ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our 2021 Annual Report on Form 10-K.
Background
Certain Terms - Glossary
The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.
|
|
|
ACMI |
|
Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are generally responsible for landing, navigation and most other operational fees and costs. |
|
|
|
Block Hour |
|
The time interval between when an aircraft departs the terminal until it arrives at the destination terminal. |
|
|
|
C Check |
|
“Heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type. |
|
|
|
Charter |
|
Service offering, whereby we provide cargo and passenger aircraft charter services to customers. The customer generally pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs. |
|
|
|
CMI |
|
Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and generally responsible for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs. |
|
|
|
D Check |
|
“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six or eight years depending on aircraft type. |
|
|
|
Dry Leasing |
|
Service offering, whereby we provide cargo and passenger aircraft and engine leasing solutions for compensation that is typically based on a fixed monthly amount. The customer operates, and is generally responsible for insuring and maintaining, the flight equipment. |
|
|
|
Heavy Maintenance |
|
Scheduled maintenance activities that are extensive in scope and are primarily based on time or usage intervals, which include, but are not limited to, C Checks, D Checks and engine overhauls. In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be Heavy Maintenance. |
|
|
|
Line Maintenance |
|
Maintenance events occurring during normal day-to-day operations. |
|
|
|
Non-heavy Maintenance |
|
Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers. |
|
|
|
Utilization |
|
The average number of Block Hours operated per day per aircraft. |
|
|
|
Yield |
|
The average amount a customer pays to fly one tonne of cargo one mile. |
Business Overview
We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 and 737 aircraft for domestic, regional and international cargo and passenger operations. We provide unique value to our customers by giving them access to highly reliable modern production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. Our customers include express delivery providers, e-commerce retailers, the U.S.
18
military, charter brokers, freight forwarders, direct shippers, airlines, manufacturers, sports teams and fans, and private charter customers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.
We look to achieve our growth plans and enhance shareholder value by:
•Delivering superior service quality to our valued customers;
•Focusing on securing long-term customer contracts;
•Managing our fleet with a focus on leading-edge aircraft;
•Leveraging our flexible business model to maximize utilization;
•Driving significant and ongoing productivity improvements;
•Selectively pursuing and evaluating future acquisitions and alliances; while
•Appropriately managing capital allocation and delivering value to shareholders.
See “Business Overview” and “Business Strategy” in our 2021 Annual Report on Form 10-K for additional information.
Business Developments
Our Airline Operations results for the first quarter of 2022, compared with 2021, were positively impacted by higher commercial charter cargo Yields, net of fuel, including the impact of expanding and enhancing our relationships with strategic customers through new and extended long-term contracts. These higher Yields were driven by strong customer demand that was further enhanced by the continued reduction of available cargo capacity in the market provided by passenger airlines and the disruption of global supply chains due to the COVID-19 pandemic. Block Hours flown during the quarter decreased as we reduced less profitable smaller gauge CMI service flying and experienced operational disruptions due to the COVID-19 pandemic. We are closely monitoring the COVID-19 pandemic and taking numerous precautions to ensure the safety of our operations around the world and mitigate the impact of any disruptions, including continuously adjusting routes to limit exposure to regions significantly impacted.
We manage our fleet to profitably serve our customers with modern, efficient aircraft and have entered into the following transactions to secure capacity to meet strong customer demand.
•In January 2021, we signed an agreement with Boeing for the purchase of four new 747-8F aircraft. The first of these aircraft is expected to be delivered during the second quarter of 2022 and the remaining three throughout 2022. All four of these aircraft have been placed with customers under long-term agreements.
•Between May and October 2021, we acquired six of our existing 747-400 freighter aircraft that were previously on lease to us. In May and June of 2021, we reached agreement with several of our lessors to purchase five of our other 747-400 freighters at the end of their existing lease terms, one of which was acquired in March 2022. The acquisition of the remaining four aircraft will be completed between May and December 2022.
•In December 2021, we signed an agreement with Boeing for the purchase of four new 777-200LRF aircraft. The first of these aircraft is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023.
We continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.
In March 2022, we signed a new five-year CBA with our pilots, effective as of September 2021. Under this industry competitive agreement, all of our pilots are receiving significantly higher pay, quality of life improvements and enhanced benefits. Labor costs arising from the new CBA are materially greater than the costs under our previous CBAs with our pilots (see Note 11 to our Financial Statements for further discussion).
