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Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW)
Q4 2020 Earnings Call
Feb 18, 2021, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter 2020 Earnings Call for Atlas Air.

[Operator Instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions]

I would now like to hand the conference over to Atlas Air. Please go ahead.

Ed McGarvey -- Senior Vice President and Treasurer

Thank you, Sara. And good morning everyone. I'm Ed McGarvey, Treasurer for Atlas Air Worldwide. Welcome to our fourth quarter 2020 results conference call. Today's call will be hosted by John Dietrich, our Chief Executive Officer; and Spencer Schwartz, our Chief Financial Officer.

Today's call is complemented by a slide presentation that can be viewed at atlasairworldwide.com under Presentations in the Investor Information section. As indicated on Slide 2, we'd like to remind you that our discussion about the Company's performance today includes some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events and expectations, and they involve risks and uncertainties. Our actual results or actions may differ materially from those projected in any forward-looking statements. For information about risk factors related to our business, please refer to our 2019 Form 10-K as amended or supplemented by our subsequently filed SEC reports. Any references to non-GAAP measures are meant to provide meaningful insights and are reconciled with GAAP in today's press release, and in the appendix that is attached to today's slides.

During our presentation and answer period today, we'd like to ask participants to limit themselves to one principal question and one follow-up question, so that we can accommodate as many participants as possible. After we've gone through the queue, we'll be happy to answer any additional questions as time permits. At this point, I'd like to draw your attention to Slide 3, and turn the call over to John Dietrich.

John W. Dietrich -- President and Chief Executive Officer

Thanks, Ed, and hello everyone. Welcome to our fourth quarter earnings call.

I'd like to start by thanking all the front line responders as well as all the essential workers around the world, including our more than 4,000 Atlas team members for their unwavering efforts throughout this pandemic. On behalf of all of us at Atlas, I want to express our sincere hope that you, your families and friends continue to stay safe as we work toward better days ahead. We at Atlas take great pride in the role we're playing in keeping global supply chains and our customers operating networks moving and in supporting COVID-19 relief efforts. From critical healthcare supplies like vaccines and other pharmaceuticals, medical equipment and PPE, as well as e-commerce educational supplies, food and other everyday consumer products. Our team has worked tirelessly to keep our aircraft flying safely, so we can continue transporting the goods that matter most during this challenging time.

Operating a global airline during a pandemic hasn't been easy. Our performance is a result of the team banding together to navigate through a very complex regulatory and operating environment to first and foremost, keep our employees safe but also to provide high-quality service for our customers. The safety of our team is our top priority and will continue to take extensive precautions to ensure we are able to safely carry essential items around the world. And as we've said over the years, our resilient business model allows us to sustain during challenging market conditions, as well as capitalize on opportunities during more favorable market conditions.

We're continuing to leverage our unrivaled portfolio of assets in the scale of our global network. We are also diversifying our customer base and have entered into numerous long-term charter agreements that provide reliable and attractive revenue streams for the years ahead. Our long-term charter business provides exciting opportunities with strategic customers such as Cainiao, Flexport and HP that have come to Atlas to secure our high quality services for dedicated capacity of their own. These are savvy buyers of air freight and their commitment to Atlas' telling about their vision of the future and their interest for locking in capacity on a longer-term basis.

In addition to the significant reductions in passenger belly cargo capacity on long-haul trade lanes, COVID-19 is also causing congestion and delays at Ocean ports worldwide. As a result, shippers are increasingly using air freight to avoid bottlenecks in their supply chains and that's driving even further near-term demand. From a fleet standpoint, providing our customers with modern fuel-efficient aircraft has been a long-standing priority at Atlas and we're excited to have recently announced that we ordered four new 747-8 freighters from Boeing. Not only does this investment underscore our commitment to provide our customers with the best available aircraft, but it also furthers our commitment to the environment by investing in the latest technologies to reduce aircraft noise emissions and fuel consumption.

