Atlas Air, Inc. Business Information, Profile, and History

Company Perspectives:

The world's international airlines are generally high-cost carriers that focus principally on their passenger operations. To meet the increasing demand for air cargo transportation, much less expand their own market share, these airlines must either outsource additional cargo capacity or expand their fleet and add further high-cost labor resources and infrastructure. Atlas Air provides a solution to this problem. The Company provides the aircraft and crews to service these airlines, thereby giving the airlines additional cargo capacity without the financial burden of substantial equipment and personnel costs. With a strong sense of commitment, Atlas focuses on its existing customer base and grows with them, as it also adds new clients. In return, the airlines purchase reliable service from a company that acts as if it were part of the airlines' fleet.

History of Atlas Air, Inc.

Atlas Air, Inc. transports cargo for major international airlines on scheduled flights to 101 cities in 46 countries. Atlas is the third largest cargo carrier in the world, trailing Federal Express and United Parcel Service (UPS). Unlike its larger rivals, Atlas only transports cargo from airport to airport, thereby avoiding the expenses required to maintain dispatch centers and ground-handling operations. The company's fleet comprises 22 Boeing 747-200 freighters and ten Boeing 747-400 freighters. China Airlines Ltd. is Atlas's primary customer, accounting for 26 percent of the company's business.

Origins

Atlas was born from the entrepreneurial talents of Michael A. Chowdry, a Pakistan-born émigré who found riches and success in the United States. Chowdry left war-ravaged Lahore, Pakistan in 1970 when he was 15 years old. He fled to London before making a permanent move to the United States, where he was introduced to what would become a lifelong passion for aviation. By the time he was 21 years old, Chowdry was paying for his tuition at the University of Minnesota by flying crop dusters in rural North Dakota and Minnesota. By his late 20s, he had settled in Denver, Colorado, where he made his living in aviation business, buying and selling landing and takeoff rights at major airports. In 1983, Chowdry was hired as an airline consultant for Frontier Airlines to help the company form Frontier Horizon, a short-haul carrier. The project collapsed, in large part because of the clash between union-organized Frontier Airlines and nonunion Frontier Horizon, but Chowdry's time at Frontier Airlines was far from wasted.

In 1984, Chowdry completed a windfall deal that gave him the capital to begin a career as an aviation entrepreneur. He bought seven Boeing 727 airplanes from Frontier Airlines and sold the aircraft to an air freight company named Flying Tiger. Chowdry made $3.5 million on the deal, his reward for knowing that Flying Tiger was eager to enter the U.S. cargo business. Executives at Frontier Airlines were not aware of Flying Tiger's interest, or else they would have skirted the middleman--Chowdry--and completed the deal on their own. In a matter of weeks, Chowdry was a multimillionaire, well equipped to venture into the business world on his own.

With money gained from the Flying Tiger transaction, Chowdry started Aeronautics Leasing, Inc. (ALI) in 1984. Through ALI, Chowdry leased passenger airplanes to airlines, a business that thrived under his stewardship. Chowdry cultivated an impressive list of customers, leasing aircraft to global carriers such as Pan American Airways, TWA, Continental, SAS, and British Airways. By the end of the 1980s, ALI was recognized as a genuine force in the leasing business, but circumstances would force Chowdry in a different direction, leading him to form the company that would ultimately distinguish him as one of the most successful aviation entrepreneurs of the 1990s.

Chowdry's decision to abandon ALI for a new company, Atlas, was triggered by recessive economic conditions and hostilities in the Middle East. In attempting to explain the reasoning behind Atlas's formation, Chowdry referred to a night he spent in a Hong Kong hotel room. It was August 1991, six months after the Persian Gulf War, and from Chowdry's vantagepoint his future in aviation was clear. His hotel room overlooked Hong Kong's Kai Tak airport, where the effects of the war were evident. Still hobbled by fears of terrorism, passenger traffic was light, adding to the woes of airlines hit especially hard by the global economic decline. Chowdry noticed, however, that cargo-carrying aircraft were queued one behind another, forming a steady stream of landing lights that lit the night and turned Chowdry's mind toward the resilience of the cargo business.