Given the dynamic nature of the COVID-19 pandemic, the financial impact cannot be reasonably estimated at this time. We have incurred and expect to incur significant additional costs, including higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic and other operational costs, including costs for continuing to provide a safe working environment for our employees. In addition, COVID-19-related airport closures, employees who are unable to work, vaccine mandates, disruption of operations by our third-party service providers, availability of hotels and restaurants, ground handling delays or reductions in passenger flights by other airlines globally, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft. The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.
19
Results of Operations
The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.
Three Months Ended March 31, 2022 and 2021
Operating Statistics
The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) for the three months ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Fleet |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
Airline Operations* |
|
|
|
|
|
|
|
|
|
747-8F Cargo |
|
|
10.0 |
|
|
|
10.0 |
|
|
|
- |
|
747-400 Cargo |
|
|
34.5 |
|
|
|
33.6 |
|
|
|
0.9 |
|
747-400 Dreamlifter |
|
|
0.3 |
|
|
|
1.2 |
|
|
|
(0.9 |
) |
747-400 Passenger |
|
|
4.9 |
|
|
|
4.9 |
|
|
|
- |
|
777-200 Cargo |
|
|
9.0 |
|
|
|
9.0 |
|
|
|
- |
|
767-300 Cargo |
|
|
24.0 |
|
|
|
24.0 |
|
|
|
- |
|
767-300 Passenger |
|
|
5.3 |
|
|
|
5.0 |
|
|
|
0.3 |
|
767-200 Cargo |
|
|
- |
|
|
|
5.6 |
|
|
|
(5.6 |
) |
767-200 Passenger |
|
|
- |
|
|
|
0.6 |
|
|
|
(0.6 |
) |
737-800 Cargo |
|
|
8.0 |
|
|
|
8.0 |
|
|
|
- |
|
Total |
|
|
96.0 |
|
|
|
101.9 |
|
|
|
(5.9 |
) |
|
|
|
|
|
|
|
|
|
|
Dry Leasing |
|
|
|
|
|
|
|
|
|
777-200 Cargo |
|
|
7.0 |
|
|
|
7.0 |
|
|
|
- |
|
767-300 Cargo |
|
|
21.0 |
|
|
|
21.0 |
|
|
|
- |
|
737-300 Cargo |
|
|
- |
|
|
|
1.0 |
|
|
|
(1.0 |
) |
Total |
|
|
28.0 |
|
|
|
29.0 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
Less: Aircraft Dry Leased to CMI customers |
|
|
(21.0 |
) |
|
|
(21.0 |
) |
|
|
- |
|
Total Operating Average Aircraft Equivalents |
|
|
103.0 |
|
|
|
109.9 |
|
|
|
(6.9 |
) |
* Airline Operations average fleet excludes spare aircraft provided by CMI customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Block Hours |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Total Block Hours** |
|
|
82,626 |
|
|
|
88,523 |
|
|
|
(5,897 |
) |
|
|
(6.7 |
)% |
** Includes Airline Operations and other Block Hours.
Operating Revenue
The following table compares our Operating Revenue for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Operating Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
|
$ |
995,355 |
|
|
$ |
826,240 |
|
|
$ |
169,115 |
|
|
|
20.5 |
% |
Dry Leasing |
|
|
46,170 |
|
|
|
40,364 |
|
|
|
5,806 |
|
|
|
14.4 |
% |
Customer incentive asset amortization |
|
|
(10,051 |
) |
|
|
(10,481 |
) |
|
|
(430 |
) |
|
|
(4.1 |
)% |
Other |
|
|
5,682 |
|
|
|
5,177 |
|
|
|
505 |
|
|
|
9.8 |
% |
Total Operating Revenue |
|
$ |
1,037,156 |
|
|
$ |
861,300 |
|
|
|
|
|
|
|
20
Airline Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Block Hours |
|
|
|
|
|
|
|
|
|
|
|
|
Cargo |
|
|
78,425 |
|
|
|
83,110 |
|
|
|
(4,685 |
) |
|
|
(5.6 |
)% |
Passenger |
|
|
3,306 |
|
|
|
3,648 |
|
|
|
(342 |
) |
|
|
(9.4 |
)% |
Total Airline Operations |
|
|
81,731 |
|
|
|
86,758 |
|
|
|
(5,027 |
) |
|
|
(5.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour |
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
|
$ |
12,178 |
|
|
$ |
9,524 |
|
|
$ |
2,654 |
|
|
|
27.9 |
% |
Cargo |
|
$ |
11,891 |
|
|
$ |
9,127 |
|
|
$ |
2,764 |
|
|
|
30.3 |
% |
Passenger |
|
$ |
18,991 |
|
|
$ |
18,563 |
|
|
$ |
428 |
|
|
|
2.3 |
% |
Airline Operations revenue increased $169.1 million, or 20.5%, primarily due to an increase in Revenue per Block Hour, partially offset by a reduction in Block Hours. Revenue per Block Hour rose primarily due to higher Yields, net of fuel, including the impact of new and extended long-term contracts, as well as higher fuel prices. Block Hours flown decreased as we reduced less profitable smaller gauge CMI service flying and experienced operational disruptions due to the COVID-19 pandemic.
