e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal
year ended December 31, 2009
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Atlas Air Worldwide Holdings,
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
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001-16545
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13-4146982
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(State or other jurisdiction of
incorporation)
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(Commission File
Number)
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(IRS Employer Identification
No.)
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2000 Westchester Avenue,
Purchase, New York
(Address of principal
executive offices)
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10577
(Zip Code)
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(914) 701-8000
(Registrants telephone
number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
ACT:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Stock, $0.01 Par Value
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The NASDAQ Global Select Market
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(including Rights to Purchase
Common Shares)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
ACT:
None
Indicate by check mark if the registrant is a well known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Exchange
Act. Yes o No þ
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
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 at least the past
90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form l0-K or any amendment to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
The aggregate market value of the registrants Common Stock
held by non-affiliates based upon the closing price of Common
Stock as reported on The NASDAQ Global Select Market as of
June 30, 2009 was approximately $389,534,141. In
determining this figure, the registrant has assumed that all
directors, executive officers and persons known to it to
beneficially own ten percent or more of such Common Stock are
affiliates. This assumption shall not be deemed conclusive for
any other purpose. As of February 1, 2010, there were
25,703,011 shares of the registrants Common Stock
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE:
Part III of this
Form 10-K
incorporates by reference certain information from the Proxy
Statement for the Annual Meeting of Stockholders scheduled to be
held May 25, 2010.
FORWARD
LOOKING STATEMENTS AND INFORMATION
This Annual Report on
Form 10-K
(this Report) and other statements issued or made
from time to time by or on behalf of Atlas Air Worldwide
Holdings, Inc. (AAWW) contain statements that may
constitute Forward-Looking Statements within the
meaning of the Securities Act of 1933, as amended (the
Securities Act), and the Securities Exchange Act of
1934, as amended by the Private Securities Litigation Reform Act
of 1995 (the Exchange Act). Those statements and
information are based on managements beliefs, plans,
expectations and assumptions, and on information currently
available to AAWW. The words 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 Item 1A, Risk Factors. Many
of such factors are beyond AAWWs control and are difficult
to predict. As a result, AAWWs future actions, financial
position, results of operations and the market price for shares
of AAWWs common stock could differ materially from those
expressed in any forward-looking statements made by AAWW.
Readers are therefore cautioned not to place undue reliance on
forward-looking statements. AAWW also 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.
PART I
Certain
Terms
The following represents terms and statistics specific to the
airline and cargo industries. They are used by management for
statistical analyses to evaluate and measure operations,
results, productivity and efficiency.
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Glossary
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A Check
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Low-level maintenance checks performed on aircraft at an
interval of approximately 750 flight hours for a 747-200
aircraft and 1,000 flight hours for a 747-400 aircraft.
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ACMI
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A leasing arrangement whereby an airline (lessor) provides an
aircraft, crew, maintenance, and insurance to a customer
(lessee) for compensation that is typically based on hours
operated. This arrangement is also commonly referred to as a
Wet Lease.
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AMC Charter
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The provision of full planeload charter flights to the U.S.
Military Airlift Mobility Command (the AMC). The AMC
pays a fixed charter fee that includes fuel, insurance, landing
fees, overfly and all other operational fees and costs.
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ATM
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Available ton miles, which represent the maximum available tons
(capacity) per actual miles flown. It is calculated by
multiplying the available capacity (tonnage) of the aircraft by
the miles flown by the aircraft.
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Block Hour
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The time interval between when an aircraft departs the terminal
until it arrives at the destination terminal.
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C Check
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High-level or heavy airframe maintenance checks,
which are more intensive in scope than A Checks and are
generally performed on 18 month intervals.
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CMI
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A servicing arrangement whereby an airline provides crew,
maintenance, and insurance to a customer for compensation that
is typically based on hours operated, with the customer
providing the aircraft.
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Commercial Charter
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The provision of full planeload capacity to a customer for one
or more flights based on a specific origin and destination. The
customer pays a fixed charter fee that includes fuel, insurance,
landing fees, overfly and all other operational fees and costs.
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D Check
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High-level or heavy airframe maintenance checks,
which are the most extensive in scope and are generally
performed on an interval of nine years or 25,000 flight hours,
whichever occurs sooner for 747-200 aircraft, and six years for
747-400 aircraft.
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Direct Contribution
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An economic performance metric used by the Company to show
profitability of each segment. It consists of income (loss)
before taxes and excludes special charges, non-recurring items,
gains on the disposal of equipment, unallocated revenue and
unallocated fixed costs.
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Dry Lease
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A leasing arrangement whereby an entity (lessor) provides an
aircraft and/or engine without crew, maintenance, or insurance
to another entity (lessee) for compensation that is typically
based on a fixed monthly amount.
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Load Factor
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The average amount of weight flown divided by the maximum
available capacity. It is calculated by dividing RTMs by ATMs.
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Revenue Per
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Calculated by dividing operating revenues by Block Hours.
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Block Hour
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RTM
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Revenue ton mile, which is calculated by multiplying actual tons
carried by miles flown.
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Scheduled Service
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The provision of scheduled airport-to-airport cargo services to
freight forwarders and other shipping customers for compensation
that is billed by air way bill based on a rate per kilo.
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Yield
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The average amount a customer pays to fly one ton of cargo one
mile. It is calculated by dividing operating revenues by RTMs.
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1
Overview
AAWW is a holding company with a principal operating subsidiary,
Atlas Air, Inc. (Atlas), which is wholly-owned. AAWW
also has a 51% economic interest and 75% voting interest in
Polar Air Cargo Worldwide, Inc. (Polar), which is
accounted for under the equity method as of October 27,
2008. On June 28, 2007, Polar issued shares representing a
49% economic interest and a 25% voting interest to DHL Network
Operations (USA), Inc. (DHL), a subsidiary of
Deutsche Post AG (DP) that has guaranteed DHLs
obligations under its agreements with AAWW either directly or
through a creditworthy subsidiary. Prior to that date, Polar was
wholly owned by AAWW and was the parent company of Polar Air
Cargo, Inc., the entity through which AAWW had principally
conducted its Scheduled Service business. Polar Air Cargo, Inc.
was converted to a limited liability company in June 2007
(Polar LLC), and is now wholly owned by AAWW. In
2008, AAWW formed Titan Aviation Leasing Ltd. and Titan Aviation
Leasing
Limited-Americas,
Inc. (collectively referred to as Titan), wholly
owned subsidiaries, to Dry Lease aircraft and engines. In
addition, Atlas Dry Leases aircraft to Global Supply Systems
Limited (GSS), an entity in which AAWW has a 49%
ownership interest. GSS became a consolidated subsidiary on
April 8, 2009. Previously, GSS was accounted for under the
equity method. AAWW, Atlas, Polar, GSS, Titan and Polar LLC are
herein referred to collectively as the Company
we, us or our. References to
Polar LLC include, where appropriate, Polar Air Cargo, Inc.
We are the global leader in leasing and outsourcing services for
wide-body freighter aircraft. We manage and operate the
worlds largest fleet of 747 freighters. We provide unique
value to our customers by giving them access to highly reliable
new production freighters that deliver the lowest unit cost in
the marketplace combined with outsourced aircraft operating
services that lead the industry in terms of quality and global
scale. Our customers include airlines, express delivery
providers, freight forwarders, the U.S. military and
charter brokers. We provide global services with operations in
Asia, the Middle East, Australia, Europe, South America, Africa
and North America.
Global airfreight demand is highly correlated with global gross
domestic product. The slowdown in global economic activity in
2008 and 2009 resulted in an unprecedented decline in airfreight
volumes during the second half of 2008 that continued into the
first half of 2009. Although industry supply and demand levels
have improved meaningfully since early 2009, airfreight demand
remains below pre-recession levels. The fourth quarter of 2009
produced encouraging trends for peak period airfreight demand
and yields, which were consistent with a tightened supply in
2009.
We believe that our business model, which focuses on the
deployment of modern and efficient aircraft in long-term and
fixed price contracts with creditworthy customers as well as the
ability to provide scale, scope and quality outsourced operating
services, has positioned us well to meet the challenges of the
market environment. Our existing fleet of 22 modern,
high-efficiency
747-400
aircraft represents one of the most efficient freighter fleets
in the market. Our primary placement for these aircraft will
continue to be long-term ACMI outsourcing contracts with
high-credit-quality customers.
Our growth plans are focused on the further enhancement of our
ACMI market position with our order of 12 new,
state-of-the-art
747-8F
aircraft. These aircraft are manufactured by the Boeing Company
(Boeing) and we expect Boeing to begin delivery to
us in early 2011. We are a launch customer for the aircraft and
are currently the only operator offering these aircraft on a Wet
Lease basis to the ACMI leasing market. In addition to our firm
commitments for 12 aircraft, we also hold rights to purchase up
to an additional 14
747-8F
aircraft, providing us with flexibility to further expand our
fleet in response to market conditions.
We believe that the scale, scope and quality of our outsourced
services are unparalleled in our industry. The relative
operating cost efficiency of our current
747-400F
aircraft and future
747-8F
aircraft, including their superior fuel efficiency, payload
capacity and loading capabilities, create a compelling value
proposition for our customers and position us well for future
growth in the ACMI, Commercial Charter and Dry Leasing areas of
our business.
2
Our primary service offerings are:
Aircraft leasing and outsourcing services, which encompass the
following:
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ACMI, whereby we provide outsourced aircraft operating solutions
including the provision of crew, maintenance and insurance for
the aircraft, while customers assume fuel, demand and yield
risk. ACMI contracts typically range from three to six years for
747-400s.
Beginning in 2010, we plan to engage in CMI flying, which is
similar to ACMI flying, except that the customer will be
providing its own aircraft. Included in ACMI is the provision of
outsourced
airport-to-airport
wide-body cargo aircraft solutions to Polar for the benefit of
DHL and other customers (Express Network ACMI).
Through this arrangement, we provide dedicated
747-400
aircraft servicing the requirements of DHLs global express
operations through Polar as well as the requirements of
Polars other customers. Beginning on April 8, 2009,
we consolidated GSS and the aircraft that are Dry Leased to GSS
are now included in ACMI; and
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Dry Leasing, whereby we provide aircraft
and/or
engine leasing solutions to third parties.
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Charter services, which encompass the following:
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AMC Charter services, whereby we provide air cargo services for
the AMC; and
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Commercial Charter, whereby we typically provide aircraft
charters to brokers, freight forwarders, direct shippers and
airlines.
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AAWW was incorporated in Delaware in 2000. Our principal
executive offices are located at 2000 Westchester Avenue,
Purchase, New York 10577, and our telephone number is
(914) 701-8000.
Operations
Introduction. We currently operate our service
offerings through the following reportable segments: ACMI, AMC
Charter, Commercial Charter and Dry Leasing. All reportable
business segments are directly or indirectly engaged in the
business of air transportation services but have different
commercial and economic characteristics, which are separately
reviewed by management. Financial information regarding our
reportable segments can be found in Note 12 to our
consolidated financial statements included in Item 8 of
Part II of this Report (the Financial
Statements).
ACMI. Historically, the core of Atlas
business has been leasing aircraft to other airlines on an ACMI
basis. Under an ACMI lease, customers typically contract for the
use of a dedicated aircraft type that is operated, crewed,
maintained and insured by Atlas in exchange for guaranteed
minimum revenues at predetermined levels of operation for
defined periods of time. We are paid a Block Hour rate for hours
operated above our guaranteed minimum level of flying. The
aircraft are generally operated under the traffic rights of the
customer. All other direct operating expenses, such as fuel,
overfly and landing fees and ground handling, are generally
borne by the customer, who also bears the commercial revenue
risk of Load Factor and Yield.
ACMI provides a predictable annual revenue and cost base by
minimizing the risk of fluctuations such as Yield, fuel and
traffic demand risk in the air cargo business. Our ACMI revenues
and most of our costs under ACMI contracts are denominated in
U.S. dollars, minimizing currency risks associated with
international business.
Beginning on October 27, 2008, the revenue generated by
providing Express Network ACMI services to Polar for air cargo
capacity to DHL is reported as ACMI.
All of our ACMI contracts provide that the aircraft remain under
our exclusive operating control, possession and direction at all
times. The ACMI contracts further provide that both the
contracts and the routes to be operated may be subject to prior
and/or
periodic approvals of the U.S. or foreign governments.
ACMI revenue represented 45.4%, 22.3% and 22.9% of our operating
revenue and 70.5%, 48.7% and 45.1% of our operated block hours
for the years ended December 31, 2009, 2008 and 2007,
respectively. ACMI revenue is recognized as the actual Block
Hours operated on behalf of a customer are incurred or according
to the minimum revenue guarantee defined in a contract.
3
As of December 31, 2009, we had 17 aircraft under ACMI
contracts expiring at various times from 2010 to 2028, including
renewals. The original length of these contracts ranged from
three to twenty years. In addition, we have also operated
short-term, seasonal ACMI contracts and we expect to continue to
provide such services in the future.
AMC Charter. The AMC Charter business provides
full planeload charter flights to the U.S. Military. The
AMC Charter business is similar to the Commercial Charter
business (described below) in that we are responsible for the
direct operating costs of the aircraft. However, in the case of
AMC operations, the price of fuel used during AMC flights is
fixed by the U.S. Military. The contracted charter rates
(per mile) and fuel prices (per gallon) are established on a
cost-plus basis and fixed by the AMC generally for twelve-month
periods running from October to September of the next year. We
receive reimbursements from the AMC each month if the price of
fuel paid by us to vendors for the AMC Charter flights exceeds
the fixed price; if the price of fuel paid by us is less than
the fixed price, then we pay the difference to AMC. The AMC buys
cargo capacity on two bases: a fixed basis, which is awarded
annually, and expansion flying, which is awarded on an as needed
throughout the contract term. While the fixed business is
predictable, Block Hour levels for expansion flying are
difficult to predict and thus are subject to fluctuation. The
majority of our AMC business is expansion flying. We also earn
commissions on subcontracting certain flying of oversize cargo,
or in connection with flying cargo into areas of military
conflict where we cannot perform these services ourselves.
Revenue derived from the AMC Charter business represented 31.0%,
26.5% and 24.7% of operating revenue and 17.5%, 14.8% and 16.7%
of our operated block hours for the years ended
December 31, 2009, 2008 and 2007, respectively.
Commercial Charter. Our Commercial Charter
business segment provides full planeload capacity to customers
for one or more flights based on a specific origin and
destination. Customers include charter brokers, freight
forwarders, direct shippers and airlines. Charter customers pay
a fixed charter fee that includes fuel, insurance, landing fees,
overfly and all other operational fees and costs. The Commercial
Charter business is generally booked on a short-term, as needed,
basis. In addition, Atlas provides limited
airport-to-airport
cargo services to a few select markets, including Viracopos
Airport near Sao Paulo, Brazil. Atlas bears the commercial
revenue, Load Factor and Yield risk, as well as all direct
operating costs, which includes fuel, insurance, overfly and
landing fees and ground handling expenses. Distribution costs
are also borne by Atlas and consist of direct sales costs
incurred through our own sales force and through commissions
paid to general sales agents.
Revenue derived from our Commercial Charter business accounted
for 20.3%, 7.9% and 7.4% of our operating revenue and 11.6%,
5.5% and 5.6% of our operated block hours for the years ended
December 31, 2009, 2008 and 2007, respectively.
Dry Leasing. Our Dry Leasing segment provides
for the leasing of aircraft
and/or
engines to customers primarily by Titan.
Revenue derived from our Dry Leasing business accounted for
1.2%, 3.0% and 3.2% of our operating revenue for the years ended
December 31, 2009, 2008 and 2007, respectively.
Global
Supply Systems
The Company holds a 49% interest in GSS, a private company.
Atlas Dry Leases three owned
747-400s to
GSS, which pays for rent and a provision for maintenance costs
associated with the aircraft. GSS, in turn, provides ACMI
services for these aircraft to British Airways Plc
(British Airways).
On April 8, 2009, certain members of management of GSS,
through an employee benefit trust, purchased shares of GSS from
a former stockholder. These shares, which were not and have
never been owned by the Company, represent a 51% controlling
interest in GSS. Based on the various agreements related to the
transaction, the Company reviewed its investment in GSS and
determined that a reconsideration event had occurred under
Financial Accounting Standards Boards (FASB)
Accounting Standards Codification (ASC) 810
Consolidation (ASC 810). Upon application of
ASC 810, the Company determined that GSS is a variable interest
entity and that the Company is the primary beneficiary of GSS
for financial reporting purposes. As a result of that
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determination, GSS became a consolidated subsidiary of AAWW upon
the closing of the transaction. There was no consideration
transferred from the Company in this transaction. The revenue
and results of operations for GSS are now reflected in the ACMI
segment. Prior to April 8, 2009, the Company accounted for
GSS under the equity method and reported the revenue from GSS as
Dry Leasing revenue in the consolidated statements of operations.
SonAir
On October 22, 2009, the Company entered into an agreement
with SonAir Serviço Aéreo, S.A.
(SonAir), a wholly owned subsidiary of the Sonangol
Group, the multinational energy company of Angola and member of
the United States-Africa Energy Association (USAEA),
to operate an outsourced premium passenger charter service with
two newly customized
747-400
aircraft reconfigured into largely business and executive class
configuration. The aircraft are being provided by SonAirs
parent company. The Company plans to operate three dedicated
weekly non-stop flights between Houston, Texas and Luanda,
Angola. Under the agreement with SonAir and similar to the
Companys ACMI services, the Company expects to receive
contractually determined revenues for the operation of the
aircraft without assuming responsibility for passenger revenue
and certain direct costs, including fuel.
While the private charter is not open to the public, it provides
USAEA members, which include many of the leading
U.S. energy companies, with a premium non-stop
transportation link to support long-term projects in the West
African energy sector.
DHL
Investment
On June 28, 2007, DHL acquired a 49% equity interest and a
25% voting interest in Polar. AAWW continues to own the
remaining 51% equity interest in Polar with a 75% voting
interest. As part of the transaction to issue shares in Polar to
DHL, Polar LLCs ground employees, crew, ground equipment,
airline operating certificate and flight authorities, among
other things, were transferred in substantial part to Polar and
Polars interest in Polar LLC was transferred to AAWW.
Concurrent with the investment, DHL and Polar entered into a
20 year blocked space agreement that was subsequently
amended (the Amended BSA), whereby Polar provides
air cargo capacity to DHL through Polars Scheduled Service
network for express services (Express Network),
which began on October 27, 2008, (the Commencement
Date). In addition, Atlas entered into a flight services
agreement, whereby Atlas is compensated by Polar on a per Block
Hour basis, subject to a monthly minimum Block Hour guarantee,
at a predetermined rate that escalates annually. Under the
flight services agreement, Atlas provides Polar with flight crew
administration, maintenance and insurance for the aircraft, with
flight crewing also to be furnished once the merger of the Polar
and Atlas crew forces has been completed. Under other separate
agreements, Atlas and Polar supply administrative, sales and
ground support services to one another. DP has guaranteed
DHLs (and Polars) obligations under the various
transaction agreements described above. AAWW has agreed to
indemnify DHL for and against various obligations of Polar and
its affiliates. Collectively, these agreements are referred to
herein as the DHL Agreements. The DHL Agreements
provide the Company with a minimum guaranteed annual revenue
stream from
747-400
aircraft that have been dedicated to Polar for Express Network
ACMI and other customers freight over the life of the
agreements.
In March 2008, Atlas entered into an ACMI agreement and related
agreements with Polar for two additional
747-400
aircraft, beginning on March 21, 2008. On October 22,
2008, DHL notified the Company that it would exercise its
contractual right to terminate the ACMI and related agreements
covering these two
747-400
aircraft, effective March 28, 2009. Under the terms of the
agreements covering these two
747-400
aircraft, DHL was able to terminate the use of these aircraft in
March 2009 upon providing six months advanced notice and making
two installment payments of an early termination penalty
totaling $5.0 million for each aircraft. The Company
received the final payment in March 2009 and recorded a
$10.0 million one-time termination penalty as Other revenue
in the consolidated statements of operations.
On the Commencement Date, Polar began full flying for DHLs
trans-Pacific express network and DHL began to provide financial
support and also assumed the risks and rewards of the operations
of Polar. In
5
addition to its trans-Pacific routes, Polar has also flown
between the Asia Pacific, Middle East and European regions on
behalf of DHL and other customers.
The Amended BSA established DHLs capacity purchase
commitments on Polar flights. DHL has the right to terminate the
20 year Amended BSA at the fifth, tenth and fifteenth
anniversaries of commencement of Express Network flying.
However, in the event of such a termination at the fifth
anniversary, DHL or Polar will be required to assume all six
747-400
freighter head leases which are subleased from Atlas and Polar
LLC for the entire remaining term of each such aircraft lease,
each as guaranteed by DP or a creditworthy subsidiary. Either
party may terminate the Amended BSA for cause (as defined) at
any time. With respect to DHL, cause includes
Polars inability to meet certain departure and arrival
criteria for an extended period of time and upon certain
change-of-control
events, in which case DHL may be entitled to liquidated damages
from Polar. Under such circumstances, DHL is further entitled to
have an affiliate assume any or all of the six
747-400
freighter subleases for the remainder of the term under each
such sublease, with Polar liable up to an agreed amount of such
lease obligations. In the event of any termination during the
sublease term, DHL is required to pay the lease obligations for
the remainder of the head lease and guarantee Polars
performance under the leases.
Based upon changes to the various agreements entered into
following DHLs investment in Polar and subsequent changes
made to Polars operations during the fourth quarter of
2008, the Company reviewed its investment in Polar and
determined that a reconsideration event had occurred under ASC
810. Upon application of ASC 810, the Company determined that
DHL was the primary beneficiary of the variable interest entity
on the Commencement Date and, as a result of that determination,
it deconsolidated Polar as of October 27, 2008 from its
financial statements. From that date forward, the Company has
been reporting Polar under the equity method of accounting.
Long-Term
Revenue Commitments
The following table sets forth the contractual minimum revenues
expected to be received from our existing ACMI (including
CMI) and Dry Leasing customers for the years indicated (in
thousands):
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2010
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$
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437,273
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2011
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429,897
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2012
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343,551
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2013
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252,938
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2014
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199,807
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Thereafter
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1,530,982
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Total
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$
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3,194,448
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Sales and
Marketing
We have regional sales offices in the United States, England and
Hong Kong, which cover the Americas, Europe, Africa, the Middle
East and the Asia Pacific regions. These offices market our
ACMI, Dry Leasing and Commercial Charter services directly to
other airlines and indirect air carriers, as well as to charter
brokers and freight forwarders. Additionally, we have a
dedicated charter business unit that directly manages the AMC
Charter business, and also manages our Commercial Charter
business either directly or indirectly through our sales
organizations.
Maintenance
Maintenance represented our fourth-largest operating expense for
the year ended December 31, 2009. Primary maintenance
activities include scheduled and unscheduled work on airframes
and engines. Scheduled maintenance activities encompass those
activities specified in a carriers maintenance program
approved by the U.S. Federal Aviation Administration
(FAA). The costs necessary to adhere to these
maintenance programs may increase over time, based on the age of
the aircraft
and/or
engines or due to FAA airworthiness directives (ADs).
6
Scheduled airframe maintenance is based upon letter
checks performed at progressively higher repetitive
intervals beginning with lower order daily checks at
approximately 48 elapsed hours, A Checks at approximately 750
flight hours for
747-200s and
650 flight hours for
747-400s, C
Checks at approximately 18 months and D Checks at
approximately 9 years/25,000 flight hours for
747-200s and
6 years for
747-400s. In
December 2009, we received approval from the FAA to increase the
interval for future A Checks on
747-400s to
1,000 flight hours from 650 flight hours. C and D Checks are
progressively higher in scope and duration, and are considered
heavy airframe maintenance checks.
747-200
heavy checks are generally more involved than those performed on
our 747-400
aircraft, chiefly due to the age of the aircraft, its earlier
evolution maintenance program and directives prescribed by the
FAA. All lettered checks are currently performed by third-party
vendors on a time and material basis. Unscheduled maintenance,
known also as line-maintenance, rectifies defects occurring
during normal
day-to-day
operations.
Our FAA-approved maintenance programs allow our engines to be
maintained on an on condition basis. Under this
arrangement, engines are sent for repair based on life-limited
parts and/or
performance deterioration.
We believe that third party service vendors provide the most
efficient means of maintaining our aircraft fleet and the most
reliable way to provide for our maintenance requirements. Our
lower-level maintenance activities (primarily, daily checks and
A Checks) are performed on a time and material basis.
Under the FAA ADs issued pursuant to its Aging Aircraft Program,
we are subject to extensive aircraft examinations and may be
required to undertake structural modifications to our fleet from
time to time to address the problems of corrosion and structural
fatigue. As part of the FAAs overall Aging Aircraft
program, it has issued ADs requiring certain additional aircraft
modifications. Other ADs have been issued that require
inspections and minor modifications to
747-200
aircraft. The
747-400
freighter aircraft were delivered in compliance with all
existing FAA ADs at their respective delivery dates. It is
possible, however, that additional ADs applicable to the types
of aircraft or engines included in our fleet could be issued in
the future and that the cost of complying with such ADs could be
substantial. Also, the FAA is considering a rule that would
increase the inspection and maintenance burden on aging aircraft.
Insurance
We maintain insurance of the types and in amounts deemed
adequate to protect ourselves and our property, consistent with
current industry standards. Principal coverage includes:
liability for injury to members of the public, including
passengers; damage to our property and that of others; loss of,
or damage to, flight equipment, whether on the ground or in
flight; fire and extended coverage; directors and officers
insurance; fiduciary liability; and workers compensation
and employers liability. In addition to customary
deductibles, we self-insure for all or a portion of our losses
from claims related to medical insurance for employees.
Since the terrorist attacks of September 11, 2001, we and
other airlines have been unable to obtain coverage for claims
resulting from acts of terrorism, war or similar events
(war-risk coverage) at reasonable rates from the commercial
insurance market. We have, as have most other
U.S. airlines, purchased our war-risk coverage through a
special program administered by the U.S. federal
government. The FAA is currently providing war-risk for hull,
passenger, cargo loss, crew and third-party liability insurance
through August 31, 2010. The special program is authorized
under title 49 of U.S. Code § 44301, et
seq., which allows the U.S. Secretary of Transportation to
provide insurance and reinsurance against loss or damage arising
out of any risk from the operation of an American aircraft or
foreign-flag aircraft. Insurance can be provided on the
condition (1) the President determines it is necessary for
the continuation of U.S. commercial air service in the
interest of air commerce, national defense, or foreign policy,
and (2) the Secretary of Transportation determines
insurance is not readily available from insurance companies on
reasonable terms. Authority under this program is effective
until December 31, 2013. If the federal insurance program
were to be terminated, we would likely face a material increase
in the cost of war-risk coverage, and because of competitive
pressures in the industry, our ability to pass this additional
cost on to customers may be limited.
7
Governmental
Regulation
General. Atlas and Polar are subject to
regulation by the U.S. Department of Transportation
(DOT) and the FAA, among other U.S. and foreign
governmental agencies. The DOT primarily regulates economic
issues affecting air service, such as certification, fitness and
citizenship, competitive practices, insurance and consumer
protection. The DOT has the authority to investigate and
institute proceedings to enforce its economic regulations and
may assess civil penalties, revoke operating authority or seek
criminal sanctions. Atlas and Polar each holds DOT-issued
certificates of public convenience and necessity plus exemption
authority to engage in scheduled air transportation of property
and mail, in domestic as well as enumerated international
markets, and charter air transportation of property and mail on
a worldwide basis.
The DOT conducts periodic evaluations of each air carriers
fitness and citizenship. In the area of fitness, the DOT seeks
to ensure that a carrier has the managerial competence,
compliance disposition and financial resources needed to conduct
the operations for which it has been certificated. Additionally,
each U.S. air carrier must remain a U.S. citizen by
(i) being organized under the laws of the United States or
a state, territory or possession thereof; (ii) requiring
its president and at least two-thirds of its directors and other
managing officers to be U.S. citizens; (iii) allowing
no more than 25% of its voting stock to be owned or controlled,
directly or indirectly, by foreign nationals and (iv) not
being otherwise subject to foreign control. The DOT broadly
interprets control to exist when an individual or
entity has the potential to exert substantial influence over
airline decisions through affirmative action or the threatened
withholding of consents
and/or
approvals. We believe the DOT will continue to make favorable
findings about Atlas and Polars fitness and
citizenship and continue to conclude that Atlas and Polar are in
material compliance with the DOT requirements described above.
In addition to holding the DOT-issued certificate and exemption
authority, each U.S. air carrier must hold a valid
FAA-issued air carrier certificate and FAA-approved operations
specifications authorizing operation in specific regions with
specified equipment under specific conditions and is subject to
extensive FAA regulation and oversight. The FAA is the
U.S. government agency primarily responsible for regulation
of flight operations and, in particular, matters affecting air
safety, such as airworthiness requirements for aircraft,
operating procedures, mandatory equipment and the licensing of
pilots, mechanics and dispatchers. The FAA monitors compliance
with maintenance, flight operations and safety regulations and
performs frequent spot inspections of aircraft, employees and
records. The FAA also has the authority to issue ADs and
maintenance directives and other mandatory orders relating to,
among other things, inspection of aircraft and engines, fire
retardant and smoke detection devices, increased security
precautions, collision and windshear avoidance systems, noise
abatement and the mandatory removal and replacement of aircraft
parts that have failed or may fail in the future. In addition,
the FAA mandates certain record-keeping procedures. The FAA has
the authority to modify, temporarily suspend or permanently
revoke an air carriers authority to provide air
transportation or that of its licensed personnel, after
providing notice and a hearing, for failure to comply with FAA
rules, regulations and directives. The FAA is empowered to
assess civil penalties for such failures or institute
proceedings for the imposition and collection of monetary fines
for the violation of certain FAA regulations and directives. The
FAA is also empowered to modify, suspend or revoke an air
carriers authority on an emergency basis, without
providing notice and a hearing, where significant safety issues
are involved.
We believe Atlas and Polar are in material compliance with
applicable FAA rules and regulations and maintain all
documentation required by the FAA.
Atlas has recently applied for authority and is working with the
DOT to amend its operation specifications to engage in charter
transportation of persons, property and mail. The DOT is also
currently evaluating Atlas continuing fitness and
citizenship in connection with the pending Atlas request for
passenger charter authority. In addition, Atlas is currently
working with the FAA to amend its operations specifications to
accommodate the passenger operations. We expect to receive the
required approvals from both the DOT and FAA in early 2010.
In June 2009, following expressions of concern about pilot
fatigue on certain long-range flights, the FAA convened an
Aviation Rulemaking Committee (ARC) comprised of
various aviation stakeholders to recommend changes to the flight
and duty time rules applicable to pilots. The FAA is now in the
process of evaluating materials resulting from the ARC process
and drafting a notice of proposed rulemaking (NPRM)
8
to modify existing flight and duty time rules. It is likely that
the FAA will issue the NPRM in 2010, to be followed by a new
rule that lessens the permissible amount of pilot flight and
duty time
and/or
increases pilot rest requirements. Any new rule could have a
material impact on our business, by limiting crew scheduling
flexibility and increasing operating costs, especially with
respect to long-range flights.
International. Air transportation in
international markets (the vast majority of markets in which
Atlas and Polar operate) is subject to extensive additional
regulation. The ability of Atlas and Polar to operate in other
countries is governed by aviation agreements between the United
States and the respective countries (in the case of Europe, the
European Union (the EU)) or, in the absence of such
an agreement, by principles of comity and reciprocity.
