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ATSG Reaping Benefits From 767s

ATSG adds Boeing 767s for use by Omni Air and Amazon, among others.

Air Transport Services Group (ATSG) reported a strong first six month financial result, with revenues up 64%--partly due to contributions from its purchase of Omni Air in 2018, as well as increased flight operations for the U.S. Department of Defense and Amazon.

The majority--$159 million--of its $216.8 million spent in the first half of the year on capital expenditures went to purchase seven Boeing 767s and modify aircraft to freighters.

Part of that is driven by Amazon, which contributes 20% of ATSG’s revenues.

In December 2018, Amazon contracted ATSG to lease 10 more Boeing 767-300 converted freighters in 2019-20. ATSG delivered the first in June, the second in July and is scheduled to deliver the third by the end of August. Quint Turner, ATSG’s CFO, says the company plans to deliver three more by the end of this year, with the remaining four in 2020.

Amazon currently operates 22 of its aircraft, which will climb to 23 at the end of this month when it receives the additional 767 freighter, he says. So by the end of 2020, Amazon will operate at least 30 of its 767s.

IAI has completed all of ATSG’s 767 passenger to freighter conversions so far, says Turner, noting that ATSG has not contracted Boeing, which is the only other company that completes 767 PTF conversions.

ATSG has 11 767s waiting to or in the process of being converted, as of June 30, including three that were acquired for conversion in the second half of the year.

Turner says “767 feedstock is still relatively scarce.” He adds “it’s a great airplane for passenger airlines, which are not rushing” to retire them, and the Boeing 737 MAX grounding and residual Trent 100 engine problems for the 787--which is the 767’s replacement aircraft--have tightened lift options.

Some of the 767s are coming from a deal ATSG made with Jetran last year to purchase 20 of the aircraft, most of which formerly flew for American airlines. “We have purchased five of our Jetran allotment so far. Last week, we contracted to purchase three other 767s from ANA with one to be acquired in 2020,” said Joe Hete, ATSG president and CEO.

During the recent quarterly earnings call, Hete said he expects “to place a minimum of 10 more 767s for the full year 2020,” including the four already committed to Amazon “and the one we expect to lease to UPS next year.”

In related news, Hete says ATSG and its joint-venture partner Precision Aircraft Solutions expect to receive an STC for the Airbus A321-200 passenger to freighter conversion by mid-2020. He says ATSG “anticipates investing $6 million more in the second half of this year” into the JV, which is developing the aircraft for a 27 metric ton payload capacity. “CAM (Cargo Aircraft Management, ATSG’s leasing business) continues to assess the market for A321 feedstock in anticipation of STC approval and production, possibly beginning late next year,” said Hete.

TAGS: Airframes
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