Dry Leasing
Dry Leasing revenue increased $5.8 million, or 14.4%, primarily due to $5.0 million of revenue from maintenance payments related to the scheduled return of an aircraft, which was subsequently sold during the quarter.
Operating Expenses
The following table compares our Operating Expenses for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits |
|
$ |
298,019 |
|
|
$ |
202,614 |
|
|
$ |
95,405 |
|
|
|
47.1 |
% |
Aircraft fuel |
|
|
244,337 |
|
|
|
163,551 |
|
|
|
80,786 |
|
|
|
49.4 |
% |
Maintenance, materials and repairs |
|
|
118,899 |
|
|
|
121,133 |
|
|
|
(2,234 |
) |
|
|
(1.8 |
)% |
Depreciation and amortization |
|
|
72,202 |
|
|
|
67,789 |
|
|
|
4,413 |
|
|
|
6.5 |
% |
Travel |
|
|
42,768 |
|
|
|
37,672 |
|
|
|
5,096 |
|
|
|
13.5 |
% |
Navigation fees, landing fees and other rent |
|
|
39,354 |
|
|
|
44,887 |
|
|
|
(5,533 |
) |
|
|
(12.3 |
)% |
Passenger and ground handling services |
|
|
34,936 |
|
|
|
40,065 |
|
|
|
(5,129 |
) |
|
|
(12.8 |
)% |
Aircraft rent |
|
|
12,995 |
|
|
|
20,756 |
|
|
|
(7,761 |
) |
|
|
(37.4 |
)% |
Loss (gain) on disposal of flight equipment |
|
|
(6,240 |
) |
|
|
16 |
|
|
|
6,256 |
|
|
NM |
|
Special charge |
|
|
2,633 |
|
|
|
- |
|
|
|
2,633 |
|
|
NM |
|
Transaction-related expenses |
|
|
- |
|
|
|
201 |
|
|
|
(201 |
) |
|
NM |
|
Other |
|
|
55,857 |
|
|
|
58,412 |
|
|
|
(2,555 |
) |
|
|
(4.4 |
)% |
Total Operating Expenses |
|
$ |
915,760 |
|
|
$ |
757,096 |
|
|
|
|
|
|
|
NM represents year-over-year changes that are not meaningful.
Salaries, wages and benefits increased $95.4 million, or 47.1%, primarily due to increased pilot costs related to our new CBA and higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic.
Aircraft fuel increased $80.8 million, or 49.4%, primarily due to an increase in the average fuel cost per gallon and lower consumption related to decreased Charter flying. Our exposure to fluctuations in fuel price is generally limited to the shorter-term commercial portion of our Charter services, as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in providing ACMI and CMI services or in our Dry Leasing business as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the three months ended March 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Average fuel cost per gallon |
|
$ |
2.74 |
|
|
$ |
1.71 |
|
|
$ |
1.03 |
|
|
|
60.2 |
% |
Fuel gallons consumed (000s) |
|
|
89,199 |
|
|
|
95,586 |
|
|
|
(6,387 |
) |
|
|
(6.7 |
)% |
21
Maintenance, materials and repairs decreased $2.2 million, or 1.8%, primarily reflecting $10.9 million of reduced Line Maintenance, partially offset by $8.8 million of increased Heavy Maintenance expense. Line Maintenance decreased primarily due to the reduction in flying. Heavy Maintenance expense on 747-400 aircraft increased $10.7 million primarily due to increases in the number of engine overhauls and D Checks, partially offset by a decrease in the number of C Checks. Heavy Maintenance expense on 747-8F aircraft decreased $3.1 million primarily due to a decrease in the number of D Checks, partially offset by an increase in the number of C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended March 31 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
Heavy Maintenance Events |
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
747-8F C Checks |
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
747-400 C Checks |
|
|
4 |
|
|
|
5 |
|
|
|
(1 |
) |
777-200 C Checks |
|
|
1 |
|
|
|
- |
|
|
|
1 |
|
767 C Checks |
|
|
2 |
|
|
|
2 |
|
|
|
- |
|
747-8F D Checks |
|
|
- |
|
|
|
2 |
|
|
|
(2 |
) |
747-400 D Checks |
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
CF6-80 engine overhauls |
|
|
3 |
|
|
|
1 |
|
|
|
2 |
|
PW4000 engine overhauls |
|
|
- |
|
|
|
1 |
|
|
|
(1 |
) |
Depreciation and amortization increased $4.4 million, or 6.5%, primarily due to an increase in depreciation related to the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.
