By Doug Cameron
The U.S. withdrawal from Afghanistan is having a
tougher-than-expected impact on cargo airlines that have been
profitably flying troops and equipment to and from the warzone
during the military buildup of the last decade, Atlas Air Worldwide
Holdings Inc. said on Wednesday.
The parent of Atlas Air, one of the largest carriers of air
cargo for the U.S. military, said that military planners had
over-estimated how much flying they required. The company expects
the drop in business to knock 70 cents from per-share earnings this
year compared to 2013.
The U.S. pullback from central Asia has reduced demand for
everything from food and tents to radios and trucks for the
military, but the multibillion-dollar logistics business that grew
during the twin wars in Afghanistan and Iraq has expected to profit
from the drawdown as troops and supplies were moved back to the
U.S.
Purchase, N.Y.-based Atlas generated almost 30% of its revenue
from U.S. military flying when demand peaked in 2010. That share
dropped to 21.5% last year after revenue fell by a third in the
final quarter from the same period of 2012.
"The decline [in 2014] will also be steeper and faster than
previously forecast by the military," Atlas Chief Executive Bill
Flynn said on a post-earnings' call Wednesday.
Atlas reported that net profit fell to $30 million in the fourth
quarter from $52.4 million a year earlier. Per-share earnings
dropped to $1.19 from $1.97 for the quarter. For the full year,
Atlas reported earnings of $3.67 a share. Before Wednesday's
comments, analysts had expected it to earn $3.85 a share this year.
Its shares were recently down 5.5% at $31.90.
The Pentagon still provides valuable business for U.S. airlines,
even though annual revenue has fallen from its peak above $3
billion in 2010. The Air Mobility Command unit of the U.S. Air
Force said that 26 carriers were enrolled in the program to carry
troops and cargo as of January.
Airlines are grouped in three teams to compete for Pentagon
business, which the government awards based on how many planes they
commit to military contracts, as well as the value of the bids for
what are usually fixed-price deals. Atlas is a member of the team
led by FedEx Corp. that also includes Delta Air Lines Inc. United
Parcel Service Inc. heads a second group.
Air Mobility Command didn't offer immediate comment on whether
its needs had shrunk from earlier guidance provided to industry.
Atlas said the military had been using more of its own
aircraft.
Military flying was more profitable for airlines during the
previous decade, as half the work involved one-way flights to Iraq
and Afghanistan from the U.S. The Pentagon paid for the bulk of the
costs, and airlines were able to earn extra revenue by continuing
on to Asia and picking up cargo to carry on to the U.S. Atlas said
only 10% of flights were now one-way, most of them from
Afghanistan, forcing it to find other cargo to carry on the outward
leg.
Atlas has diversified from military business, and the bulk of
its revenue is from renting large freighter aircraft to other
airlines and cargo specialists, though in 2011 it started flying
passengers as well as freight for the Pentagon.
Write to Doug Cameron at doug.cameron@wsj.com
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