Research: Rating Action: Moody’s Upgrades Air Transport Services Group, Inc. from Ba2 to Ba1; outlook is stable

New York, June 22, 2022 — Moody’s Investors Service (“Moody’s”) has upgraded Air Transport Services Group, Inc.’s (ATSG) family of companies rating from Ba2 to Ba1 and upgraded senior non-credit ratings. long-term warranties from its subsidiary Cargo Aircraft Management, Inc. (CAM) at Ba2 from Ba3. Moody’s also revised the outlook for both entities to positive from stable.

Updates :

..Issuer: Air Transport Services Group, Inc.

….LT corporate family rating, upgrade from Ba2 to Ba1

..Issuer: Cargo Aircraft Management, Inc.

…. Back-to-back senior unsecured regular bond/debenture, upgrade from Ba3 to Ba2

Outlook Actions:

..Issuer: Air Transport Services Group, Inc.

….Outlook, revised to stable from positive

..Issuer: Cargo Aircraft Management, Inc.

….Outlook, revised to stable from positive

RATINGS RATIONALE

Moody’s raised the ATSG’s ratings considering debt reduction to EBITDA and measures of debt leverage to tangible net worth of the company, highlighting earnings and cash flows. the company’s strong cash position and declining debt levels as it has grown its fleet and revenue base. ATSG’s ratings are also supported by its continued strong position as one of the world’s leading providers of air cargo fleet leasing and related services, including crew, maintenance and insurance services. (CMI), its balanced growth and its effective funding and liquidity management. ATSG’s credit challenges include its high customer concentrations and the company’s exposure to the cyclical nature of the airline industry.

ATSG’s air transport services business has benefited in recent quarters from growing demand for air cargo services, underscored by continued growth in e-commerce and transit volumes. These trends have increased the ability of the ATSG to deploy additional aircraft under long-term lease agreements and CMI services with key customers, particularly Amazon.com Inc. (stable A1) and DHL (owned by Deutsche Post AG, stable A3). As a result, ATSG’s earnings and cash flow have been more resilient than those of passenger aircraft lessors due to the operational strength of its leasing and CMI services associated with time-definite parcel delivery operations. .

Earnings and strong cash flow helped reduce ATSG’s leverage. The company’s debt-to-adjusted EBITDA ratio by Moody’s decreased to 2.2x (annualized) for the three months ended March 31, 2022 from 2.8x for the year ended December 31, 2019 and its debt-to-tangible net worth ratio increased. decreased to 1.5x against a negative value, respectively on the same dates. Over this time horizon, ATSG’s reported capital position also benefited from a reclassification of certain warrants granted to Amazon from liability to equity as well as Amazon’s exercise of certain warrants. Moody’s expects ATSG’s leverage ratios to remain well positioned in 2022, reflecting the company’s forecast of an 18% increase in EBITDA for the year, as well as expected moderate use of the leverage effect to finance the company’s investment program.

A major credit challenge is ATSG’s high customer concentration. In 2021, the US Department of Defense, Amazon and DHL accounted for 31%, 30% and 12% of the company’s revenue, respectively. This challenge is partially offset by the benefits of the high credit quality of these customers and their long-term need for the services provided by ATSG. Positively, Moody’s sees Amazon’s 19.5% minority stake in ATSG as resulting in an alignment of interests that reduces the risk of Amazon’s business relationship with ATSG diminishing. Moody’s expects that as ATSG’s scale of operation gradually increases, its focus with its top three customers will decline somewhat from current levels.

CAM’s Ba2 senior unsecured note rating is one notch lower than ATSG’s Ba1 family of companies rating, reflecting the relative priority and proportion of the notes in ATSG’s capital structure ( being subordinated to its secured revolving credit facility) and the strength of the asset coverage of the notes. The Notes are guaranteed on a senior unsecured basis by ATSG and certain restricted subsidiaries of ATSG. The Indenture includes certain covenants limiting ATSG’s ability to, among other things, incur additional debt, pay dividends, create certain liens, merge and sell assets.

