quarter also included $5.0 million in after-tax debt restructuring costs in 2021, and a $30.2 million after-tax impairment charge in 2020, primarily for four Boeing 757 freighters retired from service.
Rich Corrado, president and chief executive officer of ATSG, said, "As we had forecast, ATSG's revenue, earnings and Adjusted EBITDA improved significantly from first-quarter levels as our airline businesses achieved their performance targets, and leasing of our Boeing 767 freighters remained on a record pace. We have delivered seven of the eleven additional Boeing 767s we will lease to, and fly for Amazon this year during the first half, and accelerated our plans to offer Airbus A321-200 converted freighters to our lease customers. While our ongoing Boeing 757 combi and passenger flying assignments have not yet fully recovered from the pandemic, we are optimistic about continued steady improvement on those fronts, and about meeting or outperforming the overall results we have projected for 2021."
ATSG’s adjusted EBITDA from Continuing Operations increased 21%, or $22.2 million, sequentially from the first quarter, and ended the first half of 2021 at $233.4 million, which represents 44% of ATSG's target of at least $525 million in Adjusted EBITDA for calendar 2021.
Capital spending for the first half of 2021 was $300.2 million, up $34.4 million. First-half spending included $200.1 million for the acquisition and modification of passenger aircraft for freighter conversion, as ATSG expands its fleet for new orders from customers. Spending for required heavy maintenance and for other equipment, including aircraft engines and components, was $100.1 million for the first half of 2021.
During the reporting period, ATSG completed a follow-on issuance of $200 million in seven-year unsecured notes bearing a 4.75 percent coupon rate and an equivalent yield of 3.96 percent, and amended its senior credit facility to pay off its term debt and increase access to revolver credit.
Amazon completed the conversion of 14.9 million warrants for the purchase of ATSG common shares under both cashless and cash exercises. Amazon paid ATSG $132 million for the purchase of 13.6 million ATSG shares. As a result of the cash and cashless exercise of its ATSG warrants, Amazon now owns 14.4 million shares, or 19.5 percent, of ATSG’s outstanding common shares. Amazon still holds warrants for the purchase of an additional 21.8 million ATSG shares under other agreements.
Cargo Aircraft Management's (CAM) second quarter revenues increased 18% versus the prior year aided by 17 more leases of 767 freighters to customers. Revenues from CAM's external customers increased 33% for the quarter.
ATSG’s total in-service fleet comprised 110 Boeing aircraft, 16 more than a year ago. Ninety one were cargo aircraft, four were combis, and 15 were passenger aircraft.
The in-service fleet included seven aircraft not owned by CAM: four passenger 767s leased to Omni Air, and three 767 freighters provided by Amazon for Air Transport International to operate in Amazon's air network.
Eighty CAM-owned Boeing 767 freighter aircraft were leased to external customers, seventeen more than a year ago and seven more than at December 31, 2020.
CAM owned fifteen 767 aircraft that were in or awaiting conversion to freighters, up from eight at the start of the year. CAM has purchased twelve passenger 767s during the first half for freighter modification, all for lease deployment in 2021 or 2022. One CAM-owned 767-200 freighter was being prepared for re-lease.
CAM continues to expect that it will lease sixteen or more 767-300 freighters to external customers during 2021 with nine in the second half, and at least ten more in 2022. Customers continue to place orders to lease additional 767s from CAM for delivery as late as 2025.
Revenues for ACMI Services decreased 5% from the prior-year period, stemming primarily from a reduction this year in passenger operations for customers of Omni Air, ATSG's passenger airline, reduced Boeing 757 combi operations for the military by Air Transport International, and the retirement of four Boeing 757 freighters ATI had operated for DHL. Revenues for ATSG’s cargo operations increased sharply for the quarter.
Total revenue block hours for ATSG's airlines for the second quarter increased 18% from the previous year. ATSG's airlines expect continuing growth in express-network flying in 2021, as they project to be flying forty-six 767s for Amazon by the end of the year, thirteen more than at the end of 2020.
ATSG continues to expect its Adjusted EBITDA for 2021 to be at least $525 million, or 6% more than 2020 Adjusted EBITDA of $497 million. The forecast projects new leases for sixteen or more 767-300 freighter aircraft in 2021 and CMI flight operations for at least thirteen more 767 freighters for Amazon in 2021. It also assumes no incremental restrictions on passenger air travel or on combi operations stemming from a recent resurgence in Covid-19 infections globally.
Corrado noted that “E-commerce merchandising continues to drive strong demand for freighter aircraft capacity worldwide, and our Boeing 767s are at the center of that global trend. We have orders from companies such as DHL, Star Air, and Amerijet to lease at least ten more Boeing 767-300 freighters next year, and demand from multiple customers for others starting as late as 2025."
ATSG is also accelerating plans to extend its midsize freighters leasing business and has secured rights for 67 freighter conversion slots with induction dates starting in 2022 through the end of 2025. These slots include Boeing 767-300s, Airbus A321s, and an additional type, the Airbus A330 aircraft.
“The A330 converted freighter, like our 767-300s will be a popular midsized option for our leasing customers,” Corrado said. “The addition of an A330 option will provide our leasing business with a third platform for growth, and complements the A321 freighter we will also introduce next year. Twenty of the 67 conversion slots, beginning in mid-2023 through the end of 2025, are designated for the A330.
"Our airlines continue to see sharp increases in flight operations for our CMI and other air cargo customers. We are optimistic about overall solid gains in the performance of our airlines this year, especially in the second half, as we anticipate further improvement in passenger and combi operations impacted by the pandemic. We will revisit our full-year guidance when we report our third-quarter results in early November.
