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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021  

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to           

Commission File Number: 001-16545

 

Atlas Air Worldwide Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-4146982

(State or other jurisdiction of incorporation)

 

(IRS Employer Identification No.)

 

 

 

2000 Westchester Avenue, Purchase, New York

 

10577

(Address of principal executive offices)

 

(Zip Code)

 

(914) 701-8000

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

Common Stock, $0.01 Par Value

 

AAWW

 

The NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 Large accelerated filer       Accelerated filer      Non-accelerated filer       Smaller reporting company       Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2021, there were 29,008,815 shares of the registrant’s Common Stock outstanding.

 

 

 


 

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

Part I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

3

 

 

 

 

 

 

 

Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 (unaudited)

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2021 and 2020 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)

 

6

 

 

 

 

 

 

 

Consolidated Statements of Stockholders’ Equity as of and for the Three Months Ended March 31, 2021 and 2020 (unaudited)

 

7

 

 

 

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

28

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

28

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

29

 

 

 

 

 

Item 1A.

 

Risk Factors

 

29

 

 

 

 

 

Item 6.

 

Exhibits

 

29

 

 

 

 

 

 

 

Exhibit Index

 

30

 

 

 

 

 

 

 

Signatures

 

31

 

 

 

 


 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atlas Air Worldwide Holdings, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

703,777

 

 

$

845,589

 

Restricted cash

 

 

10,247

 

 

 

10,692

 

Accounts receivable, net of allowance of $1,010 and $1,233, respectively

 

 

289,337

 

 

 

265,521

 

Prepaid expenses, assets held for sale and other current assets

 

 

102,665

 

 

 

95,919

 

Total current assets

 

 

1,106,026

 

 

 

1,217,721

 

Property and Equipment

 

 

 

 

 

 

 

 

Flight equipment

 

 

5,115,540

 

 

 

5,061,387

 

Ground equipment

 

 

93,690

 

 

 

86,670

 

Less:  accumulated depreciation

 

 

(1,192,724

)

 

 

(1,147,613

)

Flight equipment purchase deposits and modifications in progress

 

 

209,730

 

 

 

110,150

 

Property and equipment, net

 

 

4,226,236

 

 

 

4,110,594

 

Other Assets

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

 

238,155

 

 

 

255,805

 

Deferred costs and other assets

 

 

355,681

 

 

 

374,242

 

Intangible assets, net and goodwill

 

 

69,319

 

 

 

70,826

 

Total Assets

 

$

5,995,417

 

 

$

6,029,188

 

 

 

 

 

 

 

 

 

 

Liabilities and Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

110,685

 

 

$

107,604

 

Accrued liabilities

 

 

501,317

 

 

 

583,160

 

Current portion of long-term debt and finance leases

 

 

306,462

 

 

 

298,690

 

Current portion of long-term operating leases

 

 

156,119

 

 

 

157,732

 

Total current liabilities

 

 

1,074,583

 

 

 

1,147,186

 

Other Liabilities

 

 

 

 

 

 

 

 

Long-term debt and finance leases

 

 

1,990,870

 

 

 

2,020,451

 

Long-term operating leases

 

 

276,676

 

 

 

318,850

 

Deferred taxes

 

 

230,720

 

 

 

203,586

 

Financial instruments and other liabilities

 

 

39,372

 

 

 

77,576

 

Total other liabilities

 

 

2,537,638

 

 

 

2,620,463

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued

 

 

-

 

 

 

-

 

Common stock, $0.01 par value; 100,000,000 shares authorized;

    34,495,738 and 32,877,533 shares issued, 29,006,635 and 27,517,297

    shares outstanding (net of treasury stock), as of March 31, 2021

    and December 31, 2020, respectively

 

 

345

 

 

 

329

 

Additional paid-in capital

 

 

912,728

 

 

 

873,874

 

Treasury stock, at cost; 5,489,103 and 5,360,236 shares, respectively

 

 

(225,239

)

 

 

(217,889

)

Accumulated other comprehensive loss

 

 

(1,700

)

 

 

(1,904

)

Retained earnings

 

 

1,697,062

 

 

 

1,607,129

 

Total stockholders’ equity

 

 

2,383,196

 

 

 

2,261,539

 

Total Liabilities and Equity

 

$

5,995,417

 

 

$

6,029,188

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

3


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Operations

(in thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

Operating Revenue

 

$

861,300

 

 

$

643,502

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

 

202,614

 

 

 

147,744

 

Aircraft fuel

 

 