Travel increased $5.1 million, or 13.5%, primarily due to increased rates.
Navigation fees, landing fees and other rent decreased $5.5 million, or 12.3%, primarily due to decreased flying.
Passenger and ground handling services decreased $5.1 million, or 12.8%, primarily due to decreased flying and lower rates.
Aircraft rent decreased $7.8 million, or 37.4%, primarily due the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.
Gain on disposal of flight equipment in 2022 represented a gain from the sale of six spare CF6-80 engines previously classified as assets held for sale (see Note 6 to our Financial Statements).
Special charge in 2022 represented a charge related to two CF6-80 engines Dry Leased to a customer.
Other decreased $2.6 million, or 4.4%, primarily due to a decrease in professional fees incurred in 2021 related to costs associated with negotiations and arbitration for a new CBA (see Note 11 to our Financial Statements).
Non-operating Expenses (Income)
The following table compares our Non-operating Expenses (Income) for the three months ended March 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Non-operating Expenses (Income) |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
$ |
(240 |
) |
|
$ |
(211 |
) |
|
$ |
29 |
|
|
|
13.7 |
% |
Interest expense |
|
|
20,423 |
|
|
|
27,180 |
|
|
|
(6,757 |
) |
|
|
(24.9 |
)% |
Capitalized interest |
|
|
(3,764 |
) |
|
|
(1,271 |
) |
|
|
2,493 |
|
|
NM |
|
Unrealized loss on financial instruments |
|
|
- |
|
|
|
113 |
|
|
|
(113 |
) |
|
NM |
|
Other (income) expense, net |
|
|
(618 |
) |
|
|
(39,456 |
) |
|
|
(38,838 |
) |
|
|
(98.4 |
)% |
Interest expense decreased $6.8 million, or 24.9%, primarily due to the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 to our Financial Statements) and the scheduled repayment of debt.
Capitalized interest increased $2.5 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft and our December 2021 agreement to purchase four 777-200LRF aircraft from Boeing (see Note 2 to our Financial Statements).
Other (income) expense, net decreased primarily due to $40.9 million in CARES Act grant income in 2021 (see Note 2 to our Financial Statements).
22
Income taxes. The effective income tax rates were 22.8% and 23.7% for the three months ended March 31, 2022 and 2021, respectively. The rate for the three months ended March 31, 2022 and 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.
Segments
The following table compares the Direct Contribution for our reportable segments for the three months ended March 31 (see Note 10 to our Financial Statements for the reconciliation to Operating income) (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2022 |
|
|
2021 |
|
|
Inc/(Dec) |
|
|
% Change |
|
Direct Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
Airline Operations |
|
$ |
185,818 |
|
|
$ |
169,150 |
|
|
$ |
16,668 |
|
|
|
9.9 |
% |
Dry Leasing |
|
|
16,909 |
|
|
|
10,564 |
|
|
|
6,345 |
|
|
|
60.1 |
% |
Total Direct Contribution |
|
$ |
202,727 |
|
|
$ |
179,714 |
|
|
$ |
23,013 |
|
|
|
12.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses and (income), net |
|
$ |
100,739 |
|
|
$ |
61,535 |
|
|
$ |
39,204 |
|
|
|
63.7 |
% |
Airline Operations Segment
Airline Operations Direct Contribution increased $16.7 million, or 9.9%, primarily due to increased Yields, net of fuel, including the impact of new and extended long-term contracts. Partially offsetting these improvements were increased pilot costs related to our new CBA and higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic.
Dry Leasing Segment
Dry Leasing Direct Contribution increased $6.3 million, or 60.1%, primarily due to $5.0 million of revenue from maintenance payments related to the scheduled return of an aircraft and lower interest expense related to the scheduled repayment of debt.
Unallocated expenses and (income), net
Unallocated expenses and (income), net increased $39.2 million, or 63.7%, primarily due to $40.9 million in CARES Act grant income recognized in 2021 (see Note 2 to our Financial Statements).
