Air Transport Services Group Inc
Air Transport Services — Investor Day (September 2023)
68 slides from Air Transport Services's investor day presentation, Sep 27, 2023
Slide 1: ATSG Investor Day 2023
Exhibit 99.1 ATSG INVESTOR DAY 2023 Slide l 1
Slide 2: Safe Harbor Statement
AIR TRANSPORT SERVICES GROUP SAFE HARBOR STATEMENT Except for historical information contained herein, the matters discussed in this release contain forward-looking statements that involve risks and uncertainties. A number of important factors could cause Air Transport Services Group, Inc.'s ( ATSG'
Slide 3: Investor Day Speakers
INVESTOR DAY SPEAKERS Paul Chase Rich Corrado Mike Berger Joe Payne Quint Turner President & Chief Strategy Officer Chief Commercial Officer Chief Legal Officer Chief Financial Officer Chief Executive Officer Slide l 3
Slide 4: Agenda
Slides Presenter INVESTOR DAY Welcome ATSG Overview & Strategy 5-16 Rich Corrado AGENDA Aircraft Leasing Segment 17-26 Paul Chase Flying Segment 27-34 Mike Berger Support Services 35-37 Mike Berger Customer Relationships 38-39 Paul Chase Sustainability 40-43 Joe Payne Break 10 minutes Financial Outl
Slide 5: ATSG Overview & Strategy
ATSG OVERVIEW & STRATEGY Slide l 5
Slide 6: Why We Are Here
-ATSG WHY WE ARE HERE We believe we represent an attractive differentiated value and investment proposition synergizing leasing, air operations, and support services We believe our stock is significantly undervalued and represents an opportunity for investors to realize significant appreciation Whil
Slide 7: World's Largest Freighter Lessor
WORLD'S LARGEST FREIGHTER LESSOR BOEING 767F AIRBUS A321F AIRBUS A330F GLOBAL RECURRING TOP FREIGHTER TOP PROVIDER OF LEASING STRONG CASH LESSOR U.S. E-COMMERCE Top 5 Global Freighter NETWORK FLOW FLYING 92 Lessors 6/2023 80 41 33 30 Currently leasing Growing portfolio of Currently flying 63 freight
Slide 8: Heritage Drives Current Culture
-ATSG HERITAGE DRIVES CURRENT CULTURE 2003 - 2009 2010 Forward Founded 1980 - 2003 DHL Cost-Plus Differentiated, Lease First Model 3rd Largest Express Company Operated via Airborne Express DHL Cost Plus Model Pioneered A+CMI 2003 Fleet - 115 2009 Fleet - 62 2022 Fleet - 128 LEASING FLYING SUPPORT SE
Slide 9: Market Strategy
-ATSG MARKET STRATEGY LEASING FLYING SUPPORT SERVICES WE ARE the world’s largest WE ARE the backbone of WE ARE a provider of freighter aircraft lessor to our customers’ U.S. critical ancillary services companies that support express networks and that add incremental express networks around the large
Slide 10: Compelling Value Proposition
-ATSG COMPELLING VALUE PROPOSITION MARKET REALITY ATSG CAPABILITIES Mid-size freighters are the asset of choice for express Focus on mid-size converted freighters. Existing lease and e-commerce driven regional air networks portfolio that generates strong cash flow and returns Global demand for e-com
Slide 11: Customers Embrace Lease Plus Solutions Model
-ATSG CUSTOMERS EMBRACE LEASE PLUS SOLUTIONS MODEL ATSG provides customers a holistic solution across leasing, flying and value-added support services Slide l 11
Slide 12: Customers
