Atlas Air's new CEO is determined to carry on where founder Michael Chowdry, who died in January, left off
Paul Lewis/PURCHASE, NEW YORK
The death in January of Atlas Air founder Michael Chowdry in a private aircraft crash came at a critical juncture for the cargo carrier. Major decisions that will determine the company's future course of development were left pending. The man tasked with taking over the helm and running Atlas on a day-to-day basis, chief executive officer (CEO) Richard Shuyler, recently spoke with Flight International about the challenges ahead.
Undoubtedly the biggest challenge is filling the void left by Chowdry, who, as chairman, president and CEO, built Atlas into the world's third biggest cargo carrier and largest operator of Boeing 747 freighters. The company has enjoyed phenomenal financial success, notching up six years of successive financial growth. In 2000, revenue topped $791 million and a net profit of $85.3 million was earned, representing a jump of 39% on the previous 12 months.
Tumbling shares
Shuyler, a former executive vice president, has been with Atlas virtually since the company was founded in 1992 and is under no illusions about the difficulty of following in Chowdry's footsteps. "Michael and I were very, very close and the circumstances under which I became CEO were not the best. Michael was unique and, obviously, there is no way of replacing him or his personality."
While the company's New York listed shares have taken a tumble after Chowdry's death, its fundamentals remain strong. It has just turned in a 20% higher net income of $14.4 million for first quarter 2001 - its 13th consecutive quarterly growth in earnings. To some extent, the company is insulated from financial volatility by the guaranteed nature of its aircraft, crew, maintenance and insurance (ACMI) contracts, which typically extend three years and leave only the customer exposed to cyclical market risks.
"We had a very good first quarter and we're very happy with the results, particularly in this kind of market," says Shuyler. "At the same time, we've been telling people that the performance for the rest of the year is going to be in some shape or form dependent on the US economy. There is no question at all that traffic out of Asia to the US has slowed down to the extent the economy here has slowed."
Around 40-45% of Atlas' business is Asian driven on the back of ACMI contracts with the likes of China Airlines of Taiwan, mainland China Eastern and China Southern, Hong Kong-based Dragonair, Korean Air and Malaysia Airlines. Company business has been shifting towards the economically stronger European market, where Atlas expects air cargo volume to grow by 22% over four years to 2003. Around 30% of Atlas' business is now derived from its European customers, which currently include Alitalia, British Airways and Martinair.
As a contract operator to foreign flag carriers, Atlas has the advantage of not always being limited to US bilateral air service agreements, but this has proved problematic in countries at odds with Washington over liberalisation, such as the UK. Atlas' wet lease operation with BA and FedEx's Prestwick gateway to Europe has left many local cargo carriers, denied reciprocal access to the USA, complaining bitterly.
As a result, the company has moved to shore up its position in the UK, announcing in April that it had taken a 49% interest in a new Stansted-based cargo carrier, Global Supply Systems (GSS), in partnership with majority owner and local investor John Porter. Atlas will turn over its ACMI contracts with BA to GSS from September and provide two dry-leased 747-400Fs to be joined by a third freighter next year.
Caught in the crossfire
"We were getting caught in the crossfire and it was becoming clear to us that the regulations and requirements could change so significantly, if the bilateral didn't get resolved, that we wanted to ensure that we would not have any problems in that regards. The way we ended up deciding to go was to take a minority interest in GSS," says Shuyler.
Last February, Atlas resurrected its former holding company structure, which was closed when the company was floated in 1995. The creation of Atlas Air Worldwide Holdings, under which Atlas Air Inc is now a wholly owned subsidiary, gives the company greater flexibility to acquire new businesses or divide existing parts of the business into separate entities.
Rumours have also been circulating for several months that Atlas is poised to merge with DHL Worldwide Express, the US registration of which has been called in to question by its competitors since its acquisition by Deutsche Post. "We're talking with a lot of folks," responds Shuyler. "It's really a matter of something that makes sense for Atlas. We're not an acquirer of companies for the sake of acquisitions. It has to make economic sense."
One area of the organisation that Atlas is looking to hive off into a separate subsidiary is the company's large training facility in Miami. The centre is equipped with two 747 flight simulators and provides training for the carrier's 800 aircrew and, more recently, its ground staff as well. As a separate business unit, the company would be free to pursue third-party training opportunities.
Before his death, Chowdry had been in discussion with International Lease Finance (ILFC) on a joint venture to acquire and lease freighters to a mixture of either Atlas' own customers and/or ILFC's third party users depending on demand. The idea was to secure a more assured supply of cargo aircraft as the company expanded and needed extra capacity.
"These discussions unfortunately ended on an active basis with Michael's death. I've since picked them back up to see if there is any interest at least on the part of ILFC. It's something we could do also with GECAS [General Electric Capital Aircraft Services] - it's not something limited to ILFC alone - but it's very preliminary at this stage," says Shuyler.
Exploratory talks
In the meantime, Atlas has opened exploratory talks with Boeing on an altogether different kind of collaboration to pioneer a 747-400 freighter conversion programme. The company previously took pole position when Boeing launched the 747-300F conversion programme and now operates three ex-Varig and Sabena aircraft. It is keen to have an even more proactive involvement in the potentially much larger -400 freighter modification market.
The carrier is pushing Boeing to accelerate the programme, particularly after the manufacturer's decision to shelve development of the growth 747X and 747X Stretch. Atlas needs additional freighters in the near future to supplement its fleet of 22 747-200Fs, three -300Fs and 12 new-build -400Fs. Boeing has undertaken some preliminary design work, but has been slow to push a 747-400 conversion (Flight International, 13-19 February).
A more expensive alternative is to order additional 112t capacity 747-400Fs or the new increased gross weight version. Atlas recently firmed up four -400 options for delivery in 2002 and holds a further four options. "Our very last delivery for next year is in the fourth quarter, which is when the 910,000lb aircraft would be available, and so we're taking a look at whether or not we want to make that switch," says Shuyler.
No choice but the A380
Boeing's recent decision to drop the 747X leaves Atlas with no other choice than the Airbus A380 if it wishes to step up to a larger 150t class freighter longer-term. "We think there is going to be a future demand for that freighter for no other reason than there will continue to be slot constraints and more congestion around the world and they are not building any new airports. It's just quantifying the size of that need." says Shuyler.
Atlas is pressing Airbus to better refine the double-deck design for traditional freight, including pallet configuration and improved upper deck cargo handling. "Right now there is a passenger model and one freighter model for express goods as FedEx would operate it. We're having to spend a lot of time with Airbus to make sure we have an Atlas model and then at some point we'll make a decision as to whether that's something we want to go with," he says.
The other pending equipment decision is the selection of a new 60t class mid-size freighter, with the 767-300 and A300-600 both in contention. The carrier needs around 20 aircraft to provide feeder services in Asia, Europe, the Middle East and the US domestic market. Over the longer term, Atlas says it is also considering an even smaller 40t freighter such as the Boeing 757. Says Shuyler: "I think both these decisions are going to be made in the next six months - maybe sooner".
Source: Flight International
