Apollo-led investors acquire cargo airline Atlas Air for $5.2B

Freighter airline Atlas Air Worldwide announced Thursday it is being acquired by investment funds led by Apollo Global Management in an all-cash deal that values the company at $5.2 billion and takes the company private. The buyout signifies a strong endorsement of future growth prospects for the air cargo industry.

Rumors had swirled all week that Atlas Air (NASDAQ: AAWW) was in final negotiations with Apollo on a buyout. Partnering with Apollo on the investment are J.F. Lehman & Co. and Hill City Capital.

Under the terms of the agreement, Atlas Air shareholders will receive $102.50 per share, representing a 57% premium to the 30-day average trading price of Atlas common stock through July 29. The consortium paid a reasonable price for Atlas Air, analysts say.

The transaction is expected to close in the fourth quarter or early 2023, subject to regulatory review and approval by Atlas shareholders. The company will be delisted from the Nasdaq exchange.

Atlas Air will continue to be led by CEO John Dietrich and the current executive team. 

“Following the closing of the sale to the Consortium, we will seek to leverage their resources, relationships and industry expertise to build on our strong financial and operational performance,” Dietrich said in the announcement. “Their investment in our company demonstrates their confidence in our people and our culture as we serve the growing needs of the global supply chain.”

Atlas Air is the largest operator of Boeing 747 freighters and currently has 103 aircraft in its fleet, including large 777s and medium-size 767s. It provides outsourced freight transportation for large clients such as Amazon and DHL Express, as well as 3PLs and individual retailers and manufacturers such as HP. It also has controlling interest in Polar Air Cargo.

Other services include short-term charters and aircraft leasing. A handful of aircraft are also engaged in passenger charter operations for the U.S. government, airlines and other clients.

Investors were attracted by Atlas’ strong financial performance, which sharply accelerated after the pandemic due to a worldwide shortage of passenger airline capacity and supply chain disruptions, as well as buoyant forecasts for e-commerce and cross-border trade that rely on widebody cargo jets.

Second quarter earnings

The airline holding company announced second-quarter earnings a day ahead of schedule to coincide with news of the transaction. Revenue increased 19% to $1.2 billion, but net income fell 17.6% to $88.3 million year over year and adjusted earnings before interest, taxes, depreciation and amortization dropped 11.6% to $215.6 million. 

Management attributed the decrease to increased pilot costs related to a new contract that became effective in the fall, higher premium pay for pilots operating in areas like China significantly impacted by COVID, and higher overtime pay related to increased sick leave for COVID cases. 

The increase in cases adversely impacted crew availability and the airline’s ability to reposition them due to widespread cancellations of commercial passenger flights.

Atlas executives have said they plan to cover the cost of the new pilot deal and other expenses with a higher fee structure and more long-term contracts, especially as existing contracts come up for renewal.

“Atlas Air Worldwide is a market leader that continues to set higher standards for excellence within the airfreight industry,” said members of the investment consortium. “With the strong market demand and long-term secular tailwinds for global air cargo services, Atlas is poised to capitalize on many opportunities for continued growth as a fund portfolio company of Apollo, J.F. Lehman and Hill City.”

Atlas Air canceled its earnings call previously scheduled for Friday and said it is not providing financial guidance for the third quarter and full-year 2022.

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