Reconciliation of GAAP to non-GAAP Financial Measures
To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income, Adjusted Diluted EPS and Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Net Income and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP.
We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation is determined, in part, by using Adjusted Net Income and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.
23
The following is a reconciliation of Net Income and Diluted EPS to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
March 31, 2022 |
|
|
|
March 31, 2021 |
|
|
Percent Change |
|
Net Income |
|
|
$ |
81,511 |
|
|
|
$ |
89,933 |
|
|
|
(9.4 |
)% |
Impact from: |
|
|
|
|
|
|
|
|
|
|
|
CARES Act grant income (a) |
|
|
|
- |
|
|
|
|
(40,944 |
) |
|
|
|
Customer incentive asset amortization |
|
|
|
10,051 |
|
|
|
|
10,481 |
|
|
|
|
Adjustments to CBA paid time-off benefits (b) |
|
|
|
2,154 |
|
|
|
|
- |
|
|
|
|
Special charge (c) |
|
|
|
2,633 |
|
|
|
|
- |
|
|
|
|
Noncash expenses and income, net (d) |
|
|
|
- |
|
|
|
|
4,672 |
|
|
|
|
Unrealized loss on financial instruments |
|
|
|
- |
|
|
|
|
113 |
|
|
|
|
Other, net (e) |
|
|
|
(6,240 |
) |
|
|
|
329 |
|
|
|
|
Income tax effect of reconciling items |
|
|
|
(1,329 |
) |
|
|
|
7,631 |
|
|
|
|
Adjusted Net Income |
|
|
$ |
88,780 |
|
|
|
$ |
72,215 |
|
|
|
22.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
34,690 |
|
|
|
|
29,478 |
|
|
|
|
Less: effect of convertible notes hedges (f) |
|
|
|
(5,031 |
) |
|
|
|
- |
|
|
|
|
Adjusted weighted average diluted shares outstanding |
|
|
|
29,659 |
|
|
|
|
29,478 |
|
|
|
|
Adjusted Diluted EPS |
|
|
$ |
2.99 |
|
|
|
$ |
2.45 |
|
|
|
22.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
March 31, 2022 |
|
|
|
March 31, 2021 |
|
|
Percent Change |
|
Net Income |
|
|
$ |
81,511 |
|
|
|
$ |
89,933 |
|
|
|
(9.4 |
)% |
Interest expense, net |
|
|
|
16,419 |
|
|
|
|
25,698 |
|
|
|
|
Depreciation and amortization |
|
|
|
72,202 |
|
|
|
|
67,789 |
|
|
|
|
Income tax expense |
|
|
|
24,084 |
|
|
|
|
27,916 |
|
|
|
|
EBITDA |
|
|
|
194,216 |
|
|
|
|
211,336 |
|
|
|
|
CARES Act grant income (a) |
|
|
|
- |
|
|
|
|
(40,944 |
) |
|
|
|
Customer incentive asset amortization |
|
|
|
10,051 |
|
|
|
|
10,481 |
|
|
|
|
Adjustments to CBA paid time-off benefits (b) |
|
|
|
2,154 |
|
|
|
|
- |
|
|
|
|
Special charge (c) |
|
|
|
2,633 |
|
|
|
|
- |
|
|
|
|
Unrealized loss on financial instruments |
|
|
|
- |
|
|
|
|
113 |
|
|
|
|
Other, net (e) |
|
|
|
(6,240 |
) |
|
|
|
329 |
|
|
|
|
Adjusted EBITDA |
|
|
$ |
202,814 |
|
|
|
$ |
181,315 |
|
|
|
11.9 |
% |
(a)CARES Act grant income in 2021 related to income associated with the Payroll Support Program (see Note 2 to our Financial Statements).
(b)Adjustments to CBA paid time-off benefits in 2022 are related to our new CBA (see Note 11 to our Financial Statements).
(c)Special charge in 2022 represented a charge related to two CF6-80 engines Dry Leased to a customer.
(d)Noncash expenses and income, net in 2021 primarily related to amortization of debt discount on the convertible notes (see Note 7 to our Financial Statements).
(e)Other, net in 2022 primarily related to a gain on the sale of six spare CF6-80 engines previously held for sale (see Note 6 to our Financial Statements). Other, net in 2021 primarily related to costs associated with our acquisition of an airline and leadership transition costs.
(f)Represents the economic benefit from our convertible notes hedges in offsetting dilution from our convertible notes as we concluded in no event would economic dilution result from conversion of each of the convertible notes when our stock price is below the exercise price of the respective convertible note warrants.