163,551

 

 

 

108,318

 

Maintenance, materials and repairs

 

 

121,133

 

 

 

94,152

 

Depreciation and amortization

 

 

67,789

 

 

 

57,584

 

Navigation fees, landing fees and other rent

 

 

44,887

 

 

 

31,401

 

Passenger and ground handling services

 

 

40,065

 

 

 

31,959

 

Travel

 

 

37,672

 

 

 

42,391

 

Aircraft rent

 

 

20,756

 

 

 

23,967

 

Loss (gain) on disposal of aircraft

 

 

16

 

 

 

(6,717

)

Transaction-related expenses

 

 

201

 

 

 

521

 

Other

 

 

58,412

 

 

 

51,112

 

Total Operating Expenses

 

 

757,096

 

 

 

582,432

 

 

 

 

 

 

 

 

 

 

Operating Income

 

 

104,204

 

 

 

61,070

 

 

 

 

 

 

 

 

 

 

Non-operating Expenses (Income)

 

 

 

 

 

 

 

 

Interest income

 

 

(211

)

 

 

(480

)

Interest expense

 

 

27,180

 

 

 

29,275

 

Capitalized interest

 

 

(1,271

)

 

 

(193

)

Unrealized loss (gain) on financial instruments

 

 

113

 

 

 

(924

)

Other (income) expense, net

 

 

(39,456

)

 

 

1,206

 

Total Non-operating Expenses (Income)

 

 

(13,645

)

 

 

28,884

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 

117,849

 

 

 

32,186

 

Income tax expense

 

 

27,916

 

 

 

8,833

 

Net Income

 

$

89,933

 

 

$

23,353

 

Earnings per share:

 

 

 

 

 

 

 

 

Basic

 

$

3.16

 

 

$

0.90

 

Diluted

 

$

3.05

 

 

$

0.90

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

28,491

 

 

 

25,966

 

Diluted

 

 

29,478

 

 

 

25,966

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

4


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Comprehensive Income

(in thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

Net Income

 

$

89,933

 

 

$

23,353

 

Other comprehensive income:

 

 

 

 

 

 

 

 

Reclassification to interest expense

 

 

268

 

 

 

308

 

Income tax benefit

 

 

(64

)

 

 

(63

)

Other comprehensive income

 

 

204

 

 

 

245

 

Comprehensive Income

 

$

90,137

 

 

$

23,598

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

5


Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

March 31, 2021

 

 

March 31, 2020

 

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

 

Net Income

 

$

89,933

 

 

$

23,353

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile Net Income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

86,172

 

 

 

74,352

 

Accretion of debt securities discount

 

 

-

 

 

 

(2

)

Reversal of expected credit losses

 

 

(397

)

 

 

(73

)

Unrealized loss (gain) on financial instruments

 

 

113

 

 

 

(924

)

Loss (gain) on disposal of aircraft

 

 

16

 

 

 

(6,717

)

Deferred taxes

 

 

27,839

 

 

 

7,352

 

Stock-based compensation

 

 

4,060

 

 

 

3,860

 

Changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(22,745

)

 

 

16,515

 

Prepaid expenses, current assets and other assets

 

 

(7,500

)

 

 

(5,476

)

Accounts payable, accrued liabilities and other liabilities

 

 

(89,366

)

 

 

(40,393

)

Net cash provided by operating activities

 

 

88,125

 

 

 

71,847

 

Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(26,662

)

 

 

(8,291

)

Purchase deposits and payments for flight equipment and modifications

 

 

(126,807

)

 

 

(26,000

)

Investment in joint ventures

 

 

(1,608

)

 

 

-

 

Proceeds from investments

 

 

-

 

 

 

881

 

Proceeds from disposal of aircraft

 

 

1,850

 

 

 

44,110

 

Net cash provided by (used for) investing activities

 

 

(153,227

)

 

 

10,700

 

Financing Activities:

 

 

 

 

 

 

 

 

Proceeds from debt issuance

 

 

16,161

 

 

 

164,000

 

Payment of debt issuance costs

 

 

(900

)

 

 

(2,386

)

Payments of debt and finance lease obligations

 

 

(77,953

)

 

 

(193,644

)

Proceeds from revolving credit facility

 

 

-

 

 

 

75,000

 

Customer maintenance reserves and deposits received

 

 

5,152

 

 

 

2,586

 

Customer maintenance reserves paid

 

 

(12,265

)

 

 

(2,080

)

Treasury shares withheld for payment of taxes

 

 

