Air Transport Services Group, I (NASDAQ:ATSG)

Removing ATSG from the GeoSpeicial List

• Added to the GeoSpecial list June 1, 2009 @ 1.90

Catalyst: Reduced debt by $113 million. Restrictions lifted, allowing company to pay dividends and buy back stock.
Current road block: EPS comparison for next several quarters do not meet our criteria. We plan to aggressively revist this story in the future.

Current Price: $4.65
Peak performance:  Reached a high of $8.65 on 2/14/2011

ATSG said that it expects to recognize non-cash charges related to the termination of its current credit facility, and report a loss in its ACMI Services segment in the first quarter primarily due to maintenance-related aircraft downtime that resulted in lower than budgeted revenues and higher than budgeted operating expenses. As a result, ATSG currently expects to report net earnings of $0.03 or $0.04 per diluted share for the first quarter of 2011.

Note: Non GAAP estimates are $0.10-$0.11

WILMINGTON, Ohio--(BUSINESS WIRE)--Air Transport Services Group, Inc. (NASDAQ: ATSG) announced today that it has obtained a commitment for a new secured $325 million credit facility with a consortium of banks led by SunTrust, and provided an outlook for its anticipated results for the quarter ended March 31, 2011.

The new five-year credit facility will replace the current facility, also led by SunTrust, which is scheduled to expire at the end of 2012. The new facility will include a term loan of $150 million and a $175 million revolver with an accordion for up to an additional $50 million. The new facility will initially be priced at the 90-day LIBOR rate plus 2 percentage points, 25 basis points lower than the comparable rate under the current agreement. By the end of June 2011, the Company intends to execute fixed price interest rate hedges on at least 50 percent of the $150 million term loan. Amortization of up-front fees associated with the new facility will be $1.2 million lower on an annual basis than under the current agreement. The credit facility will be secured by certain designated aircraft to provide 150 percent collateral coverage of the outstanding debt.

ATSG has been one of our longer tenured GeoSpecials. Our initial alert was issued on June 1, 2009 @ 1.90.

Air Trans Services Group (NASDAQ:ATSG) Reduces debt by $113 million. Restrictions lifted, allowing company to pay dividends and buy back stock. May present a trading opportunity.The GeoTeam has coded the stock as a special situation play- Corporate Restructuring

This morning we issued an alert that we might be coding the stock as a GeoBargain.  However, after digging into the filings, we have decided to keep the stock coded as a GeoSpecial, since the company's debt to equity is ratio is over one.  However, we did add to our position, as we believe the balance sheet will continue to improve in the future, leading to P/E multiple expansion.

First Quarter Financial Summary: (From May 10, 2010)

• Revenues from continuing operations of $160.9 million for the first quarter of 2010, compared with $211.8 million a year ago. Revenues increased 11.7 percent excluding reimbursed operating expenses and non-recurring severance and retention (S&R) payments, and included gains from each of ATSG’s three airlines and its leasing business.
• Pre-tax earnings from continuing operations of $10.8 million, down $2.4 million compared to the first quarter of 2009. Higher pre-tax earnings from ATSG’s operations for DHL and from its aircraft leasing business, CAM, were offset by 2010 losses from ACMI Services and from Other Activities.
• Net earnings, including earnings from discontinued operations, were $7.2 million, or $0.12 per share (diluted) in the first quarter 2010, down from $11.1 million, or $0.18 per share a year earlier. Net earnings from continuing operations were $6.8 million, or $0.11 per share, down from $8.2 million, or $0.13 per share. Net earnings for the first quarter of each year included deferred (non-cash) income tax expense, with nearly all the federal tax amount offset by a reduction in net deferred tax assets. Based on its remaining deferred tax assets, ATSG does not expect to be a cash payer of federal income taxes until 2013.
• $36.7 million in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) from continuing operations, down from $42.1 million in the first quarter of 2009. (EBITDA is a non-GAAP measure of financial performance. A reconciliation of ATSG’s first-quarter EBITDA to GAAP Net Income appears at the end of this press release).
• Cash flow provided by operating activities of $53.4 million, more than double the prior-year quarter amount, due primarily to ABX Air’s receipt of cash payments on amounts receivable from DHL.
• Continued balance sheet strengthening during the quarter, including a $9.1 million reduction in debt, a $23.2 million reduction in post-retirement liabilities, and a $25.5 million increase in cash since December 31, 2009.

Joe Hete, President and CEO of ATSG, said, “Our first-quarter 2010 financial results, excluding ABX Air’s DHL-related operations, improved sharply from January through March, but pre-tax earnings still fell short of acceptable levels for the quarter as a whole. The first quarter results were generated under customer contract terms and a labor cost structure at ABX Air that have changed dramatically, and as such are not representative of ATSG’s anticipated future performance for the rest of 2010.”  

“This was a transitional quarter for us, as we moved to complete the changes to our operations driven by the terms of our recently completed agreements with DHL and the ABX flight crews,” Hete said. “The groundbreaking agreements with DHL will unlock the value of our aircraft assets, and give us greater opportunities to achieve margin improvement through fixed versus cost-plus pricing. At the same time, DHL has our pledge to continue to be a reliable, high-quality air transport partner for years to come. The combined impact of these agreements, along with further operational improvements and cost reductions in our airlines and other businesses, give me confidence that our results will improve significantly as the year progresses.”

Air Trans Services Strengthens Balance Sheet

ATSG CEO and President Joe Hete said, “The completion of this agreement with DHL formalizes the deleveraging process that we announced earlier this year, including the restructuring of our promissory note to DHL. The combined effect of the capital lease transaction and note restructuring, including our commitment to pay DHL $15 million to further reduce the principal balance of the note, would be to reduce our outstanding debt principal by approximately $113 million. The note restructuring also removes some of the limitations on our Board’s ability to consider dividend payments or buybacks for our shareholders. DHL has worked closely with us in finalizing these agreements, and we continue to jointly explore opportunities to provide DHL with additional 767-200SF aircraft on an ACMI or dry lease basis beyond 2010.”