Chowdry's percolating thoughts about freight carriers were organized into concrete plans a few months after his stay in Hong Kong. In 1992, Pan American Airways, battered by the harsh economic conditions of the early 1990s, collapsed, its failure forcing Chowdry to act. Pan American had leased a Boeing 747-200 from ALI, an aircraft that lay idle after Pan American went out of business. In the midst of the economic trough, finding another airline willing to lease ALI's passenger airplane proved difficult, so Chowdry decided to improve the aircraft's marketability by converting it into a cargo freighter. Although there were no immediate offers, the strategy paid off when Chowdry learned that China Airlines needed the capacity of an additional 747 freighter. The airline, however, was not willing to operate the aircraft itself, a qualification that forced Chowdry to create a cargo company to operate his idle 747. Formed in 1992, Atlas became that airline, prompting Chowdry to turn over the management of ALI to a friend and focus all his attention on a new, promising market niche.

As Atlas began operations, Chowdry benefited immensely from the timing of his strategic move. Many of the major airlines were replacing their older aircraft with twin-engine airplanes such as the Boeing 767 and the Airbus A330, opting for smaller, more fuel-efficient aircraft than the four-engine 747s widely in use. The new airplanes were more fuel-efficient than their predecessors were, but they held 50 percent less cargo than the 747s, creating a need for cargo capacity that Chowdry intended to exploit. Hailing Atlas as the 'airlines' airline,' as quoted in the June 1995 issue of Air Transport World, Chowdry fashioned the company as a 'wet leasing' operation: Atlas supplied the aircraft, crew, maintenance, and insurance, while its customers, generally non-U.S. airlines, took responsibility for marketing the freighter service, handling the cargo, and paying for the fuel. The company's job started and ended at the airport, eliminating the need for costly ground-handling operations and dispatch centers and enabling Chowdry to focus on making Atlas a low-cost operator. He believed that the presence of a low-cost cargo hauler would induce airlines to contract out, or outsource, their cargo business. His confidence in his strategy soon was borne out in Atlas's energetic growth.

For its first flight, from Taiwan to the United States, Atlas transported Eddie Bauer polo shirts, Nike shoes, and computer disk drives. Further orders from China Airlines necessitated the purchase of additional 747-200 freighters, as Atlas's fleet of aircraft grew. Not long after establishing a business relationship with China Airlines, Chowdry signed his first European customer to a contract, marking the beginning of Atlas's ties with KLM Royal Dutch Airlines. By the beginning of 1994, coming off of $40.9 million in sales for the previous year, the company had added its fourth 747, with plans to acquire two more aircraft by the year's end. Chowdry was convinced that the expansion of the company's fleet and the extension of its service area would lead to Atlas's domination of the cargo business. Toward this end, Chowdry implemented an accelerated growth plan after giving Atlas its footing, acquiring the newer, more efficient model of the 747-200, which could carry a larger payload over longer routes.

Sparking Expansion with 1995 Public Offering

Part of Chowdry's accelerated growth plan involved selling a portion of the company to the public. In March 1995, when the company took delivery of its seventh aircraft, Chowdry registered with the Securities and Exchange Commission (SEC) for Atlas's initial public offering (IPO) of stock. According to SEC filings, the company planned to offer 3.45 million shares at a proposed offering price of between $14 and $16 per share. From the proceeds, Chowdry planned to use at least $24 million as a down payment on three 747-200 aircraft. The IPO was completed in August 1995, raising $74 million and beginning a period during which the company's stock value soared. Atlas's stock tripled during its first year, as the size of its fleet doubled, something the company had accomplished in each of its four years of existence. By the end of 1996, sales reached $315 million, up from just $40 million three years earlier, and Chowdry, who still owned 59 percent of the company, was vastly wealthy, reportedly worth $670 million on paper.