The 747-8 is a great airplane. It provides 20% higher payload capacity and 16% lower fuel consumption than the very capable 747-400 freighter and has 25% higher capacity than the 777 freighter. In addition, the advanced engines on the 747-8 reduce noise by approximately 30% compared to the previous generation of aircraft. As the world's largest 747 freighter operator the 747-8 is core to our business and complements our diversified fleet of 747-400s, 777s, 767s and 737s. We're expecting delivery of these new aircraft beginning in May and continuing through October of 2022. And they will play a key role in advancing Atlas' strategic growth plans for decades to come.

Now turning to the fourth quarter results on Slide 4. We finished this unprecedented year on a strong note with financial and operating results that exceeded our expectations. Everyone at Atlas stepped up to deliver an extraordinary peak season and for that matter, the full year for our business and our customers. In the face of unrelenting operational challenges and complexities, driven by the COVID-19 pandemic, we added wide-body capacity and increased aircraft utilization to grow block hours and carry historic volumes.

Our fourth quarter results benefited from strong demand for our assets and services, higher commercial charter yields, the significant reduction of international wide-body passenger belly cargo capacity and lower aircraft rent and depreciation. In addition, we reactivated four 747 converted freighter more quickly than we expected, further allowing us to capitalize on attractive opportunities. These benefits were partially offset by higher heavy maintenance expense related to additional engine overhauls that we had performed to take advantage of attractive vendor pricing and slot availability, as well as higher pilot costs related to the premium pay we've been providing our pilots for operating into certain areas that have been significantly impacted by COVID-19, as well as the 10% pay increase we provided to our pilots in May 2020 pending the completion of our joint collective bargaining agreement.

We at Atlas are dedicated to keeping our business on a successful trajectory. This includes executing on our strategic plan, continuing to diversify our business as well as aggressively manage our costs and balance sheet. We'll also continue to focus on ensuring that our assets and resources are allocated to those opportunities that generate the best returns. As Spencer will share with you in more detail during his remarks, these actions coupled with our team executing on market opportunities drove significant improvement in our balance sheet this year.

We improved our cash position, enhanced liquidity and reduced our net leverage ratio. As a capital-intensive business, building and maintaining a strong cash position is vital for our long-term success and provides us with the financial flexibility to both endure more challenging market conditions, as well as thrive in more favorable conditions. With respect to our pilot labor negotiations, our work continues to complete a new joint collective bargaining agreement in connection with the merger between Atlas Air and Southern Air.

Scheduled negotiations with our Pilots Union have recently concluded as provided in our respective collective bargaining agreements, and we're now moving on to binding interest arbitration to resolve all remaining open issues. This arbitration is scheduled to begin in mid-March.

Now, moving to Slide 5. The strong demand for our aircraft and services has continued in the first quarter. As a result, we expect to fly approximately 85,000 block hours in the first quarter with revenue of approximately $820 million and adjusted EBITDA of about $150 million. In addition, we expect first quarter adjusted net income to grow approximately 60% to 65% compared with adjusted net income of $29.9 million in the first quarter of 2020.

Our outlook also anticipates additional expenses, driven by the pandemic including premium pay for our pilots, costs for continuing to provide a safe working environment for all our employees, as well as higher costs from the pay increase we provided to our pilots in May 2020. For the full year, we expect aircraft maintenance expense to be lower than 2020, with depreciation and amortization totaling about $270 million. In addition, core capital expenditures, which exclude aircraft and engine purchases are projected to total approximately $110 million to $120 million mainly for parts and components for our fleet.

We also expect committed expenditures relating to acquiring aircraft and spare engines to be approximately $265 million in 2021. These expenditures include pre-delivery payments related to our 747-8 aircraft order, acquisition of spare engines and the purchase of several used 747-400 passenger aircraft that we will use to both replace certain of our older passenger aircraft that are in service, as well as others to part out for spare engines and components. Due to the ongoing uncertainty related to the pandemic and the associated market dynamics, including ever changing border restrictions, new variance of COVID-19, the pace of vaccine distribution and surges in cases globally, we are not providing a full-year 2020 earnings outlook at this time. But we'll provide updates to you as the year progresses.

This is a good point for me to ask Spencer to provide more details on our fourth quarter results. And after Spencer's remarks I look forward to providing a few additional comments and then we'll be happy to take your questions. Spencer?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you, John, and hello everyone. Our strong fourth quarter results are highlighted on Slide 6.