(7,350

)

 

 

(3,834

)

Net cash provided by (used for) financing activities

 

 

(77,155

)

 

 

39,642

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(142,257

)

 

 

122,189

 

Cash, cash equivalents and restricted cash at the beginning of period

 

 

856,281

 

 

 

113,430

 

Cash, cash equivalents and restricted cash at the end of period

 

$

714,024

 

 

$

235,619

 

 

 

 

 

 

 

 

 

 

Noncash Investing and Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment included in Accounts payable and accrued liabilities

 

$

24,938

 

 

$

16,368

 

Acquisition of property and equipment acquired under operating leases

 

$

4,015

 

 

$

670

 

Acquisition of flight equipment under finance lease

 

$

20,171

 

 

$

-

 

Customer maintenance reserves settled with sale of aircraft

 

$

-

 

 

$

6,497

 

Issuance of shares related to settlement of warrant liability

 

$

31,582

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

6


 

Atlas Air Worldwide Holdings, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

(Unaudited)

 

 

 

As of and for the Three Months Ended March 31, 2021

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2020

 

$

329

 

 

$

(217,889

)

 

$

873,874

 

 

$

(1,904

)

 

$

1,607,129

 

 

$

2,261,539

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

89,933

 

 

 

89,933

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

204

 

 

 

-

 

 

 

204

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

4,060

 

 

 

-

 

 

 

-

 

 

 

4,060

 

Issuance of warrants

 

 

-

 

 

 

-

 

 

 

3,228

 

 

 

-

 

 

 

-

 

 

 

3,228

 

Treasury shares of 128,867 withheld for payment of taxes

 

 

-

 

 

 

(7,350

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(7,350

)

Issuance of 1,280,450 shares related to settlement of warrants

 

 

13

 

 

 

-

 

 

 

31,569

 

 

 

-

 

 

 

-

 

 

 

31,582

 

Issuance of 337,755 shares of restricted stock

 

 

3

 

 

 

-

 

 

 

(3

)

 

 

-

 

 

 

-

 

 

 

-

 

Balance at March 31, 2021

 

$

345

 

 

$

(225,239

)

 

$

912,728

 

 

$

(1,700

)

 

$

1,697,062

 

 

$

2,383,196

 

 

 

 

 

As of and for the Three Months Ended March 31, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

Common

 

 

Treasury

 

 

Paid-In

 

 

Accumulated Other

 

 

Retained

 

 

Stockholders'

 

 

 

Stock

 

 

Stock

 

 

Capital

 

 

Comprehensive Loss

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2019

 

$

310

 

 

$

(213,871

)

 

$

761,715

 

 

$

(2,818

)

 

$

1,246,843

 

 

$

1,792,179

 

Net Income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,353

 

 

 

23,353

 

Other comprehensive income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

245

 

 

 

-

 

 

 

245

 

Cumulative effect of change in accounting principle

 

 

-

 

 

 

-

 

 

 

14,553

 

 

 

-

 

 

 

-

 

 

 

14,553

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

3,860

 

 

 

-

 

 

 

-

 

 

 

3,860

 

Issuance of warrant

 

 

-

 

 

 

-

 

 

 

2,394

 

 

 

-

 

 

 

-

 

 

 

2,394

 

Treasury shares of 179,211 withheld for payment of taxes

 

 

-

 

 

 

(3,834

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(3,834

)

Issuance of 434,567 shares of restricted stock

 

 

5

 

 

 

-

 

 

 

(5

)

 

 

-

 

 

 

-

 

 

 

-

 

Balance at March 31, 2020

 

$

315

 

 

$

(217,705

)

 

$

782,517

 

 

$

(2,573

)

 

$

1,270,196

 

 

$

1,832,750

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

7


Atlas Air Worldwide Holdings, Inc.

Notes to Unaudited Consolidated Financial Statements

March 31, 2021

1. Basis of Presentation

Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries.  AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”).  AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”).  AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”).  We record our share of Polar’s results under the equity method of accounting.

The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.

We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”); and (ii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).

The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Intercompany accounts and transactions have been eliminated.  The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, 2020, which includes additional disclosures and a summary of our significant accounting policies.  The December 31, 2020 balance sheet data was derived from that Annual Report. In our opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows.

Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic (see Note 3 for further discussion), and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

Certain reclassifications have been made to prior periods’ notes to the Financial Statements to conform to the current year’s presentation of segments (see Note 11 for further discussion). Except for per share data, all dollar amounts are in thousands unless otherwise noted.