“A CUSTOMERS LEASING FLYING SUPPORT SERVICES amazon owe, amazon © SB kp g amazon o== Psuter , ADELTA FRONTIER AIRLINES © Condor @ MAERSK | Mdcalors Hatoott allegiant spirit ss ExonMobil rae ann af ggmas Ze | wvianca my U : ITEDN gs @repeico GLOBALX | meer ‘ RAYA Vg...) “Sertngun ef ‘hate : i Deane S
Slide 13: Leasing Market Dominance
-ATSG LEASING MARKET DOMINANCE TOTAL EXTERNALLY LEASED FREIGHTERS Cargojet Airways 96 91 85 73 62 59 51 DHL - ME 41 2016 2017 2018 2019 2020 2021 2022 2023E We are global! Over 2/3 market share in the B767-leasing Currently lease to 13 customers into 9 different countries and 75% of our 2023-2024 le
Slide 14: Flying Market Leadership
-ATSG FLYING MARKET LEADERSHIP CMI AIRCRAFT IN RELATION TO LEASED Capital-light airline operations contract flying services to customers through a Crew, Maintenance, 71% 66% 66% 68% and Insurance (CMI) structure 65% 60% 58% Customers provide owned and leased aircraft to 53% ATSG totaling 16 aircraft
Slide 15: FY 2022 Financials by Segment
($ in millions) -ATSG FY 2022 FINANCIALS BY SEGMENT REVENUE* ADJ. EBITDA** SUPPORT SUPPORT SERVICES LEASING SERVICES (OTHER) (CAM) (OTHER) LEASING 20% 19% 1% (CAM) 66% FLYING (ACMI SERVICES) FLYING 33% (ACMI SERVICES) 61% Total = $641 Total* = $2,269 Leasing drives 2/3 of our Adj. EBITDA Flying is a
Slide 16: No other company bundles leasing, airline solutions, maintenance and logistics
No other company in the world bundles aircraft leasing, airline solutions, engine power, maintenance, and logistics solutions. Slide l 16
Slide 17: ATSG Aircraft Leasing Segment
ATSG AIRCRAFT LEASING SEGMENT Slide l 17
Slide 18: World's Largest Freighter Lessor
WORLD'S LARGEST FREIGHTER LESSOR ENGINE LEASING 137 B767 A321 OWNED FLEET SIZE 6/30/23 MULTIPLE POWER BY THE CYCLE PROGRAMS FOR PRATT AND GE ENGINES B767-300 FLEET GLOBAL LEASING 5 YEARS OUT OF CONVERSION ON AVERAGE PORTFOLIO WITH A 20+ YEAR EXPECTED LIFE SPAN SUPPORTS CUSTOMER CONVERSION PORTFOLIO
Slide 19: The Value of a Conversion
-LEASING THE VALUE OF A CONVERSION New Cargo Lining and Ceiling Installed 20+Year Aircraft Life Expected After Floor Beams Replaced Conversion Engine Inspection Rerouting of Control and Overhaul Cables (ceiling) Install an upper deck cargo 9G Rigid Barrier door Modified Systems: Install a cargo load
Slide 20: Young Fleet Post-Conversion
-LEASING YOUNG FLEET POST-CONVERSION 20+ year expected life span after conversion After Conversion 20+ years After Conversion 20+ years After Conversion 20+ years expected lifespan expected lifespan expected lifespan A321-200 A330-300 767-300 Freighter Freighter Freighter 2 75 In service today In se
Slide 21: Leasing Market Outlook and Opportunity
Source: Airbus Global Market Forecast 2023, Boeing Commercial Market Outlook June 2023, Trade & Transport -LEASING Group US Trade Monitor, IATA Cargo Market Analysis April 2023, World ACD, emarketer June 2023 MARKET OUTLOOK OPPORTUNITY ($ in trillions) SOLUTION Boeing Freighter Forecast 50.0% $40.0
Slide 22: B767 Freighter Dominance
-LEASING B767 FREIGHTER DOMINANCE OWNED FLEET 6/30/23 ATSG currently dominates the leasing ($ in thousands) market for the Boeing 767 freighter Freighter Fleet 767-200 Freighter 22 Preferred airframe of the e-commerce 767-300 Freighter 70 3 and express market offering 15,634 ft 767-300 Freighter (IC
Slide 23: New Freighter Offerings
