meeting the ‘giant’ in acmi business

SWOT-Analysis: Atlas Air 1meeting the ‘giant’ in ACMI

business

Welcome to..

SWOT-Analysis: Atlas Air 2

Swot-Analysis + Conclusion

Table of Contents

• Introduction• History• Structure• Business Model• Products

Business Model

• Market Analysis• ACMI• Comm. Charter• AMC Charter• other services

Market Environm

ent• Fleet• Human

Resources• Cost Structure• External

InfluencesDrivers & Resources

serving various markets around the globe

Key player in the ACMI Business

largest B747F-Operator worldwide

globe-spanning customer network


Key figures (in USD)

Item 2010 2009 Change

Operating revenues

1,337,774,000 1,061,546,000

+ 26.0%

Operating Margin 17.0 % 14.1% + 20.5%

Operating income 227,886,000 150,007,000 + 51.9%

Net income 142,956,000 76,152,000 + 87,7%

2006 2007 2008 2009 2010-50000

0

50000

100000

150000

200000

250000 Income Development 2006 – 2010 (in thousand USD)

Operating Income


recent News

• Start of B748F operations (8th November)

• Polar and Atlas Air crew pools are merged (19th October)

• Termination of three B748F purchase rights due to performance issues(21st September)

• Step into passenger business(ACMI / AMC) business bypurchasing B763ER + B744(30th June)


2008Largest Operator of B747F worldwide

2006Flotation at NASDAQ Stock Exchange

2001Purchase of Polar Air Cargo

1993Start of Operations using one B742F

Fast Facts

HistoryStructure


Facts ∙ History ∙ Structure ∙ Business Model

Atlas Air Worldwide Holdings Inc.

Atlas Air Inc.

Polar Air Cargo Worldwide Inc.

Titan Aviation Leasing Ltd.

Global Supply Systems Ltd.long-term ACMI, based at Stansted, UK

freight forwarder încl. sched. service

mainstay, versatile ACMI - Operator

charterer, focused on Dry-Lease


Business Model

• Leading global provider of air cargo assets and outsourced aircraft operating services– Military Charter– Commercial Charter– ACMI, CMI and Dry Leasing

• additional aviation services, including Flight-Crew Training

• Global services in Asia, the middle east, Australia, Europe, South America, Africa and North America


Business Vision

• Leading industry position– Operating the largest and most modern

fleet of 747 freighter Aircraft

• Transformative growth• Delivering on commitments• Substantial operating leverage• Global airfreight growth• Global scale, scope and execution• Enhance shareholder value


Range of Products

ACMI(Wet-Lease)

Commercial Charter

Military + Humanitar

ian Charter

Value-added

services¹

¹Value-Added services include CMI, flight operations, training, etc.

Product: Bulk cargo capacity for airlines/operatorsArea: Worldwide, focus on Asia <> North America


Market Analysis

Definition Market Outline

Market Environment

Implications on Atlas Air

SWOT-Analysis

General Market Analysis

ACMI Commercial Charter AMC


General Market Environment

• Air freight = cyclical business, even more inconstant than pax


“Cargo Food Chain”

Belly Cargo

Scheduled Cargo

Charter Services

• 42% of air cargo transported in belly hold

• Scheduled service if case of persistent demand– includes ACMI (6% of total)

• Charter services often only supplement volume by on-need basis

ATLAS AIR


U.S. Cargo market

2003 2004 2005 2006 2007 2008 2009 2010 20110

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

0.00

10,000.00

20,000.00

30,000.00

40,000.00

50,000.00

60,000.00

70,000.00

80,000.00

Atlas AirEvergreenKalitta AirWorld AirwaysU.S. total

Revenue Freight Miles 2003 – 2011 (in thousands)


“Cargo Food Chain”