2. Summary of Significant Accounting Policies

Heavy Maintenance

Except as described in the paragraph below, we account for heavy maintenance costs for airframes and engines using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.

We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method.  Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required.  Amortization of deferred maintenance expense included in Depreciation and amortization was $12.0 million and $7.9 million for the three months ended March 31, 2021 and 2020, respectively.

Deferred maintenance included within Deferred costs and other assets is as follows:  

Balance as of December 31, 2020

 

$

191,303

 

Deferred maintenance costs

 

 

803

 

Amortization of deferred maintenance

 

 

(11,988

)

Balance as of March 31, 2021

 

$

180,118

 

8


 

Property and Equipment

Committed expenditures to acquire aircraft and spare engines are expected to be $179.1 million for the remainder of 2021 and $458.3 million in 2022.  These expenditures include our January 2021 agreement to purchase four 747-8F aircraft from The Boeing Company (“Boeing”) that are expected to be delivered from May 2022 through October 2022, spare engines, and 747-400 passenger aircraft (to be used for both replacement of older passenger aircraft in service as well as spare engines and parts).

 

Recent Accounting Pronouncements Not Yet Adopted

 

In August 2020, the Financial Accounting Standards Board amended its accounting guidance for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments.  For convertible debt with a cash conversion feature, the amended guidance removes the current accounting model to separately account for the liability and equity components, which currently results in the amortization of a debt discount to interest expense.  Under this amended guidance, such convertible debt will be accounted for as a single debt instrument with no amortization of a debt discount to interest expense, unless certain other conditions are met.  The amended guidance also requires the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share.  The amended guidance is effective as of the beginning of 2022.  The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, or the modified retrospective approach, under which the guidance is applied only to the most current period presented.  We will adopt this amended guidance on its required effective date of January 1, 2022. While we are still assessing the impact the amended guidance will have on our financial statements, we expect the amount previously allocated to the equity component will be reclassified to debt. In addition, the amended guidance is expected to result in a material increase in net income and reduction in interest expense and diluted earnings per share.

3. COVID-19 Pandemic

COVID-19

In December 2019, COVID-19 was first reported in China and has since spread to most other regions of the world.  In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization.  Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military has taken precautionary measures to limit the movement of personnel.  A reduction of available cargo capacity in the market and increased demand for transporting goods due to the COVID-19 pandemic also resulted in increased commercial charter cargo yields, net of fuel.  We have incurred and expect to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates we provided to our pilots in May 2020.  In addition, the availability of hotels and restaurants, evolving COVID-19-related travel restrictions and health screenings, and a reduction in passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position employees to operate our aircraft.    

To mitigate the impact of any COVID-19 pandemic disruptions, we have:

 

implemented frequent deep cleaning of all aircraft and facilities;

 

provided safety kits for each crewmember and all aircraft;

 

adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic;

 

implemented significant workforce testing, social distancing and protection measures at all of our facilities;

 

made COVID-19 vaccinations available to employees;  

 

arranged for employees who can work remotely to do so based on local conditions;

 

reduced nonessential employee travel;

 

reduced the use of contractors;

 

implemented a number of other cost reduction initiatives;

 

entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Department of the Treasury (the “U.S. Treasury”), with respect to payroll support funding  available to cargo air carriers under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Payroll Support Program”) (see discussion below); and

 

deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022.  

9


Payroll Support Program under the CARES Act

As of May 29, 2020 (the “PSP Closing Date”), Atlas and Southern Air (the “PSP Recipients”) entered into a PSP Agreement with the U.S. Treasury.  As of the PSP Closing Date, AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a $199.8 million senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with Atlas and Southern Air as guarantors.

In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock.  As of March 31, 2021, no portion of the warrants have been exercised.

We initially recognized deferred grant income within Accrued liabilities for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement.  Grant income has been subsequently recognized within Other (income) expense, net in the consolidated statement of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits are paid.  The remaining $40.9 million of deferred grant income as of December 31, 2020 was recognized as grant income within Other (income) expense, net in the consolidated statement of operations during the three months ended March 31, 2021.

 

4. Related Parties

Polar

AAWW has a 51% equity interest and 75% voting interest in Polar.  DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, holds a 49% equity interest and a 25% voting interest in Polar.  Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL.  Under a 20-year blocked space agreement, which began in 2008, Polar provides air cargo capacity to DHL.  Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another.  We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.