-LEASING NEW FREIGHTER OFFERINGS A321-200 FREIGHTER A330-300 FREIGHTER Adequate feedstock allowing ATSG to enter the Logical alternative for the 767-300, the A330-300 is narrowbody freighter leasing market about 20% larger Natural replacement for the 757-200 freighter and Significant feedstock avail
Slide 24: Proven Leasing Model
-LEASING PROVEN LEASING MODEL LEASE PROFILE TYPICAL PROFILE OF A FREIGHTER LESSEE Typical initial term of 7 to 10 years Experienced aircraft operators and/or blue chip, multi-national corporations with strong safety Major maintenance events are customarily pre- cultures paid by customers with reserv
Slide 25: Global Leasing Footprint
-LEASING GLOBAL LEASING FOOTPRINT ~75% OF 2023 LEASE DEPLOYMENTS WILL BE WITH CUSTOMERS OUTSIDE THE U.S. & EXPECT THE TREND TO CONTINUE AFRICA AMERICAS EUROPE ASIA PACIFIC Cargojet Airways DHL - ME Slide l 25
Slide 26: ATSG Flying Segment
ATSG FLYING SEGMENT Slide l 26
Slide 27: Flying Business Overview
-FLYING BUSINESS OVERVIEW Wet2 Dry Our capital-light CMI flying allows us to separate ourselves from any other lessor and provides incremental returns on top of the lease Our unique A+CMI model leverages our deep Our airlines fly for customers as an ACMI experience in express/e-commerce operations c
Slide 28: CMI Capital-Light Value Structure
-FLYING CMI CAPITAL-LIGHT VALUE STRUCTURE Minimizes risk while affording customer flexibility CUSTOMER ROLE AIR OPERATIONS ROLE Customer leases the aircraft from Airline is responsible for safety of flight CAM, generally 7-10 years Customer then sub-leases the aircraft to one of Airline provides the
Slide 29: FY 2022 Segment Contribution
($ in millions) -FLYING FY 2022 SEGMENT CONTRIBUTION ADJ. EBITDA** REVENUE* SUPPORT SUPPORT SERVICES LEASING SERVICES (OTHER) (CAM) (OTHER) LEASING 20% 19% 1% (CAM) 66% FLYING (ACMI SERVICES) FLYING 33% (ACMI SERVICES) 61% Total = $641 Total = $2,269 The ACMI Segment represents 61% of our revenue, a
Slide 30: Airline Fact Sheet
-FLYING AIRLINE FACT SHEET OMNI AIR INTERNATIONAL ABX AIR AIR TRANSPORT INTERNATIONAL All-cargo airline flying Passenger airline Predominately cargo offering ACMI and 767s airline Charter Services CMI contracts with DHL CMI contract with 75% of revenue is from and Amazon Amazon, Combi the US Governm
Slide 31: Fulfilling Demand
-FLYING FULFILLING DEMAND CMI network flying is more Our Cargo Airlines target CMI flying for large e- resilient than general cargo commerce networks point to point flying due to the Our cargo airlines are the largest CMI providers for the Amazon and DHL USA networks, the need to service specific la
Slide 32: Airline Performance
-FLYING AIRLINE PERFORMANCE History of executing at a high level Performance measured on every flight through controllable delays Historical overall performance for flying is in the TH 90 percentile for on-time and reliability Best in Class among ACMI/CMI cargo competition Omni is frequently the US
Slide 33: Underlying Economics
-FLYING UNDERLYING ECONOMICS $1.4 $209 18 68 BILLION MILLION AIRCRAFT AIRCRAFT 2022 TOTAL 2022 TOTAL SERVICING FLYING SEGMENT FLYING SEGMENT SERVICING CARGO PASSENGER AND REVENUE ADJ. EBITDA CMI BUSINESS COMBI BUSINESS ($ in millions) REVENUE $1,404 More resilient than general air cargo $1,185 $1,14