“At the bottom of the food chain”– Scheduled capacity accounting for 90%

of available volume– Atlas Air offering chiefly supplementary

capacity– Hence, economical up/down-trends may

have excessive impact

W


Competitors

Home-Base Oakland New York - JFK

Willow Run Airport, Michigan

Norwalk, Connecticut

Market-Segments

ACMICom. CharterAMC

ACMIAMC

ACMICom. Charter

ACMICom. Charter

Fleet MD-11F - 8B747-400F - 4MD-11(pax) - 7

B747-200F - 8B747-400F - 1

B747-100F - 1B747-200F - 16B747-400F - 6 DC-9B727Falcon 20

B747-200F - 14B777F - 2


Markets: Introduction

2004 2005 2006 2007 2008 2009 20100%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50% AMCACMICommercial Char-terScheduled Service

Shares on overall revenue 2004 - 2010


Market Analysis

Definition Market Outline

Market Environment

Implications on Atlas Air

SWOT-Analysis

General Market Analysis

ACMI Commercial Charter AMC


Range of Products

ACMI(Wet-Lease)

Commercial Charter


ian Charter

Value-added

services¹



ACMI - Definition

A – AircraftC – CrewM – MaintenanceI – Insurance

Wet-Lease includes all of the opposite features. It is being frequently used to cope with demand peaks and foreseeable shortages of capacity. This is the main stronghold of ATLAS AIR.

Dry-Lease contains only the aircraft and is usually be done on long-term basis. Key players in the market are e.g. ILFC and GECAS

Ad-Hoc charter is basically the same, but on short (day-to-day) notice.

... ATLAS AIR is involved in all three markets!

Market Outline

• Service for cargo operators

• Operate freighters for customers carrying their cargo on their schedule to their destinations

• Wet-lease

– Log term contracts

– Agreed upon prices and levels of operations

• Customer advantages

– Fleet Flexibility

– Network Efficiency

– Expand global presence

– Serve highly seasonal markets

– Expand network without big investments21SWOT-Analysis: Atlas Air


Environment

• Highly competitive market

– based on efficiency & cost effectiveness of aircrafts and the quality of the operating services & the solutions provided

• Competitors in the 747-400F & 747-400 BCF/SF ACMI

– Air Atlanta Icelandic, World Airways, Evergreen International Airways

• Customers

– Airlines (BA, Qantas, Emirates..)

– Freight forwarder (DHL Express, Panalpina)

• Long term contracts with customers

– British Airways (long-term, B748F)

– Emirates (long-term, B744F)

– SonAir (long-term, pax B744)

Implications• Provides predictable annual revenue +

cost base– Minimizes risk of fluctuation– Customer pays fuel & fees– Risk of yields & demand is borne by

customer• Difficulties

– Requirement to meet performance targets, arrival/departure reliability standards• Not fulfilled = remedies, costs,

cancellation– Dependency on limited number of

customers (5-6)

23SWOT-Analysis: Atlas Air

2008 2009 2010

22.30%

45.40% 40.70%

Share of ACMI in overall revenues


SWOT

s

O

W

T

s • Long-term contracts guarantee reliable income

• Predictable annual revenue and cost base– By minimizing risk of fluctuation

• Dependency on limited number of customer (long term contracts)

• New 747-8F– Improved efficiency– Only operator in the market so far

• Loss of long term contracts– Airlines operating own cargo


Range of Products

ACMI(Wet-Lease)

Commercial Charter


ian Charter

Value-added

services¹



Definition

« The Commercial Charter business provides the customer full planeload capacity of one or more flights based

on specific airports of origin and destination »


Environment

• Based on Short-term agreements– therefore not generating

relyable revenue

• Risk of yields, costs and load factor are borne by Atlas Air

• Economical flunctuations have great impact on business

• Unsteady developement / growth


Environment

Competitors:• ACMI is more competitive and price sensitive than

the com. Charter– Therefore Atlas Air is operating mainly the less efficient

747-200F &-300F in com. Charter

• Southernair and Evergreen are operating 747-200 as well

• Kalitta Air operates 727, DC-9 and Falcon 20 in com. Charter

• Atlas Air is cost-effective in operating one-way flights from Europe or Asia (high demand), making use of AMC-flights as positioning flights


Implications

• Ca. 1/7 of Block-Time is Commercial Charter

• Difficulties:– Crew-Management–Maintenance– Load-Factor / ferry flights

2008 2009 2010

7.9%

20.3%

28.7%

Share of Com. Charter in overall revenues


SWOT

s

O

W

T

Fleet consisting mainly of 747-200F and -300F- Not flexible in terms of capacity- Equal to many competitors

AMC business offers the oportunity for One-Way-Flights from Europe or Asia to the U.S. Without expensive ferry-flights.