Sometimes, such as with Japan and China, aviation agreements
restrict the number of carriers that may operate, their
frequency of operation, or the routes over which they may fly.
This makes it necessary for the DOT to award route and operating
rights to U.S. air carrier applicants through competitive
route proceedings. International aviation agreements are
periodically subject to renegotiation, and changes in
U.S. or foreign governments could result in the alteration
or termination of such agreements, diminish the value of
existing route authorities or otherwise affect Atlas and
Polars international operations. Foreign governmental
authorities also impose substantial licensing and business
registration requirements and, in some cases, require the
advance filing
and/or
approval of schedules or rates. Moreover, the DOT and foreign
government agencies typically regulate alliances and other
commercial arrangements between U.S. and foreign air
carriers, such as the ACMI arrangements that Atlas maintains.
Approval of these arrangements is not guaranteed and may be
conditional. In addition, approval during one time period does
not guarantee approval in future periods.
A foreign governments regulation of its own air carriers
can also affect our business. For instance, the EU modified the
licensing requirements of air carriers of its Member States,
effective November 1, 2008. Among the provisions are those
placing new limits on the ability of European Union carriers to
use ACMI aircraft from airlines of non-European Union Member
States. The revised regulations could reduce ACMI business
opportunities.
Airport Access. The ability of Atlas, Polar
and Atlas other ACMI customers to operate is dependent on
their ability to gain access to airports of their choice at
commercially desirable times and on acceptable terms. In some
cases, this is constrained by the need for the assignment of
takeoff and landing slots or comparable operational
rights. Like other air carriers, Atlas and Polar are subject to
such constraints at slot-restricted airports in cities such as
Chicago and a variety of foreign locations (e.g., Tokyo,
Shanghai and Incheon). The availability of slots is not assured
and the inability of Polar or Atlas other ACMI customers
to obtain additional slots, including daytime slots in Shanghai,
could inhibit efforts to provide expanded services in certain
international markets. In addition, nighttime restrictions of
certain airports could, if expanded, have an adverse operational
impact.
Access to the New York airspace presents an additional
challenge. Because of congestion in the New York area,
especially at John F. Kennedy International Airport
(JFK), the FAA has imposed hourly caps on JFK
operations of those carriers offering scheduled services.
Additionally, the FAA recently withdrew a newly adopted rule to
impose slot limitations on scheduled operations at JFK and
Newark Liberty International (EWR) airports and to
establish a slot auction process that would include the
involuntary withdrawal of slots from current holders. The rule
also would have placed severe hourly limitations on unscheduled
operations at JFK and EWR. If a new rule with similar
constraints on unscheduled operations were to be adopted in the
future, our business operations could be adversely affected.
As a further means to address congestion, the FAA has issued a
rule allowing U.S. airports to raise landing fees to
incorporate the costs of airfield facilities under construction
or reconstruction. The rule is being challenged in court. Any
landing fee increases implemented pursuant to the rule would
have an impact on airlines generally. A similar proposal is
under consideration in the EU.
Security. Following the terrorist attacks of
September 11, 2001, the aviation security functions
previously performed by the FAA were transferred to the
U.S. Transportation Security Administration
(TSA). The TSA extensively regulates aviation
security through rules, regulations and security directives.
Currently, at the insistence of key U.S. Congressional
leaders, the TSA is devoting significant resources and attention
to air cargo. The TSA is in the process of revising its
all-cargo security standards and requirements, which are
designed to prevent unauthorized access to freighter aircraft
and the introduction of weapons to such aircraft. Atlas and
Polar
9
currently operate pursuant to a TSA-approved security program
that, we believe, maintains the security of all aircraft in the
fleet. There can be no assurance, however, that we will remain
in compliance with the existing and any additional TSA
requirements without incurring substantial costs which may have
a materially adverse effect on our operations. Additionally,
foreign governments and regulatory bodies (such as the European
Commission) impose their own aviation security requirements and
have increasingly tightened such requirements. This may have an
adverse impact on our operations, especially to the extent the
new requirements may necessitate redundant or costly measures or
be in conflict with TSA requirements. Additionally, the
U.S. Congress is considering legislation which, if enacted,
could substantially increase the security burden on all-cargo
air carriers.
Environmental. We are subject to various
federal, state and local laws relating to the protection of the
environment, including the discharge or disposal of materials
and chemicals and the regulation of aircraft noise, which are
administered by numerous state, local and federal agencies. For
instance, the DOT and the FAA have authority under the Aviation
Safety and Noise Abatement Act of 1979 (as amended and
recodified) and under the Airport Noise and Capacity Act of 1990
to monitor and regulate aircraft engine noise. We believe that
all aircraft in our fleet materially comply with current DOT,
FAA and international noise standards.
We are also subject to the regulations of the
U.S. Environmental Protection Agency (the EPA)
regarding air quality in the United States. All of our aircraft
meet or exceed applicable EPA fuel venting requirements and
smoke emissions standards.
There is significant U.S. Congressional and international
governmental interest in implementing measures to respond to the
problem of climate change and global warming. The
U.S. House of Representatives has passed legislation to
impose a carbon-related tax on fuel sold to airlines and other
entities, and the U.S. Senate has similar legislation under
consideration. The European Union has enacted legislation that
will extend its emissions trading scheme to aviation commencing
in 2012, and airlines serving the EU have had to submit
compliance plans for review and approval. Under the EU
mechanism, airlines would only be able to exceed specified
carbon emissions levels by acquiring carbon emissions rights
from other entities. The U.S. government has objected to
the EUs unilateral implementation and is seeking to have
the matter addressed, instead, by the International Civil
Aviation Organization. It is possible that some type of climate
change measures ultimately will be imposed in a manner adversely
affecting airlines.
Other Regulations. Air carriers are also
subject to certain provisions of the Communications Act of 1934
because of their extensive use of radio and other communication
facilities and are required to obtain an aeronautical radio
license from the Federal Communications Commission.
Additionally, we are subject to U.S. and foreign antitrust
requirements and international trade restrictions imposed by
Presidential determination and government agency regulation,
including the Office of Foreign Assets Control of the
U.S. Department of the Treasury. We endeavor to comply with
such requirements at all times. We are also subject to state and
local laws and regulations at locations where we operate and at
airports that we serve. Our operations may become subject to
additional international, U.S. federal, state and local
requirements in the future. We believe that we are in material
compliance with all currently applicable laws and regulations.
Civil Reserve Air Fleet. Atlas and Polar both
participate in the U.S. Civil Reserve Air Fleet
(CRAF) Program, which permits the
U.S. Department of Defense to utilize participants
aircraft during national emergencies when the need for military
airlift exceeds the capability of military aircraft.
Participation in the CRAF Program could adversely restrict our
commercial business in times of national emergency.
Future Regulation. The U.S. Congress, the
DOT, the FAA and other governmental agencies are currently
considering and in the future may consider and adopt new laws,
regulations and policies regarding a wide variety of matters
that could affect, directly or indirectly, our operations,
ownership and profitability. It is impossible to predict what
other matters might be considered in the future and to judge
what impact, if any, the implementation of any future proposals
or changes might have on our businesses.
Competition
The market for ACMI services is competitive. We believe that the
most important basis for competition in the ACMI market is the
efficiency and cost effectiveness of the aircraft assets and the
scale, scope and
10
quality of the outsourced operating services. Atlas, Air Atlanta
Icelandic and World Airways are the only three service providers
presently in the
747-400F and
747-400
BCF/SF ACMI markets. Competition is more significant in the ACMI
market for the older, less-efficient
747-200
aircraft. As previously described, we have withdrawn from the
747-200 ACMI
market and redeployed these assets in the AMC and Commercial
Charter markets, in which our returns for operating the aircraft
are comparatively higher. Operators remaining in the
747-200 ACMI
segment include Air Atlanta Icelandic, Evergreen International
Aviation, Kalitta Air, LLC and Southern Air, Inc. World Airways
also operates MD11s in cargo ACMI services, which compete
directly in some markets with the 747 freighters. In addition,
competition may intensify with the delivery of new 777F aircraft
in 2010. This equipment type may be utilized in certain markets
in lieu of a 747.
We participate through our AMC Charter business segment in the
CRAF Program under one-year contracts with the AMC, where we
have made available a substantial number of our aircraft to be
used by the U.S. Military in support of their operations
and we operate such flights pursuant to entitlement based,
full-cost contracts. Airlines may participate in the CRAF
Program either alone or through a teaming arrangement. There are
currently three groups of carriers (or teams) and several
independent carriers (that are not part of any team) that
compete for AMC business. We are a member of a team led by
FedEx. We pay a commission to the FedEx team, based on the
revenues we receive under our AMC contracts. While our AMC
Charter business has been profitable each year since 2004, the
formation of additional competing teaming arrangements,
increased participation of other independent carriers, an
increase by other air carriers in their commitment of aircraft
to the CRAF program, the withdrawal of any of the current team
members, especially FedEx, or a reduction of the number of
planes pledged to the CRAF program by our team, and the
uncertainty of future demand for commercial airlift by the
U.S. Military, could adversely affect the amount of AMC
business awarded to the Company in the future. To the extent
that we receive a reduction in our awards or expansion business,
we will re-deploy the available aircraft to our other business
segments or remove the capacity from our fleet.
The Commercial Charter market is highly competitive, with a
number of operators, including Southern Air, Inc., Evergreen
International Aviation, FedEx Corp., Kalitta Air, LLC, Lufthansa
Group and other passenger airlines providing similar services.
Many of our ad hoc charter flights are one-way return flights
from Asia or Europe, positioned by one-way AMC flights that
originate from the United States and terminate in Europe or the
Middle East. We continue to develop new opportunities in the
Commercial Charter market as alternative deployments for the
747-200
aircraft remaining in our fleet or
747-400
aircraft not otherwise deployed in ACMI.
Titans primary focus in the Dry Leasing business is
freighter aircraft and engine leasing. While there is
competition among operating lessors in this market, we believe
that we are uniquely positioned in this business due to our
depth and understanding of the demand drivers and operator base.
The primary competitors in the freighter leasing business are GE
Commercial Aviation Services, Guggenheim Aviation Partners, LLC,
Intrepid Aviation Group, LLC, Air Castle Ltd. and AerCap
Holdings, N.V. Titan may also compete in the passenger aircraft
leasing market on a limited basis. The primary competitors in
the passenger leasing market are GE Commercial Aviation
Services, International Lease Finance Corp., AWAS, CIT
Aerospace, Aviation Capital Group Corp., Air Castle Ltd., AerCap
Holdings N.V., and RBS Aviation Capital.
Fuel
Historically, aviation fuel has been one of the most significant
expenses for us. However, subsequent to the Commencement Date,
most of the risk associated with fluctuations in aviation fuel
price has been eliminated. During the years ended
December 31, 2009, 2008 and 2007, fuel costs represented
22.1%, 41.8% and 37.4%, respectively, of our total operating
expenses. Fuel prices and availability are subject to wide price
fluctuations
11
based on geopolitical issues and supply and demand, which we can
neither control nor accurately predict. The following table
summarizes our total fuel consumption and costs for the years
ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Gallons consumed (in thousands)
|
|
|
101,451
|
|
|
|
201,002
|
|
|
|
237,332
|
|
Average price per gallon, including tax
|
|
$
|
1.98
|
|
|
$
|
3.37
|
|
|
$
|
2.24
|
|
Cost (in thousands)
|
|
$
|
201,207
|
|
|
$
|
677,544
|
|
|
$
|
531,755
|
|
Fuel burn gallons per Block Hour (excluding ACMI)
|
|
|
3,159
|
|
|
|
3,231
|
|
|
|
3,238
|
|
Subsequent to the Commencement Date, our exposure to
fluctuations in fuel price is now limited to a portion of
Atlas Commercial Charter business only. For this business,
we shift a portion of the burden of price increases to customers
by imposing a surcharge. While we believe that fuel price
volatility in 2009, 2008 and 2007 was partly reduced as a result
of increases in fuel surcharges, these surcharges did not
completely limit our exposure to increases in fuel prices. The
ACMI segment, including Express Network ACMI, has no direct fuel
price exposure because ACMI contracts require our customers to
pay for aviation fuel. Similarly, we generally have no fuel
price risk in the AMC business because the price is set under
our annual contract, and we receive or make subsequent payments
to adjust for price increases and decreases from the contractual
rate. AMC fuel expense for the years ended December 31,
2009, 2008 and 2007 was $118.4 million, $199.9 million
and $161.7 million, respectively.
In the past, we have not experienced significant difficulties
with respect to fuel availability. Although we do not currently
anticipate a significant reduction in the availability of jet
fuel, a number of factors, such as geopolitical uncertainties in
oil-producing nations and shortages of and disruptions to
refining capacity or transportation of jet fuel from refining
facilities, make accurate predictions unreliable. For example,
hostilities and political turmoil in oil-producing nations could
lead to disruptions in oil production
and/or to
substantially increased oil prices. Any inability to obtain jet
fuel at competitive prices would materially and adversely affect
our results of operation and financial condition.
Employees
Our business depends on highly qualified management and flight
crew personnel. Salaries, wages and benefits accounted for
approximately 23.7%, 13.7% and 17.6% of our consolidated
operating expenses for 2009, 2008 and 2007, respectively. As of
December 31, 2009, we had 1,337 employees, 661 of whom
were crewmembers. We maintain a comprehensive training program
for our crewmembers in compliance with FAA requirements, in
which each pilot and flight engineer regularly attends recurrent
training programs.
Crewmembers of Atlas and Polar are represented by the
International Brotherhood of Teamsters (IBT). These
employees represented approximately 49.4% of the Companys
workforce as of December 31, 2009. The Company is subject
to risks of work interruption or stoppage as permitted by the
Railway Labor Act of 1926 (the Railway Labor Act),
and may incur additional administrative expenses associated with
union representation of its employees.
The Atlas collective bargaining agreement became amendable in
February 2006. The Polar collective bargaining agreement became
amendable in April 2007. While both units have filed Railway
Labor Act Section 6 notices to begin
negotiations for amended agreements, those negotiations have
been placed on hold in favor of completing the merger of the two
crew forces. In November 2004, the Company initiated steps to
merge the represented crewmember bargaining units of Atlas and
Polar. The respective collective bargaining agreements provide
for a seniority integration process and the negotiation of a
single collective bargaining agreement (SCBA). This
seniority list integration process was completed on
November 21, 2006.
The Company received the integrated seniority lists and the
parties are in negotiations for a SCBA. In accordance with the
provisions of both the Atlas and Polar contracts, if any open
contract issues remain after nine months of bargaining from the
date the integrated seniority lists were tendered to the
Company, those issues are to be resolved by final and binding
interest arbitration. This period of bargaining has since been
extended by mutual agreement of the parties.
12
During the second quarter of 2009, the Company and the IBT
settled a grievance contending that the Company violated crew
furloughing provisions in the Polar collective bargaining
agreement from 2007. The settlement of this matter did not have
a material effect on the Companys business, results of
operations or financial condition. On February 3, 2009, the
IBT was certified as the collective bargaining representative of
the dispatchers employed by Atlas and Polar. The Company and the
IBT began formal negotiations in August 2009 regarding the first
collective bargaining agreement for the dispatchers. Other than
the crewmembers and dispatchers, there are no other Atlas or
Polar employees represented by a union.
Available
Information
Our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K,
and all amendments to those reports, filed with or furnished to
the Securities and Exchange Commission (the SEC),
are available free of charge through our corporate internet
website, www.atlasair.com, as soon as reasonably
practicable after we have electronically filed such material
with, or furnished it to, the SEC.
The information on our website is not, and shall not be deemed
to be, part of this Report or incorporated into any other
filings we make with the SEC.
You should carefully consider each of the following Risk Factors
and all other information in this Report. These Risk Factors are
not the only ones facing us. Our operations could also be
impaired by additional risks and uncertainties. If any of the
following risks and uncertainties develops into actual events,
our business, financial condition and results of operations
could be materially and adversely affected.
RISKS
RELATED TO OUR BUSINESS
Risks
Related to Our Business Generally
The
recent global economic downturn has had and may continue to have
an adverse effect on our business, results of operations and
financial condition.
Global economies experienced a downturn that began in the
housing market in the United States. The collateral effects on
liquidity in the global banking system, along with volatile
energy and commodity prices, and decreased consumer confidence
combined to significantly slow global trade. These conditions
made it difficult for our customers and for us to accurately
forecast and plan future business activities. The slowdown
caused our customers to curb their use of our services. We
cannot predict the effect or duration of any economic slowdown
or the timing or strength of a subsequent economic recovery. If
demand for our services significantly deteriorates due to
macroeconomic effects, it could have a material adverse effect
on our business, results of operations and financial condition.
Demand
for older
747-200
aircraft may affect our decision to retire aircraft early or
affect the volatility of aircraft values.
The market for
747-200
aircraft is volatile and can be negatively affected by excess
capacity due to factors such as global economic conditions and
reduced customer demand. In 2009 and 2008, we accelerated the
scheduled retirements of some of our
747-200
aircraft due to a lack of projected demand. We incurred certain
expenses related to the retirement of these aircraft (see
Note 5 to our Financial Statements). If the operating
environment for
747-200s
continues to deteriorate, we may need to retire some or all of
our remaining
747-200
aircraft, which would result in additional expenses being
recorded.
Should
any of our existing aircraft or our new order of
747-8F
aircraft become underutilized, failure to re-deploy these
aircraft at favorable rates or to successfully and timely
dispose of such aircraft could have a material adverse effect on
our business, results of operations and financial
condition.
We provisionally allocate our existing and on-order aircraft
among our business segments according to projected demand. If
demand weakens and, as a result, we have underutilized aircraft,
we will seek to re-
13
deploy these aircraft in our other lines of business. If we are
unable to successfully deploy our existing aircraft or our new
order of
747-8F
aircraft, when delivered, at favorable rates or achieve a
successful and timely disposal of such aircraft, our long-term
results of operations could be materially and adversely affected.
The
recent global economic downturn could adversely affect our
liquidity and our ability to access capital
markets.
Financial markets have been experiencing extreme disruptions,
including, among other things, volatility in security prices,
diminished liquidity and credit availability, rating downgrades
on certain investments and declining valuations of others. Ours
is a capital intensive business that depends for its growth on
the availability of capital for new aircraft. If todays
limited capital availability continues or intensifies, we may be
unable to raise the outside capital we will need to pay for the
747-8F
aircraft we have ordered from Boeing.
In addition to the impact that the recent global economic
downturn has already had on us, we may face significant
challenges if conditions in the financial markets do not improve
or if they worsen. For example, a further extension of the
credit crisis to other industries could adversely impact overall
demand, particularly freight demand, which could have a negative
effect on our revenues. In addition, our ability to access the
capital markets may be restricted at a time when we would like,
or need, to do so, which could have an impact on our flexibility
to react to changing economic and business conditions.
We
have significant contractual obligations, including progress
payments, associated with our order of
12 747-8F
aircraft. If we are unable to obtain financing for these
aircraft and/or make the required progress payments, our growth
strategy would be disrupted and our business, results of
operations and financial condition could be adversely
affected.
In September 2006, we placed an order for 12 new
747-8F
aircraft. As part of this transaction, we also hold rights to
purchase up to an additional 14
747-8F
aircraft. We are required to pay significant pre-delivery
deposits (PDP) to Boeing for these aircraft. As of
December 31, 2009, we had remaining commitments of
approximately $1.8 billion associated with this aircraft
order (including spare engines, estimated contractual
escalations and applying purchase credits).
We expect to finance these aircraft through either mortgage debt
or lease financing. Although we have received standby financing
commitments to finance four of these aircraft, we cannot provide
assurance that we will be able to meet the financing conditions
contained in these commitments or to secure other financing on
terms attractive to us or at all. If we are unable to secure
financing on acceptable terms, including financing of our
progress payments, we may be required to incur financing costs
that are substantially higher than what we currently anticipate
and our business, results of operations and financial condition
could be adversely affected. If we are unable to obtain
financing (even at a higher cost) and we are unable to meet our
contractual obligations to Boeing, our financial condition could
be impacted as we could be in default under the Boeing contract.
Our
financial condition may suffer if we experience unanticipated
costs or enforcement action as a result of the ongoing Antitrust
Division of the U.S. Department of Justice fuel surcharge
investigation and other lawsuits and claims.
On February 14, 2006, the Antitrust Division initiated a
criminal investigation into the pricing practices of a number of
cargo carriers, including Polar LLC, a wholly owned subsidiary
of the Company. The Antitrust Division is investigating whether,
during any part of January 2000 to February 2006, cargo carriers
manipulated the market price for air cargo services sold in the
U.S. and abroad, through the use of fuel surcharges or
other pricing practices, in violation of the U.S. federal
antitrust laws. Polar LLCs counsel has been meeting
periodically with the Antitrust Division staff. On
April 28, 2009, Polar received a letter from the Antitrust
Division staff informing it that it is a target of a grand jury
investigation in the Northern District of Georgia in connection
with the above referenced matters. This means that the Antitrust
Division may ask the grand jury to indict Polar at some future
time. While the letter was addressed to Polar, we believe it is
more properly directed at Polar LLC, because, among other
things, Polar was not an operating company during any of the
periods subject to the investigation. The staff of the Antitrust
Division has, however, to date declined to
14
change the name of the target. As a result of the investigation,
the Company and Polar LLC, along with a number of other cargo
carriers, have been named co-defendants in a number of class
action suits filed in multiple jurisdictions of the
U.S. Federal District Court, and have been named in two
civil class action suits in the provinces of Ontario and Quebec,
Canada, which are substantially similar to the U.S. class
action suits. Moreover, we have submitted relevant information
and documentation to regulators in Australia, the EU, Korea, New
Zealand and Switzerland in connection with investigations
initiated by such authorities into pricing practices of certain
international air cargo carriers. These investigations and
proceedings are continuing, and additional investigations and
proceedings may be commenced and charges may be brought in these
and other jurisdictions. Other parties may be added to these
investigations and proceedings, and authorities may request
additional information from the Company. If Polar LLC is unable
to resolve the Antitrust Division investigation or is formally
charged by the Antitrust Division as a result of this
investigation, or if the Company were to incur an unfavorable
outcome in connection with one or more of the related
investigations or litigation, it could have a material adverse
effect on the Companys business, results of operations and
financial condition.
We are also party to a number of other claims, lawsuits and
pending actions, which we consider to be routine and incidental
to our business (see Note 14 to our Financial Statements).
However, if we were to receive an adverse ruling or enforcement
action, it could have an adverse effect on our business, results
of operations and financial condition.
While
our revenues may vary significantly over time, a substantial
portion of our operating expenses are fixed. These fixed costs
may limit our ability to quickly change our cost structure to
respond to any declines in our revenues, which could reduce our
profitability.
To maintain our level of operations, a substantial portion of
our costs, such as aircraft ownership, crew, maintenance and
facility costs, are fixed. Operating revenues from our business
are directly affected by our ability to maintain high
utilization of our aircraft and services at favorable rates. The
utilization of our aircraft and our ability to obtain favorable
rates are affected by many factors, including global demand for
airfreight, global economic conditions, fuel costs and the
deployment by our current and potential customers of their own
aircraft, among others, which may cause our revenues to vary
significantly over time. If our revenues for a particular period
fall below expectations, we may be unable to proportionately
reduce our operating expenses for that period. Any revenue
shortfall during a quarterly or annual period may cause our
profitability for that period to fall.
We
have a limited number of revenue producing assets. The loss of
one or more of our aircraft for an extended period of time could
have a material adverse effect on our business, results of
operations and financial condition.
Our operating revenues depend on our ability to effectively
deploy all of the aircraft in our fleet and maintain high
utilization of these aircraft at favorable rates. In the event
that one or more of our aircraft are out of service for an
extended period of time, our operating revenues would
significantly decrease and we may have difficulty fulfilling our
obligations under one or more of our existing contracts. The
loss of revenue resulting from any such business interruption,
and the cost, long lead time and difficulties in sourcing a
replacement aircraft, could have a material adverse effect on
our business, results of operations and financial condition.
Our
substantial lease and debt obligations, including aircraft lease
and other obligations, could impair our financial condition and
adversely affect our ability to raise additional capital to fund
our operations or capital requirements, all of which could limit
our financial resources and ability to compete, and may make us
more vulnerable to adverse economic events.
As of December 31, 2009, we had total debt obligations of
approximately $627.3 million and total aircraft operating
leases and other lease obligations of $1.9 billion. These
obligations are expected to increase significantly over the next
several years as we begin to accept delivery of, and enter into
financing arrangements for, our new
747-8F
aircraft. Our outstanding financial obligations could have
negative consequences, including:
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making it more difficult to pay principal and interest with
respect to our debt and lease obligations;
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requiring us to dedicate a substantial portion of our cash flow
from operations for interest, principal and lease payments and
reducing our ability to use our cash flow to fund working
capital and other general corporate requirements;
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increasing our vulnerability to general adverse economic and
industry conditions; and
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limiting our flexibility in planning for, or reacting to,
changes in business and in our industry.
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Our ability to service our debt and meet our lease and other
obligations as they come due is dependent on our future
financial and operating performance. This performance is subject
to various factors, including factors beyond our control, such
as changes in global and regional economic conditions, changes
in our industry, changes in interest or currency exchange rates,
the price and availability of aviation fuel and other costs,
including labor and insurance. Accordingly, we cannot provide
assurance that we will be able to meet our debt service, lease
and other obligations as they become due and our business,
results of operations and financial condition could be adversely
affected under these circumstances.
Certain
of our debt obligations contain a number of restrictive
covenants. In addition, many of our debt and lease obligations
have cross default and cross acceleration
provisions.
Restrictive covenants in certain of our debt and lease
obligations, under certain circumstances, could impact our
ability to:
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pay dividends or repurchase stock;
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consolidate or merge with or into other companies or sell
substantially all of our assets;
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expand significantly into lines of businesses beyond existing
business activities or those which are cargo-related
and/or
aviation-related and similar businesses; and/or
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modify the terms of debt or lease financing arrangements.
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In certain circumstances, a covenant default under one of our
debt instruments could cause us to be in default of other
obligations as well. Any unremedied defaults could lead to an
acceleration of the amounts owed and potentially could cause us
to lose possession or control of certain aircraft.
Global
trade flows are typically seasonal, and our business segments,
including our ACMI customers business, experience seasonal
revenue variation.
Global trade flows are typically seasonal in nature, with peak
activity typically occurring during the retail holiday season,
which traditionally begins in September and lasts through
mid-December. Our ACMI contracts have contractual utilization
minimums that typically allow our customers to cancel an
agreed-upon
percentage of the guaranteed hours of aircraft utilization over
the course of a year. Our ACMI customers often exercise those
cancellation options early in the first quarter of the year,
when the demand for air cargo capacity has been historically low
following the seasonal holiday peak in the fourth quarter. While
our revenues typically fluctuate seasonally as described above,
a significant proportion of the costs associated with our
business, such as aircraft rent, depreciation and facilities
costs, are fixed and cannot easily be reduced to match the
seasonal drop in demand. As a result, our net operating results
are typically subject to a high degree of seasonality.
Fuel
price volatility and fuel availability could adversely affect
our business and operations in our Commercial Charter
business.
The price of aircraft fuel is unpredictable and has been
increasingly volatile over the past few years. With the
commencement of the Amended BSA, we have been able to reduce our
exposure to fuel risk significantly. However, we continue to
bear the risk of fuel exposure for a portion of our Commercial
Charter operations.
In addition, while our ACMI contracts require our customers to
pay for aviation fuel, if fuel costs increase significantly, our
customers may reduce the volume and frequency of cargo shipments
or find less costly alternatives for cargo delivery, such as
land and sea carriers. Such instances could have a material
adverse impact on our business, results of operations and
financial condition.
16
In the past, we have not experienced significant difficulties
with respect to fuel availability. Although we do not currently
anticipate a significant reduction in the availability of jet
fuel, a number of factors, such as geopolitical uncertainties in
oil-producing nations and shortages of and disruptions to
refining capacity, make accurate predictions unreliable. For
example, hostilities and political turmoil in oil-producing
nations could lead to disruptions in oil production
and/or to
substantially increased oil prices. Any inability to obtain jet
fuel at competitive prices could have a material adverse impact
on our business, results of operations and financial condition.
We are
party to collective bargaining agreements covering our U.S.
crewmembers, and obligated to negotiate collective bargaining
agreements covering our U.S. dispatchers, that could result in
higher labor costs than those faced by some of our non-unionized
competitors, putting us at a competitive disadvantage, and/or
resulting in a work interruption or stoppage, which could
materially adversely affect our business, results of operations
and financial condition.
We have two separate crewmember forces, one for each of Atlas
and Polar and each is represented by the IBT. There is a
separate collective bargaining agreement at each of Atlas and
Polar. Collectively, these employees represented approximately
49.4%, 56.7% and 49.9% of our workforce at December 31,
2009, 2008 and 2007, respectively. We are subject to risks of
increased labor costs associated with having a partially
unionized workforce, as well as a greater risk of work
interruption or stoppage. We cannot provide assurance that
disputes, including disputes with certified collective
bargaining representatives of our employees, will not arise in
the future or will result in an agreement on terms satisfactory
to us. Such disputes and the inherent costs associated with
their resolution could have a material adverse effect on our
business, results of operations and financial condition.
As a
U.S. government contractor, we are subject to a number of
procurement and other rules and regulations that add costs to
our business. A violation of these rules and regulations could
lead to termination or suspension of our government contracts
and could prevent us from entering into contracts with
government agencies in the future.
To do business with government agencies, including the AMC, we
must comply with, and are affected by, many rules and
regulations, including those related to the formation,
administration and performance of U.S. government
contracts. These rules and regulations, among other things:
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require, in some cases, procurement with small businesses and
disclosure of all cost and pricing data in connection with
contract negotiations, and may give rise to U.S. government
audit rights;
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impose accounting rules that dictate how we define certain
accounts, define allowable costs and otherwise govern our right
to reimbursement under certain cost-based U.S. government
contracts;
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establish specific health, safety and doing-business
standards; and
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restrict the use and dissemination of information classified for
national security purposes and the exportation of certain
products and technical data.
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These rules and regulations affect how we do business with our
customers and, in some instances, impose added costs on our
business. A violation of these rules and regulations could
result in the imposition of fines and penalties or the
termination of our contracts. In addition, the violation of
certain other generally applicable rules and regulations could
result in our suspension or debarment as a government contractor.
Our
insurance coverage may become more expensive and difficult to
obtain and may not be adequate to insure all
risks.
Aviation insurance premiums historically have fluctuated based
on factors that include the loss history of the industry in
general, and the insured carrier in particular. Future terrorist
attacks and other adverse events involving aircraft could result
in increases in insurance costs and could affect the price and
availability of such coverage. We have, as have most other
U.S. airlines, purchased our war-risk coverage through a
special program administered by the U.S. federal
government. The FAA is currently providing war-risk hull and
cargo
17
loss, crew and third-party liability insurance through
August 31, 2010. This program is authorized under
title 49 of U.S. Code § 44301, et seq.,
which allows the U.S. Secretary of Transportation to
provide insurance and reinsurance against loss or damage arising
out of any risk from the operation of an American aircraft or
foreign-flag aircraft. Insurance can be provided on the
condition (1) the President determines it is necessary for
the continuation of U.S. commercial air service in the
interest of air commerce, national defense, or foreign policy,
and (2) the Secretary determines insurance is not readily
available from insurance companies on reasonable terms.
Authority under this program is effective until
December 31, 2013. If the federal war-risk coverage program
terminates or provides significantly less coverage in the
future, we could face a material increase in the cost of
war-risk coverage, and because of competitive pressures in the
industry, our ability to pass this additional cost on to
customers may be limited.
