jbs2886 wrote:ATSG acquires 2 A321s for conversion and lease.
This is a big development. ATSG put the money into developing and certifying the A321 Precision conversion solution (STC), which they'll get back pretty-quickly from royalties they will earn from Precision's sale of a relatively-small number of coversion kits. They were cautious about investing in the next two money-making opportunities, but both of those oppotunities now appear to be bearing fruit.
The first other opportunity was training up and preparing ATSG's subsidiary PEMCO to do the touch work on the conversions in TPA, which they decided pretty-quickly to do as the market for the converted freighter started to come into focus. The prototype wasn't done at PEMCO; rather, it was done at AVOCET at SFB. But the first production freighter is being converted at PEMCO, as are all future ones until they need an expansion house or a customer wants to buy the kits and do the work itself.
So ATSG will also make money from the touch work. Having "dibs" on the touch work was probably an important component of the deal they made to finance the development of the Precision STC.
The second other way ATSG can make money is to have their leasing subsidiary purchase feedstock, convert the aircraft at PEMCO, and have CAM dry-lease them out. Interestingly, the first half-dozen or so orders were not by CAM, but rather were by external leasing companies that simply reached out to Precision to manage the conversion of A321s already-owned by those leasing companies. And that should be a significant source of conversion business going forward. Interestingly, as recently as the last investor call, ATSG had not purchased feedstock and had not contracted with anybody to lease them an A321 conversion. However, they admitted that they were actively in the market looking for suitable feedstock in the event that they could find customers that would like to lease A321 freighters from CAM. And it was pretty-obvious that the moment that they did find those customers, they'd fire up a lease/conversion program.
And now they have, with an initial small order for two.
There's some good synergy as well between the A321 conversion program and the rest of the ATSG business model, which is a smart one. In theory, but not always, it starts with a lease. Wanna dry lease a plane from us? Sure. We'll source the feedstock, manage the conversion and any upgrades (avionics, etc.), and dry-lease it to you at a favorable price. You want us to handle the maintenance program for the aircraft? Sure. (Extra $$) Want us to fly it for you until you have enough pilots in your operation trained and certified to fly it yourself? No problem. (Extra $$.) (They did this "wet-to-dry" lease program with the Aloha 767 for NAC; leased it to NAC with Aloha branding, but ATI flew it until NAC could train pilots and get ETOPS certification for their Hawaii flights, which ended up being nearly four years.) Need ground handling? Need us to operate a sort center? ATSG has solid-performing subsidiaries that do all this. So dry-leasing A321s now looks like it may be an absolutely-genius move that will bring synergies throughout the ATSG business model, same as it does with the 767s, where their conversion/maintenance/upgrade/etc. businesses are centers of excellence, as shown by the fact that DL, UA and many others use ATSG subsidiary AMES for 757/767 maintenence and upgrades.
) with the CF6-80C2 series, that are powering 767/MD11/747-400 aircraft.