With the start of the operation of the new 747-8F, some 747-400F will be deployed to the com. Charter segment. Therefore the fleet will gain competitiveness.

The merge of the crew-pools of Atlas Air and Polar Air offers the opportunity to be more flexible in crew planning

Unsteady revenue:- Flunctuations in the global economy have a great impact- Short-term contracts

s

Operational challenges are crew-management, maintenance and unprofitable ferry-flightsW


Range of Products

ACMI(Wet-Lease)

Commercial Charter


ian Charter

Value-added

services¹



Mil. Charter: Definition

« The transportation of military personnel and goods on strategic level, also into (non-embattled)

combat areas. Capacity is usually tendered according to specific

needs of armed forces »


Market Outline

• Involves Cargo as well as Pax• about 40% of military goods are transported

by commercial charter• strongly regulated market– Experience and extra certificates needed¹– Special regulation for procurement apply– Contracts subject to tender

• Demand-Monopoly– Main Customer: U.S. Air Mobility Command (AMC)– > Therefore dependent on U.S. military activity

¹ defined as per Commercial Air Transport Quality and Safety Requirements (attached)

causing extra

costs and risks !


Environment

• Competition by various Airlines– Three major “teams”, GTI part of ‘Team FedEx’– Commission paid/received according to

revenues

• Cost-plus contracts in form of– pre-agreed fixed volumes

• tendered annually• therefore volumes and revenues predictable

– ‘as-needed’ on short call• account for majority of flown block hours• hard to calculate, steady fluctuation


• Fleet part of Civil Air Reserve Fleet (CRAF)– AMC may deploy aircraft at anytime–> Implication on availability of aircraft– All major U.S. Airlines participate

• Major part (⅓) of revenues• AMC-Business profitable

since 2004

Implications

2008 2009 2010

26.80%31.00% 29.10%

Share of AMC Charter in overall revenues

82%

WOA

82%

WOA


SWOT

∙ Reliable income with low expenditures∙ Flexible handling due to Team-Agreements∙ Lucrative opportunity to sell capacity on

empty return legs∙ Increased costs due to..

∙ Higher risks and therefore higher insurance∙ Special regulations regarding procurement and

operations

∙ Strongly dependent on U.S. military activity∙ New pax-AMC services

ss

W

T

O

O


Range of Products

ACMI(Wet-Lease)

Commercial Charter


ian Charter

Value-added

services¹



other Services

• Crew + Maintenance + Insurance (CMI)– Boeing: four B747-LCF Dreamlifter– SonAir: three B747-400– DHL: five B762F

• Training– U.S. Air Force (training for B744-Crews)

• Flight operation support– e.g. Dispatch, traffic rights, administration


Resources

Financial Structur

eFleet

Human Resourc

es

Revenue Structure

other services

2%ACMI41%

AMC29%

Comm. Char-

ter29%

Atlas Air


Total Revenues $ 1,337,774,000.00

ACMI $ 543,853,000.00

AMC $ 388,994,000.00

Commercial Charter

$ 384,440,000.00

other services $ 20,487,000.00 • widespread revenue distribution– Slump of one sector can

be offset– Flexible fleet deployment

17%

82%

World Airways

Cost structure

27.10%

21.40%15.60%

13.90%

22.00%

Atlas Air

FuelSalariesMROAcft rentother cost


25.40%

15.80%

12.80%

13.60%

32.60%

World Airways

→ Quite similar cost structure!