Slide 34: ATSG Support Services
ATSG SUPPORT SERVICES Slide l 34
Slide 35: Support Services Business Overview
-SUPPORT SERVICES BUSINESS OVERVIEW AVIATION MAINTENANCE & LOGISTICS SERVICES CONVERSION SERVICES Heavy and Line Maintenance Sort Operations Component Services Ground Support Equipment Leasing Engineering Services Facility Support Services Passenger to Freighter Conversions Material Handling Design
Slide 36: Support Services Enhance Customer Value
-SUPPORT SERVICES ENHANCE CUSTOMER VALUE Support Raya Airways, DHL uses Best E-Commerce Services support Logistics Carrier of the Year Amazon Support Services –Asia Pacific at operations at for Material the Payload Asia their Wilmington Handling Awards, first A321 Air Park Hub Equipment freighter wa
Slide 37: ATSG Customer Relationships
ATSG CUSTOMER RELATIONSHIPS Slide l 37
Slide 38: Customer Relationships: Key Customer Overview
-CUSTOMER RELATIONSHIPS KEY CUSTOMER OVERVIEW Began with ACMI agreement for five Boeing 767 aircraft in 2015 Long-term contracts since August 2003 Amazon business has expanded to Providing service to the DoD for over 20 currently leasing 37 aircraft The total of leased aircraft is twelve 767 years t
Slide 39: ATSG Sustainability
ATSG SUSTAINABILITY Slide l 39
Slide 40: Sustainability: Environmental
-SUSTAINABILITY ENVIRONMENTAL RESOURCE CONSERVATION ENERGY EFFICIENCY FUEL BURN/CO2 REDUCTION AND FLEET MODERNIZATION Installed fleet monitoring Extend aircraft useful life Installed energy efficient equipment on our aircraft to through passenger to freighter lighting and HVAC systems in track and r
Slide 41: Sustainability: Social
-SUSTAINABILITY SOCIAL ATSG CAREER AND COMMUNITY WORKFORCE INVESTMENT COMMUNITY OUTREACH OUTREACH On-site Health Clinic for Career exploration Support for charitable causes employees at the Wilmington opportunities and tours for exceeded $850,000 during Air Park more than 2,500 students 2022, an inc
Slide 42: Sustainability: Governance
-SUSTAINABILITY GOVERNANCE BOARD TENURE & DIVERSITY CORPORATE GOVERNANCE CORPORATE GOVERNANCE Board delegated to Increased stock ownership the Nominating and requirements for directors and Governance Committee officers to further align (N&G) responsibility for the with stockholders' interests oversi
Slide 43: Break ~10 Minutes
ATSG BREAK ~10 MINUTES Slide l 43
Slide 44: ATSG Financial Outlook
ATSG FINANCIAL OUTLOOK Slide l 44
Slide 45: Financial Outlook Discussion
-FINANCIAL FINANCIAL OUTLOOK DISCUSSION Historical consolidated and segment performance Consolidated and segment outlook Capital spending and free cash flow outlook Cash flow visibility and capital allocation priorities Strong balance sheet and access to debt capital Understated Asset Value Valuatio
Slide 46: Resilient Financial Performance
($ in millions) -FINANCIAL RESILIENT FINANCIAL PERFORMANCE Track record of strong Revenue and Adj. EBITDA* growth, with consistent margins Resilient business model delivered strong performance through pandemic years ATSG HISTORICAL PERFORMANCE 12% 3-Year $2,500 Revenue $2,045 CAGR $2,000 $1,734 $1,5
Slide 47: Segment Adj. EBITDA Evolution
