Don't forget the pilots

Last week, Atlas Air Worldwide agreed to be acquired by Apollo along with J.F. Lehman & Company and Hill City Capital for $5.2 Billion

(Photo credit: Depositphotos.com)

Congratulations to the Atlas Air folks that will get a big payout upon the acquisition of Atlas Air Worldwide. Note, though, that payouts do not include any Atlas Air Worldwide pilot.

In fact, if you read the press release, there’s no mention of the pilots – without them, there would be no Atlas Air Worldwide.

“We believe this transaction will deliver an immediate and certain value to Atlas Air Worldwide shareholders at a substantial premium, and we are pleased to reach this agreement with the Consortium,” said Duncan McNabb, Chairman of the Atlas Air Worldwide Board of Directors. “The Board’s decision to unanimously approve this transaction follows a careful evaluation and thoughtful review of value creation opportunities for shareholders. We believe this transaction is the right next step to maximize value for our shareholders and the best path forward to accelerate the Company’s ability to execute its strategic plan and achieve its long-term growth objectives.”

Never fear though, the Atlas Air IAP Local 2750 issued a statement prior to the acquisition announcement:

“…As is the case with all investors, this consortium will seek to maximize their return on investment with the purchase of Atlas Air Worldwide Holdings. There are many potential pathways the consortium could choose to take with various implications for our careers. Only the consortium knows for certain the path they plan to take with our airline. As a result, it is too early to determine how this transaction will ultimately impact our collective future.

One thing is certain, in order for our airline to be successful, it is imperative the value our pilot group brings to the table must be properly recognized. At a time when pilots are in tight supply, it is critical to attract and retain available pilots with a competitive pay and benefit package. Future corporate plans to grow or simply maintain our current flight operation will only succeed with valuing our pilot group as a key stakeholder…”

The Loadstar has had some of the best coverage on Atlas and much of it follows along with my feelings on the company.

For example:

According to Alessandro Pasetti, head of Loadstar Premium, “I am of the opinion that Atlas is trying to shop itself, it is just about the right time to do that.” I agree and I think they’ve been shopping around for a while. (Be sure to read this Loadstar article further particularly how the Atlas executives made a change in the ‘change in control’ clause of its compensation award agreement filed in February.)

It’s been a while since I chatted with any of the Atlas pilots, but when I did, many questioned if the company was looking to be acquired. Many of the pilots wondered if Atlas was cozying up to Amazon in hopes they would acquire the company.

No wonder when Amazon had an office at the Atlas office to help oversee some of Atlas’ operations and Atlas’ new operations were built close to the Amazon air hub. One pilot told Business Insider, “…They [Amazon] have a complete shadow flight-operations system set up in the headquarters. They're exercising control and making an operational decision throughout the Atlas network."

However, any hopes of Amazon potentially taking over Atlas (they were slim to none anyway) were dashed with the ongoing Atlas and pilot struggle over a new contract. The pilots had worked without a contract since 2016.

"The continued inability of Atlas and their pilot union to resolve these negotiations could result in a change to the allocation of our current and future aircraft. We have an obligation to deliver to our customers, and so do they," an Amazon spokesperson said in a statement to Business Insider.

A contract was finally agreed upon through arbitration in 2021. But, by then, Amazon had redirected a couple of planes from Atlas to other air partners and it sold some of its warrants in Atlas, maintaining any potential Atlas stock ownership to under 5% and preventing them from gaining the ability to appoint a director to Atlas’ board.

Meanwhile….

Atlas was expanding its customer base to include SF Express, Kuehne+Nagel, Cainiao, Flexport, and more. UPS and FedEx are longtime customers, particularly during the peak holiday season. Atlas also has maintained a strong relationship with DHL including joint ownership of Atlas’ subsidiary Polar Air Cargo in which DHL is a minority owner.

Atlas has been successful in growing the company’s financials but, I believe they did it without little to no regard for their pilots. Instead of partners, the two were adversaries, pointing fingers at each other over everything.

 If this company is to succeed, they need to work together. Let’s also not forget that there is a pilot shortage. I briefly discuss this further in a recent Air Cargo World story I wrote last month - A world potentially on strike.

So…what’s the big deal about this acquisition you may be wondering?

As part of its strategy, Atlas Air noted in its 10-K for 2021, “We will continue to focus on securing long-term contracts with fast-growing customers, including those in express, e-commerce, and the fastest-growing regional markets, which provide us with relatively stable revenue streams and margins.”

Much like the US parcel market in which there’s been little nationwide competition to go up against UPS and FedEx, the same, perhaps, can be said about the express market. FedEx, UPS, and DHL have long been considered the top three global express providers but like the parcel market, competition is on the rise such as SF Express and Amazon. And thanks to the growth in e-commerce, the growth in direct-to-consumer (DTC), and the demand for quicker last-mile deliveries, express services are in demand.

Ecommerce demand has softened lately but it’s still above pre-COVID levels. Let’s not forget business-to-business (B2B) e-commerce, it’s a bigger market and the expectations of fast delivery are the same as well.

What we could possibly see from the folks at Apollo (don’t forget these are the same folks that owned CEVA - remember that drama? - but then sold it to CMA-CGM) is a possible merger of Atlas and Sun Country Airlines, another Apollo portfolio company, and an Amazon partner airline. We may also see a number of technology investments, perhaps investments in customs brokerage to speed up inbound deliveries further and perhaps warehousing. Here’s something else to consider and it’s just a random thought - an acquisition of Forward Air for expedited pickups and deliveries. That would definitely be interesting.

There are a lot of things Apollo can do with Atlas but one important thing they need to remember is the pilots and give them a seat at the table to discuss the future of Atlas. Without the pilots, there is no Atlas Air Worldwide.

- Cathy

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I wear a number of hats these days. Catch my weekly column on air cargo, freight forwarding, and the express markets, and the occasional podcast on Air Cargo World. I’m also helping out the Reverse Logistics Association as a research manager and at JOC I help out as a research analyst and write a weekly LinkedIn article, Freight Forward, summarizing JOC articles and providing an outlook for the week ahead.

In September I’ll be participating in a panel discussion on returns at the CSCMP Edge conference in Nashville and I’ll be moderating a panel session on the middle and last miles at JOC’s Inland Distribution conference in Chicago.

Speaking of JOC….be sure to catch Substack columns from Eric Johnson, Ari Ashe, and Bill Cassidy - all three are fantastic!