AAWW - Atlas Air Worldwide Holdings

[rjstc]

Wonder if anyone has any thoughts about this one? I've just initiated a position.

[schin]

Wonder if anyone has any thoughts about this one? I've just initiated a position.

What about it do you like?  I believe they compete with AIG's Leasing division, which is the big dog.

 

What is your thesis?

[aglittell]

AAWW operates the largest freighter fleet. The business is broken down into three segments: ACMI (providing outsourced cargo and passenger solutions) on 3 - 7 year contracts; the customer bears operational costs, Charter (providing outsourced cargo solutions) typically on 2 - 5 year contracts but contracts are being extended in current environment; customer pays a fixed fee which includes operating expenses, and dry leasing.

 

The demand for freighter aircraft has increased this year due to higher e-commerce penetration. AAWW operates a fleet for Amazon which continues to grow. Amazon currently owns 5% of the company through warrants that were created in a 2016 agreement with the option to purchase more.

 

The company is cheap. It is trading at 4.3x FY20 EBITDA guidance, with leverage at 3 turns FY20 EBITDA. They are paying down 70mm debt/qtr. The demand for freighters increased, causing revenue per block hour (revenue earned per hour in the sky) to increase in FY20 after falling in FY19. Block hours have been growing consistently over the last 4 years as they continue to add more planes to the fleet. Looking at industry wide data for freight aircraft, AAWW has a 13.6% market share in the global freight market (on YTDFY20 volume #s).

 

[rogermunibond]

Why not ATSG?

 

Seems like AAWW is more exposed to the larger 747 freighter serving the Asia-NA market and less the regional market, ie 767 and A321 freighters.

 

 

[Gamecock-YT]

aren't you buying now at the peak? can things get any more perfect than they are now? If we get a vaccine to 50% of the population in a year what happens to earnings then? What happens to their business when normal operations in the north atlantic and pacific commercial routes go back to normal?

[aglittell]

In regards to a return to normalcy - the company began to extend their contracts to lock-in the higher rates - as of last Q they had a low single digit % of their fleet pricing on the spot market. The question becomes what does supply/demand for freight look like in a few years when these contracts roll-off. Other than 2019, cargo revenue ton-miles grew above GDP since 2014. Assume that trend continues but the freighter supply in the belly of passenger aircraft comes back online as well. According to Reuters - 50% of freight capacity is supplied through the belly of passenger aircraft (https://www.reutersevents.com/supplychain/supply-chain/what-comes-after-air-freight-capacity-crunch). So let's say we get FY19 EBITDA again that had higher fuel costs, trade wars impacting revenue per block and overall revenue ton-miles, and a normal supply environment. That would be 5.2x EV/EBITDA and 7.8x normalized earnings on today's capital structure.

 

ASTG may be a better opportunity, I am relatively early in the DD process on this. But at first glance it is more expensive. Maybe that difference in fleet composition is a good enough reason to justify the premium. It is trading over 9x FY19 EBITDA and 8x FY20 Consensus EBITDA.

 

I may put this one aside for more high conviction ideas. I have no edge in forecasting supply-demand for freight aircraft, and the company has always "appeared" cheap on an EV/EBITDA basis. Lots of uncertain inputs and it is capital intensive.