($ in millions) -FINANCIAL SEGMENT ADJ. EBITDA* EVOLUTION Leasing business a large and growing contributor to Adj. EBITDA* over time 2022 2021 2020 2019 34% 32% 38% 38% 62% 62% 68% 66% Total = $452 Total = $497 Total = $541 Total = $641 ACMI** + Other Services*** CAM Leasing * Non-GAAP measure, plea
Slide 48: Leasing Segment Performance
($ in millions) -FINANCIAL LEASING SEGMENT PERFORMANCE Strong growth from record deployment of converted freighters supporting e-commerce growth ADJ. EBITDA* PERFORMANCE $500 $426 $368 $400 $307 15% 3-Year $282 $300 EBITDA CAGR $200 $100 $0 2019 2020 2021 2022 CAM OWNED 94 100 107 111 Slide l 48 IN-
Slide 49: Flying + Support Services Performance
($ in millions) -FINANCIAL FLYING + SUPPORT SERVICES PERFORMANCE Strong historical revenue growth and consistent adj. EBITDA margin performance across varying economic environments HISTORICAL PERFORMANCE* $2,000 30% $1,728 10% 3-Year $1,461 Revenue $1,366 $1,500 $1,284 CAGR 20% 13% 14% $1,000 12% 12
Slide 50: Strong Leasing Growth Outlook
($ in millions) -FINANCIAL STRONG LEASING GROWTH OUTLOOK Expect to deploy 43 newly converted freighters to lease customers in 2023 through 2025 LEASING ADJ. EBITDA OUTLOOK $525 - $530 $465 - $470 $426 $430 - $435 2022 2023E 2024E 2025E Slide l 50
Slide 51: Stable Flying Outlook
($ in millions) -FINANCIAL STABLE FLYING OUTLOOK Performance trends back toward pre-COVID levels Consistently high service performance creates opportunities for provider replacement and additional growth with customers ACMI + OTHER SERVICES ADJ. EBITDA OUTLOOK $215 $180 - $185 $180 - $185 $175 - $18
Slide 52: Future Success
($ in millions) -FINANCIAL FUTURE SUCCESS Strong existing customer base, and delivery of additional converted freighters, expected to drive strong Adj. EBITDA growth through 2025 Leasing grows to approximately 75% of Adj. EBITDA in 2025E Adj. EBITDA CAGR of 7.7% since 2019-2025 CONSOLIDATED ADJ. EBI
Slide 53: Historical Capex and Adj. Free Cash Flow
($ in millions) -FINANCIAL HISTORICAL CAPEX AND ADJ. FREE CASH Capital Spending Cost of planned airframe SUSTAINING maintenance, engine CAPITAL $718 overhauls, technology, EXPENDITURES and other property and $599 $510 $505 equipment. $454 $510 $412 GROWTH Cost of aircraft $322 $353 $328 CAPITAL acqu
Slide 54: Path to Strong Free Cash Generation
($ in millions) -FINANCIAL PATH TO STRONG FREE CASH GENERATION Capital Spending LEASE DEPLOYMENTS 2023 2024 2025 B767-300 14 9 5 $785 A330-300 0 3 3 $599 $605 A321-200 5 4 0 $545 $320 $412 $440 TOTAL 19 16 8 $170 IN/AWAITING CONVERSION AT $240 $187 $165 $150 19 13 7 YEAR END 2022 2023E 2024E 2025E S
Slide 55: Strategic Capital Allocation
-FINANCIAL STRATEGIC CAPITAL ALLOCATION Business model generates strong recurring cash flow Invest to maintain existing fleet, engines, facilities, and other Sustaining Capex services portfolio Fund feedstock purchases and conversions to support lease Growth Capex portfolio growth at attractive retu
Slide 56: Cash Flow Visibility
-FINANCIAL CASH FLOW VISIBILITY FY 2023E REVENUE BY TYPE* Recurring revenue streams, multi-year agreements account for >80% of current revenue; NON- majority from investment grade credits RECURRING <20% Growth capital is discretionary and based on expected future returns RECURRING Non-discretionary
Slide 57: Strong Balance Sheet with Access to Debt Capital
