Jeff LeeHello and welcome to this episode of cargo facts connect, the podcast of cargo facts, the newsletter of record for the air cargo and freighter aircraft industries for over 40 years. I’m Jeff Lee, editor of cargo facts and it’s Friday, the 19th of July. This week, Cargo Facts was in Wilmington, Ohio, which of course is the home of ATSG. The company went through a transition late last year and entered a new chapter last month with the appointment of Mike Berger as its new CEO. During our visit, we sat down with Jeff Dominick, who became ATSG’s president on June 4, and Todd France, president of ATSG’s leasing arm, CAM, to get their view of the freighter market and what lies ahead for the group under new leadership.
Jeff LeeSo Jeff, nice to meet you, and thank you for inviting us to your facility here.
Jeff DominickThanks for coming to Wilmington. Appreciate it, Jeff and Robert.
Jeff LeeSo first of all, let me ask you, what you feel are your main priorities for the remainder of this year and what you hope to achieve within the next 12 months.
Jeff DominickThank you. Well, I mean, I think the first thing that comes to mind, right, is, you know, this is an organization that, I mean, I’m just not coming into out of the blue, right? I mean, been involved with them on the board for over seven years in two different periods, and then have worked and transacted with them, even in that interim period when I wasn’t there. So the organization, the people and the platform, you know, I’ve watched its growth evolve, and so in stepping into it right now, I’m excited for the opportunities we move forward. I mean, I think that as we all know how the company has grown and different asset mix and how it’s grown. It’s leasing as well as it’s, you know, three airlines underneath. And as I step into it today, I look into, if you say, for the rest of the year, right? We’re growing with our customers globally, okay? And I think some people, bit of a misnomer, will look back at, you know, last year, when a number of us in the industry sort of pulled back on the growth a little bit as the cargo and the integrated market had kind of slowed down. And you know, the receipt of some of the aircraft from some of the lessees had backed away, but yet nobody stopped growing. And in that is absolutely ATSG, right? I mean, we’ve continued to place aircraft over that period of time, and we’ve continued to have a very strong 2024 in placing, you know, both our legacy aircraft and some of the new variants that we’re moving into, which we see is the future. You know, with our customers now, it’s very important that we keep our customer base happy, okay, and service them and maintain and we’ve got the vertical interest, excuse me, infrastructure, right, that, you know, assembles that and keeps it moving forward. And as I look at my goals, over 2024 okay, it’s to help continue to position us to evolve and grow further right. And that can be, you know, on the asset side, certainly on the customer side, and then certainly, you know whether on the capital side, right? Again, bit of my background, of course, comes from the finance in the Wall Street structuring. So, I mean, I think the last, you know, comment I would make on that question is, you know, we’re seeing a lot of the pockets of the global macros, okay, that we’ve identified over the past 18 to 24 months really come into the play in which Todd will get into a little you know, later here as to where we’re placing aircraft and growing with new customers as well, right, right?
Jeff LeeAnd Todd, speaking of that, just as Jeff was saying, yes, some areas have slowed the growth of it, but the same time, other areas are seeing, we’re seeing growth in other areas, and new players popping up. Just talk about some of these new players, especially on the medium, widebody side. What do you think is behind that?
Todd FranceWell, I think the first piece is demand. And Jeff, honestly, when you look at it, I don’t think there’s any piece of this growth right that isn’t that we didn’t see coming, right? If you’ve listened to any of our releases or earnings call, we’ve continued for quarter after quarter to talk about our current presence in the market and our future in continuing to be the world’s largest freighter lessor. And really, that’s all started. If you listen to Mike Berger on any of our earnings calls, he continues to talk about global growth and global e commerce growth, and we’ve been able to produce that. So you know what I’ve been really impressed with as you look at really the past couple years, when, historically, the past couple years, we’ve placed a large amount of aircraft at single individual operators or single individual companies. And if you look at our delivery book, let’s just say, the last 15 months, it’s been a lot more diverse. We’re placing multiple airplanes at multiple customers in multiple in multiple areas across the world. So we continue to, in my mind, do a very good job at identifying that growth potential. And even more impressively, is the customers that we’re placing with. I’ve been extremely impressed with our customer base, their their business plans, their understanding of the market, their understanding of the demand, their understanding of the routes, and their understanding of the airplanes, whether that’s on the 767, 300 side, or even some of the two hundreds that we’re placing now. And we’re starting to see that same thing. On the 321 on the 330 platforms.