We participate in an insurance pooling arrangement with DHL and
their affiliates. This allows us to obtain aviation hull and
liability and hull deductible coverage at reduced rates. If we
were to withdraw from this arrangement for any reason or if
other pool members have higher incidents, we could incur higher
insurance costs.
There can be no assurance that we will be able to maintain our
existing coverage on terms favorable to us, that the premiums
for such coverage will not increase substantially or that we
will not bear substantial losses and lost revenue from accidents
or other adverse events. Substantial claims resulting from an
accident in excess of related insurance coverage or a
significant increase in our current insurance expense could have
a material adverse effect on our business, results of operations
and financial condition. Additionally, while we carry insurance
against the risks inherent to our operations, which we believe
are consistent with the insurance arrangements of other
participants in our industry, we cannot provide assurance that
we are adequately insured against all risks. If our liability
exceeds the amounts of our insurance coverage, we would be
required to pay the excess amount, which could be material to
our business, financial condition and operations.
Some
of our aircraft are periodically deployed in potentially
dangerous situations, which may result in damage to our
aircraft/cargo and/or harm to our employees.
Some of our aircraft are deployed in potentially dangerous
locations and carry hazardous cargo incidental to the services
we provide in support of U.S. military activities,
particularly in shipments to the Middle East. Some areas through
which our flight routes pass are subject to geopolitical
instability, which increases the risk of a loss of, or damage
to, our aircraft
and/or its
cargo, or death or injury to our personnel. While we maintain
insurance to cover the loss/damage of aircraft/cargo
and/or
injury to our employees, except for limited situations, we do
not have insurance against the loss arising from business
interruption. It is difficult to replace lost or substantially
damaged aircraft due to the high capital requirements and long
delivery lead times for new aircraft or to locate appropriate
in-service aircraft for lease or sale. Any loss/damage of
aircraft/cargo or injury to employees could have a material
adverse impact on our business, results of operations and
financial condition.
Volatility
in international currency markets may adversely affect demand
for our services.
Although we price the majority of our services and receive the
majority of our payments in U.S. dollars, many of our
customers revenues are denominated in other currencies.
Any significant devaluation in such currencies relative to the
U.S. dollar could have a material adverse effect on such
customers ability to pay us or on their level of demand
for our services, which could have a material adverse effect on
our business, results of operations and financial condition. If
there is a continued significant decline in the value of the
U.S. dollar against other currencies, the demand for some
of the products that we transport could decline. Such a decline
could reduce demand for our services and thereby have a material
adverse effect on our business, results of operations and
financial condition.
We
rely on third party service providers. If these service
providers do not deliver the high level of service and support
required in our business, we may lose customers and
revenue.
We rely on third parties to provide certain essential services
on our behalf, including maintenance and ground handling. In
certain locations, there may be very few sources, or sometimes
only a single source, of
18
supply for these services. If we are unable to effectively
manage these third parties, they may provide inadequate levels
of support which could harm our customer relationships and have
an adverse impact on our operations and the results thereof. Any
material problems with the efficiency and timeliness of our
contracted services, or an unexpected termination of those
services, could have a material adverse effect on our business,
results of operations and financial condition.
We
could be adversely affected by a failure or disruption of our
computer, communications or other technology
systems.
We are heavily and increasingly dependent on technology to
operate our business. The computer and communications systems on
which we rely could be disrupted due to various events, some of
which are beyond our control, including natural disasters, power
failures, terrorist attacks, equipment failures, software
failures and computer viruses and hackers. We have taken certain
steps to help reduce the risk of some of these potential
disruptions. There can be no assurance, however, that the
measures we have taken are adequate to prevent or remedy
disruptions or failures of these systems. Any substantial or
repeated failure of these systems could impact our operations
and customer service, result in the loss of important data, loss
of revenues, and increased costs, and generally harm our
business. Moreover, a failure of certain of our vital systems
could limit our ability to operate our flights for an extended
period of time, which would have a material adverse impact on
our business and operations.
RISKS
RELATED TO OUR INDUSTRY
The
market for air cargo services is highly competitive and if we
are unable to compete effectively, we may lose current customers
or fail to attract new customers.
Each of the markets we participate in is highly competitive and
fragmented. We offer a broad range of aviation services and our
competitors vary by geographic market and type of service and
include other international and domestic contract carriers,
regional and national ground handling and logistics companies,
internal cargo units of major airlines and third party cargo
providers. Competition in the air cargo and transportation
market is influenced by several key factors, including quality,
price and availability of assets and services. Regulatory
requirements to operate in the U.S. domestic air cargo
market have been reduced, facilitating the entry into domestic
markets by
non-U.S. air
cargo companies. If we were to lose any major customers
and/or fail
to attract customers, it could have an adverse effect on our
business, results of operations and financial condition.
We are
subject to extensive governmental regulations and our failure to
comply with these regulations in the U.S. and abroad, or the
adoption of any new laws, policies or regulations or changes to
such regulations may have an adverse effect on our
business.
Our operations are subject to complex aviation and
transportation laws and regulations, including Title 49 of
the U.S. Code (formerly the Federal Aviation Act 1958, as
amended), under which the DOT and the FAA exercise regulatory
authority over air carriers. In addition, our business
activities fall within the jurisdiction of various other
federal, state, local and foreign authorities, including the
U.S. Department of Defense, the TSA, U.S. Customs and
Border Protection, the U.S. Treasury Departments
Office of Foreign Assets Control and the U.S. EPA. In
addition, other countries in which we operate have similar
regulatory regimes to which we are subjected. These laws and
regulations may require us to maintain and comply with the terms
of a wide variety of certificates, permits, licenses, noise
abatement standards and other requirements and our failure to do
so could result in substantial fines or other sanctions. These
U.S. and foreign aviation regulatory agencies have the
authority to modify, amend, suspend or revoke the authority and
licenses issued to us for failure to comply with provisions of
law or applicable regulations and may impose civil or criminal
penalties for violations of applicable rules and regulations.
Such fines or sanctions, if imposed, could have a material
adverse effect on our mode of conducting business, results of
operations and financial condition. In addition, U.S. and
foreign governmental authorities may adopt new regulations,
directives or orders that could require us to take additional
and potentially costly compliance steps or result in the
grounding of some of our aircraft, which could increase our
operating costs or result in a loss of revenues.
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International aviation is increasingly subject to conflicting
requirements imposed or proposed by the U.S. and foreign
governments. This is especially true in the areas of
transportation security, aircraft noise and emissions control.
The imposition of potential new restrictions in the
environmental area, to control greenhouse gas emissions, is a
distinct possibility. Such restrictions may have an adverse
impact on our industry. The recent finalization of EU
legislation to limit the ability of EU carriers to Wet Lease
(through ACMI arrangements) aircraft from non-EU carriers could
also have an adverse impact. These and other similar regulatory
developments could increase business uncertainty for commercial
air-freight carriers.
The
airline industry is subject to numerous security regulations and
rules that increase costs. Imposition of more stringent
regulations and rules than those that currently exist could
materially increase our costs and have a material adverse effect
on our business, results of operations and financial
condition.
The TSA has increased security requirements in response to
increased levels of terrorist activity, and has adopted
comprehensive new regulations governing air cargo
transportation, including all-cargo services, in such areas as
cargo screening and security clearances for individuals with
access to cargo. Additional measures, including a requirement to
screen cargo, have been proposed, which, if adopted, may have an
adverse impact on our ability to efficiently process cargo and
would increase our costs. The cost of compliance with
increasingly stringent regulations could have a material adverse
effect on our business, results of operations and financial
condition.
Our
future operations might be constrained by new FAA flight and
duty time rules.
In June 2009, following expressions of concern about pilot
fatigue on certain long-range flights, the FAA convened an ARC
comprised of various aviation stakeholders to recommend changes
to the flight and duty time rules applicable to pilots. The FAA
is now in the process of evaluating materials resulting from the
ARC process and drafting a NPRM to modify existing flight and
duty time rules. It is likely that the FAA will issue the NPRM
in 2010, to be followed by a new rule that lessens the
permissible amount of pilot flight and duty time
and/or
increases pilot rest requirements. Any new rule could have a
material impact on our business, results of operations and
financial condition by limiting crew scheduling flexibility and
increasing operating costs, especially with respect to
long-range flights.
Risks
Related to Our ACMI Business
We
depend on a limited number of significant customers for our ACMI
business, and the loss of one or more of such customers could
materially adversely affect our business, results of operations
and financial condition.
For the years ended December 31, 2009, 2008 and 2007, our
ACMI business accounted for approximately 45.4%, 22.3% and
22.9%, respectively, of our operating revenue. Our ACMI business
depends on a limited number of customers, which averaged between
five and six during these periods. In addition, the
International Airline of United Arab Emirates
(Emirates) accounted for 10.4%, 7.8% and 10.7% and
Polar accounted for 18.5%, 3.2% and zero percent of our total
operating revenues for the years ended December 31, 2009,
2008 and 2007, respectively. We typically enter into ACMI
contracts with our customers for terms ranging from three to six
years on
747-400s.
The terms of our existing contracts are scheduled to expire on a
staggered basis. There is a risk that any one of our significant
ACMI customers may not renew their ACMI contracts with us on
favorable terms or at all, perhaps due to reasons beyond our
control. For example, certain of our airline ACMI customers may
not renew their ACMI contracts with us as they take delivery of
new aircraft in their own fleet. Select customers have the
opportunity to terminate their long-term agreements in advance
of the expiration date, following a significant amount of notice
to allow for remarketing of the aircraft. Such agreements
generally contain a significant early termination fee paid by
the customer. Entering into ACMI contracts with new customers
generally requires a long sales cycle, and as a result, if our
ACMI contracts are not renewed, and there is a resulting delay
in entering into new contracts, our business, results of
operations and financial condition could be materially and
adversely affected.
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We
could be adversely affected if a large number of
747-400
passenger-to-freighter
converted aircraft enter the ACMI market and cause ACMI rates to
decrease. In addition, new entrants or different equipment types
introduced into the ACMI market could adversely affect our
business, results of operations and financial
condition.
As passenger airlines begin to retire
747-400
aircraft from passenger service, a number of these aircraft are
undergoing conversion to freighters. Although inferior in
operating performance to the
747-400
specialty built freighters that we operate, if a significant
number of these
747-400
converted freighter aircraft become available to our
competitors, it could cause ACMI rates and underlying aircraft
values to decrease. Additionally, the introduction of new
competitors
and/or
equipment types into the ACMI market could cause ACMI rates to
fall and/or
could negatively affect our customer base. If either
circumstance were to occur, our business, results of operations
and financial condition could be materially and adversely
affected.
We
could be adversely affected if the delivery our new
747-8F
aircraft are delayed further or if such aircraft do not meet
expected performance specifications.
In September 2006, we placed an order for 12 new
747-8F
aircraft that were originally scheduled to be delivered in 2010
and 2011. As part of this transaction, we also hold rights to
purchase up to an additional 14
747-8F
aircraft. The addition of these new aircraft is a material
component of our growth and fleet renewal strategy. Although the
747-8F
aircraft shares many of the same parts used in our
747-400
fleet, it is a new aircraft model and Boeing has not yet
received the necessary regulatory approvals and certifications.
Although Boeing has provided us with certain performance
guarantees, the new aircraft may not meet the expected
performance specifications, which could make it more difficult
for us to deploy these aircraft in a timely manner or at
expected rates. In November 2008, Boeing announced a delay in
the delivery of the first
747-8F
aircraft from late 2009 to the third quarter of 2010. In October
2009, Boeing announced a further delay in the first
747-8F
delivery to the fourth quarter of 2010 and a general slowdown of
the production line for this new aircraft type. Accordingly, we
expect a corresponding delay in the delivery of our first
747-8F
aircraft and subsequent deliveries. The estimated payment
schedule for the PDPs has been adjusted accordingly. Any further
delay in Boeings production or delivery schedule could
delay the deployment of these aircraft and could cause PDP
borrowings to become payable before delivery of the aircraft.
Risks
Related to the DHL Investment
Our
agreements with DHL require us to meet certain performance
targets in our Express Network ACMI, including certain
departure/arrival reliability standards. Failure to meet these
performance targets could adversely affect our financial
results.
Our ability to derive the expected economic benefits from our
transactions with DHL depends substantially on our ability to
successfully meet strict performance standards and deadlines for
aircraft and ground operations, which become increasingly
stringent over time. If we do not meet these requirements, we
may not be able to achieve the projected revenues and
profitability from this contract, and we could be exposed to
certain DHL remedies, including termination of the Amended BSA
in the most extreme of circumstances, as described below.
The
DHL Agreements confer certain termination rights to DHL which,
if exercised or triggered, may result in us being unable to
realize the full benefits of this transaction.
The Amended BSA gives DHL the option to terminate the agreement
for convenience by giving notice to us at least one year prior
to the fifth, tenth or fifteenth anniversary of the
agreements commencement date. If DHL terminates for
convenience on the fifth anniversary, Polar or DHL will be
required to assume all six
747-400
freighter head leases for the entire remaining term of each such
aircraft lease. Each assumed lease has a guarantee by DHLs
parent or a creditworthy subsidiary. Further, DHL has a right to
terminate the Amended BSA for cause following a specified
management resolution process in the event that we default on
our performance or we are unable to perform for reasons beyond
our control. If DHL exercises any of these termination rights,
we will not be able to achieve the projected revenues and
profitability from this contract.
21
Risks
Related to Our AMC Charter Business
We
derive a significant portion of our revenues from our AMC
Charter business, and a substantial portion of these revenues
have been generated pursuant to expansion flying, as opposed to
fixed contract arrangements with the AMC. In the longer term, we
expect that the revenues from our AMC Charter business may
decline from current levels, which could have a material adverse
effect on our business, results of operations and financial
condition.
During the years ended December 31, 2009, 2008 and 2007,
approximately 31.0%, 26.5% and 24.7%, respectively, of our
operating revenue were derived from our AMC Charter business. In
each of these years, the revenues derived from expansion flights
for the AMC significantly exceeded the value of the fixed flight
component of our AMC contract.
Historically, our AMC Charter business, especially expansion
flights, has generated a significant amount of revenue. Future
revenues from this business may decline from historic levels as
a result of reduced U.S. military heavy lift requirements.
Revenues from our AMC Charter business are derived from one-year
contracts that the AMC is not required to renew. Our current AMC
contract runs from October 1, 2009 through
September 30, 2010. Changes in national and international
political priorities can significantly affect the volume of our
AMC Charter business, especially the volume of expansion flying.
Any decrease in U.S. military activity could reduce our AMC
Charter business. In addition, our share of the total AMC
Charter business depends on several factors, including the total
fleet size we commit to the CRAF program and the total number of
aircraft deployed by our partners and competitors in the program.
The AMC also holds all carriers to certain on-time performance
requirements. To the extent that we fail to meet those
performance requirements or if we fail to perform or to pass
semi-annual AMC inspections, our revenues from our AMC Charter
business could decline through a suspension or termination of
our AMC contract. Our revenues could also decline due to a
reduction in the revenue rate we are paid by the AMC, a greater
reliance by the AMC on its own freighter fleet or a reduction in
our allocation of expansion flying. Any reduction in our AMC
flying could also negatively impact our Commercial Charter
revenue from the return trips of one-way AMC missions. If our
AMC Charter business declines significantly and we are otherwise
unable to effectively deploy the resultant capacity, it could
have a material adverse effect on our business, results of
operations and financial condition.
Our
AMC Charter business is sensitive to teaming arrangements, our
relative share of AMC flying and the profitability associated
with it. If one of our team members reduces its commitments or
withdraws from the program, or if other carriers on other teams
commit additional aircraft to this program, our share of AMC
flying may decline. In addition, any changes made to the
commissions that we either pay or receive for AMC flying could
impact our profit on this business. Any of these changes could
have a material adverse effect on our results of operations and
financial condition.
Each year, the AMC allocates its air cargo capacity needs to
different teams of airlines based on a point system that is
determined by the amount and types of aircraft that each team of
airlines pledges to the CRAF program. We participate in the CRAF
program through a teaming arrangement with other airlines, led
by FedEx. Our team is one of three major teams participating in
the CRAF program. Several factors could adversely affect the
amount of AMC flying that is allocated to us, including:
|
|
|
|
|
changes in the CRAF contracting mechanism;
|
|
|
|
the formation of new competing teaming arrangements;
|
|
|
|
the withdrawal of any of our teams current partners,
especially FedEx;
|
|
|
|
a reduction of the number of aircraft pledged to the CRAF
program by us or other members of our team; or
|
|
|
|
increased participation of other carriers on other teams in the
CRAF program.
|
22
Any reduction in our share of or profitability from AMC flying
could have a material adverse effect on our business, results of
operations and financial condition.
RISKS
RELATED TO OWNERSHIP OF OUR COMMON STOCK
U.S.
citizenship requirements may limit common stock voting
rights.
Under U.S. federal law and DOT requirements, we must be
owned and actually controlled by citizens of the United
States, a statutorily defined term requiring, among other
things, that not more than 25% of our issued and outstanding
voting stock be owned and controlled, directly or indirectly, by
non-U.S. citizens.
DOT periodically conducts airline citizenship reviews and, if it
finds that this requirement is not met, may require adjustment
of the rights attendant to the airlines issued shares.
As one means to effect compliance, our certificate of
incorporation and bylaws provide that the failure of
non-U.S. citizens
to register their shares on a separate stock record, which we
refer to as the Foreign Stock Record, results in a
suspension of their voting rights. Our bylaws further limit the
number of shares of our capital stock that may be registered on
the Foreign Stock Record to 25% of our issued and outstanding
shares. Registration on the Foreign Stock Record is made in
chronological order based on the date we receive a written
request for registration. As a result, if a
non-U.S. citizen
acquires shares of our common stock and does not or is not able
to register those shares on our Foreign Stock Record, they may
lose their ability to vote those shares.
Provisions
in our restated certificate of incorporation, stockholder rights
plan and by-laws and Delaware law might discourage, delay or
prevent a change in control of the Company and, therefore,
depress the trading price of our common stock.
Provisions of our restated certificate of incorporation,
by-laws, stockholder rights plan and Delaware law may render
more difficult or discourage any attempt to acquire our company,
even if such acquisition may be believed to be favorable to the
interests of our stockholders, discourage bids for our common
stock at a premium over market price or adversely affect the
market price of our common stock. In particular, our stockholder
rights plan, adopted in May 2009, may cause substantial dilution
to any person or group that attempts to acquire us without the
approval of our Board of Directors.
Our
common stock share price has been subject to fluctuation in
value.
The trading price of our common shares is subject to material
fluctuations in response to a variety of factors, including
quarterly variations in our operating results, economic
conditions of the airline industry generally or airline cargo
carriers specifically, general economic conditions or other
events and factors that are beyond our control.
In the past, following periods of significant volatility in the
overall market and in the market price of a companys
securities, securities class action litigation has been
instituted against these companies in some circumstances. If
this type of litigation were instituted against us following a
period of volatility in the market price for our common stock,
it could result in substantial costs and a diversion of our
managements attention and resources, which could have a
material adverse effect on our business, results of operations
and financial condition.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
23
Aircraft
Owned and leased aircraft, not including retired or parked
aircraft, at December 31, 2009 include the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
|
|
|
Average
|
|
Aircraft Type
|
|
Owned
|
|
|
Leased
|
|
|
Total
|
|
|
Age Years
|
|
|
747-200
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
28.8
|
|
747-300
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
24.1
|
|
747-400
|
|
|
8
|
|
|
|
14
|
|
|
|
22
|
|
|
|
10.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
14
|
|
|
|
14
|
|
|
|
28
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease expirations for our operating leased aircraft included in
the above table range from February 2020 to February 2025.
Ground
Facilities
Our principal office is located in Purchase, New York, where we
lease 120,000 square feet under a long-term lease that
expires in 2012. This office includes both operational and
administrative support functions, including flight and crew
operations, maintenance and engineering, material management,
human resources, legal, sales and marketing, financial and
information technology. In addition, we lease a variety of
smaller offices and ramp space at various station and regional
locations on a short-term basis.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
The information required in response to this Item is set forth
in Note 13 to our Financial Statements, and such
information is incorporated herein by reference. Such
description contains all of the information required with
respect hereto.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
No matters were submitted to a vote of the Companys
security holders during the last quarter of its fiscal year
ended December 31, 2009.
|
|
ITEM 4A.
|
EXECUTIVE
OFFICERS OF THE REGISTRANT
|
The following is a list of the names, ages and background of our
current executive officers:
William J. Flynn. Mr. Flynn, age 56,
has been our President and Chief Executive Officer since June
2006. Mr. Flynn has a 30 year career in international
supply chain management and freight transportation. Prior to
joining us, Mr. Flynn served as President and Chief
Executive Officer of GeoLogistics Corporation since 2002 where
he led a successful turnaround of the companys
profitability and the sale of the company to PWC Logistics
Corporation of Kuwait in September, 2005. Prior to his tenure at
GeoLogistics Mr. Flynn served as Senior Vice President at
CSX Transportation, one of the largest Class 1 railroads
operating in the U. S., from 2000 to 2002 where he was
responsible for the traditional railcar traffic unit.
Mr. Flynn spent over 20 years with
Sea-Land
Service, Inc., a global provider of container shipping services.
He served in roles of increasing responsibility in the U.S.,
Latin America and Asia. Mr. Flynn ultimately served as head
of the companys Asia operations. Mr. Flynn is also a
director of Republic Services, Inc. and Horizon Lines, Inc.
Mr. Flynn holds a Bachelors degree in Latin American
studies from the University of Rhode Island and a Masters degree
in the same field from the University of Arizona.
John W. Dietrich. Mr. Dietrich,
age 45, has been Executive Vice President and Chief
Operating Officer since September 2006. Prior thereto, and from
February 2004, Mr. Dietrich was Senior Vice President,
General Counsel and Chief Human Resources officer. He was named
Vice President and General Counsel in March 2003, where he was
also responsible for our Human Resources and Corporate
Communications functions. In
24
1999, Mr. Dietrich joined Atlas as Associate General
Counsel. From 1992 to 1999, Mr. Dietrich was a litigation
attorney at United Airlines, providing legal counsel to all
levels of management, particularly on employment and commercial
litigation issues. Mr. Dietrich earned a Bachelors of
Science degree from Southern Illinois University and received
his Juris Doctorate, cum laude, from John Marshall Law
School. He is a member of the New York, Illinois and Colorado
Bars.
Jason Grant. Mr. Grant, age 37, has
been Senior Vice President and Chief Financial Officer since
September 2007. Prior to September 2007, Mr. Grant was
Senior Vice President Network Planning and Business
Development from March 2007 and Vice President
Continuous Improvement from August 2006. He was named Vice
President Financial Planning and Analysis in May
2006, after having been elected Staff Vice President responsible
for our consolidated budget, forecasting, capital planning and
financial analysis in December 2004. Mr. Grant joined us in
2002 and held various finance and treasury positions before
being named a Staff Vice President. Prior to joining us, he was
a manager of the Financial Planning and Financial Analysis
groups for American Airlines. Mr. Grant holds a Bachelors
degree in business administration from Wilfrid Laurier
University and a Masters degree in Business Administration from
Simon Fraser University in Canada.
Adam R. Kokas. Mr. Kokas, age 38,
has been our Senior Vice President, General Counsel and
Secretary since October 2006 and our Chief Human Resources
Officer since November 2007. Mr. Kokas joined us from
Ropes & Gray LLP, where he was a partner in their
Corporate Department, focusing on general corporate, securities
and business law matters. Prior to joining Ropes &
Gray, Mr. Kokas was a partner at Kelley Drye &
Warren LLP, where he joined as an associate in 2001. At both
Kelley Drye and Ropes & Gray, Mr. Kokas
represented us in a variety of matters, including corporate
finance transactions, corporate governance matters, strategic
alliances, securities matters, and other general corporate
issues. Mr. Kokas earned a Bachelor of Arts degree from
Rutgers University and is a cum laude graduate of the
Boston University School of Law, where he was an Edward M.
Hennessey scholar. Mr. Kokas is a member of the New York
and New Jersey Bars.
Michael T. Steen. Mr. Steen, age 43,
has been Senior Vice President and Chief Marketing Officer since
April 2007. Prior to joining Atlas, Mr. Steen served as
Senior Vice President of Sales and Marketing at Exel PLc and
Vice President for the Americas for KLM Cargo. Mr. Steen
led the sales and marketing activities for Exel Freights
management and technology sector. Following Exels
acquisition by Deutsche Post World Net, he held senior-level
positions with the merged company in global supply chain
logistics. Prior to joining Exel, he served in a variety of
roles with KLM Cargo over 11 years, including Vice
President of the Americas, Head of Global Sales and Marketing
for the Logistics Unit and Director of Sales for EMEA.
Mr. Steen has also been a member of the Board of Directors
of TIACA (a
not-for-profit
trade association for the air cargo industry) since November
2007. Mr. Steen earned a degree in economic science from
Katrinelund in Gothenburg, Sweden, and is an alumnus of the
Advanced Executive Program at the Kellogg School of Management
at Northwestern University.
Spencer Schwartz. Mr. Schwartz,
age 43, was elected Vice President and Corporate Controller
in November 2008. Mr. Schwartz joined us from MasterCard
Incorporated, where he was employed for over 12 years and
served as Vice President of Taxation; Senior Vice President,
Corporate Controller and Chief Accounting Officer; Senior Vice
President and Business Financial Officer; and Group Head of
Global Risk Management. Prior to joining MasterCard,
Mr. Schwartz held financial positions of increasing
responsibility with Price Waterhouse, LLP (now
PricewaterhouseCoopers LLP) and Carl Zeiss, Inc.
Mr. Schwartz earned a Bachelors degree in Accounting from
The Pennsylvania State University and a Masters degree in
Business Administration from New York Universitys Leonard
N. Stern School of Business. He is a certified public accountant.
Executive Officers are elected by our board of directors, and
their terms of office continue until the next annual meeting of
the board of directors or until their successors are elected and
have qualified. There are no family relationships among our
executive officers.
25
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
Since May 31, 2006, our common stock has been traded on The
NASDAQ Global Select Market under the symbol AAWW.
Market
Price of Common Stock
The following table sets forth the closing high and low sales
prices per share of our common stock for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2009 Quarter Ended
|
|
|
|
|
|
|
|
|
December 31
|
|
$
|
38.18
|
|
|
$
|
25.08
|
|
September 30
|
|
$
|
33.89
|
|
|
$
|
20.62
|
|
June 30
|
|
$
|
32.68
|
|
|
$
|
17.54
|
|
March 31
|
|
$
|
24.05
|
|
|
$
|
10.03
|
|
2008 Quarter Ended
|
|
|
|
|
|
|
|
|
December 31
|
|
$
|
38.09
|
|
|
$
|
9.05
|
|
September 30
|
|
$
|
57.74
|
|
|
$
|
37.94
|
|
June 30
|
|
$
|
64.92
|
|
|
$
|
49.46
|
|
March 31
|
|
$
|
55.00
|
|
|
$
|
47.13
|
|
The last reported sale price of our common stock on The NASDAQ
National Market on February 23, 2010 was $39.88 per share.
As of February 16, 2010, there were approximately
25.7 million shares of our common stock issued and
outstanding, and 113 holders of record of our common stock.
During the fourth quarter of 2008, we announced a stock
repurchase program, which authorized the repurchase of up to
$100 million of our common stock. Purchases may be made at
our discretion from time to time on the open market, through
negotiated transactions, block purchases or exchange or
non-exchange transactions. As of February 24, 2010, we have
repurchased a total of 700,243 shares of our common stock
for approximately $18.9 million, at an average cost of
$26.99 per share under this program.
Dividends
We have never paid a cash dividend with respect to our common
stock and we do not anticipate paying a dividend in the
foreseeable future. Moreover, certain of our financing
arrangements contain financial covenants that could limit our
ability to pay cash dividends.
Foreign
Ownership Restrictions
Under our by-laws, U.S. federal law and DOT regulations, we
must be controlled by U.S. citizens. In this regard, our
President and at least two-thirds of our board of directors and
officers must be U.S. citizens and not more than 25% of our
outstanding voting common stock may be held by
non-U.S. citizens.
We believe that, during the period covered by this Report, we
were in compliance with these requirements.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The selected balance sheet data as of December 31, 2009 and
2008 and the selected statements of operations data for the
years ended December 31, 2009, 2008 and 2007 have been
derived from our audited Financial Statements included elsewhere
herein. The selected balance sheet data as of December 31,
2007,
26
2006 and 2005, and selected statements of operations data for
the years ended December 31, 2006 and 2005 have been
derived from our audited Financial Statements not included
herein.
Upon a reconsideration event and application of ASC 810, we
determined that DHL was the primary beneficiary of Polar on the
Commencement Date and, as a result, we deconsolidated Polar for
financial reporting purposes as of October 27, 2008.
Previously, we accounted for Polar on a consolidated basis.
Since that date, we are reporting Polar under the equity method
of accounting. The resulting impact from this change reduces
revenue, operating expenses, total assets, liabilities and
equity related to Polar. In addition, on April 8, 2009,
upon a reconsideration event and application of ASC 810, we
consolidated GSS into our operating results. Our 2009 Operating
Statistics, Operating Revenue and Operating Expenses reflect the
consolidation of GSS in ACMI as of that date. Previously, GSS
was accounted for under the equity method and the revenue
generated by the three aircraft Dry Leased to GSS was reflected
in Dry Leasing. In the following table all amounts are in
thousands, except for per share data.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
1,061,546
|
|
|
$
|
1,607,482
|
|
|
$
|
1,575,105
|
|
|
$
|
1,480,734
|
|
|
$
|
1,617,897
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
911,539
|
|
|
|
1,619,629
|
|
|
|
1,420,330
|
|
|
|
1,328,434
|
|
|
|
1,424,597
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss)
|
|
|
150,007
|
|
|
|
(12,147
|
)
|
|
|
154,775
|
|
|
|
152,300
|
|
|
|
193,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
76,156
|
|
|
|
60,021
|
|
|
|
132,415
|
|
|
|
59,781
|
|
|
|
73,861
|
|
Less: Net loss attributable to the noncontrolling interest
|
|
|
(1,620
|
)
|
|
|
(3,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Stockholders
|
|
$
|
77,776
|
|
|
$
|
63,696
|
|
|
$
|
132,415
|
|
|
$
|
59,781
|
|
|
$
|
73,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (Basic)
|
|
$
|
3.59
|
|
|
$
|
2.98
|
|
|
$
|
6.24
|
|
|
$
|
2.89
|
|
|
$
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (Diluted)
|
|
$
|
3.56
|
|
|
$
|
2.97
|
|
|
$
|
6.17
|
|
|
$
|
2.83
|
|
|
$
|
3.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Position Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,740,873
|
|
|
$
|
1,600,745
|
|
|
$
|
1,417,190
|
|
|
$
|
1,119,780
|
|
|
$
|
1,180,810
|
|
Long-term debt (less current portion)
|
|
$
|
526,680
|
|
|
$
|
635,628
|
|
|
$
|
365,619
|
|
|
$
|
398,885
|
|
|
$
|
529,742
|
|
Total equity
|
|
$
|
888,757
|
|
|
$
|
681,739
|
|
|
$
|
562,702
|
|
|
$
|
473,844
|
|
|
$
|
357,905
|
|
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
|
The following discussion should be read in conjunction with the
consolidated financial statements and notes of Atlas Air
Worldwide Holdings, Inc. included in Item 8 of this report.
References to we, our and us
refer to the business conducted by AAWW and its subsidiaries.