On an adjusted basis, EBITDA increased to $279.7 million with adjusted net income growing to $143.2 million. On a reported basis, net income totaled $184 million. Our fourth quarter adjusted earnings included an effective income tax rate of 23.9%. For the full year, we had an adjusted effective tax rate of 22.9%.

Moving to the top of Slide 7, operating revenue totaled $932.5 million in the quarter. ACMI revenue primarily reflected lower levels of flying driven by the redeployment of 747-400 aircraft and charter. This was partially offset by our ability to increase aircraft utilization and higher levels of CMI flying. Higher charter revenue was primarily driven by increased flying partially offset by a slightly lower average rate per block hour due to lower fuel costs. Block hour volume growth primarily reflected strong demand for our services, driven by the reduction of available cargo capacity in the market, the disruption of global supply chains, the redeployment of 747-400 aircraft from ACMI and a 777 from dry leasing, as well as our ability to increase aircraft utilization, and dry leasing revenue primarily related to changes in leases and the disposition of certain non-essential aircraft during the first quarter of 2020.

Looking now at the bottom of the slide. Segment contribution totaled $267.6 million in the fourth quarter. ACMI earnings included higher pilot costs including premium pay for operating in certain areas, and a 10% pay increase that we provided to our pilots in May 2020. Higher heavy maintenance expense, which includes additional engine overhauls to take advantage of availability and attractive pricing discounts and the redeployment of 747 aircraft to charter. These items were partially offset by increased utilization and an increase in CMI flying.

Higher charter contribution was primarily driven by an increase in yields excluding fuel, strong demand for our services and our ability to increase aircraft utilization. Charter contribution also benefited from lower aircraft rent and depreciation and the redeployment of aircraft from ACMI and dry leasing. These benefits were partially offset by higher heavy maintenance expense and higher pilot costs, as well as fewer charters for sports teams and fans as leagues canceled games. In dry leasing, lower segment contribution was primarily due to changes in leases and the disposition of certain non-essential aircraft during the first quarter of 2020.

Also during the quarter, as we previously reported, on October 9, Amazon elected a cashless exercise with respect to approximately 3.6 million shares vested under our warrant issued in 2016. As a result, Amazon acquired approximately 1.4 million shares of Atlas common stock. And then in addition, on January 27 of this year, Amazon elected a cashless exercise with respect to approximately 4.2 million shares also invested under warrants issued in 2016. As a result, Amazon acquired approximately 1.3 million shares.

Now turning to Slide 8. As anticipated, our net debt and our net leverage ratio continued to improve during the fourth quarter. Our net leverage ratio declined another 0.4 turn finishing the year at 2.1 times, down significantly from 4.4 times where we began the year. We ended the year with cash including cash equivalents, restricted cash and short-term investments totaling $856.3 million compared with $114.3 million at the end of 2019. Our improved cash balance primarily reflected cash provided by operating activities and the funds we received through the CARES Act.

Net cash used for financing activities, primarily related to payments on debt obligations, including our revolving credit facility partially offset by debt issuances. Net cash used for investing activities primarily related to core capital expenditures, spare engines and then engine upgrade kits, partially offset by proceeds from the disposition of certain non-essential aircraft and engines. As a reminder, our debt has a low weighted average coupon interest rate, which now stands at 2.98%. And the vast majority are secured by our aircraft assets which have a value in excess of the related debt.

As John said, we are taking actions to mitigate the impact of any continuation or worsening of the pandemic and remain committed to a strong balance sheet. We're reducing costs, enhancing liquidity and strategically allocating resources. Now I'd like to turn it back to John.

John W. Dietrich -- President and Chief Executive Officer

Thank you, Spencer. Moving on to Slide 9, 2020 certainly was an unprecedented year and we finished it on a strong note. The higher demand for our aircraft and services has carried into the first quarter and our team continues to step up and execute amid the ongoing operational challenges from the pandemic.

We will continue to take every precaution to protect our world-class team of employees and our operations to ensure that we can continue to transport the goods the world needs the most.