Jeff LeeSo this the change going from placing large numbers with fewer a few, a small number of customers to fewer units, but a broader base is that. Is that a strategic shift or strategic decision on your end, or is that also how the market has has changed?
Todd FranceI think it’s both quite, quite frankly, obviously, demand is what is, what’s going to continue to drive our book of business. We’ve been selective in our placements, to say the least. And although we have continued to look at the market and where that where that growth continues to remain post covid, we’re seeing that that in the Uzbekistan markets, in in and out of in and out of Georgia, and some in some of the other locations where our customers, where our customer businesses, and we’re not only seeing that on the on the medium, wide body side, but we’re starting to see that on the on some of the narrow body work as well.
Jeff DominickBut again, a lot of that is sort of a natural cadence, though, because you’re looking at some of these emerging economies, right? And so I’m not going to say there’s been an absolute predictability factor, but you’re looking at, you know, these different global GDP, you know, growth areas, right? Emerging economies, emerging middle classes, and then the transportation infrastructures that are getting developed in there, you know, as it pertains to not only the movement of people, but the movement of transit and goods.
Jeff LeeIt’s really interesting, isn’t it, because we and we were just looking at this after the significant white body fruit fleet in Russia stopped, we’ve actually seen in the past two years all the countries, many of the countries surrounding Russia benefiting from that, and they’re free to flee. We looked at this, it’s actually grown 60, 70% in the past two years. And there’s more to come as well. And that’s, as you said, both on the medium wide body side as well as the narrow body. So it’s actually been pretty impressive to see the growth in these countries well.
Jeff DominickAnd if you dive down even further to it, right, there’s been concerted effort, right? Basically, you know, the China and the Chinese political system, right, to diversify and mitigate, okay, some of their economic risk factors by, you know, growing within these different regions and countries away from Russia.
Todd FranceAnd at the same time, Jeff, I think, you know, our our team is really, really good in this segment. They understand the demand, they understand the markets. I think we’ve done a really good job on the on the commercial end, at finding the right fit for us, and more importantly, to make sure that we’re the right fit for our customers in those growing markets. So when you really start to look at the entire portfolio or book of business that we that we offer, really talking about our lease plus strategy, it really seems to fit well with with our customer bases are going and taking advantage of some of the growth in these markets,
Jeff Leejust sticking with the 767, I know you have several. I think we still am driving in several of the X Condor units waiting for conversion. How, how many or Do you have customers already lined up for those? Or you kind of waiting to get the customers first and before sending them into conversion?
Todd FranceThat’s a good question. I would honestly answer that by really looking at without going into specific MSNs, we’re always looking to to service our customers. So at the end of the day, we we purchase aircraft, sometimes on spec, but then we also have a really good feel for the market, and you can also go out and acquire an MSN understanding what the market is looking for, specific to the 767 three hundreds, the we do have a handful of X Condor operated 767, three hundreds. It’s no secret that we’ve put three, I believe, already through II conversions, all three of those already have customers, and we expect to see all three of those on lease here, within the next within the next month, we have a couple other Condor aircraft that we’ve purchased, that that we anticipate continue to identify customers for. And. Putting those aircraft on lease, and then we’re off. We’re also going through we we talked about earlier, some of the 767, two hundreds that are that are coming off a natural lease expire, or in some cases, natural lease extensions, right? And we’re beginning to place those as well. In the past two to three months, we’ve placed, I believe, 2762, hundreds. We’ve sold some of those that either due to age or maintenance condition or what type of capital investment would be required to to put that aircraft back in the air. We’ve sold some for for various part out. So I think the the team that we have does it, does a phenomenal job in evaluating our assets, in making sure that we’re maximizing our returns for not only ourselves, but more importantly, our shareholders and our customers, right to make the right decision for for a lot of these these assets move forward.