W


Fleet

Type Quantity Remarks

Boeing B747 - 200F / 300F- 400 (F)- 8F

265183

(incl. 2x B744 pax)(additional six on order)

Boeing B767-300ER 2 (all pax)

Type Quantity Remarks

Boeing B747-400 3 on behalf of SonAir

Boeing B747-LCF 4 on behalf of Boeing

owned (Ø 18.1 years old)

CMI

performance still un-known: T


Fleet: B747

LHR GRU NRT

JFK to ..


Fleet: Comparison

Atlas Air

• 26x B747• 5x – 200F• 18x –

400F• 3x – 8F

• 2x B767• Ø 17.9

years

Evergreen Internationa

l

• 11x B747F• 9x -200F• 1x -400F

• Ø 31 years old

World Airways

• 9x MD-11F• 4x B747• 4x - 400F

• Ø 18.5 yearss


Human Resources

• 1500 Employees as of Dec. 2010– roughly ½ of them being flight crew– 21.4 % of operating expenses caused by

wages and staff benefits– highly-qualified and specialised staff

needed

• Own training facilities for Flight Crews

• Cabin crew recruited via external Agency


External Influences

• (upcoming) Financial crisis–> Impedes fund raising (esp. Acft-

financing)–> Impairs global economy

• Unstable situation in the middle-east–> Fuel prices might soar up–> Interruption of MEA-operations–> Possibly increase demand of AMC

(or even deployment of CRAF)O

WT

T


• Global economic turndown

• U.S. retreat from middle east

• Volatile Gulf-Area• B747-8F

performance

• Only ACMI-carrier offering new B748F

• Pax-ACMI/AMC services

• Dependency on other carriers

• Mil. Charter entirely depend on U.S. military activity

• High funding requirements

• diverse product portfolio

• Long-term contracts in ACMI-business

• flexible aircraft deployment

• modern fleet

Summary: SWOT

Strengths

Weaknesses

Opportunitie

s

Thre

ats


Sources• Literature + Journals

– World Cargo Forecast 2011 (by Boeing)

• Reports– official ‘Atlas Air Fact Sheet’– AAWW 2011-3 Quarterly Report– AAWW Annual Reports 2003 – 2010– GLAH SEC-Annual Fillings 2010

(http://www.sec.gov/Archives/edgar/data/1397867/000110465911017469/a11-8646_110k.htm)

• Web– http://www.bts.gov/programs/airline_information/– http://www.atlasair.com/– http://www.ch-aviation.ch/airlinepage.php?code1=5Y (Fleet)– http://www.ad-hoc-news.de/atlas-air-worldwide-announces-expansion-into-military--/

de/News/22106623 (AMC)– http://www.airfleets.net/ageflotte/Atlas%20Air.htm– http://www.planespotters.net (Data Center for Fleet figures)– http://

www.flightglobal.com/airspace/groups/fleet_and_orders_gossip_shop/blog/archive/2011/08/05/fleet-plan-news-atlas-air-adds-first-767.aspx

– http://www.centreforaviation.com/analysis/jade-cargo-suspension-reflects-trend-of-slowing-air-freight-demand--pressured-freight-profitability-65603

– http://lufthansa-cargo.com/index.php?id=1660

http://www.bts.gov/programs/airline_information/



http://www.atlasair.com/holdings/media-center.html

http://www.ch-aviation.ch/airlinepage.php?code1=5Y

http://www.ch-aviation.ch/airlinepage.php?code1=5Y

http://www.ad-hoc-news.de/atlas-air-worldwide-announces-expansion-into-military--/de/News/22106623

http://www.ad-hoc-news.de/atlas-air-worldwide-announces-expansion-into-military--/de/News/22106623

http://www.airfleets.net/ageflotte/Atlas%20Air.htm

http://www.airfleets.net/ageflotte/Atlas%20Air.htm

http://www.planespotters.net/

http://www.planespotters.net/

http://www.flightglobal.com/airspace/groups/fleet_and_orders_gossip_shop/blog/archive/2011/08/05/fleet-plan-news-atlas-air-adds-first-767.aspx



http://www.centreforaviation.com/analysis/jade-cargo-suspension-reflects-trend-of-slowing-air-freight-demand--pressured-freight-profitability-65603



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