Business
Overview
We are the leading provider of leased wide-body freighter
aircraft, furnishing outsourced aircraft operating services and
solutions. As such, we manage and operate the worlds
largest fleet of 747 freighters. We provide unique value to our
customers by giving them access to highly reliable new
production freighters that deliver the lowest unit cost in the
marketplace combined with outsourced aircraft operating services
that lead the industry in terms of quality and global scale. Our
customers include airlines, express delivery providers, freight
forwarders, the U.S. military and charter brokers. We
provide global services with operations in Asia, the Middle
East, Australia, Europe, South America, Africa and North America.
Global airfreight demand is highly correlated with global gross
domestic product and the slowdown in global economic activity in
2008 and 2009 resulted in an unprecedented decline in airfreight
volumes during
27
the second half of 2008 that continued into the first half of
2009. Although industry supply and demand levels have improved
meaningfully since early 2009, airfreight demand remains below
pre-recession levels. The fourth quarter of 2009 produced
encouraging trends for peak period airfreight demand and yields,
which was consistent with a tightened supply in 2009.
We believe that our existing fleet of 22 modern, high-efficiency
747-400
aircraft represents one of the most efficient freighter fleets
in the market. Our primary placement for these aircraft will
continue to be long-term ACMI outsourcing contracts with
high-credit-quality customers. We will opportunistically
displace further
747-200 AMC
and Commercial Charter flying to the extent we do not have
demand for these aircraft.
Our growth plans are focused on the further enhancement of our
ACMI market position with our order of 12 new,
state-of-the-art
747-8F
aircraft. We expect Boeing to begin delivery to us in early
2011. We are currently the only operator offering these aircraft
on a Wet Lease basis to the ACMI leasing market. In addition to
our order, we also hold rights to purchase up to an additional
14 747-8F
aircraft, providing us with flexibility to further expand our
fleet in response to market conditions.
We believe that the scale, scope and quality of our outsourced
services are unparalleled in our industry. The relative
operating cost efficiency of our current
747-400F
aircraft and future
747-8F
aircraft, including their superior fuel efficiency, capacity and
loading capabilities, create a compelling value proposition for
our customers and position us well to manage market conditions
and for future growth in the ACMI, Commercial Charter and Dry
Leasing areas of our business.
Our primary service offerings are:
Aircraft leasing services, which encompass the following:
|
|
|
|
|
ACMI, whereby we provide outsourced aircraft operating solutions
including the provision of crew, maintenance and insurance for
the aircraft, while customers assume fuel, demand and yield
risk. ACMI contracts typically range from three to six years for
747-400s. In
addition, beginning in 2010, we plan to fly CMI, which is
similar to ACMI flying, except that the customer will be
providing its own aircraft. Also included within ACMI is the
provision of Express Network ACMI, whereby we provide dedicated
747-400
aircraft to Polar that service the requirements of DHLs
global express operations and meets the needs of other Polar
customers. Beginning on April 8, 2009, we consolidated GSS,
and the aircraft that are Dry Leased to GSS are now included
within ACMI; and
|
|
|
|
Dry Leasing, whereby we provide aircraft
and/or
engine leasing solutions to third parties for one or more
dedicated aircraft or engines.
|
Charter services, which encompass the following:
|
|
|
|
|
AMC Charter services, whereby we provide air cargo services for
the AMC; and
|
|
|
|
Commercial Charter, whereby we typically provide aircraft
charters to brokers, freight forwarders, direct shippers and
airlines.
|
We believe that the following competitive strengths will allow
us to capitalize on opportunities that exist in the global
airfreight industry:
Market
leader for freighter aircraft leasing and outsourced aircraft
solutions:
We manage the worlds largest fleet of
747-400
freighters, the largest and most cost effective long-haul
commercial freighter currently available. Our fleet consists of
twenty-two
747-400, one
747-300 and
five 747-200
freighters, representing roughly 10% of the heavy freighters
operating in the world today. This highlights our position as
the preeminent provider of these highly desirable and scarce
assets, in the case of the current
747-400
freighter and the future
747-8F. Our
operating model deploys our aircraft across a range of aircraft
leasing and charter services to drive maximum utilization and
value from our fleet. The scale of our fleet enables us to have
aircraft available globally to respond to our customers
needs, both on a planned and ad hoc basis. We believe that this
provides us with a commercial advantage over our competitors
with smaller and less flexible fleets.
28
The 747-400,
which is the core of our ACMI segment, is the industry leader
for operating performance in the intercontinental air freighter
market due to its cost and capacity advantage over other
freighters. According to the manufacturer, these aircraft burn
10-16% less
fuel and have 26 tons and 1,200 nautical miles of incremental
capacity and range compared to
747-200s. In
September 2006, we placed an order for 12 new,
state-of-the-art
747-8F
aircraft, which have improved operating performance relative to
the 747-400
and will allow us to grow and maintain our industry leading
position for the foreseeable future.
Stable
base of contractual revenue and reduced operational
risk:
Our focus on providing contracted aircraft and operating
solutions to customers contributes to increased stability of our
revenues and reduces our operational risk. Typically, ACMI and
Dry Leasing contracts with customers for
747-400
aircraft range from three to six years. Under the ACMI and Dry
Leasing structure, our customers assume fuel, Yield and demand
risk resulting in reduced operational risk for AAWW. Most ACMI
contracts typically provide us with a guaranteed minimum level
of revenue and target level of profitability.
Our Express Network ACMI contract with DHL includes the
allocation of blocked space capacity on a long-term basis for up
to 20 years. This arrangement eliminates Yield and demand
risks, similar to the rest of our ACMI business, for a minimum
of six
747-400
aircraft. DHL is subject to a monthly minimum Block Hour
guarantee.
Our AMC Charter services are operated under an annual contract
with the U.S. military, whereby the military assumes fuel
price risk, mitigating the risk of this business.
Focus
on asset optimization:
By managing the largest fleet of 747 freighter aircraft, we
achieve significant economies of scale in areas such as aircraft
maintenance, crew training, crew efficiency, inventory
management, and purchasing. The addition of the
747-8F
aircraft will further enhance our efficiencies as these new
aircraft will have a high degree of operational, maintenance and
spare parts commonality with our existing fleet of
747-400s, as
well as a common pilot-type rating.
Our mix of aircraft is closely aligned with our customer needs.
We believe our aircraft operating solutions are well suited for
our existing
747-400s and
our ordered
747-8Fs. Our
747-200
freighters are utilized for high contribution AMC flying and for
Commercial Charter business on an opportunistic basis.
We continually evaluate our fleet to ensure that we offer the
most efficient and effective mix of aircraft. In keeping with
our strategy of actively managing our asset base by selectively
disposing of less productive assets, we parked a total of three
747-200
aircraft in 2009 and seven
747-200
aircraft in 2008, which reduced our
747-200
fleet to six at December 31, 2009. We took a Special charge
in 2008 and 2009 in connection with the retirement of these
assets. The retirement of the remaining
747-200
aircraft is dependent on several factors, including current and
anticipated market conditions and customer demand (see Results
of Operations and Note 5 to our Financial Statements for
additional information).
Our leasing model is unique in that we offer a portfolio of
operating solutions that complement our freighter aircraft
leasing businesses. We believe this allows us to improve the
returns we generate from our asset base by allowing us to
flexibly redeploy aircraft to meet changing market conditions,
ensuring the maximum utilization of our fleet. Our charter
services complement our freighter aircraft leasing services by
allowing us to increase aircraft utilization during open time
and to react to changes in demand in these segments. We have
employees situated around the globe who closely monitor demand
for commercial charter services in each region, enabling us to
redeploy available aircraft quickly. Our
747-200
aircraft are unencumbered and have allowed us to adjust the size
of our fleet to react quickly to changes in market demand. We
also endeavor to manage our leasing contract portfolio to
stagger contract terms to mitigate our remarketing risks and
aircraft down time. This is especially important during periods
when demand for our services, particularly with respect to the
ACMI business segment, has softened.
29
Long-term
strategic customer relationships and unique service
offerings:
We combine the global scope and scale of our efficient aircraft
fleet with high quality, cost-effective operations and premium
customer service to provide unique, fully integrated and
reliable solutions for our customers. We believe the outcome is
customers that are motivated to seek long-term relationships
with us. This has historically allowed us to command higher
prices than our competitors in several key areas. These
long-term relationships help us to build resilience into our
business model.
Our customers have access to our solutions, such as
inter-operable crews, flight scheduling, fuel efficiency
planning, and maintenance spare coverage, which, we believe, set
us apart from other participants in the aircraft operating
solutions market. Furthermore, we have access to valuable
operating rights to restricted markets such as Brazil, Japan and
China. We believe our freighter leasing services allow our
customers to effectively expand their capacity and operate
dedicated freighter aircraft without simultaneously taking on
exposure to fluctuations in the value of owned aircraft and, in
the case of our ACMI leases, long-term expenses relating to
crews and maintenance. Dedicated freighter aircraft enable
schedules to be driven by cargo rather than passenger demand
(for those who typically handle portions of their cargo
operations via belly capacity on passenger aircraft), which we
believe allows our customers to drive higher contribution from
cargo operations. During 2008 and 2009, both Atlas and Polar
successfully completed the International Air Transport
Associations Operational Safety Audit (IOSA), a globally
recognized safety and quality standard.
We provide freighter aircraft leasing solutions to some of the
worlds premier airlines and some of the worlds
largest freight forwarders. We will take advantage of
opportunities to maintain and expand our relationships with our
existing customers, while seeking new customers and new
geographic markets.
Experienced
management team:
Our senior management team has extensive operating and
leadership experience in the airfreight, airline and logistics
industries at companies such as United Airlines, US Airways,
Lufthansa Cargo, American Airlines, Canadian Airlines,
Continental Airlines, SH&E Air Transport Consultancy, ASTAR
Air Cargo and KLM Cargo, as well as the United States Navy, Air
Force and Federal Air Marshal Service. Our management team is
led by William J. Flynn, who has 30 years of experience in
freight and transportation and has held senior management
positions with several transportation companies. Prior to
joining AAWW, Mr. Flynn was President and CEO of
GeoLogistics, a global transportation and logistics enterprise.
Business
Strategy
Our strategy includes the following:
Actively
manage our fleet with a focus on leading-edge
aircraft:
We continue to actively manage our fleet of leading-edge
wide-body freighter aircraft to meet customer demands. Our
747-400s and
747-8Fs will
be utilized primarily in our ACMI business and in the AMC and
Commercial Charter market during any remarketing periods. We
will deploy our remaining
747-200
fleet and related assets in the AMC Charter, Commercial Charter
and Dry Leasing markets, while evaluating sale and other
opportunities for these assets as market conditions warrant. We
continue to update our fleet with new aircraft to ensure that we
provide our customers with the most efficient aircraft to meet
their needs. We will also continue to manage our older aircraft
in an opportunistic way to maximize returns (see Results of
Operations for further discussion).
Focus
on securing long-term contracts:
We will continue to focus on securing long-term leasing and
aircraft operating solutions contracts, which provide us with
stable revenue streams and predictable margins. In addition,
these agreements limit our direct exposure to fuel and other
costs and mitigate the risk of fluctuations in both Yield and
demand in the airfreight business, while also improving the
overall utilization of our fleet.
Drive
significant and ongoing efficiencies and productivity
improvements:
In 2006, we began to enhance our organization through an
initiative called Continuous Improvement. We created
a separate department and officer position to drive the process
and to involve all areas of the
30
organization in the effort to reexamine, redesign and improve
the way we do business. Our initial goal was to generate
$100 million in cost savings, on an annualized basis. We
have met and exceeded this initial goal and our efforts to
realize additional savings will continue.
Our efforts thus far have resulted in initiatives in six
principal areas: fuel, maintenance, crew and related costs,
other aircraft operations, procurement and general and
administrative costs.
Specific initiatives include:
|
|
|
|
|
New processes to improve the fuel efficiency of our aircraft
operations;
|
|
|
|
Further outsourcing our maintenance and back-office support
functions to reduce costs;
|
|
|
|
Improving our processes for managing aircraft maintenance, with
the goal of reducing turn-times and eliminating costs;
|
|
|
|
Application of new technology and processes to optimize our crew
scheduling to maximize crew efficiency;
|
|
|
|
Consolidating and eliminating facility and space
requirements; and
|
|
|
|
Increasing the efficiency of our procurement capabilities to
drive lower costs for purchased goods and services, including
crew travel and outsourced ground and maintenance services.
|
Selectively
pursue and evaluate future acquisitions and
alliances:
From time to time, we expect to explore business combinations
and alliances with other cargo airlines, air cargo services
providers, Dry Leasing companies and other companies to enhance
our competitive position, geographic reach and service portfolio.
Results
of Operations
The following discussion should be read in conjunction with our
Financial Statements and the Notes thereto included elsewhere
herein.
Financial
Overview
Our 2009 Results of Operations have been impacted by several
important factors that affect comparisons to 2008. Prior to the
Commencement Date, Polar provided scheduled air cargo services
to freight forwarders and agents. Polar operated
airport-to-airport
routes on a specific schedule, and customers paid to have their
freight carried on that route and in accordance with that
schedule. Subsequent to the Commencement Date, the revenue
related to the aircraft supporting Polar is now reflected in
ACMI.
Second, on April 8, 2009, we consolidated GSS into our
operating results. Our 2009 Operating Statistics, Operating
Revenue and Operating Expenses reflect the consolidation of GSS
in ACMI as of that date. Previously, GSS was accounted for under
the equity method and the revenue generated by the three
aircraft Dry Leased to GSS was reflected in our Dry Leasing
segment.
Third, general worldwide economic conditions experienced a
downturn due to the sequential effects of the
sub-prime
lending crisis, general credit declines, economic recession,
market declines, collateral effects on the finance and banking
industries, volatile energy costs, concerns about inflation,
slower economic activity, decreased consumer confidence, reduced
corporate profits and capital spending, adverse business
conditions and liquidity concerns. These conditions resulted in
reduced demand for products being shipped by air for our ACMI
customers, causing most of them to fly below their minimum
contractual Block Hours during the first three quarters of 2009.
However, this adverse trend was reversed in the fourth quarter
of 2009, which showed a measurable improvement in airfreight
volumes. As a result, our ACMI customers flew above their
contractual minimums and we experienced higher yields and strong
Commercial Charter demand in the fourth quarter of 2009. In
addition, with the increase in U.S. Military activity in
Afghanistan, we experienced strong demand from the AMC in 2009,
which has continued into the first quarter of 2010.
Fourth, we took a Special charge related to our
747-200
fleet in both 2009 and 2008. During 2009, global freight demand
decreased beyond what we had expected and we shortened our
747-200
fleet life. We also parked one
747-200
aircraft in the fourth quarter of 2009, with one more scheduled
to be parked in the first
31
quarter of 2010. During 2008, as a result of the weak revenue
environment primarily due to the lack of a 2008 peak holiday
season and excess capacity in the
747-200
market, we made a decision in the fourth quarter of 2008 to
retire seven of the sixteen
747-200
remaining in the fleet, with two additional aircraft parked
during the first quarter of 2009. Included in the Special charge
is the impairment of the
747-200
fleet and related assets in both 2009 and 2008. The 2008 Special
charge also includes costs related to the termination of one
747-200
operating lease, a write-down of excess expendable
747-200
inventory, employee terminations and the termination of two
maintenance contracts for
747-200
engines.
Years
Ended December 31, 2009 and 2008
Operating
Statistics
As noted above, our 2009 Operating Statistics were impacted by
the deconsolidation of Polar following the Commencement Date and
the consolidation of GSS on April 8, 2009. All Express
Network ACMI Block Hours for the aircraft flown by Polar
subsequent to the Commencement Date are reflected as ACMI Block
Hours, and there was no Scheduled Service activity during 2009.
Prior to the Commencement Date in 2008, all Express Network ACMI
Block Hours were reflected as Scheduled Service. Block Hours
flown by GSS are reflected as ACMI Block Hours beginning on
April 8, 2009. The following discussion should be read in
conjunction with our Financial Statements and notes thereto and
other financial information appearing and referred to elsewhere
in this report.
The table below sets forth selected Operating Statistics for the
years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Block Hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
|
76,859
|
|
|
|
59,161
|
|
|
|
17,698
|
|
|
|
29.9
|
%
|
AMC Charter
|
|
|
19,088
|
|
|
|
18,022
|
|
|
|
1,066
|
|
|
|
5.9
|
%
|
Commercial Charter
|
|
|
12,694
|
|
|
|
6,713
|
|
|
|
5,981
|
|
|
|
89.1
|
%
|
Scheduled Service
|
|
|
|
|
|
|
36,731
|
|
|
|
(36,731
|
)
|
|
|
(100.0
|
)%
|
Non revenue
|
|
|
328
|
|
|
|
740
|
|
|
|
(412
|
)
|
|
|
(55.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Block Hours
|
|
|
108,969
|
|
|
|
121,367
|
|
|
|
(12,398
|
)
|
|
|
(10.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
6,274
|
|
|
$
|
6,055
|
|
|
$
|
219
|
|
|
|
3.6
|
%
|
AMC Charter
|
|
|
17,235
|
|
|
|
23,627
|
|
|
|
(6,392
|
)
|
|
|
(27.1
|
)%
|
Commercial Charter
|
|
|
16,947
|
|
|
|
18,967
|
|
|
|
(2,020
|
)
|
|
|
(10.6
|
)%
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.02
|
|
|
$
|
3.41
|
|
|
$
|
(1.39
|
)
|
|
|
(40.8
|
)%
|
Fuel gallons consumed (000s)
|
|
|
58,709
|
|
|
|
58,621
|
|
|
|
88
|
|
|
|
0.2
|
%
|
Commercial Charter and Scheduled Service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
1.93
|
|
|
$
|
3.35
|
|
|
$
|
(1.42
|
)
|
|
|
(42.4
|
)%
|
Fuel gallons consumed (000s)
|
|
|
42,742
|
|
|
|
142,381
|
|
|
|
(99,639
|
)
|
|
|
(70.0
|
)%
|
Fleet (average during the period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft count*
|
|
|
27.6
|
|
|
|
30.9
|
|
|
|
(3.3
|
)
|
|
|
(10.7
|
)%
|
Out-of-service
|
|
|
2.5
|
|
|
|
0.8
|
|
|
|
1.7
|
|
|
|
212.5
|
%
|
Dry leased
|
|
|
0.8
|
|
|
|
4.1
|
|
|
|
(3.3
|
)
|
|
|
(80.5
|
)%
|
|
|
|
* |
|
Dry Leased and
Out-of-service
aircraft are not included in the operating fleet average
aircraft count. |
32
Operating
Revenue
Our 2009 Operating Revenue reflects the deconsolidation of Polar
following the Commencement Date and the consolidation of GSS
beginning on April 8, 2009. As noted above, we did not have
any Scheduled Service revenue during 2009. The following table
compares our Operating Revenue for the years ended December 31
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Operating Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
482,231
|
|
|
$
|
358,234
|
|
|
$
|
123,997
|
|
|
|
34.6
|
%
|
AMC Charter
|
|
|
328,990
|
|
|
|
425,814
|
|
|
|
(96,824
|
)
|
|
|
(22.7
|
)%
|
Commercial Charter
|
|
|
215,127
|
|
|
|
127,325
|
|
|
|
87,802
|
|
|
|
69.0
|
%
|
Dry Leasing
|
|
|
12,799
|
|
|
|
48,770
|
|
|
|
(35,971
|
)
|
|
|
(73.8
|
)%
|
Scheduled Service
|
|
|
|
|
|
|
645,283
|
|
|
|
(645,283
|
)
|
|
|
(100.0
|
)%
|
Other
|
|
|
22,399
|
|
|
|
2,056
|
|
|
|
20,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue
|
|
$
|
1,061,546
|
|
|
$
|
1,607,482
|
|
|
$
|
(545,936
|
)
|
|
|
(34.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI revenue increased $124.0 million, or 34.6%,
primarily due to $155.2 million of Express Network ACMI
flying in 2009 (which began October 27, 2008) and
$58.9 million from the consolidation of GSS (beginning
April 8, 2009), which was partially offset by a reduction
in other ACMI flying of approximately $90.1 million. ACMI
Block Hours were 76,859 in 2009, compared to 59,161 in 2008, an
increase of 17,698 Block Hours, or 29.9%. The increase in Block
Hours was driven by additional aircraft supporting Express
Network ACMI flying, which increased by eight aircraft on the
Commencement Date in 2008 and then reduced to six, with the
return of two aircraft, at the beginning of the second quarter
of 2009. In addition, beginning on April 8, 2009, three
747-400
aircraft flown by GSS that were previously reported in Dry
Leasing are now reported as ACMI. One
747-400 that
was returned by a customer at the end of its ACMI contract in
March 2009 was redeployed to AMC and Commercial Charter. In
2009, there was an average of 16.9
747-400
aircraft and 0.2
747-200
aircraft supporting ACMI compared to an average of 12.0
747-400
aircraft and 2.2
747-200
aircraft for the comparable period in 2008. Revenue per Block
Hour was $6,274 for 2009, compared to $6,055 for 2008, an
increase of $219 per Block Hour, or 3.6%. The increase in
Revenue per Block Hour was primarily driven by an increase in
ACMI customers that flew below contractual minimum Block Hours
but were nonetheless billed for those unflown hours during the
first three quarters of 2009. However, in the fourth quarter of
2009 all of our ACMI customers flew above their contractual
minimums to meet strong fourth quarter freight demands.
AMC Charter revenue decreased $96.8 million, or
22.7%, primarily due to a lower fuel component in AMC Charter
Revenue per Block Hour, partially offset by an increase in
flying. AMC Charter Block Hours were 19,088 in 2009 compared to
18,022 in 2008, an increase of 1,066 Block Hours, or 5.9%. The
average fuel price per gallon for the AMC Charter business was
approximately $2.02 in 2009, compared to approximately $3.41 in
2008, a decrease of $1.39. The decrease in the
pegged fuel price was the primary driver of the
reduction in AMC Charter Revenue per Block Hour from $23,627 for
2008 to $17,235 for 2009, a decrease of $6,392 or 27.1%.
Commercial Charter revenue increased $87.8 million,
or 69.0%, due to an increase in Block Hours flown, which was
partially offset by a decrease in Revenue per Block Hour.
Revenue per Block Hour was $16,947 in 2009, compared to $18,967
in 2008, a decline of $2,020 per Block Hour or 10.6%. The
decline in Revenue per Block Hour was caused by pricing
decreases related to the reduction in the cost of fuel and more
aggressive charter pricing during the first three quarters of
2009 compared to 2008. During the fourth quarter of 2009, the
increase in demand for freight out of Asia coupled with lower
global freighter capacity drove Commercial Charter rates higher.
Commercial Charter Block Hours were 12,694 in the year ended
December 31, 2009, compared to 6,713 in the same period of
2008, an increase of 5,981 or 89.1%. The increase in Block Hours
was the result of the redeployment of
747-400
aircraft returned from ACMI, increased utilization and the
flying of charters to and from South America. During 2009, the
deployment of
747-400
aircraft in
33
Commercial Charter gave us a competitive advantage over other
cargo airlines that primarily offer smaller aircraft.
Accordingly, we have been able to increase the number of
Commercial Charters from Asia to the U.S. as the return
legs of one-way AMC missions and in the fourth quarter of 2009
we were also able to increase the yields on that flying. The
increase in Block Hours operated by
747-400
aircraft was partially offset by a reduction of
747-200
Block Hours due to the retirement of certain of our older
747-200
aircraft at the end of 2008 and during 2009.
Dry Leasing revenue decreased $36.0 million, or
73.8%, primarily due to a $31.4 million reduction related
to the consolidation of GSS and a $5.6 million decrease
from three
747-200
aircraft that were Dry Leased in the first half of 2008,
partially offset by a $1.0 million increase in revenue from
the Dry Leasing of six engines in 2009. During 2009, we have
been able to lease spare engines that were used on retired
747-200
aircraft. On April 8, 2009, upon the consolidation of GSS,
the three
747-400
aircraft that GSS Wet Leases to a customer and the associated
revenue are now included in ACMI. The Dry Lease revenue for
those aircraft that was previously reported in Dry Leasing was
eliminated in consolidation after that date. During 2009, we had
an average of 0.8
747-400
aircraft and no
747-200
aircraft on Dry Lease compared to an average of 3.0
747-400
aircraft and 1.1
747-200
aircraft on Dry Lease during 2008. The average of 0.8
747-400
aircraft that were Dry Leased during the year ended
December 31, 2009 represents the period from
January 1st through April 7th, when GSS was
accounted for under the equity method (see Note 4 to our
Financial Statements). We experienced customer defaults on three
Dry Leased
747-200
aircraft in the first half of 2008 as the two customers leasing
those aircraft filed for protection under local insolvency laws.
The returned aircraft have been either parked or sold.
Scheduled Service revenue was eliminated as we ceased to
provide this type of service following the Commencement Date in
2008 and the revenue related to the aircraft supporting Polar is
now reflected in ACMI.
Other revenue increased $20.3 million due to the
receipt of a $10.0 million one-time fee for the effective
early termination of an ACMI contract for two aircraft provided
to DHL. In addition, we recorded $11.5 million in revenue
related to management and administrative support services
provided to Polar. See Note 3 to our Financial Statements.
Operating
Expenses
Our 2009 Operating Expenses reflect the deconsolidation of Polar
following the Commencement Date in 2008 and the consolidation of
GSS since April 8, 2009. The expense line items impacted
are discussed below. The following table compares our operating
expenses for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
$
|
215,660
|
|
|
$
|
221,765
|
|
|
$
|
(6,105
|
)
|
|
|
(2.8
|
)%
|
Aircraft fuel
|
|
|
201,207
|
|
|
|
677,544
|
|
|
|
(476,337
|
)
|
|
|
(70.3
|
)%
|
Aircraft rent
|
|
|
151,080
|
|
|
|
157,063
|
|
|
|
(5,983
|
)
|
|
|
(3.8
|
)%
|
Maintenance, materials and repairs
|
|
|
147,758
|
|
|
|
171,396
|
|
|
|
(23,638
|
)
|
|
|
(13.8
|
)%
|
Depreciation
|
|
|
33,074
|
|
|
|
38,946
|
|
|
|
(5,872
|
)
|
|
|
(15.1
|
)%
|
Landing fees and other rent
|
|
|
39,552
|
|
|
|
65,033
|
|
|
|
(25,481
|
)
|
|
|
(39.2
|
)%
|
Travel
|
|
|
25,235
|
|
|
|
45,842
|
|
|
|
(20,607
|
)
|
|
|
(45.0
|
)%
|
Ground handling and airport fees
|
|
|
16,212
|
|
|
|
61,927
|
|
|
|
(45,715
|
)
|
|
|
(73.8
|
)%
|
Gain on disposal of aircraft
|
|
|
(953
|
)
|
|
|
(2,726
|
)
|
|
|
(1,773
|
)
|
|
|
(65.0
|
)%
|
Special charge
|
|
|
8,216
|
|
|
|
91,167
|
|
|
|
(82,951
|
)
|
|
|
(91.0
|
)%
|
Other
|
|
|
74,498
|
|
|
|
91,672
|
|
|
|
(17,174
|
)
|
|
|
(18.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expense
|
|
$
|
911,539
|
|
|
$
|
1,619,629
|
|
|
$
|
(708,090
|
)
|
|
|
(43.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
Salaries, wages and benefits decreased $6.1 million,
or 2.8%, primarily due to a $15.7 million reduction
attributable to the deconsolidation of Polar and a net reduction
in crew and ground staff costs of $3.9 million, partially
offset by a $10.8 million increase related to the
consolidation of GSS. In 2008, we released employment tax
reserves related to the successful resolution of an examination
with the IRS resulting in a $2.7 million non-recurring
benefit.
Aircraft fuel expense decreased $476.3 million, or
70.3%, as a result of $335.6 million of reduced consumption
and approximately $140.8 million in fuel price decreases.
The decrease in fuel consumption was due to the deconsolidation
of Polar that was partially offset by $20.0 million of
increased AMC and Commercial Charter consumption. The average
fuel price per gallon for the Commercial Charter business was
approximately $1.93 for 2009, compared to approximately $3.35
for the Commercial Charter and Scheduled Service businesses for
2008, a decrease of $1.42. A 105.4 million gallon decrease
was due to the deconsolidation of Polar that was partially
offset by 5.8 million gallons of increased AMC and
Commercial Charter consumption. The average fuel price per
gallon for the AMC Charter business was approximately $2.02 in
2009, compared to approximately $3.41 in 2008, a decrease of
$1.39. The slight decrease in AMC fuel consumption was related
to the increased flying of more efficient
747-400
aircraft. We do not incur fuel expense in our ACMI business as
the cost of fuel is borne by the customer.
Aircraft rent decreased $6.0 million, or 3.8%,
primarily due to a $2.9 million decrease in re-accommodated
air costs, a $1.5 million decrease in spare engine rent
expense due to fewer engines on lease as a result of lower
flying activity and a $1.6 million decrease related to the
termination of a
747-200
operating lease in December 2008. Re-accommodated air costs are
incurred in situations whereby we utilize other airlines to
transport freight to airports that we do not serve directly.
Maintenance, materials and repairs decreased
$23.6 million, or 13.8%, primarily due to decreased engine
overhauls of approximately $22.6 million as well as
reductions in line and other non-heavy maintenance expense of
approximately $18.9 million. Partially offsetting these
decreases was a $15.1 million increase related to the
consolidation of GSS and an increase in heavy airframe check
expense of approximately $2.8 million, primarily related to
an increase in the number of third party C Checks performed on
747-400
aircraft. The overall decrease in maintenance expense is the
result of fewer CF6-50 engine overhauls and reduced Block Hours
in 2009 compared to 2008. Managements cost reduction
initiatives, such as the use of spare parts from retired
747-200
aircraft rather than incurring line maintenance expenses also
reduced 2009 expenses. Heavy maintenance events and engine
overhauls for the years ended December 31, 2009 and 2008
are listed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
Events
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
747-200 C
Checks
|
|
|
4
|
|
|
|
7
|
|
|
|
(3
|
)
|
747-400 C
Checks
|
|
|
13
|
|
|
|
4
|
|
|
|
9
|
|
747-400 D
Checks
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
CF6-50 Engines
|
|
|
|
|
|
|
21
|
|
|
|
(21
|
)
|
CF6-80 Engines
|
|
|
24
|
|
|
|
24
|
|
|
|
|
|
During 2009, we experienced an increase in the unit cost of
heavy maintenance checks and engine overhauls supporting our
747-400
aircraft compared to the same period in 2008.
Depreciation decreased $5.9 million, or 15.1%,
primarily due to the retirement of certain of our older
747-200
aircraft in 2008.
Landing fees and other rent decreased $25.5 million,
or 39.2%, primarily due to the deconsolidation of Polar. We
generally do not incur landing fees for our ACMI business as the
cost is borne by the customer.
Travel decreased $20.6 million, or 45.0%, primarily
due to a $13.1 million improvement related to
managements cost reduction initiatives, travel
reimbursements from ACMI customers and a $3.0 million
reduction related to lower Block Hours and a smaller
747-200
fleet. The
747-200
aircraft requires a three-person crew compared to a two-person
crew on
747-400
aircraft, resulting in lower crew travel costs. In
35
addition, travel improved by approximately $6.3 million due
to the deconsolidation of Polar, partially offset by a
$1.8 million increase related to the consolidation of GSS.
Ground handling and airport fees decreased
$45.7 million, or 73.8%, most of which was due to the
reduction in Scheduled Service Block Hours. A $47.3 million
reduction was due to the deconsolidation of Polar that was
partially offset by a $1.4 million increase related to the
consolidation of GSS.
