BAX Global’s end-of-the-year exit from North America will increase Atlas Air Worldwide Holdings’ business with DHL, according to a BB&T Capital Markets company update written by Kevin Sterling. The two companies recently agreed to a deal in which Atlas will operate five B767 freighters for DHL, with the first being delivered during the first quarter of 2012.
DB Schenker, BAX’s parent company, will start outsourcing operations previously undertaken by BAX to DHL next year. DHL can’t operate domestically in the U.S., so it will rely on Atlas for assistance, according to Sterling.
“Atlas has a long-term relationship with DHL, entering into a 20-year agreement in 2008, and currently operates eight aircraft for DHL,” Sterling wrote in the report. “We believe that the high level of service and expertise that Atlas has provided DHL over the past couple of years allowed the company to secure the new contract for domestic service.”
Sterling thinks significant growth is in store for Atlas in the coming year. The firm’s relatively new military service is expected to net around 16,000 cargo block hours in 2012; the number of planes operated for the military is expected to grow from one to five next year. All five aircraft in the new DHL deal are expected to be under operation by the third quarter of 2012.
“The [DHL] agreement further supports the company’s growth strategy in the high-margin CMI business and enhances its relationship with a long-term customer (and does not require an outlay of capital to acquire the assets),” Sterling wrote.” Once in service, the five aircraft are expected to generate between 130-150 block hours per month/per plane (7,800-9,000 annual block hours).”
There are some potential challenges ahead for Atlas, however. Sterling outlines that the general air cargo malaise in worldwide markets, increased government regulations or hiccups in the expected delivery of the company’s 747-8Fs could depress expected growth. But even with these potential roadblocks, the near future is bright for Atlas.
“We believe [Atlas] is solidifying its business model for growth even in a tougher environment,” Sterling wrote. “Although we expect a compressed peak season for airfreight, management commented that its customers are still flying above minimums and charter capacity is sold out.”