Mr. Flynn: Atlas Air began operations in 1993. We started with one airplane. The company was founded by a visionary entrepreneur, Michael Chowdry, who saw that there was an opportunity to serve the global air freight market, and that was through the core ACMI business solution that we offer. This was back in the early 1990s, at a time when international long-haul air freight was expanding dramatically.
Atlas Air grew rapidly during the 1990s, invested in expanding its fleet, and was listed with Nasdaq in 1995 and then the NYSE in 1997. We continued to expand and grow, and as we came into 2000 and 2001, the company certainly experienced some of the economic downturn that we felt in that last down cycle. The company acquired another airline, Polar Air Cargo, in 2001, but went through restructuring, starting in January 2004. We came out of that in July 2004 and have been a different company since, refocusing on our core ACMI business model, refocusing on our fleet and fleet management, particularly with an emphasis on the fleet of highly reliable, new-production freighters that we have today, and listing on Nasdaq again.
We have a very modern, young fleet of 747-400 freighters, with 747-8 freighters on order. These are assets that create exceptional value for our customers. They are the most fuel-efficient, most cost-effective aircraft out there today serving long-haul intercontinental freight. We have been growing and building on that business model since our emergence from restructuring in 2004.
TWST: Would you explain that business model to us?
Mr. Flynn: We are the leading provider of leased wide-body freighter aircraft, and outsourced operating services and solutions to the global aviation industry.
We manage and operate the world's largest fleet of Boeing 747 freighters. We provide unique value to our customers by giving them access to highly reliable new production freighters that deliver the lowest unit cost in the marketplace, combined with outsourced operating services that lead the industry in terms of quality and global scale.
Our core business is bit of an alphabet soup. When we say "ACMI," it stands for aircraft, crew, maintenance and insurance. Many airlines today lease an aircraft, that's the "A." What we offer our customers in addition to the leasing of an aircraft is that we are a certificated operating airline. We also crew and fly the aircraft on behalf of our customers. We provide all the maintenance for the aircraft. We provide insurance on the aircraft as well. So customers are outsourcing their need to have pure freighters flying in their cargo networks to us. ACMI is about 70% of our business operations, or block-hour flying volumes, today.
You see this type of service in other transportation industries. For example, the passenger airlines here in North America outsource the short-haul flying to companies like Republic, for example, or Chautauqua. The big difference here, of course, is we are flying long-haul, international routes for our customers. In the shipping industry, you will see very similar models called time charter, where a shipping company will bring in a vessel, but the vessel is already crewed and maintained.
ACMI is a way for our customers to acquire additional or important main-deck, freighter capacity, without necessarily going out and acquiring the aircraft for themselves, and then also having to crew and set up all the maintenance operations and logistics around that aircraft.
About 20% of our flying is for the US military. There is a long-standing program called the Civil Reserve Air Fleet, or CRAF, that has been in existence since the 1950s. Through the CRAF program, the military acquires additional cargo capacity, freighter capacity, to supplement their own fleet of C-17s and C-5s. Also through the CRAF program, the military acquires passenger lift, although we do not participate in that aspect of the program.
To give you a range, with the conflicts in Afghanistan and Iraq, and with the other worldwide deployment that we have of our troops today, about 50% of the military's cargo is moved in the CRAF program. On the passenger side, however, about 95% of the troops are moved on commercial aircraft through CRAF.
The other 10% of our flying is what we call commercial charter. In ACMI, our customer will take a plane or a number of planes, as I mentioned before, for so much an hour, so many minimum hours over a number of years. A charter, though, can simply be a one-time, full-planeload flight, moving products from origin to destination. For example, a charter flight could be a flight from Columbia to the United States of a whole planeload of fresh-cut flowers. Or it could be a program that we have with Formula 1, where we have contracted over the Formula 1 season for a number of flights, moving Formula 1 race cars from race to race. Another example: I just got off one of our flights where we were moving equipment for Lady Gaga's concert tour. We flew all of the staging and support equipment from Japan to Europe for a series of concerts in Europe. We do a fair amount of concert support and entertainment as well.
The new business line that we're into is CMI. If you go back to ACMI and drop the "A," it's CMI, or crew, maintenance and insurance. The customer owns or has the aircraft, so they're not contracting with us for the aircraft. What they're contracting for with us is to fly the aircraft on their behalf and maintain the aircraft.
We've just entered into two new agreements for a total of six 747 aircraft, including four aircraft for Boeing. Boeing has four unique 747-400 aircraft that have been substantially modified to carry fully assembled parts for the 787 Dreamliner plane to their assembly operations in Washington state and now Charleston, S.C. Fully assembled wings, for example, will be coming from Japan; fully assembled tail sections will be coming from Italy; and whole fuselage sections will be coming out of Wichita, being flown to final assembly in Everett, Wash., and final assembly in Charleston, S.C. We'll start that operation in the second half of this year, and that's four aircraft we will be flying for Boeing.
Then the second contract that we're beginning this year is - again, it's flying the 747-400, which is our core competency - is with SonAir, a subsidiary of Sonangol Group, the multinational energy company of Angola. We'll be operating a premium, private-charter service between Houston, Texas, and the Luanda, Angola, known as the Houston Express. Essentially, it's carrying oil industry executives, and oil industry engineers and workers from Houston, Texas, to Angola, and then back on dedicated flights using two 747-400 passenger aircraft. SonAir owns the aircraft; they've contracted with us to fly them. It's a little bit different for us in that it is passenger, but it's a charter. It's not a typical passenger flight that you or I can book; it's reserved for folks in the oil industry who are part of an association based in the U.S. that charter this aircraft. It's a nice opportunity for us to grow our business without any capital investment in incremental aircraft. We think the CMI business line has more upside opportunity for us to do more flying for customers who already have aircraft but who need or want to outsource their operation.
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