Liquidity and Capital Resources
The most significant liquidity events during the first quarter of 2022 were as follows:
In February 2022, we paid $100.0 million and received an initial delivery of 1,061,257 shares pursuant to an ASR under our new stock repurchase program approved by our board of directors, which authorized the repurchase of up to $200.0 million of our common stock. We subsequently settled the ASR in April 2022 and received an additional 172,887 shares of common stock. See Note 12 to our Financial Statements for a discussion of our ASR.
Operating Activities. Net cash provided by operating activities was $207.8 million for the first quarter of 2022, which primarily reflected Net Income of $81.5 million; noncash adjustments of $85.3 million for Depreciation and amortization and $23.7 million for Deferred taxes; a $12.5 million increase in Accounts payable, accrued liabilities and other liabilities and a $10.0 million decrease in Accounts receivable, partially offset by a $3.6 million increase in Prepaid expenses, current assets and other assets. Net cash provided
24
by operating activities was $88.1 million for the first quarter of 2021, which primarily reflected Net Income of $89.9 million; noncash adjustments of $86.2 million for Depreciation and amortization and $27.8 million for Deferred taxes, partially offset by a $89.4 million decrease in Accounts payable, accrued liabilities and other liabilities; a $22.7 million increase in Accounts receivable and a $7.5 million increase in Prepaid expenses, current assets and other assets.
Investing Activities. Net cash used for investing activities was $171.6 million for the first quarter of 2022, consisting primarily of $154.4 million of purchase deposits and payments for flight equipment and modifications and $29.9 million of payments for core capital expenditures, excluding flight equipment, partially offset by $13.5 million of proceeds from the disposal of flight equipment. Purchase deposits and payments for flight equipment and modifications during the first quarter of 2022 were primarily related to pre-delivery payments and spare engines. All capital expenditures for 2022 were funded through working capital. Net cash used for investing activities was $153.2 million for the first quarter of 2021, consisting primarily of $126.8 million of purchase deposits and payments for flight equipment and modifications and $26.7 million of payments for core capital expenditures, excluding flight equipment. Purchase deposits and payments for flight equipment and modifications during the first quarter of 2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits.
Financing Activities. Net cash used for financing activities was $216.4 million for the first quarter of 2022, which primarily reflected $108.5 million of payments on debt, $80.0 million related to the purchase of treasury stock, $20.0 million related to the prepayment of accelerated share repurchase and $12.1 million related to treasury shares withheld for payment of taxes, partially offset by $4.2 million of customer maintenance reserves and deposits received. Net cash used for financing activities was $77.2 million for the first quarter of 2021, which primarily reflected $78.0 million of payments on debt, $12.3 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for payment of taxes, partially offset by $16.2 million of proceeds from debt issuance and $5.2 million of customer maintenance reserves and deposits received.
We consider Cash and cash equivalents, Net cash provided by operating activities and availability under our revolving credit facility to be sufficient to meet our debt and lease obligations, to fund capital expenditures for 2022 and to purchase shares of our stock under our stock repurchase program (see Note 12 to our Financial Statements). Core capital expenditures for the remainder of 2022 are expected to range from $105.0 to $115.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of 2022 are expected to be approximately $659.9 million.
Committed capital expenditures include pre-delivery and delivery payments for the purchase of four new 747-8F and four new 777-200LRF aircraft from Boeing, and other agreements to acquire spare engines. We expect to finance the aircraft delivery payments through secured debt financing. The first of the 747-8F aircraft is expected to be delivered during the second quarter of 2022 and the remaining three throughout 2022. The first 777-200LRF aircraft is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023.
We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in April 2020 that enables us to sell debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.
We do not expect to pay any significant U.S. federal income tax for at least several years. Our business operations are subject to income tax in several foreign jurisdictions and in many states. We do not expect to pay any significant cash income taxes for at least several years in these foreign jurisdictions and states. We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant. The U.S. and numerous other countries are currently considering tax reform, which could result in significant changes to U.S. and international tax laws. The potential enactment of these laws could have a material impact on our business, results of operations and financial condition. We continue to monitor developments and assess the impact to us.
Description of Debt Agreements
See our 2021 Annual Report on Form 10-K for a description of our debt obligations and amendments thereto as of December 31, 2021.
Off-Balance Sheet Arrangements
There were no material changes to our off-balance sheet arrangements during the three months ended March 31, 2022.
25
Recent Accounting Pronouncements
See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.
The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, 2021. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.