($ in millions) -FINANCIAL STRONG BALANCE SHEET WITH Funded fleet expansion of ACCESS TO DEBT CAPITAL 33 owned aircraft with minimal increased debt TOTAL DEBT $1,527 $1,518 $1,319 $1,459 $1,640 MATURITY VALUES LEVERAGE RATIO Currently >$1.5 billion of 3.6X 2.8X 2.0X 2.2X 2.7X BANK AGREEMENT availabl
Slide 58: Strong Underlying Asset Value
($ in millions) -FINANCIAL STRONG UNDERLYING ASSET VALUE Book Value of B767-300 freighters below market value by ~$350 million $20.0 Average Book Value per 767-300 75 $350 767-300 Estimated Market freighters Value less currently in $24.8 Carrying Value service Estimated Market Value* Slide l 58 * Ba
Slide 59: Reduction in Share Count
-FINANCIAL REDUCTION IN SHARE COUNT 9.4 million shares repurchased since October 2022 (12.6% of shares outstanding at 9/30/22) Board share repurchase authorization of $103 million remaining August 2023 convert financing resulted in repurchase of 5.4 million shares and retirement of $204 million of t
Slide 60: Significant Valuation Upside
-FINANCIAL SIGNIFICANT VALUATION UPSIDE ATSG trades at a significant discount on a sum-of-the-parts basis; Current stock price of ~$21 reflects a multiple of only 6x Leasing EBITDA, while valuing the rest of the business at $0 CURRENT INDICATIVE 2023 2023E ADJ. EBITDA EV/EBITDA MULTIPLES FLYING & SU
Slide 61: ATSG Closing Remarks
ATSG CLOSING REMARKS Slide l 61
Slide 62: Attractive Investment Opportunity
-ATTRACTIVE INVESTMENT OPPORTUNITY Strong balance Strong existing sheet and base of emerging free leased aircraft ATSG has a best-in-class value cash flow proposition for investors to a well-positioned global e- Conversion slot and feedstock E-commerce commerce enabler. Our position a demand outlook
Slide 63: ATSG Question and Answer
ATSG QUESTION AND ANSWER Slide l 63
Slide 64: ATSG Guests
ATSG GUESTS Ed Koharik Chris Teets Joe Hete Jeff Dominick Chief Operating Officer Board of Directors, Chairman Board of Directors Board of Directors Todd France Matt Fedders Russ Smethwick Kym Cooper Parks Trisha Frank President, CAM VP, Controller VP, Treasury & Corporate VP, Government Programs Di
Slide 65: ATSG Appendix
ATSG APPENDIX Slide l 65
Slide 66: Financial Details
($ in millions) -FINANCIAL FINANCIAL DETAILS METRIC 2022 2023E 2024E 2025E CAM ADJ. EBITDA* 426 430-435 465-470 525-530 ACMI+OTHER ADJ. EBITDA* 215 180-185 180-185 175-180 ATSG ADJ. EBITDA* 641 610-620 645-655 700-710 CAPEX (599) (785) (605) (320) GROWTH CAPEX (412) (545) (440) (170) SUSTAINING CAPE
Slide 67: Segment Adjusted EBITDA Non-GAAP Reconciliation
($ in thousands) -SEGMENT ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION NON-GAAP RECONCILIATION 2019 2020 2021 2022 Other and Other and Other and Other and CAM ACMI Reconciling CAM ACMI Reconciling CAM ACMI Reconciling CAM ACMI Reconciling Leasing Services Items Total Leasi
Slide 68: Adjusted Free Cash Flow and Free Cash Flow Non-GAAP Reconciliation
($ in thousands) -ADJUSTED FREE CASH FLOW AND FREE CASH FLOW NON-GAAP RECONCILIATION 2019 2020 2021 2022 TTM 2Q23 Cost of planned airframe SUSTAINING maintenance, engine Net Cash Provided by Operating Activities (GAAP) 396,938 512,302 583,557 472,120 630,487 CAPITAL overhauls, technology, EXPENDITUR
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