The following table summarizes our transactions with Polar:

 

 

For the Three Months Ended

 

Revenue and Expenses:

 

March 31, 2021

 

 

March 31, 2020

 

Revenue from Polar

 

$

77,256

 

 

$

76,234

 

Ground handling and airport fees to Polar

 

 

882

 

 

 

526

 

 

 

 

 

 

 

 

 

 

Accounts receivable/payable as of:

 

March 31, 2021

 

 

December 31, 2020

 

Receivables from Polar

 

$

22,780

 

 

$

31,079

 

Payables to Polar

 

 

4,153

 

 

 

3,477

 

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Polar Investment as of:

 

March 31, 2021

 

 

December 31, 2020

 

Aggregate Carrying Value of Polar Investment

 

$

4,870

 

 

$

4,870

 

 

In addition to the amounts in the table above, Atlas recognized revenue of $54.1 million and $27.5 million for the three months ended March 31, 2021 and 2020, respectively, from flying on behalf of Polar.

Dry Leasing Joint Venture

We hold a 10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio.  Through Titan, we provide aircraft and lease management services to the joint venture for fees based upon aircraft assets under management, among other things.  Our investment in the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December 2022, of which $5.3 million has been contributed as of March 31, 2021. Our maximum exposure to losses from the entity is limited to our investment. The joint venture has third-party debt obligations of $49.4 million that are not guaranteed by us.  

10


The following table summarizes our transactions with our dry leasing joint venture:

 

 

 

For the Three Months Ended

 

Revenue and Expenses:

 

March 31, 2021

 

 

March 31, 2020

 

Revenue from dry leasing joint venture

 

$

1,324

 

 

$

-

 

Aircraft rent to dry leasing joint venture

 

 

2,250

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Aggregate Carrying Value of Joint Venture as of:

 

March 31, 2021

 

 

December 31, 2020

 

Aggregate Carrying Value of Dry Leasing Joint Venture

 

$

4,937

 

 

$

4,438

 

Parts Joint Venture

We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and provide repair services for those parts, primarily for 747-8F aircraft.  The joint venture is a variable interest entity and we have not consolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control.  Our investment in the joint venture is accounted for under the equity method of accounting and was $21.2 million as of March 31, 2021 and $21.0 million as of December 31, 2020. Our maximum exposure to losses from the entity is limited to our investment, which is composed primarily of rotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of $0.2 million as of March 31, 2021 and December 31, 2020.  We had Accounts payable to the joint venture of $1.0 million as of March 31, 2021 and $0.9 million as of December 31, 2020.

5. Amazon

In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involve, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan.  The Dry Leases have a term of ten years from the commencement of each agreement, while the CMI operations are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of March 31, 2021, 17 767-300 freighter aircraft were operating in CMI service and 19 767-300 freighters in Dry Lease service for Amazon.

In conjunction with the agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of $37.34 per share, as adjusted (“Warrant A”).  All 7.5 million shares, as adjusted, have vested in full and been exercised in two transactions. In October 2020, Amazon exercised 3,607,477 shares of Warrant A through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock. In January 2021, Amazon exercised the remaining 3,924,569 shares of Warrant A through a cashless exercise resulting in the issuance of 1,210,741 shares of our common stock.  

 

The agreements entered into in May 2016 also provided incentives for future growth of the relationship as Amazon may increase its business with us.  In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $37.34 per share, as adjusted (“Warrant B”).  This warrant to purchase 3.77 million shares, as adjusted, will vest in increments of 37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for incremental business beyond the original 20 767-300 freighters.  As of March 31, 2021, 564,900 shares, as adjusted, of Warrant B have vested.  Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. In January 2021, Amazon exercised 225,960 shares of Warrant B through a cashless exercise resulting in the issuance of 69,709 shares of our common stock.

 

In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon.  The 737-800 CMI operations are for a term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years).  As of March 31, 2021, eight 737-800 freighter aircraft were operating in CMI service.  Amazon may, in its sole discretion, place up to 12 additional 737-800 freighter aircraft into service with us by May 31, 2021.  

 

In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional 9.9% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.67 per share, as adjusted (“Warrant C”).  After Warrant B has vested in full, this warrant to purchase 6.66 million shares, as adjusted, would vest in increments of 45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B.  As of March 31, 2021, no portion of Warrant C has vested.  Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026. While Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.  

11


Upon the vesting of Warrant A in previous years, the fair value of the warrant was recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements.  When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the grant date fair value of such portion is recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized.  The grant date fair value of such increment is also recorded as Additional paid-in-capital. At the time of vesting, any amounts recorded in Additional paid-in-capital related to Dry Lease contracts would be reclassified as a warrant liability within Financial instruments and other liabilities with changes in fair value recorded in Unrealized loss (gain) on financial instruments.