Moody’s revised the outlook for ATSG and CAM to stable from positive based on expectations that ATSG’s capital position will remain strong based on an increase in EBITDA and moderate use of capital. debt to fund fleet growth over the next 12 to 18 months. The stable outlook also reflects Moody’s expectation that demand for air cargo services will remain strong even as economic growth declines under the weight of mounting inflationary pressures and supply chain bottlenecks.

FACTORS THAT MAY LEAD TO IMPROVEMENT OR DEGRADATION OF RATINGS

Moody’s could improve ATSG’s ratings if the company maintains a debt to EBITDA ratio of 2.0x or less, maintains profitability measured as the ratio of net income to average assets that compares well to its peers, manages its customer concentrations and whether its capital expenditure and fleet growth is occurring at a moderate pace.

Moody’s could downgrade ATSG’s ratings if the company’s operating results deteriorate, its capital or liquidity profiles weaken as a result of leveraged acquisitions or capital expenditures, or if the he company loses an important customer or suffers a business interruption that weakens its financial prospects.

The main methodology used in these ratings is the Financial Companies Methodology published in November 2019 and available on https://ratings.moodys.com/api/rmc-documents/65543. Otherwise, please see the Scoring Methodologies page on https://ratings.moodys.com for a copy of this methodology.

REGULATORY INFORMATION

For details on key rating assumptions and Moody’s sensitivity analysis, see the Methodological Assumptions and Sensitivity to Assumptions sections in the Disclosure Form. Moody’s rating symbols and definitions can be found at https://ratings.moodys.com/rating-definitions.

For ratings issued on a program, series, category/class of debt or security, this announcement provides certain regulatory information regarding each rating of a subsequently issued bond or note of the same series, category/class of debt, security or under a program for which ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. For ratings issued on a media provider, this announcement provides certain regulatory information relating to the credit rating action on the media provider and each particular credit rating action for securities whose credit ratings are derived from the support provider’s credit rating. For the provisional ratings, this press release provides certain regulatory information relating to the provisional rating assigned, and to a final rating that may be assigned after the final issuance of the debt, in each case where the structure and conditions of the transaction n have not changed prior to the final rating being assigned in a way that would have affected the rating. For more information, please see the issuer/transaction page of the respective issuer at https://ratings.moodys.com.

For all relevant securities or rated entities receiving direct credit support from the lead entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action , the associated regulatory information will be that of the guarantor entity. Exceptions to this approach exist for the following information, if applicable to the jurisdiction: Ancillary services, Information to be provided to the rated entity, Information to be provided by the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued without modification as a result of such disclosure.

These notes are solicited. Please refer to Moody’s Policy for the Designation and Assignment of Unsolicited Credit Ratings available on its website. https://ratings.moodys.com.

The regulatory information contained in this press release applies to the credit rating and, if applicable, the outlook or rating revision relating thereto.

Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis are available at https://ratings.moodys.com/documents/PBC_1288235.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the EU and is approved by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main. -le-Main 60322, Germany, in accordance with Article 4(3) of Regulation (EC) No 1060/2009 on credit rating agencies. Further information on the EU approval status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

The worldwide credit rating on this credit rating announcement has been issued by one of Moody’s affiliates outside the UK and is approved by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the United Kingdom. . Further information on the UK endorsement status and the Moody’s office that issued the credit rating can be found at https://ratings.moodys.com.

Please see https://ratings.moodys.com for any updates on changes to the lead rating analyst and Moody’s legal entity that issued the rating.

Please see the issuer/transaction page at https://ratings.moodys.com for additional regulatory information for each credit rating.

Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody’s Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
UNITED STATES
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Donald Robertson
Associate General Manager
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Customer service: 1 212 553 1653

Release Office:
Moody’s Investors Service, Inc.
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UNITED STATES
JOURNALISTS: 1 212 553 0376
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