At this point, operator, may we have the first question please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Bob Labick with CJS Securities. Your line is now open. Good morning, congratulations on, just terrific execution and a fantastic year.

John W. Dietrich -- President and Chief Executive Officer

Thanks Bob.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you, Bob.

Bob Labick -- CJS Securities -- Analyst

I wanted to start the discussion with talking about the 747-8s. It's a pretty exciting opportunity for you to get four more of them. Can you talk a little about the demand environment out there? Have you talked to customers, are there inquiries? When would you expect to tell us about customers I guess and will these be going into ACMI Charter or have you decided on that yet.

John W. Dietrich -- President and Chief Executive Officer

Yeah, look Bob, I think we're excited about the acquisition as you know, we like the aircraft very much, it's performed exceptionally well for us. And we expect there will be continued demand for that aircraft. What we find in good times and in tougher times, the best, most efficient aircraft are the ones that remain flying, and the 747-8 will certainly be that. And in terms of where we're going to place them, we're going to continue to evaluate that. We have ongoing discussions in every segment and we're going to do what makes best for the -- for the organization once that time comes on delivery, but we're excited about the opportunities.

Bob Labick -- CJS Securities -- Analyst

Okay, super. And then just kind of following up on that, you mentioned the $265 million of aircraft parts and purchase commitments, including the PDPs for the 747-8s. But you also just mentioned the -- I don't if it is the right word but we have seen the amount of cash, the $850 million plus on the balance sheet. So what are the other uses of cash given that just this fantastic cash generation this year and what we expect next year going forward.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Yeah. Thank you, Bob. So we have a capital allocation strategy. It remains disciplined and balanced. Our focus continues to be on growing the business while generating returns above our cost of capital and maintaining a strong balance sheet. There are a number of things that we continue to look at when we look at each opportunity kind of on its own. We evaluate each opportunity when it comes to deploying capital. We set pretty aggressive return targets. And as John said, balance sheet strength and continuing to maintain low levels of leverage remain our top priority. But beyond that, we will continue to evaluate investments like we did for the 747-8s.

Bob Labick -- CJS Securities -- Analyst

Okay, super. Thanks very much. I'll get back in queue.

John W. Dietrich -- President and Chief Executive Officer

Thanks Bob.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thanks.

Operator

Thank you. Our next question comes from the line of Chris Stathoulopoulos with Susquehana. Your line is now open.

Chris Stathoulopoulos -- Susquehana -- Analyst

Good morning, everyone.

John W. Dietrich -- President and Chief Executive Officer

Hi Chris.

Chris Stathoulopoulos -- Susquehana -- Analyst

John, Spencer, I appreciate -- yeah, I understand you not wanting to give guidance around COVID due to uncertainty. But I think it's important here you know for investors at least to -- to help us frame about getting through this year against what is clearly a tough comp on EBITDA, and a really unique operating environment. So on the international side or the long haul widebody side, you know you have your competitive capacity effectively sidelined, let's say for two to three more years. I would expect AMC and Commercial Charter flying to improve as the vaccine is more distributed. And you also have opportunity, I don't know if you want to speak to this, but the 11 new Amazon planes that that they purchased in January, whether you are looking to bid on those.

So just putting those together and even if we assume that we have a labor deal sometime in the back half of this year, thoughts around getting through this environment and then maybe a Part B and sort of related to that, John, you've been in this seat now here for a year. I'm curious if there is anything you've learned about kind of running this airline you know with an operating playbook that that really doesn't exist because of COVID and whether there's any new opportunities here that you realized in terms of cost savings or that on a per-block hour basis or network productivity. Thanks.

John W. Dietrich -- President and Chief Executive Officer

Thanks, Chris. And I'll start with that last question, in terms of what I've learned of -- it's been a great exciting 14 months almost. And the one thing I've learned is that we've got the best team of employees in the business and we have been able to execute in a remarkably complex and challenging environment on every front. That's just about every regulatory challenge, operational challenge, or throw in some weather challenges along the way as well, spikes in demand and this team has stepped up and executed on all cylinders in every front, and that's the strength of our team and our resilient business model that we've talked often about.