We amortized $10.5 million and $9.0 million of the customer incentive asset as a reduction of Operating Revenue for the three months ended March 31, 2021 and 2020, respectively.

Customer incentive asset included within Deferred costs and other assets is as follows:

 

Balance at December 31, 2020

 

$

125,276

 

Initial value for estimate of vested or expected to vest warrants

 

 

3,228

 

Amortization of customer incentive asset

 

 

(10,481

)

Balance at March 31, 2021

 

$

118,023

 

 

We recognized a net unrealized loss of $0.1 million and a net unrealized gain of $0.9 million on the Amazon warrant liability related to Warrant A during the three months ended March 31, 2021 and 2020, respectively.  The fair value of the Amazon warrant liability was zero as of March 31, 2021 and $31.5 million as of December 31, 2020. Due to the exercise of Warrant A discussed above, our earnings are no longer affected by changes in the fair value of our Amazon warrant liability.  

 

6. Supplemental Financial Information

Accounts Receivable

Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was $237.0 million as of March 31, 2021 and $195.6 million as of December 31, 2020.

Allowance for expected credit losses, included within Accounts receivable, is as follows:

Balance as of December 31, 2020

 

$

1,233

 

Bad debt recovery

 

 

(397

)

Amounts written off, net of other items

 

 

174

 

Balance as of March 31, 2021

 

$

1,010

 

 

Accrued Liabilities

Accrued liabilities consisted of the following as of: 

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Maintenance

 

$

134,918

 

 

$

142,374

 

Customer maintenance reserves

 

 

97,467

 

 

 

93,092

 

Salaries, wages and benefits

 

 

82,928

 

 

 

136,753

 

Deferred revenue

 

 

47,863

 

 

 

41,665

 

Aircraft fuel

 

 

33,507

 

 

 

24,578

 

Deferred grant income

 

 

-

 

 

 

40,944

 

Other

 

 

104,634

 

 

 

103,754

 

Accrued liabilities

 

$

501,317

 

 

$

583,160

 

12


 

Revenue Contract Liability

Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition.  The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue. Changes in Deferred revenue during the three months ended March 31, 2021 were as follows:

 

Balance as of December 31, 2020

 

$

30,291

 

Revenue recognized

 

 

(57,193

)

Amounts collected or invoiced

 

 

63,786

 

Balance as of March 31, 2021

 

$

36,884

 

Supplemental Cash Flow Information

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:

 

 

March 31, 2021

 

 

December 31, 2020

 

Cash and cash equivalents

 

$

703,777

 

 

$

845,589

 

Restricted cash

 

 

10,247

 

 

 

10,692

 

Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows

 

$

714,024

 

 

$

856,281

 

 

7. Assets Held For Sale and Other Income

  As of December 31, 2020, we had two 737-400 passenger aircraft previously used for training purposes and certain spare CF6-80 engines classified as held for sale. During the three months ended March 31, 2021, we received net proceeds of $1.9 million from the completion of the sales of some of the spare CF6-80 engines.  We estimated the fair value of these assets, less costs to sell, based on bids received from independent third parties or recently completed sales.  The carrying value of the assets held for sale as of March 31, 2021 and December 31, 2020 was $12.3 million and $14.1 million, respectively, which was included within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. Sales of the remaining aircraft and engines are expected to be completed during 2021.

During the three months ended March 31, 2020, we recognized refunds of $1.4 million related to aircraft rent paid in previous years within Other (income) expense, net.

8. Debt

Term Loans

In March 2021, we borrowed $16.2 million at a fixed interest rate of 0.93% under an unsecured five-year term loan due in January 2026 for GEnx engine performance upgrade kits and overhauls.  The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.

Convertible Notes

In May 2017, we issued $289.0 million aggregate principal amount of 1.88% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering.  In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering.  The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year.  The Convertible Notes are due on their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.

13


The Convertible Notes consisted of the following as of March 31, 2021:

 

 

 

2015 Convertible Notes

 

 

2017 Convertible Notes

 

Remaining life in months

 

 

14

 

 

 

38

 

Liability component:

 

 

 

 

 

 

 

 

Gross proceeds

 

$

224,500

 

 

$

289,000

 

Less: debt discount, net of amortization

 

 

(10,555

)

 

 

(35,375