Much of Atlas's success was credited to the decision to use 747-200 freighters, recognized as the premier international freighter by numerous sources. The company's one glaring miscue during the 1990s, however, stemmed from its use of 747-200s. The company's troubles occurred after it subleased five Federal Express 747-200s in 1996. The airplanes proved to be a drag on the company's earnings in large part because they did not fit Atlas's established maintenance scheme, leading to operating costs that were $1,000 more per hour than had been anticipated. The mistake cost the company dearly, causing its stock value to plummet in half and removing Chowdry's name from Forbes magazine's list of the richest Americans.

Late 1990s: The Debut of the 747-400

The setback suffered by Atlas and Chowdry was only temporary. By 1998, the five aging 747-200s were replaced with new 747 models, the longer-range 747-400. Industry observers were startled by Atlas's decision to use the jumbo 747-400, an aircraft that was exponentially more expensive than the company's workhorse, the 747-200. Moreover, the 747-200 was viewed as the linchpin to the company's remarkable rise during the 1990s, an opinion held both by Atlas executives and industry analysts, making the decision to use a new aircraft model somewhat of a gamble. The gamble paid dividends, however, enabling Atlas to reverse the losses suffered from operating the Federal Express 747-200s. In 1998, the company used five 747-400s in place of the troubled 747-200s and recorded immediate financial gains. Profits nearly doubled in 1998 from the total recorded in 1997, reaching a record high. Tellingly, the increase was achieved without any increase in the size of Atlas's fleet, providing clear evidence of the value of the 747-400s. Referring to the 747-400s, Atlas's executive vice-president, Richard Shuyler, noted the success of the aircraft in a March 1999 interview with Air Cargo World. 'In terms of economics,' he explained, 'there is no doubt in our mind that they are as, if not more, profitable than the 747-200 aircraft. ... They've been a very good profit generator.'

As Atlas progressed through the late 1990s, industry observers found it difficult to direct any criticism toward Chowdry's well managed, strategically sound, financially fit organization. Sales in 1998 reached $422 million, more than ten times the total collected five years earlier, making Atlas the third largest cargo carrier in the world. Chowdry, who spent his spare time flying his own jet fighter at near supersonic speeds over the Rockies, earned praise from the market niche he had shrewdly mastered. In 1998, he became the youngest person ever inducted into the International Air Cargo Hall of Fame. In 1999, when four more 747-400 freighters were added to the company's fleet, sales swelled to $637 million, accompanied by record gains in the company's operating profit margin. For the year, Chowdry was selected as the National Ernst & Young Service Entrepreneur of the Year.

By 2000, Atlas's fleet comprised 22 747-200 freighters and ten 747-400 freighters, with new additions set to arrive in the years ahead. Industry forecasts called for the demand for world cargo services to triple by 2020, a demand Chowdry intended to satisfy by adhering to the same strategy that had fueled his rapid rise during the 1990s. Tragically, the remarkable career of the industry's most promising executive ended before the anticipated growth of the early 21st century could be realized. On January 24, 2001, before an interview with the Wall Street Journal, Chowdry and a reporter boarded Chowdry's private airplane. With Chowdry at the controls, the airplane crashed into a field in Watkins, Colorado, two minutes after takeoff. There were no survivors. Richard Shuyler, who had joined Atlas shortly after it was formed, was named chief executive officer the day after Chowdry's death. To Shuyler fell the duty of guiding Atlas through the post-Chowdry era and toward the company's promising future.

Principal Subsidiaries: Atlas Freighter Leasing, Inc.; Atlas Freighter Leasing II, Inc.

Principal Competitors: Airborne, Inc.; FedEx Corporation; DHL Worldwide Express.

Chronology

• Key Dates:

• 1984: Chowdry forms Aeronautics Leasing, Inc.
• 1992: Atlas is founded.
• 1995: Initial public offering of stock is completed.
• 1996: The addition of five aging aircraft hobbles financial progress.
• 1997: Atlas signs a purchase agreement with Boeing for ten 747-400 freighters.
• 2000: Atlas takes delivery of its tenth 747-4000 airplane.
• 2001: Chowdry is killed in an airplane crash.