Jeff DominickI mean a little further on, Todd’s comments there. I mean, a lot of that applies to our portfolio optimization strategy, right, which Todd, you know, in cam, and you know that he runs, have done an outstanding job with right, and where they take the mosaic right? And there’s a myriad of different influencing factors with customers and regions. And specifically to your question on the condors is, you know, we have, you know, three that are coming out of the conversion. And when Todd said, you know, soon to be identified in the next month, I mean, we have customers for those, right? And they will be going on lease, and we’ll be looking at, you know, initiating some more of the conversions with the others, and we’ve also seen an uptick in the demand, the market demand profile, I would say, over the past 60 days, and certainly within the past five weeks, that I’ve been here.
Jeff Leenow that the PCF program has easa validation. How, how soon can we expect to see more PCFs heading over to Europe?
Todd FranceNext month?
Jeff LeeYeah, looking forward to it. And no, I was going to say it’s interesting, because almost none of the carriers that have gone for the a3 21 freighter right now, at least almost none of them used to operate 757, despite the, you know, the argument that it’s the natural replacement for the 757,
Jeff Dominickso that’s where I was going to go on your question a second ago, because I personally don’t actually see it as a 100% replacement to the 757 I don’t, I mean, it is going to, you know, it grow, and it’s going to integrate into different regions and locales depending on the mission, right, and depending on The load needs, okay? And the 757 I mean, let’s face it, the 757 is not dying off, you know, quickly, right? We’ll be sitting here having the same conversation in five years, okay? And there’ll be a pretty significant installed base still, yeah, right. And we see it on people that are reinvesting in the RB two elevens and the ones that have invested in the Pratt 2000s right to support, you know that lift. But I agree with that comment, Jeff, that you know it’s interesting is you’re seeing some of these carriers that are entering into the 321, you know, passenger, freighter, excuse me, freighter. It’s in regions, or it’s in networks that don’t have seven, fives.
Jeff LeeYeah, it’s, it’s just, yeah, interesting observation that we’ve made now Todd, just going back to the 7672, hundreds, when you’re dispo, I guess they are disposing of them. What’s the demand like from we I guess geographically, what’s the demand like to purchase them from from operators. And has it. How has it changed in the past year or so?
Todd FranceI think the demand specific to the 767, 200 has absolutely increased in the past, in the past 12 months, I’d say the ironic piece of it is, I don’t know that our phone is ringing anymore, right? Our phone’s been ringing about the 767, two hundreds for a couple years now. And I think the reason for that is we control the market. Essentially, on 767, 200 we definitely have over 85 if not 90% of the ADA power, the serviceable ADA power that’s out there in the market. What has changed is the aircraft have continued to based on our natural lease expiry schedule. We’ve started to have some so we’ve started to market them more. Again, we had, we delivered one last week. We’re delivering another one at the end of this week, and we have at least three, if not four, additional 767, 200 flyers that we’ll put out. And you know, one of our again, getting back to that lease plus strategy, it gives us the opportunity to, you know, either lease or sell that airframe, while offering an ADA power engine solution to our to our customer base, we’re seeing these, these aircraft go into, you know, South America, parts of Africa over we’re continuing to also have some of our existing customers that are operating 200 airplanes asking for more. Just last week we had, we had an operator ask us if they could. They could actually not only lease two additional two hundreds, but also look at one of our two hundreds that would that we plan on retiring, right? They wanted to be able to put together a package deal for a couple flyers and one for part out. So again, I think that goes back to the dynamic solution that we can provide, the creativity that we can provide our customers, that you just don’t necessarily see with some of some of our competitors.
Jeff LeeGreat. Well, it sounds like you have definitely have a lot of interesting and exciting milestones coming down the pipeline. So we look forward to seeing these and as well as some of these new customers on the horizon. Thank you so much, Jeff and Todd, thank you, and hopefully we’ll see you at cargo facts symposium later this year.
Jeff DominickLooking forward to it. Thank you.
Jeff LeeThat was ATSG President Jeff Dominick and CAM president Todd France. Thanks again to ATSG for showing us around in Wilmington this week. And that’s all the time we have today. For more coverage of the freighter aircraft market, visit cargo facts.com. Thank you very much for tuning in, and join us again next time.