Gain on disposal of aircraft resulted from the sale of
aircraft tail number N920FT and the sale of seven retired
engines in 2009. Gain on disposal of aircraft in 2008 was the
result of the disposal of aircraft tail number N527FT, which was
damaged and subsequently scrapped (except for engines and other
valuable rotable parts) after we reached a settlement with our
insurer.
Special charge in 2009 represents an impairment charge of
$8.2 million, related to the write-down of the
747-200
fleet, including related engines, rotable inventory, expendable
parts and other equipment to their estimated fair values during
the fourth quarter. Special charge in 2008 represents an
impairment charge of $91.2 million, related to the
write-down of the
747-200
fleet, including related engines, rotable inventory, expendable
parts and other equipment to their estimated fair values during
the fourth quarter. In addition, during the fourth quarter of
2008, the Company incurred a special charge related to the
termination of one
747-200
aircraft operating lease of $2.0 million, a write-down of
excess expendable
747-200
inventory of $4.7 million, employee termination costs of
$0.8 million and the termination of two maintenance
contracts for
747-200
engines of $14.5 million. See Note 5 to our Financial
Statements for further information.
Other operating expenses decreased $17.2 million, or
18.7%, primarily related to a $6.3 million reduction in AMC
commission expenses related to reduced AMC Charter revenue, a
$5.5 million reduction in the use of contractors and a
$3.6 million reduction in freight costs. These expense
reductions, among others, are the result of executing our cost
reduction initiatives. Partially offsetting these decreases was
a non-recurring $1.8 million benefit from reduced interest
regarding a settlement with the IRS on an employment tax
examination in 2008. In addition, $5.8 million of the
decrease was due to the deconsolidation of Polar, which was
offset by a $1.3 million increase related to the
consolidation of GSS.
Non-operating
Expenses/(Income)
Our 2009 Non-operating Expenses / (Income) reflect the
deconsolidation of Polar following the Commencement Date in 2008
and the consolidation of GSS since April 8, 2009. The
Non-operating Expenses / (Income) line items impacted
are discussed below. The following table compares our
non-operating expenses for the years ended December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Non-operating Expenses/(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(3,014
|
)
|
|
$
|
(12,778
|
)
|
|
$
|
(9,764
|
)
|
|
|
(76.4
|
)%
|
Interest expense
|
|
|
44,731
|
|
|
|
49,986
|
|
|
|
(5,255
|
)
|
|
|
(10.5
|
)%
|
Capitalized interest
|
|
|
(12,215
|
)
|
|
|
(11,282
|
)
|
|
|
933
|
|
|
|
8.3
|
%
|
Gain on early extinguishment of debt
|
|
|
(2,713
|
)
|
|
|
|
|
|
|
2,713
|
|
|
|
|
|
Gain on consolidation of subsidiary
|
|
|
(113
|
)
|
|
|
|
|
|
|
113
|
|
|
|
|
|
Gain on issuance of stock
|
|
|
|
|
|
|
(153,579
|
)
|
|
|
(153,579
|
)
|
|
|
|
|
Other expense (income), net
|
|
|
(765
|
)
|
|
|
5,285
|
|
|
|
(6,050
|
)
|
|
|
(114.5
|
)%
|
Interest income decreased $9.8 million, or 76.4%,
primarily due to a reduction in the effective yield on cash and
cash equivalents as global interest rates dropped in 2009.
Interest expense decreased $5.3 million, or 10.5%,
due to reductions in debt balances of higher-rate debt through
principal payments, partially offset by additional borrowings
under our PDP financing facility on five of our twelve
747-8F
orders. In November 2009, the PDP financing facility was reduced
from five aircraft to three and the amount outstanding for two
aircraft was repaid (see Note 9 to our Financial
Statements). Both the PDP financing facility and term loans used
to finance two of our
747-400
aircraft have variable interest
36
rates that are currently lower than the rates prevailing in
2008. Long- and short-term debt and capital leases averaged
approximately $635.1 million in 2009 compared to
approximately $527.5 million in 2008.
Capitalized interest increased $0.9 million, or
8.3%, primarily due to the offsetting effects of net additional
borrowings under our PDP financing facility on our
747-8F
aircraft order and lower variable interest rates during 2009.
Gain on early extinguishment of debt of $2.7 million
resulted from the prepayment of two term loans at a discount in
March 2009.
Gain on consolidation of subsidiary of $0.1 million
represents the gain recorded on the conversion of GSS from the
equity method of accounting to consolidation (see Note 4 to
our Financial Statements).
Gain on issuance of subsidiary stock in 2008 was the
recognition of a $153.6 million gain on the Commencement
Date due to the issuance of shares to DHL when they acquired a
49% equity interest and a 25% voting interest in Polar in
exchange for proceeds of $176.9 million (see Note 3 to
our Financial Statements for further information).
Other expense (income), net changed by $6.1 million,
primarily due to a 2009 improvement in realized and unrealized
gains / losses on foreign currency transactions versus
2008. This was due to the prevalence of a stronger
U.S. dollar in the most recent year compared to less
favorable exchange rates that prevailed in 2008. The 2009
improvement also benefited from a gain of $0.5 million from
The Primary Reserve Fund (see Note 2 to our Financial
Statements) and the receipt of a $0.4 million non-recurring
insurance recovery. We do not hedge our foreign currency
exposure.
Income taxes. Our effective income tax rates
were 38.6% and 45.5% for the years ended December 31, 2009
and 2008, respectively. Our effective rates differ from the
statutory rate primarily due to the non-deductibility of certain
items for tax purposes. The 2008 rate exceeded the
U.S. federal rate primarily due to a valuation allowance of
6.7% related to losses incurred primarily by Polar prior to its
deconsolidation.
Segments
Beginning April 8, 2009, GSS results of operations are
included in the ACMI segment (see Note 4 to our Financial
Statements). Prior to that date, revenue from the Dry Leases to
GSS was shown in the Dry Leasing segment. The following table
compares the Direct Contribution for our reportable segments
(see Note 13 to our Financial Statements for the
reconciliation to Operating income / (loss)) for the
years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Direct Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
96,645
|
|
|
$
|
81,317
|
|
|
$
|
15,328
|
|
|
|
18.8
|
%
|
AMC Charter
|
|
|
95,680
|
|
|
|
108,313
|
|
|
|
(12,633
|
)
|
|
|
(11.7
|
)%
|
Commercial Charter
|
|
|
40,892
|
|
|
|
10,332
|
|
|
|
30,560
|
|
|
|
295.8
|
%
|
Dry Leasing
|
|
|
1,051
|
|
|
|
14,167
|
|
|
|
(13,116
|
)
|
|
|
(92.6
|
)%
|
Scheduled Service
|
|
|
|
|
|
|
(46,835
|
)
|
|
|
46,835
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Contribution
|
|
$
|
234,268
|
|
|
$
|
167,294
|
|
|
$
|
66,974
|
|
|
|
40.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated income and expenses
|
|
$
|
105,735
|
|
|
$
|
114,025
|
|
|
$
|
(8,290
|
)
|
|
|
(7.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
Segment
Direct Contribution relating to the ACMI segment increased
$15.3 million, or 18.8%. During 2009, there was an average
of 16.9
747-400
aircraft and 0.2
747-200
aircraft supporting ACMI compared to an average of 12.0
747-400
aircraft and 2.2
747-200
aircraft supporting ACMI in 2008. ACMI segment Direct
Contribution increased due to additional
747-400
aircraft supporting Express Network ACMI after the Commencement
Date
37
in 2008 and an increase in unflown Block Hours, which improved
our ACMI Revenue per Block Hour, partially offset by increased
heavy maintenance expense on
747-400
aircraft during 2009. Also impacting the ACMI segment were the
results of operations for three
747-400
aircraft from the consolidation of GSS (beginning April 8,
2009), which were previously reported in the Dry Leasing segment.
AMC
Charter Segment
Direct Contribution relating to the AMC Charter segment
decreased $12.6 million, or 11.7%, primarily due to
decreases in revenue driven by reductions in the
pegged price for fuel, an increase in ownership
costs from the deployment of
747-400
aircraft into this segment as well as an increase in crew costs
as we reduced the
747-200
fleet size and retrained our crew. Partially offsetting these
items was an increase in Block Hours during 2009. The decrease
in AMC revenue was partially offset by an improvement in
maintenance expense on the
747-200
aircraft allocated to the AMC segment and a reduction in
aircraft fuel expense as fuel prices decreased.
Commercial
Charter Segment
Direct Contribution relating to the Commercial Charter segment
increased $30.6 million, or 295.8%, primarily due to an
increase in Commercial Charter activity and strong yields in the
fourth quarter of 2009, an improvement in maintenance expense on
the 747-200
aircraft allocated to this segment and a reduction in aircraft
fuel expense as fuel price decreases outpaced reductions in
Revenue per Block Hour. Offsetting these improvements was an
increase in crew costs as we reduced the
747-200
fleet size and retrained our crew. Commercial Charter pricing
had weakened during the first three quarters of 2009 compared
with 2008. However, during the fourth quarter of 2009, the
increase in demand for freight out of Asia coupled with lower
global freighter capacity drove Commercial Charter rates higher.
We were also able to maximize our yields with the deployment of
747-400
aircraft in place of
747-200
aircraft, which gave us a competitive advantage over other cargo
airlines. In addition, we began regular
747-400
Commercial Charter service to and from South America in the
fourth quarter of 2008, which contributed to our 2009 results.
Dry
Leasing Segment
Direct Contribution relating to the Dry Leasing segment
decreased $13.1 million, or 92.6%, primarily due to the
consolidation of GSS and decreases in our
747-200 Dry
Leases. Beginning April 8, 2009, upon the consolidation of
GSS, three
747-400
aircraft that GSS Wet Leases to a customer and the associated
Direct Contribution that was previously reported in Dry Leasing
are now included in ACMI. In 2009, we leased six spare engines
that previously were used on retired
747-200
aircraft. During 2009, we had an average of 0.8
747-400
aircraft and no
747-200
aircraft on Dry Lease compared to an average of 3.0
747-400
aircraft and 1.1
747-200
aircraft on Dry Lease to third parties during 2008. We
experienced customer defaults on three Dry Leased
747-200
aircraft in the first half of 2008 as the two customers leasing
these aircraft filed for protection under local insolvency laws.
The returned aircraft have been either parked or sold.
Scheduled
Service Segment
Direct Contribution relating to the Scheduled Service segment
ceased after the Commencement Date in 2008 and the Direct
Contribution related to the aircraft supporting Polar is now
reflected in ACMI.
Unallocated
income and expenses
Unallocated income and expenses decreased $8.3 million, or
7.3%, primarily due to the receipt of a $10.0 million
one-time fee for the effective early termination of an ACMI
contract for two aircraft provided to DHL.
38
Years
Ended December 31, 2008 and 2007
Operating
Statistics
As noted above, our 2008 Operating Statistics were impacted by
the deconsolidation of Polar for approximately two months
following the Commencement Date. All Express Network Block Hours
for the aircraft flown by Polar subsequent to the Commencement
Date are reflected as ACMI Block Hours, and there was no
Scheduled Service activity for that period. The table below sets
forth selected Operating Statistics for the years ended December
31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Block Hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
|
59,161
|
|
|
|
60,230
|
|
|
|
(1,069
|
)
|
|
|
(1.8
|
)%
|
AMC charter
|
|
|
18,022
|
|
|
|
22,292
|
|
|
|
(4,270
|
)
|
|
|
(19.2
|
)%
|
Commercial charter
|
|
|
6,713
|
|
|
|
7,442
|
|
|
|
(729
|
)
|
|
|
(9.8
|
)%
|
Scheduled service
|
|
|
36,731
|
|
|
|
42,798
|
|
|
|
(6,067
|
)
|
|
|
(14.2
|
)%
|
Non revenue
|
|
|
740
|
|
|
|
728
|
|
|
|
12
|
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Block Hours
|
|
|
121,367
|
|
|
|
133,490
|
|
|
|
(12,123
|
)
|
|
|
(9.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
6,055
|
|
|
$
|
5,992
|
|
|
$
|
63
|
|
|
|
1.1
|
%
|
AMC charter
|
|
|
23,627
|
|
|
|
17,449
|
|
|
|
6,178
|
|
|
|
35.4
|
%
|
Commercial charter
|
|
|
18,967
|
|
|
|
15,741
|
|
|
|
3,226
|
|
|
|
20.5
|
%
|
Scheduled Service Traffic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RTMs (000s)
|
|
|
1,372,027
|
|
|
|
1,607,309
|
|
|
|
(235,282
|
)
|
|
|
(14.6
|
)%
|
ATMs (000s)
|
|
|
2,177,683
|
|
|
|
2,491,306
|
|
|
|
(313,623
|
)
|
|
|
(12.6
|
)%
|
Load Factor
|
|
|
63.0
|
%
|
|
|
64.5
|
%
|
|
|
(1.5
|
) pts
|
|
|
|
|
RATM
|
|
$
|
0.296
|
|
|
$
|
0.264
|
|
|
$
|
0.032
|
|
|
|
12.1
|
%
|
Yield
|
|
$
|
0.470
|
|
|
$
|
0.409
|
|
|
$
|
0.061
|
|
|
|
14.9
|
%
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Service and Commercial Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
3.35
|
|
|
$
|
2.24
|
|
|
$
|
1.11
|
|
|
|
49.6
|
%
|
Fuel gallons consumed (000s)
|
|
|
142,381
|
|
|
|
165,157
|
|
|
|
(22,776
|
)
|
|
|
(13.8
|
)%
|
AMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
3.41
|
|
|
$
|
2.24
|
|
|
$
|
1.17
|
|
|
|
52.2
|
%
|
Fuel gallons consumed (000s)
|
|
|
58,621
|
|
|
|
72,175
|
|
|
|
(13,554
|
)
|
|
|
(18.8
|
)%
|
Fleet (average during the period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft count*
|
|
|
30.9
|
|
|
|
32.0
|
|
|
|
(1.1
|
)
|
|
|
(3.4
|
)%
|
Out-of - service
|
|
|
0.8
|
|
|
|
0.2
|
|
|
|
0.6
|
|
|
|
300.0
|
%
|
Dry Leased
|
|
|
4.1
|
|
|
|
5.0
|
|
|
|
(0.9
|
)
|
|
|
(18.0
|
%)
|
|
|
|
* |
|
Dry Leased and
out-of-service
aircraft are not included in the operating fleet average
aircraft count. |
39
Operating
Revenues
Our 2008 Operating Revenues were impacted by the deconsolidation
of Polar for approximately two months following the Commencement
Date, while 2007 Operating Revenue reflected a full year. The
revenue line items impacted are discussed below. The following
table compares our Operating Revenues for the years ended
December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
358,234
|
|
|
$
|
360,909
|
|
|
$
|
(2,675
|
)
|
|
|
(0.7
|
)%
|
AMC charter
|
|
|
425,814
|
|
|
|
388,966
|
|
|
|
36,848
|
|
|
|
9.5
|
%
|
Commercial charter
|
|
|
127,325
|
|
|
|
117,142
|
|
|
|
10,183
|
|
|
|
8.7
|
%
|
Dry leasing
|
|
|
48,770
|
|
|
|
50,512
|
|
|
|
(1,742
|
)
|
|
|
(3.4
|
)%
|
Scheduled service
|
|
|
645,283
|
|
|
|
657,576
|
|
|
|
(12,293
|
)
|
|
|
(1.9
|
)%
|
Other
|
|
|
2,056
|
|
|
|
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenues
|
|
$
|
1,607,482
|
|
|
$
|
1,575,105
|
|
|
$
|
32,377
|
|
|
|
2.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI revenue decreased $2.7 million or 0.7% due to a
reduction in aircraft utilization driven by weak peak season
demand in the fourth quarter of 2008 offset almost entirely by
the commencement of full Express Network flying on
October 27, 2008. After October 27, 2008, Express
Network activity was included in ACMI results. ACMI Block Hours
were 59,161 in 2008, compared with 60,230 in 2007, a decrease of
1,069 Block Hours or 1.8%. In 2008, there was an average of 12.0
747-400
aircraft and 2.2
747-200
aircraft supporting ACMI compared with an average of 10.2
747-400
aircraft and 2.5
747-200 ACMI
for the comparable period in 2007. Revenue Per Block Hour was
$6,055 for 2008, compared with $5,992 for 2007, an increase of
$63 per Block Hour or 1.1%.
AMC Charter revenue increased $36.8 million or 9.5%
as a significantly higher fuel component for the AMC mileage
rate was only partially offset by a reduction in flying. AMC
Charter Block Hours were 18,022 in 2008 compared with 22,292 in
2007, a decrease of 4,270 Block Hours or 19.2%. The decrease in
AMC Charter Block Hours in 2008 reflects a spike in AMC demand
in early 2007 due to an escalation in military activity in the
Middle-East and a subsequent decrease in demand during the
latter part of 2007 and into 2008. As fuel prices increased
during 2008, the AMC gradually raised its pegged
fuel price from $2.20 to $4.30 per gallon through
September 30, 2008. Beginning October 1, 2008, the AMC
reduced the pegged fuel price to $4.15 per gallon
for the remainder of 2008. The changes from the interim
increases in the pegged fuel price had the effect of
increasing the AMC Revenue Per Block Hour from $17,449 for 2007
to $23,627 for 2008, an increase of $6,178 or 35.4%.
Commercial Charter revenue increased $10.2 million
or 8.7% as a result of an increase in Revenue Per Block Hour,
which was partially offset by a decrease in Block Hours flown.
Revenue Per Block Hour was $18,967 in 2008, compared with
$15,741 in 2007, an increase of $3,226 per Block Hour or 20.5%.
The increase in Revenue Per Block Hour was the result of pricing
increases effected to compensate for the higher cost of fuel and
an improved mix of high Yielding charters during the first nine
months of the year, which moderated during the fourth quarter of
2008 as fuel prices decreased and demand weakened. Commercial
Charter Block Hours were 6,713 in 2008, compared with 7,442 in
2007, a decrease of 729 or 9.8%. The decrease in Block Hours was
due to a soft market for
747-200
charters and a weak 2008 holiday season.
Dry Leasing revenue decreased $1.7 million or 3.4%
as a result of decreases in
747-200 Dry
Leasing revenues and reductions in Dry Lease rates on our
747-400
leases to GSS. During 2008, we had an average of 3.0
747-400
aircraft and 1.1
747-200
aircraft on Dry Lease to third parties compared with an average
of 3.0
747-400
aircraft and 2.0
747-200
aircraft on Dry Lease to third parties during 2007. We
experienced customer defaults on three Dry Leased
747-200
aircraft in the second quarter of 2008 as the two customers
leasing these aircraft filed for protection under local
insolvency laws. We have repossessed two aircraft from one
customer
40
and are in the process of repossessing the third. All of these
aircraft have been parked. All rents and maintenance reserves
payable to us under these Dry Leases were fully reserved in the
second quarter of 2008.
Scheduled Service revenue decreased $12.3 million or
1.9% reflecting a significant reduction in ATMs of 12.6% due to
the deconsolidation of Polar. After October 27, 2008,
Express Network flying is reflected under ACMI. The capacity
reductions were partially offset by fuel surcharge driven by
increases in Yields. RTMs in 2008 for the Scheduled Service
segment were 1.37 billion on a total capacity of
2.18 billion ATMs. This compares with RTMs of
1.61 billion on a total capacity of 2.49 billion ATMs
in 2007. Block Hours were 36,731 in 2008, compared with 42,798
in 2007, a decrease of 6,067 or 14.2%. Load Factor was 63.0%
with a Yield of $0.470, compared with a Load Factor of 64.5%
with a Yield of $0.409 in 2007. RATM in the Scheduled Service
segment was $0.296 in 2008, compared with $0.264 in 2007,
representing an increase of 12.1%.
Total operating revenue increased $32.4 million or
2.1% in 2008 compared with 2007, despite a 9.1% reduction in
Block Hours on a
year-over-year
basis. The increased revenue was primarily due to fuel-driven
Yield increases in our AMC Charter and Commercial Charter
business segments.
Operating
Expenses
Our 2008 Operating Expenses were impacted by the deconsolidation
of Polar for approximately two months following the Commencement
Date. The expense line items impacted are discussed below. The
following table compares our operating expenses for the years
ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
$
|
677,544
|
|
|
$
|
531,755
|
|
|
$
|
145,789
|
|
|
|
27.4
|
%
|
Salaries, wages and benefits
|
|
|
221,765
|
|
|
|
249,517
|
|
|
|
(27,752
|
)
|
|
|
(11.1
|
)%
|
Maintenance, materials and repairs
|
|
|
171,396
|
|
|
|
149,306
|
|
|
|
22,090
|
|
|
|
14.8
|
%
|
Aircraft rent
|
|
|
157,063
|
|
|
|
155,575
|
|
|
|
1,488
|
|
|
|
1.0
|
%
|
Ground handling and airport fees
|
|
|
61,927
|
|
|
|
78,038
|
|
|
|
(16,111
|
)
|
|
|
(20.6
|
)%
|
Landing fees and other rent
|
|
|
65,033
|
|
|
|
76,208
|
|
|
|
(11,175
|
)
|
|
|
(14.7
|
)%
|
Depreciation and amortization
|
|
|
38,946
|
|
|
|
40,012
|
|
|
|
(1,066
|
)
|
|
|
(2.7
|
)%
|
Gain on disposal of aircraft
|
|
|
(2,726
|
)
|
|
|
(3,475
|
)
|
|
|
(749
|
)
|
|
|
(21.6
|
)%
|
Travel
|
|
|
45,842
|
|
|
|
50,814
|
|
|
|
(4,972
|
)
|
|
|
(9.8
|
)%
|
Special charge
|
|
|
91,167
|
|
|
|
|
|
|
|
91,167
|
|
|
|
|
|
Other
|
|
|
91,672
|
|
|
|
92,580
|
|
|
|
(908
|
)
|
|
|
(1.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
1,619,629
|
|
|
$
|
1,420,330
|
|
|
$
|
197,801
|
|
|
|
13.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel expense increased $145.8 million or
27.4% as a result of approximately $223.2 million in fuel
price increases which was partially offset by reduced
consumption which accounted for $77.4 million. Of the
$77.4 million in volume decreases, approximately
$43.6 million was due to the deconsolidation of Polar. The
average fuel price per gallon for the Scheduled Service and
Commercial Charter businesses was approximately $3.35 for 2008,
compared with approximately $2.24 for 2007, an increase of $1.11
or 49.6%. During 2008, aviation fuel prices rose steadily during
the first seven months of the year peaking at an average of
$4.33 per gallon in July before declining sharply from August
through the end of the year to an average of $2.13 per gallon
for the month of December. Fuel consumption for the Scheduled
Service and Commercial Charter businesses decreased
22.8 million gallons or 13.8%. Consumption fell by
17.9 million gallons due to the deconsolidation of Polar.
The average fuel price per gallon for the AMC business was
approximately $3.41 in 2008, compared with approximately $2.24
in 2007, an increase of $1.17 or 52.2%. AMC fuel consumption
decreased by 13.6 million gallons or 18.8%. The decrease in
AMC fuel consumption is commensurate with the decrease in Block
Hours operated in that segment. We do not incur fuel expense in
our ACMI service as the cost of fuel is borne by the customer.
41
Salaries, wages and benefits decreased $27.8 million
or 11.1% due to $17.6 million of lower crew costs and
$10.2 million of lower ground staff expenses.
$10.9 million of the lower crew costs was related to lower
Block Hours and $6.3 million was due to lower profit
sharing payments. Ground staff expenses fell mainly due to lower
incentive compensation. Profit sharing and incentive
compensation were down due to lower profitability in 2008.
Approximately $4.1 million of the reduction was
attributable to the deconsolidation of Polar.
Maintenance, materials and repairs, as adjusted,
increased $22.1 million or 14.8% primarily due to
increased heavy airframe check expense of approximately
$2.5 million and engine overhauls of approximately
$21.1 million partially offset by improvements in line
maintenance, materials expenses and rotable repair expense.
There were 40 engine overhauls in 2008 compared with 39 during
2007. In 2008, we experienced significant increases in the
overhaul cost per
747-200
engines prior to the termination of the maintenance contracts on
those engines. Included in those costs was maintenance expense
totaling $8.2 million as a result of five engine overhauls
in the fourth quarter. Those overhauls were incurred due to the
early termination of one of our
power-by-the-hour
maintenance contracts (see Note 5 to our Financial
Statements for further information). Heavy maintenance events
and engine overhauls for the years ended December 31, 2008
and 2007 are listed in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
Events
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
747-200 C
Checks
|
|
|
7
|
|
|
|
11
|
|
|
|
(4
|
)
|
747-400 C
Checks
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
747-200 D
Checks
|
|
|
|
|
|
|
1
|
|
|
|
(1
|
)
|
747-400 D
Checks
|
|
|
4
|
|
|
|
1
|
|
|
|
3
|
|
CF6-50 Engines
|
|
|
21
|
|
|
|
19
|
|
|
|
2
|
|
CF6-80 Engines
|
|
|
24
|
|
|
|
20
|
|
|
|
4
|
|
Aircraft rent increased $1.5 million or 1.0% as a
result of the use of short-term engine rentals for
747-400
aircraft while our engines were by being overhauled during 2008.
Ground handling and airport fees decreased
$16.1 million or 20.6%, of which $10.1 million was due
to a reduction in handling volumes from the deconsolidation of
Polar. In addition, approximately $4.4 million related to
renegotiated ground handling rates as part of our Continuous
Improvement initiative.
Landing fees and other rent decreased $11.2 million
or 14.7%, substantially all of which was due to the reduction in
Block Hour volumes of which approximately $5.7 million was
due to the deconsolidation of Polar. We generally do not incur
landing fees for our ACMI service as the cost is borne by the
customer.
Depreciation and amortization decreased $1.1 million
or 2.7% primarily due to a decrease in depreciation on aircraft
and engines as a result of the sale and disposal of assets.
Gain on disposal of aircraft in 2008 resulted from the
disposal of aircraft tail number N527FT, which was damaged and
subsequently scrapped (except for engines and other valuable
rotable parts) after we reached a settlement with our insurer
(see Note 6 to our Financial Statements for further
information). The $2.7 million gain represents the amount
the insurance proceeds exceeded the net book value of the
aircraft. The gain in 2007 was from the sale of aircraft tail
number N536MC and one CF6-50 engine.
Travel decreased $5.0 million or 9.8%, substantially
all of which was due to a reduction in Block Hour volumes. In
addition approximately $1.2 million was due to the
deconsolidation of Polar.
Special charge is primarily due to an impairment charge
of $69.1 million, related to the write-down of the
747-200
fleet, including related engines, rotable inventory, expendable
parts and other equipment to their estimated fair values during
the fourth quarter of 2008. In addition, the Company incurred a
special charge related to the termination of one
747-200
aircraft operating lease of $2.0 million, a write-down of
excess expendable
747-200
inventory of $4.7 million, employee termination costs of
$0.8 million and the termination of two maintenance
contracts for
747-200
engines of $14.5 million. See Note 5 to our Financial
Statements for further information.
42
Other operating expenses decreased $0.9 million or
1.0% of which $0.6 million was due to the deconsolidation
of Polar.
Non-operating
Expenses/(Income)
Our 2008 Non-operating Expenses/(Income) were impacted by the
deconsolidation of Polar for approximately two months following
the Commencement Date and the recognition of the Gain on
issuance of subsidiary stock. The Non-operating
Expenses/(Income) line items impacted are discussed below. The
following table compares our non-operating expenses for the
years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Non-operating Expenses/(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(12,778
|
)
|
|
$
|
(17,775
|
)
|
|
$
|
4,997
|
|
|
|
28.1
|
%
|
Interest expense
|
|
|
49,986
|
|
|
|
44,732
|
|
|
|
5,254
|
|
|
|
11.7
|
%
|
Capitalized interest
|
|
|
(11,282
|
)
|
|
|
(4,489
|
)
|
|
|
(6,793
|
)
|
|
|
(151.3
|
)%
|
Gain on issuance of subsidiary stock
|
|
|
(153,579
|
)
|
|
|
|
|
|
|
(153,579
|
)
|
|
|
|
|
Other expense/(income), net
|
|
|
5,285
|
|
|
|
(428
|
)
|
|
|
5,713
|
|
|
|
|
|
Interest income decreased $5.0 million or 28.1%
primarily due to a reduction in the effective yield on cash and
cash equivalents as global interest rates dropped dramatically
in the second half of 2008.
Interest expense increased $5.3 million or 11.7% due
to growth in borrowings under our PDP financing facility on five
of our twelve firm
747-8F
orders resulting in $5.0 million of additional interest
expense. During the third quarter of 2008, we also debt financed
two recently acquired
747-400s,
issuing a total of $100 million in debt secured by these
two aircraft (see Note 9 to our Financial Statements for
additional information). Long- and short-term debt and capital
leases averaged approximately $527.5 million in 2008
compared with approximately $405.6 million in 2007.
Capitalized interest increased $6.8 million or
151.3% primarily due to $5.0 million of interest on the PDP
borrowings paid to Boeing on our
747-8F
aircraft order (see Note 9 to our Financial Statements for
further information).
Gain on issuance of subsidiary stock was the recognition
of a $153.6 million gain on the Commencement Date due to
the issuance of shares to DHL when they acquired a 49% equity
interest and a 25% voting interest in Polar in exchange for
proceeds of $176.9 million (see Note 3 to our
Financial Statements for further information).
Other expense/(income), net increased $5.7 million
primarily due to the negative impact of foreign exchange rates
of $4.2 million and a $1.5 million unrealized loss on
our investment with The Reserve Primary Fund (see Note 2 to
our Financial Statements). The U.S. dollar strengthened
against most foreign currencies during 2008 compared with 2007
when the U.S. dollar weakened against most foreign
currencies. We do not hedge our foreign currency exposure and,
therefore, we record gains and losses when funds are exchanged
into U.S. dollars.
Income taxes: The effective income tax rate
for 2008 was 45.5% compared to 0.2% for 2007. The 2007 rate fell
below the U.S. federal statutory rate of 35% primarily due
to the recognition of an income tax benefit of 16.1% related to
certain types of
non-U.S. leasing
income and 21.6% related to the utilization of tax basis in the
shares of Polar. Without these benefits, the 2007 effective rate
would have been 37.9%. The 2008 rate exceeded the
U.S. federal rate primarily due to state income tax expense
of 2% plus a valuation allowance of 6.7%. The valuation
allowance related to losses incurred primarily by Polar prior to
its deconsolidation.
Segments
Management allocates the direct costs of aircraft operation and
ownership among the reportable segments based on the aircraft
type and activity levels in each segment. Direct costs include
crew costs, maintenance, fuel, ground operations, sales costs,
aircraft rent, interest expense related to aircraft debt and
aircraft
43
depreciation. Certain of our costs are indirect costs which are
less affected by fleet types or activity levels in our business
segments and therefore are not allocated among segments.
Examples of unallocated fixed costs are administrative costs
including operations administration, finance, human resources,
information technology, non-aircraft depreciation, and other
non-operating costs.
Ownership costs are apportioned to segments based on aircraft
equivalents (derived from Block Hours flown) except for certain
ACMI flying, which involves dedicated aircraft, in which case
the allocation is based on the number of dedicated aircraft. The
following table compares our Direct Contribution for segments
(see Note 13 to our Financial Statements for the
reconciliation to operating income (loss) and our reasons for
using Direct Contribution) for the years ended December 31 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/
|
|
|
Percent
|
|
|
|
2008
|
|
|
2007
|
|
|
(Decrease)
|
|
|
Change
|
|
|
Direct Contribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
81,317
|
|
|
$
|
84,795
|
|
|
$
|
(3,478
|
)
|
|
|
(4.1
|
)%
|
AMC Charter
|
|
|
108,313
|
|
|
|
99,464
|
|
|
|
8,849
|
|
|
|
8.9
|
%
|
Commercial Charter
|
|
|
10,332
|
|
|
|
10,009
|
|
|
|
323
|
|
|
|
3.2
|
%
|
Dry Leasing
|
|
|
14,167
|
|
|
|
16,069
|
|
|
|
(1,902
|
)
|
|
|
(11.8
|
)%
|
Scheduled Service
|
|
|
(46,835
|
)
|
|
|
36,969
|
|
|
|
(83,804
|
)
|
|
|
(226.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Direct Contribution
|
|
$
|
167,294
|
|
|
$
|
247,306
|
|
|
$
|
(80,012
|
)
|
|
|
(32.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated Fixed Costs
|
|
$
|
114,025
|
|
|
$
|
118,046
|
|
|
$
|
(4,021
|
)
|
|
|
(3.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
Segment
Direct Contribution relating to the ACMI segment decreased
$3.5 million or 4.1%. During 2008, there was an average of
12.0 747-400
aircraft and 2.2
747-200
aircraft supporting ACMI compared with an average of 10.2
747-400
aircraft and 2.5
747-200
aircraft supporting ACMI in 2007. ACMI segment Direct
Contribution decreased primarily due to an increase in heavy
maintenance costs. The increase in maintenance costs was
primarily due to this segments allocated share of four
additional
747-400 C
Checks, three additional
747-400 D
Checks, and four additional engine overhauls in 2008 compared
with 2007.
AMC
Charter Segment
Direct Contribution relating to the AMC Charter segment
increased $8.8 million or 8.9% primarily due to AMC mileage
rate increases attributable to the annual rate-making process as
well as interim increases in the pegged fuel price
(see AMC Revenue discussion above). The combined effect of these
changes in the AMC mileage rate caused an increase in the AMC
Revenue Per Block Hour from $17,449 in 2007 to $23,627 in 2008.
The increase in the AMC mileage rate, which includes a standard
profit margin allowed by the AMC, was partially offset by cost
increases in maintenance, fuel and commissions in 2008 compared
with 2007.
Commercial
Charter Segment
Direct Contribution relating to the Commercial Charter segment
increased $0.3 million or 3.2% as a result of increases in
profitable
747-400
charter activity. Profit increases on
747-400
Commercial Charter Operations were sufficient to offset a
decline in profits related to
747-200
Commercial Charter operations. Overall demand and profitability
of 747-200
Commercial Charter flying fell sharply at the end of 2008.
Dry
Leasing Segment
Direct Contribution relating to the Dry Leasing segment
decreased $1.9 million or 11.8% due to decreases in our
747-400 Dry
Leases to GSS. During 2008, we had an average of 3.0
747-400
aircraft and 1.1
747-200
aircraft on Dry Lease compared with an average of 3.0
747-400
aircraft and 2.0
747-200
aircraft on Dry Lease to third parties during 2007. We
experienced customer defaults on three Dry Leased
747-200
aircraft in the second quarter of 2008 as the two customers
leasing these aircraft filed for protection under local
insolvency
44
laws. We have repossessed two aircraft from one customer and are
in the process of repossessing the third. All of these aircraft
have been parked. All rents and maintenance reserves payable to
us under these Dry Leases were fully reserved in the second
quarter of 2008.
Scheduled
Service Segment
Direct Contribution relating to the Scheduled Service segment
decreased $83.8 million or 226.7% primarily due to
substantial fuel price increases that were only partially offset
by fuel-surcharge-driven Yield increases. Also reducing the
contribution were heavy maintenance costs primarily due to this
segments allocated share of four additional
747-400 C
Checks, three additional
747-400 D
Checks, and four additional CF6-80 engine overhauls in 2008
compared with 2007.
Unallocated
Fixed Costs
Unallocated fixed costs decreased $4.0 million or 3.4%
primarily due to a $10.0 million decrease in incentive
compensation costs related to management personnel costs, which
are shown in the Unallocated Fixed Cost category. This savings
was partially offset by the negative impact of foreign exchange
rates of $4.2 million as the U.S. Dollar strengthened
sharply in 2008 and a $1.5 million unrealized loss on The
Reserve Primary Fund (see Note 2 to our Financial
Statements for further information).
Liquidity
and Capital Resources
At December 31, 2009, we had cash and cash equivalents of
$613.7 million, compared to $397.4 million at
December 31, 2008, an increase of $216.3 million, or
54.4%. The increase was driven by cash provided by operating
activities of $214.6 million and our equity offering, which
was more than sufficient to fund payments used for investing
activities of million and payments used for financing activities
of million.
Significant liquidity events during the year ended
December 31, 2009 were as follows:
Stock offering. During the fourth quarter of
2009, we sold 4.6 million shares of common stock in a
public offering that generated $112.6 million of net
proceeds.
Short-term investment. During 2009, we
received $13.3 million from the Reserve Primary Fund, a
money market fund in which we had invested that suspended
redemptions and is being liquidated. We expect to receive our
remaining $0.4 million in recoverable holdings in the
Reserve Primary Fund within the next twelve months. For
additional information regarding this investment, see
Note 2 to our Financial Statements.
Pre-delivery deposits. In October 2009, we
signed an agreement with Boeing to reschedule the delivery of
three of our
747-8
freighter aircraft. As a result of the rescheduling, Boeing
refunded $62.9 million in PDPs related to two of those
aircraft. These funds were used to fully prepay the loan related
to those aircraft under our existing PDP financing facility.
We consider cash on hand and short-term investments, our PDP
financing facility and cash generated from operations to be
sufficient to meet our debt and lease obligations and to fund
expected capital expenditures during 2010. Capital expenditures
for 2010 are expected to be approximately $162.6 million in
cash, including our
747-8F
aircraft PDP requirements totaling approximately
$117.9 million, of which approximately $12.1 million
will be funded through our PDP facilities.
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 June 2009 that will enable us to sell up to
$500 million of debt
and/or
equity securities over the subsequent three years, depending on
market conditions, our capital needs and other factors.
Approximately $112.6 million of net proceeds from our stock
offering in the fourth quarter of 2009 has been drawn down from
this shelf registration statement. 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
the tightening in credit markets that began during the third
quarter of 2008.
45
We expect to pay minimal U.S. cash income taxes in 2010. In
addition, two of our foreign branch operations are subject to
income tax in Hong Kong, but we believe that these branches will
have sufficient tax loss carryforwards to offset projected
taxable income in 2010. We expect to pay no significant foreign
income taxes in any other jurisdictions.
Operating Activities. Net cash provided by
operating activities in 2009 was $214.6 million, compared
to $125.3 million for 2008. The increase in cash provided
by operating activities was primarily the result of an increase
in net income, excluding non-cash items.
Investing Activities. Net cash used for
investing activities was $0.7 million in 2009, consisting
primarily of capital expenditures of $51.3 million, which
included capitalized interest on our
747-8F
aircraft order of $21.2 million, $20.7 million of
investments in debt securities and $20.0 million of
investments in short-term investments, offset by a refund of
PDPs from Boeing of $62.9 million, the redesignation of
short-term investments to cash of $13.3 million,
$11.6 million related to the consolidation of GSS, and
proceeds from the sale of aircraft of $3.5 million. Net
cash used by investing activities was $546.1 million for
2008, consisting primarily of capital expenditures of
$485.2 million, including pre-delivery deposits and related
costs on our
747-8F
aircraft order of $257.3 million and the acquisition of two
747-400s for
$168.4 million, a $52.0 million decrease due to the
deconsolidation of Polar and the redesignation of
$14.7 million from cash to short-term investments.
Financing Activities. Net cash provided by
financing activities was $2.5 million in 2009, which
primarily reflects $112.6 million in proceeds from the
issuance of stock partially offset by $110.0 million of
payments on long-term debt obligations. Net cash provided by
financing activities was $340.8 million for 2008, which
primarily reflects $316.7 million in borrowings under the
PDP Financing Facility and term loans, proceeds from the DHL
investment of $78.9 million, partially offset by
$38.4 million of payments on long-term debt and capital
lease obligations and $19.4 million in purchases of
treasury stock.
Contractual
Obligations
The table below provides details of our future cash contractual
obligations as of December 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 -
|
|
|
2013 -
|
|
|
|
|
|
|
Total
|
|
|
2010
|
|
|
2012
|
|
|
2014
|
|
|
Thereafter
|
|
|
Debt(1)
|
|
$
|
627.3
|
|
|
$
|
44.2
|
|
|
$
|
251.8
|
|
|
$
|
119.2
|
|
|
$
|
212.1
|
|
Interest on debt(2)
|
|
|
180.3
|
|
|
|
33.6
|
|
|
|
54.7
|
|
|
|
41.6
|
|
|
|
50.4
|
|
Aircraft operating leases
|
|
|
1,900.7
|
|
|
|
143.5
|
|
|
|
286.9
|
|
|
|
284.0
|
|
|
|
1,186.3
|
|
Other operating leases
|
|
|
10.1
|
|
|
|
5.1
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
Aircraft purchase commitments(3)
|
|
|
1,791.6
|
|
|
|
117.9
|
|
|
|
1,468.8
|
|
|
|
204.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Obligations
|
|
$
|
4,510.0
|
|
|
$
|
344.3
|
|
|
$
|
2,067.2
|
|
|
$
|
649.7
|
|
|
$
|
1,448.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Debt reflects gross amounts (see Note 9 to our Financial
Statements for a discussion of the related unamortized discount). |
|
(2) |
|
Amount represents interest on fixed rate and floating debt at
December 31, 2009. |
|
(3) |
|
Includes estimated contractual escalations and required option
payments net of purchase credits with respect to aircraft and
spare engine purchase commitments. |
The Company maintains a non-current liability for unrecognized
income tax benefits. To date, the Company has not resolved the
ultimate cash settlement of this liability. As a result, the
Company is not in a position to estimate with reasonable
certainty the date upon which this liability would be payable.
46
Description
of Our Debt Obligations
Enhanced
Equipment Trust Certificate Transactions
Overview
of EETC Transactions
In three separate transactions in 1998, 1999 and 2000, we issued
pass-through certificates, also known as Enhanced Equipment
Trust Certificates (EETCs). These securities
were issued to finance the acquisition of a total of twelve
747-400F
aircraft. In the 1998 EETC transaction, $538.9 million of
EETCs were issued to finance five aircraft, one of which Atlas
then owned, with the remaining four being leased by Atlas
pursuant to leveraged leases. In the 1999 EETC transaction,
$543.6 million of EETCs were issued to finance five
aircraft, one of which Atlas then owned, with the remaining four
being leased by Atlas pursuant to leveraged leases. In the 2000
EETC transaction, $217.3 million of EETCs were issued to
finance the remaining two aircraft, both pursuant to leveraged
leases. Historically, the debt obligations relating solely to
owned EETC aircraft have been reflected on our balance sheet,
while the debt obligations related to the leased EETC aircraft
have not been reflected on our balance sheets because such
obligations previously constituted operating leases. However,
through the restructuring in 2004, Atlas became the beneficial
owner of four of the previously leased aircraft, resulting in a
total of six EETC aircraft being currently reflected on our
balance sheets as of December 31, 2009 and 2008.
Leveraged
Lease Structure
In a leveraged lease, the owner trustee is the owner of record
for the aircraft. Wells Fargo Bank Northwest, National
Association (Wells Fargo) serves as the owner
trustee with respect to the leveraged leases in each of
Atlas EETC transactions. As the owner trustee of the
aircraft, Wells Fargo also serves as the lessor of the aircraft
under the EETC lease between Atlas and the owner trustee. Wells
Fargo also serves as trustee for the beneficial owner of the
aircraft, the owner participant. The original owner participant
for each aircraft invested (on an equity basis) approximately
20% of the original cost of the aircraft. The remaining
approximately 80% of the aircraft cost was financed with debt
issued by the owner trustee on a non-recourse basis in the form
of equipment notes.
The equipment notes were generally issued in three series, or
tranches, for each aircraft, designated as
Series A, B and C equipment notes. The loans evidenced by
the equipment notes were funded by the public offering of EETCs.
Like the equipment notes, the EETCs were issued in three series
for each EETC transaction designated as Series A, B and C
EETCs. Each class of EETCs was issued by the trustee for
separate Atlas pass-through trusts with the same designation as
the class of EETCs issued. Each of these pass-through trustees
is also the holder and beneficial owner of the equipment notes
bearing the same class designation.
With respect to the six EETC financed aircraft currently owned
by Atlas, there is no leveraged lease structure or EETC lease.
Atlas is the beneficial owner of the aircraft and the issuer of
the equipment notes with respect thereto. The equipment notes
issued with respect to the owned aircraft are with full recourse
to Atlas.
Debt
On January 30, 2008, Atlas entered into a
$270.3 million PDP financing facility with Norddeutsche
Landesbank Girozentrale (the PDP Financing
Facility), which is intended to fund a portion of
Atlas PDP obligations in respect of the first five
aircraft to be delivered to Atlas under its
747-8F
purchase agreement with Boeing. In November 2009, concurrent
with a change in the
747-8F
aircraft delivery schedule, Boeing returned $62.9 million
representing the financed portion of the pre-delivery deposits
for two of the Companys ordered
747-8F
aircraft and the proceeds were used to pay down the PDP
Financing Facility. The size and availability under the PDP
Financing Facility was reduced to reflect the removal of these
two aircraft from the facility and repayment of the monies
advanced against these two aircraft.
The facility is now comprised of three separate tranches and is
secured by certain of Atlas rights in, and to, the
purchase agreement, but only to the extent related to the first
three aircraft scheduled to be delivered
47
thereunder. In the case of a continuing event of default by
Atlas, the lenders will have certain rights to assume
Atlas position and accept delivery of the related
aircraft. Each tranche relating to each aircraft will become due
on the earlier of (a) the date the aircraft is delivered or
(b) up to nine months following the last day of the
scheduled delivery month, depending on the cause of the delivery
delay.
Funds available under the facility are subject to certain
up-front and commitment fees, and funds drawn under the facility
bear interest at LIBOR plus a margin. The facility is guaranteed
by AAWW and is subject to typical and customary events of
default.
On July 3, 2008 and September 19, 2008, Atlas entered
into a $58.4 million and $41.6 million five-year term
loan agreements with BNP Paribas and DVB Bank AG, secured by
aircraft tail numbers N419 and N429, both of which were acquired
on May 6, 2008. Funds available under the loan agreements
are subject to certain up-front and commitment fees, and funds
drawn under the loan agreements will bear interest at LIBOR,
plus a margin. The loans are guaranteed by AAWW and are subject
to typical and customary events of default.
Off-Balance
Sheet Arrangements
Fourteen of our twenty-eight operating aircraft are owned and
leased through trusts established specifically to purchase,
finance and lease aircraft to us. These leasing entities meet
the criteria for variable interest entities. All fixed price
options were restructured to reflect a fair market value
purchase option, and as such, we are not the primary beneficiary
of the leasing entities. We are generally not the primary
beneficiary of the leasing entities if the lease terms are
consistent with market terms at the inception of the lease and
the leases do not include a residual value guarantee,
fixed-price purchase option or similar feature that obligates us
to absorb decreases in value or entitles us to participate in
increases in the value of the aircraft. We have not consolidated
any additional aircraft in the related trusts upon application
of ASC 810, because we are not the primary beneficiary based on
the fact that all fixed price options were restructured to
reflect a fair market value purchase option. Our maximum
exposure under these operating leases is the remaining lease
payments, which amounts are reflected in future lease
commitments described in Note 9 to our Financial Statements.
Other
Critical
Accounting Policies and Estimates
General
Discussion of Critical Accounting Policies and
Estimates
Our Financial Statements are prepared in conformity with GAAP,
which requires management to make estimates and judgments that
affect the amounts reported. Actual results may differ from
those estimates. Important estimates include asset lives,
valuation allowances (including, but not limited to, those
related to expendable inventory and deferred taxes), stock-based
compensation and income tax accounting. Our significant
accounting policies are described in Note 2 to our
Financial Statements. The following is a brief description of
our current critical accounting policies involving significant
management judgment:
Accounting
for Long-Lived Assets
We record our property and equipment at cost, and once assets
are placed in service, we depreciate them on a straight-line
basis over their estimated useful lives to their estimated
residual values over periods not to exceed forty years for
flight equipment (from date of original manufacture) and three
to five years for ground equipment.
Property under capital leases and related obligations are
recorded at the lesser of an amount equal to (a) the
present value of future minimum lease payments computed on the
basis of our incremental borrowing rate or, when known, the
interest rate implicit in the lease, or (b) the fair value
of the asset. Amortization of property under capital leases is
calculated on a straight-line basis over the lease term.
In accordance with ASC 360 Property, Plant and Equipment,
we record impairment charges on long-lived assets used in
operations when events and circumstances indicate that the
assets may be impaired, the undiscounted cash flows estimated to
be generated by those assets are less than their carrying amount
and the
48
net book value of the assets exceeds their estimated fair value.
In making these determinations, we use certain assumptions,
including, but not limited to: (i) estimated fair value of
the assets and (ii) estimated future cash flows expected to
be generated by these assets, which are based on additional
assumptions such as asset utilization, revenue generated,
associated costs, length of service and estimated salvage values.
Aircraft
Maintenance and Repair
We account for maintenance and repair costs for both owned and
leased airframes and engines under the direct expense method.
Under this method, maintenance and repairs are charged to
expense as incurred, which can result in expense volatility
between quarterly and annual periods, depending on the number of
heavy maintenance events performed. If we had chosen a different
method, such as the deferral method for heavy maintenance,
maintenance and repair expense would be capitalized and then
amortized over the lesser of Block Hours flown or time period
before the next heavy maintenance event resulting in a less
variable expense between reporting periods.
Income
Taxes
We provide for income taxes using the asset and liability
method. Under this method, deferred income taxes are recognized
for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. If necessary,
deferred income tax assets are reduced by a valuation allowance
to an amount that is determined to be more likely than not
recoverable. We must make significant estimates and assumptions
about future taxable income and future tax consequences when
determining the amount, if any, of the valuation allowance. In
addition, tax reserves are based on significant estimates and
assumptions as to the relative filing positions and potential
audit and litigation exposures thereto. The effect on deferred
taxes of a change in tax laws or tax rates is recognized in the
results of operations in the period that includes the enactment
date.
Due to the emergence from bankruptcy and pursuant to ASC 852
Reorganizations, pre-emergence tax contingencies,
including valuation allowances on our tax assets, are reversed
first to intangible assets and then to additional
paid-in-capital.
Business
Combinations and Intangible Assets
The Company accounts for business combinations in accordance
with ASC 805. Under the purchase method, the Company records net
assets acquired and liabilities assumed at their estimated fair
value on the date of acquisition. The determination of the fair
value of the assets acquired and liabilities assumed requires
the Company to make estimates and assumptions that affect the
Companys financial statements. Intangible assets acquired
in connection with business combinations that have finite lives
are amortized over their estimated useful lives. The estimated
useful lives are based on estimates of the period during which
the assets are expected to generate revenue. Intangible assets
with finite lives are tested for impairment whenever events or
changes in circumstances indicate that the carrying amount of
the assets may no longer be recoverable.
Inventory
Excess and Obsolescence Reserves
We establish an allowance for excess and obsolete spare parts
and supplies primarily based on historical usage and our
estimate of demand over the average remaining fleet life by type
of aircraft. As actual future demand or market conditions vary
from projections, adjustments are recorded.
Allowance
for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount
and do not bear interest. We record an allowance for doubtful
accounts as our best estimate of the amount of probable credit
losses resulting from the inability or unwillingness of our
customers to make required payments. We review the allowance at
least monthly and charge off account balances when we determine
that it is probable that the receivable will not be recovered.
49
Legal and
Regulatory Matters
We are party to legal and regulatory proceedings with respect to
a variety of matters. We evaluate the likelihood of an
unfavorable outcome of these proceedings in accordance with ASC
450 Contingencies. Our judgments are subjective and are
based on the status of the legal or regulatory proceedings, the
merits of our defenses and consultation with in-house and
outside legal counsel. Due to the inherent uncertainties of the
legal and regulatory proceedings in the multiple jurisdictions
in which we operate, our judgments may be different from the
actual outcomes.
Stock-Based
Compensation Expense
Effective January 1, 2006, we began accounting for
stock-based compensation costs in accordance with ASC 718
Compensation Stock Compensation (ASC
718), which requires the measurement and recognition of
compensation expense for all stock-based payment awards made to
our employees and directors. Under the fair value recognition
provisions of ASC 718, stock-based compensation cost is measured
at the grant date based on the value of the award and is
recognized as expense over the vesting period. Determining the
fair value of stock-based awards at the grant date requires
considerable judgment, including estimating expected volatility
and expected term. Our expected volatility through July 2006 was
calculated based on the average of the historical volatility of
a peer group of several similar entities, due to the limited
trading history of our stock. Thereafter, we used the observed
volatility of our own common stock. The expected term of the
stock options is based on the expectation of employee exercise
behavior in the future, with consideration given to the
contractual terms of the stock-based awards. The risk-free
interest rate assumption is based on the Yield of U.S. Treasury
constant maturities (nominal) with a term equal to the expected
life assumed at the date of grant. If factors change and we
employ different assumptions, stock-based compensation expense
may differ significantly from what we have recorded in the past.
Recent
Accounting Pronouncements
On January 1, 2009, the Company adopted the updated
provisions of ASC 810, which established requirements for
ownership interests in subsidiaries held by parties other than
the Company, noncontrolling interest (previously referred to as
minority interest) to be clearly identified,
presented, and disclosed in the consolidated statement of
financial position within equity but separate from the
parents equity. All changes in the parents ownership
interests are required to be accounted for consistently as
equity transactions, and any noncontrolling equity investments
in unconsolidated subsidiaries must be measured initially at
fair value. The adoption of the updated provisions of ASC 810
did not have a material effect on the Companys financial
condition, results of operations or cash flows. The Company
reclassified the consolidated statements of operations for 2008
to conform to the presentation required under ASC 810. There was
no effect on the consolidated balance sheets as the
Companys noncontrolling interest in Polar was eliminated
prior to December 31, 2008.
On January 1, 2009, the Company adopted the updated
provisions of ASC 805, which established the principles and
requirements for how an acquirer: (i) recognizes and
measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling
interest in the acquiree; (ii) recognizes and measures the
goodwill acquired in the business combination or a gain from a
bargain purchase; and (iii) discloses the business
combination. This statement applies to all transactions in which
an entity obtains control of one or more businesses, including
transactions that occur without the transfer of any type of
consideration. See Note 11 to our Financial Statements for
further discussion of the income tax effects of ASC 805 on the
Companys consolidated financial condition and results of
operations.
On January 1, 2009, the Company adopted ASC
260-10-45-61A,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (ASC
260-10-45-61A).
This standard clarified that all outstanding unvested
share-based payment awards that contain rights to
non-forfeitable dividends participate in undistributed earnings
with common shareholders. Awards of this nature are considered
participating securities and the two-class method of computing
basic and diluted earnings per share
50
must be applied. The adoption of ASC
260-10-45-61A
did not have any impact on the Companys financial
condition or results of operations.
In April 2009, the FASB issued ASC
825-10-65,
Interim Disclosures about Fair Value of Financial Instruments
(ASC
825-10-65),
which requires disclosures about fair value of financial
instruments in interim and annual financial statements. The
adoption of ASC
825-10-65 in
the second quarter of 2009 did not have a material effect on the
Companys financial condition or results of operations (see
Note 12 to our Financial Statements).
In May 2009, the FASB issued ASC 855, Subsequent Events
(ASC 855), which established the principles and
requirements for the recognition and disclosure of events or
transactions occurring after the balance sheet date in the
financial statements. In particular, ASC 855:
(i) identifies the period after the balance sheet date
during which management of the Company should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements; (ii) identifies the
circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its
financial statements and (iii) requires certain expanded
disclosures in the financial statements about events or
transactions that occurred after the balance sheet date. ASC 855
is effective for the Companys financial statements for the
period beginning on April 1, 2009. The adoption of ASC 855
did not have any impact on the Companys financial
condition or results of operations.
In June 2009, the FASB issued amendments to ASC 810. These
amendments primarily included: (i) amending the guidance
for determining whether an entity is a variable interest entity
(VIE); and (ii) amending the criteria for
identification of the primary beneficiary of a VIE. ASC 810 also
requires the Company to continually reassess whether the Company
is the primary beneficiary of a VIE and requires certain
enhanced disclosures in the financial statements about the
Companys relationships with VIEs. The amended provisions
of ASC 810 are effective for the Companys financial
statements for the period beginning on January 1, 2010. The
Company does not believe that adoption of the amended provisions
of ASC 810 will have any effect on the Companys financial
condition or results of operations.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We currently do not hedge against foreign currency fluctuations,
aviation fuel or interest rate movements. The risk inherent in
our market-sensitive instruments and positions is the potential
loss arising from adverse changes to the price and availability
of aviation fuel and interest rates as discussed below. The
sensitivity analyses presented herein do not consider the
effects that such adverse changes might have on our overall
financial performance, nor do they consider additional actions
we may take to mitigate our exposure to such changes. Variable
rate leases are not considered market-sensitive financial
instruments and, therefore, are not included in the interest
rate sensitivity analysis below. Actual results may differ.
Foreign Currency. We are exposed to market
risk from changes in foreign currency exchange rates, interest
rates and equity prices that could affect our results of
operations and financial condition. Our largest exposure comes
from the British Pound, the Euro, the Brazilian Real and the
Korean Won.
Aviation Fuel. Our results of operations are
affected by changes in the price and availability of aviation
fuel. Market risk is estimated at a hypothetical 20% increase or
decrease in the 2009 average cost per gallon of fuel. Based on
actual 2009 fuel consumption for the Commercial Charter business
segment, such an increase would have resulted in an increase to
aviation fuel expense of approximately $16.5 million in
2009. Our exposure to fuel risk decreased significantly, upon
the Commencement Date with DHL assuming the fuel risk for Polar.
We will continue to have limited fuel risk on a portion of our
Commercial Charter business. In the AMC Charter Segment, the
contracted charter rates (per mile) and fuel prices (per gallon)
are established and fixed by the AMC for twelve-month periods
running from October to September of the next year. We receive
reimbursements from the AMC each month if the price of fuel paid
by us to vendors for the AMC Charter flights exceeds the fixed
price; if the price of fuel paid by us is less than the fixed
price, then we pay the difference to the AMC. Therefore, we have
limited exposure to changes in fuel prices in the AMC Charter
Segment. ACMI does not create an aviation fuel market risk, as
the cost of fuel is borne by the customer.
51
Variable Interest Rates. Our earnings are
affected by changes in interest rates due to the impact those
changes have on interest expense from variable rate debt
instruments and on interest income generated from our cash and
investment balances. At December 31, 2009, approximately
$237.7 million of our debt at face value had variable
interest rates. If interest rates would have increased or
decreased by a hypothetical 20% in the underlying rate as of
December 31, 2009, our annual interest expense would have
changed for 2009 by approximately $1.3 million.
Fixed Rate Debt. On December 31, 2009, we
had approximately $389.6 million of fixed rate long-term
debt. If interest rates were 20% lower than the stated rate, the
fair value of this debt would have been $24.4 million
higher as of December 31, 2009.
52
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
53
Report Of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Atlas Air Worldwide Holdings, Inc.
In our opinion, the consolidated financial statements listed in
the accompanying index present fairly, in all material respects,
the financial position of Atlas Air Worldwide Holdings, Inc. and
its subsidiaries at December 31, 2009 and 2008, and the
results of their operations and their cash flows for each of the
three years in the period ended December 31, 2009 in
conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the
financial statement schedule appearing under item 15(a) 2
presents fairly, in all material respects, the information set
forth therein when read in conjunction with the related
consolidated financial statements. Also in our opinion, the
Company maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for these financial
statements and financial statement schedule, for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in Managements Report on
Internal Control over Financial Reporting appearing under
Item 9A. Our responsibility is to express opinions on these
financial statements, on the financial statement schedule, and
on the Companys internal control over financial reporting
based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we
plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material
misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used
and significant estimates made by management, and evaluating the
overall financial statement presentation. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of
internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
As discussed in the notes to the consolidated financial
statements, the Company changed the manner in which it accounts
for business combinations and noncontrolling interests in 2009.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers
LLP
New York, New York
February 24, 2010
54
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
613,740
|
|
|
$
|
397,385
|
|
Short-term investments
|
|
|
23,327
|
|
|
|
13,138
|
|
Accounts receivable, net of allowance of $2,412 and $2,275,
respectively
|
|
|
58,530
|
|
|
|
67,160
|
|
Prepaid maintenance
|
|
|
30,848
|
|
|
|
47,558
|
|
Deferred taxes
|
|
|
6,689
|
|
|
|
29,308
|
|
Prepaid expenses and other current assets
|
|
|
24,249
|
|
|
|
20,015
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
757,383
|
|
|
|
574,564
|
|
Property and Equipment
|
|
|
|
|
|
|
|
|
Flight equipment
|
|
|
677,006
|
|
|
|
682,635
|
|
Ground equipment
|
|
|
26,107
|
|
|
|
22,411
|
|
Less: accumulated depreciation
|
|
|
(110,001
|
)
|
|
|
(93,005
|
)
|
Purchase deposits for flight equipment
|
|
|
296,658
|
|
|
|
338,356
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
889,770
|
|
|
|
950,397
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
57,070
|
|
|
|
38,745
|
|
Lease contracts and intangible assets, net
|
|
|
36,650
|
|
|
|
37,039
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
1,740,873
|
|
|
$
|
1,600,745
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
20,810
|
|
|
$
|
16,263
|
|
Accrued liabilities
|
|
|
107,907
|
|
|
|
101,519
|
|
Current portion of long-term debt
|
|
|
38,830
|
|
|
|
36,243
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
167,547
|
|
|
|
154,025
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
526,680
|
|
|
|
635,628
|
|
Deferred taxes
|
|
|
74,501
|
|
|
|
62,321
|
|
Other liabilities
|
|
|
83,388
|
|
|
|
67,032
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
|
684,569
|
|
|
|
764,981
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $1 par value; 10,000,000 shares
authorized; no shares issued
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; 50,000,000 shares
authorized; 26,593,450 and 21,932,720 shares issued,
25,700,765 and 21,061,841 shares outstanding (net of
treasury stock), at December 31, 2009 and 2008, respectively
|
|
|
266
|
|
|
|
219
|
|
Additional
paid-in-capital
|
|
|
481,074
|
|
|
|
355,185
|
|
Treasury stock, at cost; 892,685 and 870,879 shares,
respectively
|
|
|
(26,394
|
)
|
|
|
(26,009
|
)
|
Accumulated other comprehensive income/(loss)
|
|
|
471
|
|
|
|
(736
|
)
|
Retained earnings
|
|
|
430,856
|
|
|
|
353,080
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
886,273
|
|
|
|
681,739
|
|
Noncontrolling interest
|
|
|
2,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
888,757
|
|
|
|
681,739
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
1,740,873
|
|
|
$
|
1,600,745
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
55
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except per share data)
|
|
|
Operating Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
482,231
|
|
|
$
|
358,234
|
|
|
$
|
360,909
|
|
AMC charter
|
|
|
328,990
|
|
|
|
425,814
|
|
|
|
388,966
|
|
Commercial charter
|
|
|
215,127
|
|
|
|
127,325
|
|
|
|
117,142
|
|
Dry leasing
|
|
|
12,799
|
|
|
|
48,770
|
|
|
|
50,512
|
|
Scheduled service
|
|
|
|
|
|
|
645,283
|
|
|
|
657,576
|
|
Other
|
|
|
22,399
|
|
|
|
2,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Revenue
|
|
$
|
1,061,546
|
|
|
$
|
1,607,482
|
|
|
$
|
1,575,105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries, wages and benefits
|
|
|
215,660
|
|
|
|
221,765
|
|
|
|
249,517
|
|
Aircraft fuel
|
|
|
201,207
|
|
|
|
677,544
|
|
|
|
531,755
|
|
Aircraft rent
|
|
|
151,080
|
|
|
|
157,063
|
|
|
|
155,575
|
|
Maintenance, materials and repairs
|
|
|
147,758
|
|
|
|
171,396
|
|
|
|
149,306
|
|
Depreciation and amortization
|
|
|
33,074
|
|
|
|
38,946
|
|
|
|
40,012
|
|
Landing fees and other rent
|
|
|
39,552
|
|
|
|
65,033
|
|
|
|
76,208
|
|
Travel
|
|
|
25,235
|
|
|
|
45,842
|
|
|
|
50,814
|
|
Ground handling and airport fees
|
|
|
16,212
|
|
|
|
61,927
|
|
|
|
78,038
|
|
Gain on disposal of aircraft
|
|
|
(953
|
)
|
|
|
(2,726
|
)
|
|
|
(3,475
|
)
|
Special charge
|
|
|
8,216
|
|
|
|
91,167
|
|
|
|
|
|
Other
|
|
|
74,498
|
|
|
|
91,672
|
|
|
|
92,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
911,539
|
|
|
|
1,619,629
|
|
|
|
1,420,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income/(Loss)
|
|
|
150,007
|
|
|
|
(12,147
|
)
|
|
|
154,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-operating Expenses/(Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(3,014
|
)
|
|
|
(12,778
|
)
|
|
|
(17,775
|
)
|
Interest expense
|
|
|
44,731
|
|
|
|
49,986
|
|
|
|
44,732
|
|
Capitalized interest
|
|
|
(12,215
|
)
|
|
|
(11,282
|
)
|
|
|
(4,489
|
)
|
Gain on early extinguishment of debt
|
|
|
(2,713
|
)
|
|
|
|
|
|
|
|
|
Gain on consolidation of subsidiary
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
Gain on issuance of stock
|
|
|
|
|
|
|
(153,579
|
)
|
|
|
|
|
Other (income) expense, net
|
|
|
(765
|
)
|
|
|
5,285
|
|
|
|
(428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-operating Expenses / (Income)
|
|
|
25,911
|
|
|
|
(122,368
|
)
|
|
|
22,040
|
|
Income before income taxes
|
|
|
124,096
|
|
|
|
110,221
|
|
|
|
132,735
|
|
Income tax expense
|
|
|
47,940
|
|
|
|
50,200
|
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
76,156
|
|
|
|
60,021
|
|
|
|
132,415
|
|
Less: Net loss attributable to noncontrolling interests
|
|
|
(1,620
|
)
|
|
|
(3,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Stockholders
|
|
$
|
77,776
|
|
|
$
|
63,696
|
|
|
$
|
132,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
3.59
|
|
|
$
|
2.98
|
|
|
$
|
6.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
3.56
|
|
|
$
|
2.97
|
|
|
$
|
6.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,652
|
|
|
|
21,361
|
|
|
|
21,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
21,818
|
|
|
|
21,431
|
|
|
|
21,453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
56
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to Common Stockholders
|
|
$
|
77,776
|
|
|
$
|
63,696
|
|
|
$
|
132,415
|
|
Net loss attributable to noncontrolling interests
|
|
|
(1,620
|
)
|
|
|
(3,675
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
76,156
|
|
|
|
60,021
|
|
|
|
132,415
|
|
Adjustments to reconcile Net Income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
33,074
|
|
|
|
38,946
|
|
|
|
40,012
|
|
Amortization of debt discount
|
|
|
6,375
|
|
|
|
7,266
|
|
|
|
7,461
|
|
Amortization of operating lease discount
|
|
|
2,339
|
|
|
|
1,838
|
|
|
|
1,836
|
|
Amortization of debt issuance costs
|
|
|
293
|
|
|
|
122
|
|
|
|
|
|
Accretion of debt securities discount
|
|
|
(513
|
)
|
|
|
|
|
|
|
|
|
Provision for doubtful accounts
|
|
|
1,071
|
|
|
|
238
|
|
|
|
1,115
|
|
Loss (gain) on short-term investments
|
|
|
(535
|
)
|
|
|
1,547
|
|
|
|
|
|
Special charge
|
|
|
8,216
|
|
|
|
85,144
|
|
|
|
|
|
Gain on early extinguishment of debt
|
|
|
(2,713
|
)
|
|
|
|
|
|
|
|
|
Gain on consolidation of subsidiary
|
|
|
(113
|
)
|
|
|
|
|
|
|
|
|
Gain on issuance of subsidiary stock
|
|
|
|
|
|
|
(153,579
|
)
|
|
|
|
|
Gain on disposal of flight equipment
|
|
|
(953
|
)
|
|
|
(2,726
|
)
|
|
|
(3,475
|
)
|
Deferred taxes
|
|
|
47,671
|
|
|
|
50,390
|
|
|
|
(874
|
)
|
Stock-based compensation expense
|
|
|
11,390
|
|
|
|
7,952
|
|
|
|
7,084
|
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
185
|
|
Changes in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
13,343
|
|
|
|
(15,196
|
)
|
|
|
5,662
|
|
Prepaids and other current assets
|
|
|
13,208
|
|
|
|
10,319
|
|
|
|
(5,958
|
)
|
Deposits and other assets
|
|
|
(1,132
|
)
|
|
|
10,807
|
|
|
|
(9,534
|
)
|
Accounts payable and accrued liabilities
|
|
|
7,396
|
|
|
|
22,229
|
|
|
|
20,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
214,573
|
|
|
|
125,318
|
|
|
|
196,710
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(30,188
|
)
|
|
|
(227,931
|
)
|
|
|
(27,485
|
)
|
Purchase deposits for flight equipment
|
|
|
(21,160
|
)
|
|
|
(257,287
|
)
|
|
|
(35,587
|
)
|
Refund of pre-delivery deposits
|
|
|
62,858
|
|
|
|
|
|
|
|
|
|
Deconsolidation of subsidiary
|
|
|
|
|
|
|
(52,060
|
)
|
|
|
|
|
Consolidation of subsidiary
|
|
|
11,612
|
|
|
|
|
|
|
|
|
|
Redesignation between short-term investments and cash
|
|
|
13,301
|
|
|
|
(14,685
|
)
|
|
|
|
|
Investment in short-term investments
|
|
|
(20,000
|
)
|
|
|
|
|
|
|
|
|
Investment in debt securities
|
|
|
(20,693
|
)
|
|
|
|
|
|
|
|
|
Insurance proceeds
|
|
|
|
|
|
|
5,900
|
|
|
|
|
|
Proceeds from sale of flight equipment
|
|
|
3,525
|
|
|
|
|
|
|
|
8,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(745
|
)
|
|
|
(546,063
|
)
|
|
|
(54,522
|
)
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from loan
|
|
|
|
|
|
|
316,658
|
|
|
|
|
|
Proceeds from common stock offering
|
|
|
112,623
|
|
|
|
|
|
|
|
|
|
Proceeds from refundable deposit
|
|
|
|
|
|
|
3,428
|
|
|
|
30,000
|
|
Proceeds from stock option exercises
|
|
|
215
|
|
|
|
|
|
|
|
6,677
|
|
Proceeds from Harbinger stock sale
|
|
|
208
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock
|
|
|
(385
|
)
|
|
|
(19,410
|
)
|
|
|
(2,075
|
)
|
Excess tax benefit from share-based compensation expense
|
|
|
(107
|
)
|
|
|
1,269
|
|
|
|
3,584
|
|
Proceeds from issuance of subsidiary stock
|
|
|
|
|
|
|
78,902
|
|
|
|
97,917
|
|
Payment of debt issuance costs
|
|
|
(4
|
)
|
|
|
(1,660
|
)
|
|
|
(750
|
)
|
Payments on debt
|
|
|
(110,023
|
)
|
|
|
(38,366
|
)
|
|
|
(32,039
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,527
|
|
|
|
340,821
|
|
|
|
103,314
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
216,355
|
|
|
|
(79,924
|
)
|
|
|
245,502
|
|
Cash and cash equivalents at the beginning of period
|
|
|
397,385
|
|
|
|
477,309
|
|
|
|
231,807
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
613,740
|
|
|
$
|
397,385
|
|
|
$
|
477,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
57
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Stock
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Treasury
|
|
|
Paid-In
|
|
|
Issued to
|
|
|
Comprehensive
|
|
|
Subscription
|
|
|
Retained
|
|
|
Stockholders
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Creditors
|
|
|
Income
|
|
|
Receivable
|
|
|
Earnings
|
|
|
Equity
|
|
|
Interest
|
|
|
Equity
|
|
|
|
(In thousands, except share amounts)
|
|
|
Balance at December 31, 2006
|
|
$
|
207
|
|
|
$
|
(4,524
|
)
|
|
$
|
312,690
|
|
|
$
|
7,800
|
|
|
$
|
1,319
|
|
|
$
|
|
|
|
$
|
156,352
|
|
|
$
|
473,844
|
|
|
$
|
|
|
|
$
|
473,844
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,415
|
|
|
|
132,415
|
|
|
|
|
|
|
|
132,415
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
431
|
|
|
|
|
|
|
|
431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
132,846
|
|
|
|
|
|
|
|
132,846
|
|
Issuance of shares in subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,477
|
|
|
|
13,477
|
|
Stock option and restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
7,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,084
|
|
|
|
|
|
|
|
7,084
|
|
Purchase of 38,832 shares of treasury stock
|
|
|
|
|
|
|
(2,075
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,075
|
)
|
|
|
|
|
|
|
(2,075
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
617
|
|
|
|
|
|
|
|
617
|
|
Issuance of 621,002 shares of common stock to creditors
|
|
|
6
|
|
|
|
|
|
|
|
7,794
|
|
|
|
(7,800
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of 301,574 employee stock options
|
|
|
3
|
|
|
|
|
|
|
|
6,674
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,677
|
|
|
|
|
|
|
|
6,677
|
|
Issuance of 169,573 shares and forfeiture of
26,384 shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restricted stock
|
|
|
2
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable from issuance of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(77,065
|
)
|
|
|
|
|
|
|
(77,065
|
)
|
|
|
|
|
|
|
(77,065
|
)
|
Tax benefit on restricted stock and stock options
|
|
|
|
|
|
|
|
|
|
|
3,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,584
|
|
|
|
|
|
|
|
3,584
|
|
Tax valuation allowance and reserve reversal
|
|
|
|
|
|
|
|
|
|
|
3,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,713
|
|
|
|
|
|
|
|
3,713
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
$
|
218
|
|
|
$
|
(6,599
|
)
|
|
$
|
341,537
|
|
|
$
|
|
|
|
$
|
1,750
|
|
|
$
|
(77,065
|
)
|
|
$
|
289,384
|
|
|
$
|
549,225
|
|
|
$
|
13,477
|
|
|
$
|
562,702
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,696
|
|
|
|
63,696
|
|
|
|
(3,675
|
)
|
|
|
60,021
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
(2,486
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,210
|
|
|
|
|
|
|
|
57,535
|
|
Stock option and restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,952
|
|
|
|
|
|
|
|
7,952
|
|
Purchase of 710,645 shares of treasury stock
|
|
|
|
|
|
|
(19,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,410
|
)
|
|
|
|
|
|
|
(19,410
|
)
|
Exercise of 136,204 employee stock options
|
|
|
1
|
|
|
|
|
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,428
|
|
|
|
|
|
|
|
3,428
|
|
Issuance of 8,407 shares of restricted stock
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Forfeiture of 8,375 shares of restricted stock
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
(1
|
)
|
Receivable from issuance of subsidiary stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,065
|
|
|
|
|
|
|
|
77,065
|
|
|
|
|
|
|
|
77,065
|
|
Deconsolidation of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,802
|
)
|
|
|
(9,802
|
)
|
Tax benefit on restricted stock and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock options
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,269
|
|
|
|
|
|
|
|
1,269
|
|
Tax valuation allowance and reserve reversal
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
219
|
|
|
$
|
(26,009
|
)
|
|
$
|
355,185
|
|
|
$
|
|
|
|
$
|
(736
|
)
|
|
$
|
|
|
|
$
|
353,080
|
|
|
$
|
681,739
|
|
|
$
|
|
|
|
$
|
681,739
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77,776
|
|
|
|
77,776
|
|
|
|
(1,620
|
)
|
|
|
76,156
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,207
|
|
|
|
|
|
|
|
|
|
|
|
1,207
|
|
|
|
276
|
|
|
|
1,483
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,983
|
|
|
|
|
|
|
|
77,639
|
|
Consolidation of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,828
|
|
|
|
3,828
|
|
Stock option and restricted stock compensation
|
|
|
|
|
|
|
|
|
|
|
11,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,390
|
|
|
|
|
|
|
|
11,390
|
|
Purchase of 21,806 shares of treasury stock
|
|
|
|
|
|
|
(385
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(385
|
)
|
|
|
|
|
|
|
(385
|
)
|
Exercise of 12,304 employee stock options
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
215
|
|
|
|
|
|
|
|
215
|
|
Issuance of 53,326 shares of restricted stock
|
|
|
1
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New stock issuance of 4,600,000 shares
|
|
|
46
|
|
|
|
|
|
|
|
112,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,623
|
|
|
|
|
|
|
|
112,623
|
|
Forfeiture of 4,900 shares of restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of prior year deferred tax
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,607
|
|
|
|
|
|
|
|
1,607
|
|
Tax expense on restricted stock and stock options
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107
|
)
|
|
|
|
|
|
|
(107
|
)
|
Proceeds from Harbinger stock sale
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
266
|
|
|
$
|
(26,394
|
)
|
|
$
|
481,074
|
|
|
$
|
|
|
|
$
|
471
|
|
|
$
|
|
|
|
$
|
430,856
|
|
|
$
|
886,273
|
|
|
$
|
2,484
|
|
|
$
|
888,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements.
58
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
December 31,
2009
The accompanying Consolidated Financial Statements (the
Financial Statements) include the accounts of Atlas
Air Worldwide Holdings, Inc. (AAWW) and its
consolidated subsidiaries. AAWW is a holding company with a
principal operating subsidiary, Atlas Air, Inc.
(Atlas), which is wholly-owned. AAWW has a 51%
economic interest and 75% voting interest in Polar Air Cargo
Worldwide, Inc. (Polar). On June 28, 2007,
Polar issued shares representing a 49% economic interest and a
25% voting interest to DHL Network Operations (USA), Inc.
(DHL), a subsidiary of Deutsche Post AG
(DP). Prior to that date, Polar was wholly owned by
AAWW and was the parent company of Polar Air Cargo, Inc.
(Polar LLC). Polar was a consolidated subsidiary
until October 26, 2008. Since that date, the Company has
accounted for Polar under the equity method (see Note 3).
In 2008, AAWW formed Titan Aviation Leasing LTD and Titan
Aviation Leasing Limited Americas, Inc.
(collectively referred to as Titan), wholly owned
subsidiaries, for the purpose of dry leasing aircraft and
engines. In addition, Atlas dry leases aircraft to Global Supply
Systems Limited (GSS), of which AAWW has a 49%
ownership interest. GSS became a consolidated subsidiary on
April 8, 2009. Previously, GSS was accounted for under the
equity method (see Note 4). AAWW, Atlas, Polar, GSS, Titan,
and Polar LLC are referred to collectively as the
Company.
The Company provides air cargo and outsourced aircraft operating
solutions throughout the world, serving Asia, the Middle East,
Australia, Europe, South America, Africa and North America
through: (i) contractual lease arrangements, including
contracts through which the Company leases aircraft to customers
and provides value-added services including, crew, maintenance
and insurance (ACMI); (ii) military charter
(AMC Charter); (iii) seasonal, commercial and
ad-hoc charter services (Commercial Charter); and
(iv) dry leasing or sub-leasing of aircraft and engines
(Dry Leasing or Dry Lease). Prior to
October 27, 2008, the Company offered scheduled air cargo
service (Scheduled Service).
The Financial Statements include the accounts of AAWW and its
majority-owned and controlled entities. Noncontrolling interest
represents the interest not owned by the Company and is recorded
for consolidated entities in which the Company owns less than
100% of the interest. All significant intercompany accounts and
transactions have been eliminated. The Company accounts for
investments in entities under the equity method of accounting
when it holds between 20% and 50% ownership in the entity and
exercises significant influence or when it is not the primary
beneficiary of a variable interest entity.
Except for per share data, all dollar amounts are in thousands
unless otherwise stated.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Accounting
Standards Codification
In June 2009, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Codification
(ASC) 105, FASB Accounting Standards Codification
(ASC 105). The statement confirmed that the FASB
Accounting Standards Codification (the Codification)
is the single official source of authoritative accounting
principles generally accepted in the United States of America
(GAAP) (other than guidance issued by the SEC),
superseding existing FASB, American Institute of Certified
Public Accountants, Emerging Issues Task Force, and related
literature. The Codification does not change GAAP. Instead, it
introduces a new structure that is organized in an easily
accessible, user-friendly online research system. The
Codification, which changed the referencing of financial
standards, is effective for interim and annual periods ending on
or after September 15, 2009. Thereafter, only one level of
authoritative GAAP exists. All other literature is considered
non-authoritative. The adoption of ASC 105 did not impact the
Companys financial condition or results of operations.
59
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Use of
Estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and judgments that affect
the amounts reported in the Financial Statements and footnotes
thereto. Actual results may differ from those estimates.
Important estimates include asset lives, valuation allowances
(including, but not limited to, those related to receivables,
expendable inventory and deferred taxes), income tax accounting,
self-insurance employee benefit accruals and contingent
liabilities.
Revenue
Recognition
The Company recognizes revenue when an arrangement exists,
services have been rendered, the price is fixed and determinable
and collectibility is reasonably assured.
ACMI revenue is typically recognized as the actual Block Hours
are operated on behalf of a customer during a given month, as
defined contractually. If a customer flies below the minimum
contracted Block Hour guarantee, the contracted minimum revenue
amounts are recognized as revenue. Revenue for AMC and
Commercial Charter is recognized upon flight departure. Revenue
for Scheduled Service was recognized upon flight departure.
Dry Leasing revenue from owned aircraft is recognized in
accordance ASC 840 Leases (ASC 840). The
Company leases flight equipment, which may include aircraft and
engines under operating leases, and records rental income on a
straight-line basis over the term of the lease. Rentals received
but unearned under the lease agreements are recorded in deferred
revenue and included in Accrued liabilities in the consolidated
balance sheets until earned. In certain cases, leases provide
for additional rentals based on usage, which is recorded as
revenue as it is earned under the terms of the lease. The usage
is calculated based on hourly usage or cycles operated,
depending on the lease agreement. Usage is typically reported
monthly by the lessee and the resulting revenue is
non-refundable.
The Company recognizes revenue for management and administrative
support services when the services are provided.
Issuance
of Stock by Subsidiaries
The Company records gains or losses on the issuance of shares of
stock by subsidiaries as Non-operating income in the
consolidated statements of operations.
Allowance
for Doubtful Accounts
The Company performs a monthly evaluation of its accounts
receivable and establishes an allowance for doubtful accounts
based on its best estimate of probable credit losses resulting
from the inability or unwillingness of its customers to make
required payments. Account balances are charged off against the
allowance when the Company determines that it is probable that
the receivable will not be recovered.
Cash
and Cash Equivalents
Cash and cash equivalents include cash on hand, demand deposits
and other cash investments that are highly liquid in nature and
have original maturities of three months or less at acquisition.
Short-Term
Investments
Short-term investments are primarily comprised of certificates
of deposit, current portions of debt securities and an
investment in The Reserve Primary Fund, a money market fund.
When Lehman Brothers Holdings, Inc. (Lehman
Brothers) filed for bankruptcy in September 2008, its debt
securities represented approximately 1.5% of the Reserve Primary
Funds total holdings. As a result, the net asset value of
the
60
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reserve Primary Fund fell below $1.00 per share. Distributions
are expected to continue as the Reserve Primary Funds
assets mature or are sold. On November 25, 2009, the court
issued an order on the SECs distribution plan, which
provides for pro-rata distributions, resulting in a recovery
that the Reserve Primary Fund believes would be approximately
99.00 cents per share.
The Company invested $101.1 million in the Reserve Primary
Fund and recorded a $1.0 million loss to recognize the
Companys pro rata share of the estimated loss in this
investment. Through January 29, 2010, the Company has
recovered $99.7 million of its investment in the Reserve
Primary Fund. The Company expects to receive the remaining
$0.4 million of recoverable holdings in the fund within the
next twelve months. This was included in Short-term investments
in the consolidated balance sheets as of December 31, 2009.
Escrow
Deposits and Letters of Credit
The Company had $6.2 million and $4.5 million of cash
held in escrow at December 31, 2009 and 2008, respectively,
for certain deposits required in the normal course of business
for items including, but not limited to, surety and customs
bonds, airfield privileges, judicial deposits, insurance and
cash pledged under standby letters of credit related to
collateral. These amounts are included in Deposits and other
assets in the consolidated balance sheets.
Long-term
Investments
Investment in securities consists of debt securities for which
management has the intent and ability to hold to maturity which
are classified as held-to-maturity and reported at amortized
cost. Interest on debt securities and accretion of discounts
using the effective interest method are included in Interest
income in the consolidated statements of operations. The net
amount of long-term investments in debt securities outstanding
at December 31, 2009 was $18.6 million and was
included within Deposits and other assets in the consolidated
balance sheets.
Inventories
Expendable parts, materials and supplies for flight equipment
are carried at average acquisition costs and are included in
Prepaid expenses and other current assets in the consolidated
balance sheets. When used in operations, they are charged to
maintenance expense. Allowances for excess and obsolescence for
expendable parts expected to be on hand at the date aircraft are
retired from service are provided over the estimated useful
lives of the related aircraft and engines. These allowances are
based on management estimates, which are subject to change as
conditions in the business evolve. At December 31, 2009 and
2008, the net book value of expendable parts inventory was
$18.8 million and $16.4 million, respectively. At
December 31, 2009 and 2008, the reserve for expendable
obsolescence was $2.8 million and $2.6 million,
respectively.
Rotable parts are recorded in Property and equipment, net in the
consolidated balance sheets, and are depreciated over the
average remaining fleet lives and written off when they are
determined to be beyond economic repair. At December 31,
2009 and 2008, the net book value of rotable parts inventory was
$50.9 million and $51.8 million, respectively.
Assets
Held for Sale
In December 2009, three recently overhauled spare engines were
listed for sale by the Company and were accounted for as assets
held for sale. Depreciation on these engines ceased as of
December 31, 2009. The aggregate carrying value of spare
engines held for sale at December 31, 2009 was
$1.0 million, which was included within Prepaid expenses
and other current assets in the consolidated balance sheets.
61
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Property
and Equipment
The Company records property and equipment at cost and
depreciates these assets on a straight-line basis over their
estimated useful lives to their estimated residual values, over
periods not to exceed forty years for flight equipment (from
date of original manufacture) and three to five years for ground
equipment, from the date the asset is placed in service.
Remaining useful lives for
747-200
aircraft range from 0.2 years to 1.5 years and for
747-400
aircraft, from 20.9 years to 30.4 years. Property
under capital leases and related obligations are recorded at the
lesser of an amount equal to (a) the present value of
future minimum lease payments computed on the basis of the
Companys incremental borrowing rate or, when known, the
interest rate implicit in the lease or (b) the fair value
of the asset. Property under capital lease is amortized on a
straight-line basis over the lease term.
Expenditures for major additions, improvements and flight
equipment modifications are generally capitalized and
depreciated over the shorter of the estimated life of the
improvement or the modified assets remaining lives or
remaining lease term in the event that any modifications or
improvements are made to operating lease equipment.
Substantially all property and equipment is specifically pledged
as collateral for indebtedness of the Company.
Capitalized
Interest on Pre-delivery Deposits
Interest on funds used to finance the acquisition of aircraft up
to the date the asset is ready for its intended use is
capitalized and included in the cost of the asset if the asset
is actively under construction. Included in capitalized interest
is the interest paid on the pre-delivery deposit borrowings
directly associated with the acquisition of aircraft. The
remainder of capitalized interest recorded on the acquisition of
aircraft is determined by taking the weighted average cost of
funds associated with the Companys other debt and applying
it against the monies paid as pre-delivery deposits.
Pre-delivery deposits for aircraft include capitalized interest
of $28.6 million and $16.4 million at
December 31, 2009 and 2008, respectively.
Measurement
of Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment when events
or changes in circumstances indicate that their carrying amount
may not be recoverable. When undiscounted cash flows estimated
to be generated for those assets are less than the carrying
amount, the Company records impairment losses with respect to
those assets based upon the amount by which the net book value
of the assets exceeds their estimated fair value. In determining
the fair value of the assets, the Company considers market
trends, published values for similar assets, recent transactions
involving sales of similar assets
and/or
quotes from independent third party appraisers. In making these
determinations, the Company also uses certain assumptions,
including, but not limited to, the estimated undiscounted future
net cash flows expected to be generated by the asset group,
which are based on management assumptions such as asset
utilization, length of service the asset will be used in the
Companys operations and estimated residual values.
During the fourth quarter of 2009 and 2008, the Company recorded
an impairment charge on substantially all of its
747-200
aircraft, as well as the related engines, rotable inventory and
other equipment (see Note 5). The Company did not have an
event that would trigger an impairment analysis on its
747-400
fleet.
Off-Balance
Sheet Arrangements
A portion of the Companys operating aircraft are owned or
effectively owned and leased through trusts established
specifically to purchase, finance and lease aircraft to the
Company. The Company has not consolidated any aircraft in the
related trusts upon application of ASC 810 Consolidation
(ASC 810), because the Company is not the
primary beneficiary. The Companys maximum exposure under
these
62
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
operating leases is the remaining lease payments, which amounts
are reflected in future lease commitments more fully described
in Note 9.
Concentration
of Credit Risk and Significant Customers
Polar accounted for 38.3% and 10.6% of the Companys ACMI
revenue and 18.5% and 3.2% of the Companys total revenue
for the years ended December 31, 2009 and 2008,
respectively. The U.S. Military Airlift Mobility Command
(AMC) charters accounted for 31.0%, 26.5% and 24.7%
of the Companys total revenue for the years ended
December 31, 2009, 2008 and 2007, respectively. Accounts
receivable from the AMC were $13.5 million and
$21.0 million at December 31, 2009 and 2008,
respectively. The International Airline of United Arab Emirates
(Emirates) accounted for 10.4%, 7.8% and 10.7% of
the Companys total revenues for the years ended
December 31, 2009, 2008 and 2007, respectively. Receivables
from Emirates were $13.0 million and $9.2 million at
December 31, 2009 and 2008, respectively. No other customer
accounted for 10.0% or more of the Companys total
operating revenues during these periods.
Income
Taxes
The Company provides for income taxes using the asset and
liability method. Under this method, deferred income taxes are
recognized for the tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future years
to differences between the financial statement carrying amounts
and the tax basis of existing assets and liabilities. If
necessary, deferred income tax assets are reduced by a valuation
allowance to an amount that is determined to be more likely than
not recoverable. The Company must make significant estimates and
assumptions about future taxable income and future tax
consequences when determining the amount of the valuation
allowance. In addition, uncertain tax positions are based on
significant estimates and assumptions as to the relative filing
positions and potential audit and litigation exposures related
thereto. The effect on deferred taxes of a change in tax laws or
tax rates is recognized in the results of operations in the
period that includes the enactment date.
Debt
Issuance Costs
Costs associated with the issuance of debt are capitalized and
amortized over the life of the respective debt obligation, using
the effective interest method of amortization. Amortization of
debt issuance costs was $0.3 million, $0.1 million and
zero for the years ended December 31, 2009, 2008 and 2007,
respectively, and was included as a component of Interest
expense in the consolidated statements of operations.
Aircraft
Maintenance and Repair
Maintenance and repair costs for both owned and leased aircraft
are charged to expense upon induction.
Prepaid
Maintenance Deposits
Certain of the Companys aircraft financing agreements
require security deposits to its finance providers to ensure
that the Company performs major maintenance as required. These
are substantially refundable to the Company and are, therefore,
accounted for as deposits and included in Prepaid maintenance in
the consolidated balance sheets. Such amounts, including the
long-term portion, were $37.2 million and
$47.9 million at December 31, 2009 and 2008,
respectively.
Foreign
Currency Transactions
The Companys results of operations are exposed to the
effect of foreign exchange rate fluctuations on the
U.S. dollar value of foreign currency denominated operating
revenues and expenses. The Companys largest exposure comes
from the British Pound, the Euro, the Brazilian Real and the
Korean Won. The
63
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company does not currently have a foreign currency hedging
program related to its foreign currency-denominated
transactions. Gains or losses resulting from foreign currency
transactions are included in non-operating expenses in the
consolidated statements of operations. Included in the
consolidated statements of stockholders equity was Other
comprehensive income of $1.2 million, net of taxes of zero,
for the year ended December 31, 2009, Other comprehensive
loss of $2.5 million, net of taxes of zero, for the year
ended December 31, 2008 and Other comprehensive income of
$0.4 million, net of taxes of $0.1 million for the
year ended December 31, 2007. These items primarily related
to foreign currency translations.
Stock-Based
Compensation
The Company has various stock-based compensation plans for
employees and outside directors, which are described more fully
in Note 14. The Company accounts for these plans under ASC
718 Compensation (ASC 718) using the modified
prospective method. This resulted in prospective recognition of
compensation expense for all outstanding unvested share-based
payments based on the fair value on the original grant date.
Litigation
Accrual
The Company is party to certain legal and regulatory proceedings
with respect to a variety of matters. The Company evaluates the
likelihood of an unfavorable outcome of these proceedings in
accordance with ASC 450 Contingencies ASC
450). These judgments are subjective based on the status
of the legal or regulatory proceedings, the merits of the
Companys defenses and consultation with in-house and
external legal counsel. The actual outcomes of these proceedings
may differ materially from the Companys judgments. Legal
costs are accrued as incurred and recorded in Other operating
expenses in the consolidated statements of operations.
Supplemental
Cash Flow Information
Aggregate cash interest payments were $39.4 million,
$41.1 million and $37.6 million for the years ended
December 31, 2009, 2008 and 2007, respectively. Cash
interest paid to lenders is calculated on the face amount of the
various debt instruments of the Company based on the contractual
interest rates in effect during each payment period.
Principal payments to lenders reflected as Payment on debt and
capital lease obligations in cash flows used by financing
activities in the consolidated statements of cash flows
represent repayments of amounts originally borrowed.
The Accretion of debt discount shown as a reconciling item in
cash flows from operating activities in the consolidated
statements of cash flows is the difference between interest
expense recorded in the consolidated statements of operations
and cash interest owed to lenders. This amount arises from the
amortization of the difference between the fair value of the
Companys debt recorded on the balance sheet and the face
amount of debt payable to lenders when the Company applied
fresh-start accounting on July 27, 2004.
During the years ended December 31, 2009 and 2008, the
Company recorded an increase in additional-paid-in capital of
$1.6 million and $1.0 million, respectively, as a
result of the reversal of a prior year deferred income tax
reserves and the release of income tax valuation and reserves
allowances.
During the years ended December 31, 2009 and 2008, the
Company paid $0.1 million and $1.3 million of cash
income taxes, respectively. During the year ended
December 31, 2007, the Company did not pay any cash income
taxes.
64
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Reclassifications
Certain reclassifications have been made in prior periods
consolidated financial statement amounts and related note
disclosures to conform to the current years presentation.
Recent
Accounting Pronouncements
On January 1, 2009, the Company adopted the updated
provisions of ASC 810, which established requirements for
ownership interests in subsidiaries held by parties other than
the Company. Noncontrolling interest (previously referred to as
minority interest) is to be clearly identified,
presented, and disclosed in the consolidated balance sheets
within equity but separate from the parents equity. All
changes in the parents ownership interests are required to
be accounted for consistently as equity transactions, and any
noncontrolling equity investments in unconsolidated subsidiaries
must be measured initially at fair value. The adoption of the
updated provisions of ASC 810 did not have a material effect on
the Companys financial condition, results of operations or
cash flows. The Company reclassified the consolidated statements
of operations for 2008 to conform to the presentation required
under ASC 810. There was no effect on the consolidated balance
sheet as the Companys noncontrolling interest in Polar was
eliminated prior to December 31, 2008. See Note 3 for
further discussion.
On January 1, 2009, the Company adopted the updated
provisions of ASC 805, Business Combinations (ASC
805), which established the principles and requirements
for how an acquirer: (i) recognizes and measures in its
financial statements the identifiable assets acquired, the
liabilities assumed, and any noncontrolling interest in the
acquiree; (ii) recognizes and measures the goodwill
acquired in the business combination or a gain from a bargain
purchase; and (iii) discloses the business combination.
This statement applies to all transactions in which an entity
obtains control of one or more businesses, including
transactions that occur without the transfer of any type of
consideration. See Note 11 for further discussion of the
income tax effects of ASC 805 on the Companys consolidated
financial condition and results of operations.
On January 1, 2009, the Company adopted ASC
260-10-45-61A,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (ASC
260-10-45-61A).
This standard clarified that all outstanding unvested
share-based payment awards that contain rights to
non-forfeitable dividends participate in undistributed earnings
with common shareholders. Awards of this nature are considered
participating securities and the two-class method of computing
basic and diluted earnings per share must be applied. The
adoption of ASC
260-10-45-61A
did not have any impact on the Companys financial
condition or results of operations.
In April 2009, the FASB issued ASC
825-10-65,
Interim Disclosures about Fair Value of Financial Instruments
(ASC
825-10-65),
which requires disclosures about fair value of financial
instruments in interim and annual financial statements. The
adoption of ASC
825-10-65 in
the second quarter of 2009 did not have a material effect on the
Companys financial condition or results of operations (see
Note 12).
In May 2009, the FASB issued ASC 855, Subsequent Events
(ASC 855), which established the principles and
requirements for the recognition and disclosure of events or
transactions occurring after the balance sheet date in the
financial statements. In particular, ASC 855:
(i) identifies the period after the balance sheet date
during which management of the Company should evaluate events or
transactions that may occur for potential recognition or
disclosure in the financial statements; (ii) identifies the
circumstances under which the Company should recognize events or
transactions occurring after the balance sheet date in its
financial statements and (iii) requires certain expanded
disclosures in the financial statements about events or
transactions that occurred after the balance sheet date. ASC 855
is effective for the Companys financial statements for the
period beginning on April 1, 2009. The adoption of ASC 855
had no effect on the Companys financial condition or
results of operations.
65
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In June 2009, the FASB issued amendments to ASC 810. These
amendments primarily included: (i) amending the guidance
for determining whether an entity is a variable interest entity
(VIE); and (ii) amending the criteria for
identification of the primary beneficiary of a VIE. ASC 810 also
requires the Company to continually reassess whether the Company
is the primary beneficiary of a VIE and requires certain
enhanced disclosures in the financial statements about the
Companys relationships with VIEs. The amended provisions
of ASC 810 are effective for the Companys financial
statements for the period beginning on January 1, 2010. The
Company does not believe that adoption of the amended provisions
of ASC 810 will have any effect on the Companys financial
condition or results of operations.
On June 28, 2007, DHL acquired a 49% equity interest and a
25% voting interest in Polar in exchange for $150.0 million
in cash, of which $75.0 million was paid at closing. AAWW
also received approximately $22.9 million in working
capital from DHL as additional proceeds in November 2007. The
remaining $75.0 million of the purchase price was paid in
2008 in two equal installments (plus interest). In January 2008,
AAWW received the first installment of the purchase payment of
$38.6 million, including interest of $1.1 million. The
final purchase payment of $40.3 million, including interest
of $2.8 million, was received in November 2008. AAWW
continues to hold the remaining 51% equity interest in Polar
with a 75% voting interest. In July 2007, DHL also provided
Polar with a $30.0 million non-interest bearing refundable
deposit that was repaid by Polar in January 2009. As part of the
transaction to issue shares in Polar to DHL, Polar LLCs
ground employees, crew, ground equipment, airline operating
certificate and flight authorities, among other things, were
transferred to Polar and Polars interest in Polar LLC was
transferred to AAWW.
Concurrently with the investment, DHL and Polar entered into a
20 year blocked space agreement (BSA), whereby
Polar provides air cargo capacity to DHL through Polars
Scheduled Service network for DHL Express services
(Express Network). The BSA was subsequently amended
and restated (the Amended BSA) on March 21,
2008 to include two supplemental aircraft, with full Express
Network service on eight Polar aircraft beginning on
October 27, 2008, (the Commencement Date). In
addition to the BSA, Atlas entered into a flight services
agreement, whereby Atlas is compensated by Polar on a per Block
Hour basis, subject to a monthly minimum Block Hour guarantee,
at a predetermined rate that escalates annually. Under the
flight services agreement, Atlas provides Polar with maintenance
and insurance for the aircraft, with flight crewing also to be
furnished once the merger of the Polar and Atlas crew forces has
been completed. Under other separate agreements, Atlas and Polar
supply administrative, sales and ground support services to one
another. DP has guaranteed DHLs (and Polars)
obligations under the various transaction agreements described
above. AAWW has agreed to indemnify DHL for and against various
obligations of Polar and its affiliates. Collectively, these
agreements are referred to herein as the DHL
Agreements. The DHL Agreements provide the Company with a
guaranteed revenue stream from
747-400
aircraft that have been dedicated to Polar for outsourced
airport-to-airport wide-body cargo aircraft solutions for the
benefit of DHL (Express Network ACMI) and other
customers freight due to monthly minimum Block Hour
guarantees over the life of the agreements.
On October 22, 2008, DHL notified the Company that it would
exercise its contractual right to terminate the ACMI and related
agreements covering the two supplemental
747-400
aircraft noted above, effective March 28, 2009. Under the
terms of the agreements covering the two
747-400
aircraft, DHL was able to terminate the use of these aircraft in
March 2009 upon providing six months advanced notice and making
two installment payments of an early termination penalty
totaling $5.0 million for each aircraft. The Company
received the final payment in March 2009 and recorded a
$10.0 million one-time termination penalty as Other revenue
in the consolidated statements of operations.
On the Commencement Date, Polar commenced full flying for
DHLs trans-Pacific express network and DHL began to
provide financial support and also assumed the risks and rewards
of the operations of Polar. In
66
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
addition to its trans-Pacific routes, Polar is also flying
between the Asia Pacific, Middle East and European regions on
behalf of DHL and other customers.
The Amended BSA established DHLs capacity purchase
commitments on Polar flights. DHL has the right to terminate the
20 year Amended BSA at the fifth, tenth and fifteenth
anniversaries of commencement of Express Network flying.
However, in the event of such a termination at the fifth
anniversary, DHL or Polar would be required to assume all six
747-400
freighter head leases which are subleased from Atlas and Polar
LLC for the entire remaining term of each such aircraft lease,
each as guaranteed by DP or a creditworthy subsidiary. Either
party may terminate for cause (as defined) at any time. With
respect to DHL, cause includes Polars
inability to meet certain departure and arrival criteria for an
extended period of time and upon certain change-of-control
events, in which case DHL may be entitled to liquidated damages
from Polar. Under such circumstances, DHL is further entitled to
have an affiliate assume any or all of the six
747-400
freighter subleases for the remainder of the term under each
such sublease, with Polar liable up to an agreed amount of such
lease obligations. In the event of any termination during the
sublease term, DHL is required to pay the lease obligations for
the remainder of the head lease and guarantee Polars
performance under the leases.
Initially, based on the various agreements entered into as a
result of the issuance of the investment to DHL, the Company
reviewed the structure and determined that a variable interest
entity had been created. Based upon application of ASC 810, the
Company determined that it was the primary beneficiary of the
variable interest entity and, as a result, it would continue to
treat Polar as a consolidated subsidiary for financial reporting
purposes. However, during the fourth quarter of 2008, changes
were made to the various agreements entered into following
DHLs investment in Polar and to Polars operations,
which became effective upon the Commencement Date. The Company
reviewed its investment in Polar and determined that a
reconsideration event had occurred under ASC 810. Upon
application of ASC 810, the Company used both qualitative and
quantitative factors to determine that DHL was the primary
beneficiary of the variable interest entity beginning on the
Commencement Date. This was primarily based on the fact that the
Company, which historically bore all direct costs of operation,
transferred the risk associated with those costs to DHL. As a
result of that determination, the Company deconsolidated Polar
as of October 27, 2008 from its financial statements. From
that date forward, the Company is reporting Polar under the
equity method of accounting. On October 26, 2008, Polar had
cash of $52.0 million, accounts receivable of
$86.1 million, total assets of $146.5 million, total
liabilities of $132.6 million and net equity of
$13.9 million.
Except for any liquidated damages that the Company could incur
as described above, the Company does not have any continuing
financial exposure to fund debt obligations or operating losses
of Polar.
As a result of this transaction, the Company recorded a Gain on
the issuance of subsidiary stock of $153.6 million as
income upon the Commencement Date. The Gain on issuance of
subsidiary stock is recorded as Non-operating income in the
consolidated statements of operations and is calculated as
follows (in millions):
|
|
|
|
|
Gross proceeds
|
|
$
|
176.9
|
|
Less: book value of net assets sold on June 27, 2007
|
|
|
(13.5
|
)
|
closing costs and related expenses
|
|
|
(9.8
|
)
|
|
|
|
|
|
Gain on issuance of subsidiary stock
|
|
$
|
153.6
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the aggregate carrying value
of the investment in Polar was $5.4 million and
$5.0 million, respectively and was included within Deposits
and other assets in the consolidated balance sheets.
Total revenue from Express Network ACMI and the two supplemental
ACMI agreements with Polar was $184.7 million and
$38.1 million for the year ended December 31, 2009 and
for the period of October 28, 2008 through
December 31, 2008, respectively, which was included in ACMI
revenue in the consolidated
67
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements of operations. Polar accounted for 38.3% and 10.6% of
the Companys ACMI revenue for the years ended
December 31, 2009 and 2008, respectively. Total revenue
from the shared services agreement was $11.5 million and
$2.0 million for the years ended December 31, 2009 and
for the period of October 28, 2008 through
December 31, 2008, respectively, which was included in
Other revenue in the consolidated statements of operations. At
December 31, 2009 and 2008, the Company had receivables
from Polar of $2.9 million and $6.7 million,
respectively, which were included in Accounts receivable in the
consolidated balance sheets. Accounts payable to Polar was
$5.1 million and $3.0 million at December 31,
2009 and 2008, respectively, and was included in Accounts
payable in the consolidated balance sheets. The Company incurred
expense under the general sales and service agreement of
$1.7 million and $0.1 million for the years ended
December 31, 2009 and for the period of October 28,
2008 through December 31, 2008, respectively, which was
included in Ground handling and airport fees in the consolidated
statements of operations.
The Company holds a 49% interest in GSS, a private company.
Atlas dry leases three
747-400
owned aircraft to GSS. The leases provide for payment of rent
and a provision for maintenance costs associated with the
aircraft. GSS provides ACMI services to British Airways Plc
(British Airways) using these three aircraft.
On April 8, 2009, certain members of management of GSS,
through an employee benefit trust, purchased shares of GSS from
a former stockholder. These shares, which were not and have
never been owned by the Company, represent a 51% controlling
interest in GSS. Based on the various agreements related to the
transaction, the Company reviewed its investment in GSS and
determined that a reconsideration event had occurred under ASC
810. Upon application of ASC 810, the Company determined that
GSS is a variable interest entity and that the Company is the
primary beneficiary of GSS for financial reporting purposes. As
a result of that determination, GSS became a consolidated
subsidiary of AAWW upon the closing of the transaction. There
was no consideration transferred from the Company in this
transaction.
The Company accounted for the consolidation of GSS pursuant to
ASC 805 as a step acquisition. The Company recorded a gain of
$0.1 million on the conversion from the equity method of
accounting to consolidation. The gain represents the difference
between the fair market value of the net assets acquired and
liabilities assumed and the book value of the Companys
equity investment in GSS on April 8, 2009. In addition, the
Company recorded a noncontrolling interest of $3.8 million,
representing the fair market value of the 51% ownership interest
in GSS that the Company does not own.
In determining fair market value pursuant to ASC 820, Fair
Value Measurements and Disclosure (ASC 820), for
GSS on April 8, 2009, the Company calculated the business
enterprise value of GSS and the fair value of the underlying
assets acquired and liabilities assumed. The business enterprise
value of GSS was calculated using a weighted average of two
principal methods: the income approach (commonly referred to as
the discounted cash flow method) and the market approach. The
Company considered the cost approach but ultimately did not use
this approach as GSS has very few fixed assets. Under the income
approach, management used financial projections for GSS and a
weighted average cost of capital calculated from a peer group of
companies to develop the discounted cash flows. The financial
projections considered changes in the aircraft dry lease rates,
changes in the ACMI rate and type of aircraft provided to
British Airways. The market approach utilized ratios and
statistics available from the same group of peer companies used
to develop the weighted average cost of capital in the income
approach. The appropriate ratios were then applied on a weighted
average basis against trailing one year historical, three year
historical and projected earnings before interest and taxes to
arrive at the market approach valuation. The average of the two
methods produced a $7.5 million business enterprise value
of GSS.
The differential between the business enterprise value of GSS
and the net book value of the assets acquired and liabilities
assumed was identified as an intangible asset. GSS has one
primary relationship with British Airways and, as such, the
intangible was assigned to that customer relationship. The value
of the
68
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
customer relationship was determined using the excess earnings
method, which relied on the net income margin, estimated
remaining useful life and discount rate. The various inputs were
used in a probability weighted cash flow model to arrive at a
$2.2 million fair value of the customer relationship.
The following table summarizes the fair values of the assets
acquired, liabilities assumed and the noncontrolling interest
recorded for GSS on April 8, 2009:
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
11,612
|
|
Accounts receivable, net
|
|
|
241
|
|
Other current assets
|
|
|
714
|
|
Property, plant and equipment
|
|
|
34
|
|
Customer relationship
|
|
|
2,164
|
|
Loan to 51% shareholder
|
|
|
4,157
|
|
|
|
|
|
|
Total assets acquired
|
|
$
|
18,922
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
767
|
|
Other current liabilities
|
|
|
1,354
|
|
Deferred revenue
|
|
|
8,704
|
|
Deferred income taxes
|
|
|
591
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
11,416
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
7,506
|
|
|
|
|
|
|
Noncontrolling interest
|
|
$
|
3,828
|
|
|
|
|
|
|
Prior to April 8, 2009, the Company accounted for GSS under
the equity method and reported the revenue from GSS as Dry
leasing revenue in the consolidated statements of operations.
The carrying value of the dry leased aircraft as of
December 31, 2008, was $163.8 million and the related
accumulated depreciation was $20.9 million. At
December 31, 2008, the Company had net receivables arising
from activity with this entity of $1.1 million, which was
included in Accounts receivable in the consolidated balance
sheets. Total Dry leasing revenue for these aircraft included in
the consolidated statements of operations was $11.8 million
for the period of January 1 through April 7, 2009 and
$43.2 million for the year ended December 31, 2008.
The December 31, 2008 aggregate carrying value of this
investment was $3.7 million and was included within
Deposits and other assets in the consolidated balance sheets.
In accordance with ASC 360, Property, Plant and Equipment
(ASC 360), the Company records impairment
charges on long-lived assets used in operations when events and
circumstances (Triggering Events) indicate that the
assets may be impaired, the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amount
of those assets and the net book value of the assets exceeds
their estimated fair value. The Company determined that
Triggering Events occurred in both 2009 and 2008, performed
separate impairment tests and concluded that the carrying value
of its
747-200
fleet was no longer recoverable at December 31, 2009 and
2008.
In determining the asset recoverability, management estimated
the undiscounted future net cash flows utilizing models that are
consistently used by the Company in making fleet and scheduling
decisions. The Company views the
747-200
fleet, as well as the related engines, rotable inventory and
other equipment as one asset group in developing its cash flow
models. In determining fair value, the Company considered the
effects of the current market environment, age of the assets,
marketability and excess capacity. In addition, some of the
specific items that management took into consideration were the
impact of excess aircraft in the market,
69
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the effect on aircraft and engine values and the failure of
several competitors in the
747-200
market during 2008, thereby reducing demand for the aircraft
type. The Companys estimate of fair value was not based on
distressed sales or forced liquidations and represents a
level 3 input under ASC 820. Instead, it appropriately
considered the current market conditions in conjunction with
other indicators. The fair value for each of the aircraft
remaining in service was adjusted based on estimates of
maintenance status. For engines and airframes that are being
permanently parked, fair value was determined to be scrap value.
2009
Impairment
Triggering Events in 2009 were based on the substantial drop in
global freight demand during 2009, excess capacity in the
747-200
freighter market and a revision to the delivery schedule for the
Companys
747-8F
aircraft, as well as the continuing decline in value of the
747-200
aircraft. Based on these factors, the Company made a decision in
the fourth quarter of 2009 to permanently park one
747-200
aircraft in late 2009 and one additional aircraft in early 2010.
The Company recorded an impairment charge of $8.2 million
to write down the
747-200
fleet, as well as the related engines, rotable inventory and
other equipment to their estimated fair values. The remaining
747-200
aircraft are being depreciated over their adjusted remaining
useful lives, which are estimated to be less than two years.
2008
Impairment
Triggering Events in 2008 were based on the weak revenue
environment due to a lack of a 2008 holiday peak season, lower
future revenue projections and excess capacity in the
747-200
market. Based on these factors, the Company made a decision in
the fourth quarter of 2008 to permanently park nine
747-200s and
reduce capacity. The Company permanently parked seven
747-200
aircraft in 2008 with two more parked in early 2009. The Company
recorded an impairment charge of $69.1 million to write
down the
747-200
fleet, as well as the related engines, rotable inventory and
other equipment to their estimated fair values.
As part of these capacity reductions in 2008, the Company
terminated three capital leases by purchasing the
747-200
aircraft and engines from the lessors, thereby terminating the
lease obligations and return condition liabilities. The
aggregate purchase price for the three aircraft was
approximately $21.2 million. The Company determined that
purchasing the aircraft was a more cost effective approach as
opposed to returning the aircraft and paying return conditions.
The acquired aircraft were subsequently written down to fair
value and have been used as spare parts to support the remaining
747-200
fleet.
In addition, the Company incurred special charges related to the
termination of one
747-200
aircraft operating lease, a write down of excess expendable
747-200
inventory, employee termination costs and the termination of two
maintenance contracts for
747-200
engines. The following table summarizes the Special charge in
the consolidated statements of operations for the year ended
December 31, 2008:
|
|
|
|
|
Fleet and inventory impairment
|
|
$
|
69,124
|
|
Contract termination
|
|
|
14,544
|
|
Net realizable value adjustments and excess inventory
|
|
|
4,663
|
|
Lease termination
|
|
|
2,030
|
|
Employee terminations
|
|
|
806
|
|
|
|
|
|
|
Total Special charge
|
|
$
|
91,167
|
|
|
|
|
|
|
|
|
6.
|
Property
and Equipment, net
|
Depreciation expense, including the amortization of capital
leases, related to property and equipment was
$33.1 million, $38.9 million and $40.0 million
for the years ended December 31, 2009, 2008 and 2007,
respectively.
70
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In March 2009, the Company sold aircraft tail number N920 FT and
seven engines for $3.5 million and recorded a gain of
approximately $1.0 million.
In February 2008, one of the Companys
747-200
aircraft (tail number N527MC) sustained hull damage due to
improper shipper packaging of a load while on a short-term ACMI
lease. The plane landed safely but, as a result of this
incident, the airframe was damaged beyond economic repair. Atlas
negotiated a net $5.9 million
cash-in-lieu-of-repair
settlement with its insurance carriers and received the
insurance proceeds in June 2008. The Company removed the engines
and other certain high value rotable parts, which were
transferred into rotable inventory. The remainder of the
airframe was sold for scrap metal. Since the settlement proceeds
exceeded the net book value of the airframe after salvaging
certain rotable parts, the Company recorded a gain of
$2.7 million in the second quarter of 2008.
On January 11, 2008, AAWW entered into an aircraft purchase
agreement under which the Company agreed to acquire two
747-400
aircraft. The acquisition was completed on May 6, 2008 and
included one production
747-400
freighter that entered service on June 12, 2008, and one
passenger configured
747-400
aircraft that was converted to freighter configuration and
entered service on September 25, 2008. The aggregate
purchase price for these aircraft was approximately
$168.4 million, which includes conversion and conforming
costs.
In March 2007, the Company sold aircraft tail number N536MC for
$6.0 million and recorded a gain of approximately
$1.0 million. In November 2007, the Company sold an
aircraft engine for $2.6 million and recorded a gain of
$2.5 million.
Accrued liabilities consisted of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Maintenance
|
|
$
|
34,029
|
|
|
$
|
24,961
|
|
Salaries, wages and benefits
|
|
|
30,877
|
|
|
|
14,857
|
|
Aircraft fuel
|
|
|
12,656
|
|
|
|
22,633
|
|
Other
|
|
|
30,345
|
|
|
|
39,068
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
107,907
|
|
|
$
|
101,519
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Lease
Contracts and Intangibles Assets, Net
|
The following tables present the Companys lease contracts
and intangible assets, net as of December 31:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Fair market value adjustment on operating leases
|
|
$
|
45,048
|
|
|
$
|
45,048
|
|
Customer relationships
|
|
|
2,164
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
(10,562
|
)
|
|
|
(8,009
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
36,650
|
|
|
$
|
37,039
|
|
|
|
|
|
|
|
|
|
|
Fair market value adjustment on operating leases represents the
capitalized discount recorded to adjust leases of the
Companys
747-400
aircraft to fair market value with the application of
fresh-start accounting on July 27, 2004. The customer
relationships intangible asset is a result of the consolidation
of GSS on April 8, 2009 (see Note 4).
Amortization expense related to lease contracts and intangible
assets amounted to $2.6 million, $1.8 million and
$1.8 million for each of the years ended December 31,
2009, 2008 and 2007, respectively.
71
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The estimated future amortization expense of operating lease
contracts and intangible assets as of December 31, 2009 is
as follows:
|
|
|
|
|
Years Ending December 31,
|
|
|
|
|
2010
|
|
$
|
2,625
|
|
2011
|
|
|
2,625
|
|
2012
|
|
|
2,625
|
|
2013
|
|
|
2,625
|
|
2014
|
|
|
2,625
|
|
Thereafter
|
|
|
23,525
|
|
|
|
|
|
|
Total
|
|
$
|
36,650
|
|
|
|
|
|
|
The Companys debt obligations, as of December 31,
were as follows:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
1998 EETCs
|
|
$
|
159,215
|
|
|
$
|
171,085
|
|
1999 EETCs
|
|
|
107,245
|
|
|
|
114,639
|
|
2000 EETCs
|
|
|
61,341
|
|
|
$
|
63,961
|
|
PDP financing
|
|
|
153,799
|
|
|
|
216,657
|
|
Term loans
|
|
|
83,910
|
|
|
|
96,875
|
|
Other debt
|
|
|
|
|
|
|
8,654
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
565,510
|
|
|
$
|
671,871
|
|
Less current portion of debt
|
|
|
(38,830
|
)
|
|
|
(36,243
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
526,680
|
|
|
$
|
635,628
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2009 and 2008, the Company had
$61.8 million and $68.2 million, respectively, of
unamortized discount related to the fair market value
adjustments recorded against debt upon application of
fresh-start accounting on July 27, 2004.
Description
of the Companys Debt Obligations
Many of the Companys financing instruments contain certain
limitations on AAWWs and its subsidiaries ability
to, among other things, pay dividends or make certain other
restricted payments, consummate certain asset sales, merge or
consolidate with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all
of their assets.
Overview
of EETC Transactions
In three separate transactions in 1998, 1999 and 2000, Atlas
issued Enhanced Equipment Trust Certificates
(EETCs) to finance the acquisition of twelve
747-400F
aircraft. In the 1998 EETC transaction, $538.9 million of
EETCs were issued to finance five of these aircraft, one of
which Atlas then owned, with the remaining four being leased by
Atlas pursuant to leveraged leases. In the 1999 EETC
transaction, $543.6 million of EETCs were issued to finance
five of these aircraft, one of which Atlas then owned, with the
remaining four being leased by Atlas pursuant to leveraged
leases. In the 2000 EETC transaction, $217.3 million of
EETCs were issued to finance the remaining two of these
aircraft, both pursuant to leveraged leases.
72
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Leveraged
Lease Structure
In a leveraged lease, the owner trustee is the owner of record
for the aircraft. Wells Fargo Bank Northwest, National
Association (Wells Fargo) serves as the owner
trustee with respect to the leveraged leases in each of
Atlas EETC transactions. As the owner trustee of the
aircraft, Wells Fargo serves as the lessor of the aircraft under
the EETC lease between Atlas and the owner trustee. Wells Fargo
also serves as trustee for the beneficial owner of the aircraft,
the owner participant. The original owner participant for each
aircraft invested (on an equity basis) approximately 20% of the
original cost of the aircraft. The remaining approximately 80%
of the aircraft cost was financed with debt issued by the owner
trustee on a non-recourse basis in the form of equipment notes.
The equipment notes were generally issued in three series, or
tranches, for each aircraft, designated as
Series A, B and C equipment notes. The loans evidenced by
the equipment notes were funded by the public offering of EETCs.
Like the equipment notes, the EETCs were issued in three series
for each EETC transaction designated as Series A, B and C
EETCs. Each class of EETCs was issued by the trustee for
separate Atlas pass through trusts with the same designation as
the class of EETCs issued. Each of these pass through trustees
is also the holder and beneficial owner of the equipment notes
bearing the same class designation.
With respect to the six EETC financed aircraft currently owned
by Atlas, there is no leveraged lease structure or EETC lease.
Atlas is the beneficial owner of the aircraft and the issuer of
the equipment notes with respect thereto. The equipment notes
issued with respect to the owned aircraft are with full recourse
to Atlas.
Commencing in May 2008, the Company could be subject to
Additional Monthly Lease Rentals (AMLR), which could
require payment of up to an additional $0.1 million per
month in rent on each of the six leased EETC aircraft, subject
to an $11.0 million per aircraft limit over the remaining
term. The AMLR payments would be applied to the underlying notes
in the leveraged leases, and would only arise if the Company
exceeds certain financial targets and if it is determined that
the then fair market monthly rental for the aircraft exceeds
$0.8 million. The Company has not made any AMLR payments
and does not anticipate making any AMLR payments in 2010. The
Company performs this test annually.
2000
EETCs
In April 2000, Atlas completed an offering of
$217.3 million of EETCs (the 2000 EETCs). The
cash proceeds from the 2000 EETCs were used to finance (through
two leveraged lease transactions) two new
747-400F
freighter aircraft which were delivered to Atlas during the
second quarter of 2000. Subsequent to the financing, Atlas
completed a sale-leaseback transaction on both aircraft and
issued a guarantee to the owner participant of one of the
aircraft. In connection with this secured debt financing, Atlas
executed equipment notes with original interest rates ranging
from 8.71% to 9.70%, with a weighted average interest rate of
8.93% payable monthly.
The current balance relates to aircraft N409MC. As a result of
fresh-start accounting, the Company has a blended effective
interest rate of 11.31%. According to the terms of the equipment
notes, principal payments vary and are payable through 2021.
1999
EETCs
In 1999, Atlas completed an offering of $543.6 million of
EETCs (the 1999 EETCs). As of December 31, 2009
and 2008, the outstanding balance of the 1999 EETCs related to
two owned
747-400F
aircraft (tail numbers N495MC and N496MC). In connection with
this secured debt financing, Atlas executed equipment notes with
original interest rates ranging from 6.88% to 8.77%, with a
weighted average interest rate of 7.52% payable monthly.
73
ATLAS AIR
WORLDWIDE HOLDINGS, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In connection with this aircraft debt and as a result of
fresh-start accounting, the Company has a blended effective
interest rate of 13.94%. According to the terms of the equipment
notes, principal payments vary and are payable monthly through
2020.
1998
EETCs
In 1998, Atlas completed an offering of $538.9 million of
EETCs (the 1998 EETCs). As of December 31, 2009
and 2008, the outstanding balance of the 1998 EETCs related to
three owned
747-400F
aircraft (tail numbers N491MC, N493MC and N494MC). In connection
with this secured debt financing, Atlas executed equipment notes
with original interest rates ranging from 7.38% to 8.01%, with a
weighted average interest rate of 7.54% payable monthly.
In connection with the restructuring of this aircraft debt, the
Company acquired aircraft N491MC and N493MC. As a result of
fresh-start accounting, the Company has a blended effective
interest rate of 13.89% for aircraft tail number N491MC and
13.72% for aircraft tail number N493MC. Aircraft tail number
N494MC was acquired in 1998 and has a weighted average interest
rate of 7.54%. According to the terms of the equipment notes
relating to all three aircraft, principal payments vary and are
payable monthly through 2020.
Term
Loans
On July 3, 2008, Atlas entered into a $58.4 million
five-year term loan agreement with BNP Paribas and DVB Bank AG,
secured by aircraft tail number N419, which was acquired on
May 6, 2008.
On September 19, 2008, Atlas entered into a
$41.6 million, five-year term loan agreement with BNP
Paribas and DVB Bank AG, secured by aircraft tail number N429,
which was also acquired on May 6, 2008.
Funds available under the loan agreements are subject to certain
up-front and commitment fees, and funds drawn under the loan
agreements bear interest at LIBOR, plus a margin. Payment of
principal and interest are paid quarterly in arrears. The
facility is guaranteed by AAWW and is subject to typical and
customary events of default. Collectively, the two term loans
are referred to as the Term Loans.
The weighted average interest rate under the Term Loans for the
year ended December 31, 2009 and 2008 was 3.23% and 2.67%,
respectively. The rate as of December 31, 2009 and 2008 was
2.52% and 5.33%, respectively. Interest on outstanding
borrowings is determined by adding a margin to the 90 day
LIBOR in effect at the interest calculation date. At
December 31, 2009 and 2008, the Company had
$83.9 million and $96.9 million, respectively,
outstanding under the Term Loans.
PDP
Financing
On January 30, 2008, Atlas entered into a
$270.3 million pre-delivery deposit payment
(PDP) financing facility with Norddeutsche
Landesbank Girozentrale (the PDP Financing
Facility), which is intended to fund a portion of
Atlas PDP obligations in respect of the first five
aircraft to be delivered to Atlas under its
747-8F
purchase agreement with The Boeing Company (Boeing)
providing for the purchase by Atlas of 12
747-8F
aircraft (the Boeing
747-8F
Agreement).
The PDP Financing Facility is comprised of five separate
tranches and is secured by certain of Atlas rights in, and
to, the
747-8F
Purchase Agreement, but only to the extent related to the first
five aircraft scheduled to be delivered t