And Chris, you've been you've been following us a long time. We have often said that we are well positioned both in general more challenging times, but as we're seeing now well positioned to capitalize on opportunities. And working together we've delivered and executed. In terms of kind of new opportunities or other things that we're looking at and -- or have learned or developed, the new customer base. We talked about some of our long-term charter customers, we've really developed a new customer base for our aircraft in our services and that's really exciting.

Spencer has talked about often, this is -- these are ACMI like agreements and I think will serve the market well, serve our customers well, expanding the customer profile beyond just the historical and typical ACMI customers we served in the past. That's really exciting. So you know more immediately, we have a lot of work ahead of us on the immediate horizon, as I said, we look forward to keeping you informed when we're in a better position to give more tangible guidance, but we are -- we're following the market, we're following the activities, what's happening with COVID and we just look forward to continuing to deliver and we'll keep you posted when we can.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay. The follow-up, Charter utilization was really strong here, 12.6 hours. I'm curious what point there is a limit there in terms of having to pull additional aircraft from ACMI or potentially lease another aircraft. Thanks.

John W. Dietrich -- President and Chief Executive Officer

So we're reviewing our fleet and our allocation of resources every day and between our ACMI customers and our Charter customers, and from a network standpoint, linking customers together at times to provide full utilization of the aircraft. So, it runs the whole gamut. In terms of, we've got our core ACMI customers, we've got our Charter customers, but there are oftentimes opportunities where a customer may say you know what I'm interested in capacity but I may not need it full-time for the full operation. Can you join us with somebody else?

So our marketing team does a great job of bringing customers together to ensure we are maximizing utilization of the aircraft and also maximizing the trade lanes. So it's a combination of all those things that go into building, our total network, which is comprised of a number of sub-networks.

Bob Labick -- CJS Securities -- Analyst

Okay.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

I'll just, just briefly add -- it's Spencer, just briefly add. As you pointed out, 747-400 utilization in Charter was up 51% quarter-over-quarter. This is primarily driven by really strong demand, but I'd just point out as John noted earlier, this is in the midst of the most challenging operating environment I think that we've ever seen. So it hasn't come easy, but our organization has just continued to step up to make sure that everyone is safe and that we continue operating as much as we have.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay, thank you.

Operator

Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Your line is now open.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks, good morning guys.

John W. Dietrich -- President and Chief Executive Officer

Hey Scott.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Hi Scott.

Scott Group -- Wolfe Research -- Analyst

So I want to ask, last quarter you guys talked about $60 million of lower maintenance cost this year. Is that still the right way to think about it? And then just separately of the 33 aircraft in Charter, how many of those are now in long-term charter?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Sure. Let's say the first part of it was with regard to maintenance. So we did say previously during the last call that about $60 million of heavy maintenance expense was incurred in 2020. That was related or would have been incurred in 2021. So that statement is still out there. But as far as maintenance expense overall for '21, we're still evaluating that, we'll update that as the year progresses. We gave first quarter outlook for heavy maintenance expense because we want to make sure that everyone had that and it's pretty close in. But as far as the rest of the year, we'll update you as the year progresses.

And then with regard to the long-term charter question. We now have so many of these, the thing about these is it's not necessarily utilization of an entire aircraft. It may be one flight per week or something like that. Sometimes it's a couple of rotation, sometimes it's -- it is the full utilization of the full aircraft. So it's slightly different, but we have now entered into so many of these contracts, they are amazing. There are just a few of them that currently terminate at the end of this year, but most go into 2022 or '23 and now some have even extended into 2024.

John W. Dietrich -- President and Chief Executive Officer

And, Scott, if I could. That ties in with the comments I was just making about our marketing team linking customers together. So those one-off charges and maybe one a week, OK, what's that aircraft during the rest of the week and that ties in with selling same tails to multiple customers on a long-term basis as well, in addition to the fully dedicated -- fully dedicated aircraft deals.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

It's a very significant portion of our business.

Scott Group -- Wolfe Research -- Analyst

So I suppose with more of this longer-term charter, you've got more visibility and this situation with semis is clearly going to help this freight environment stay stronger. I mean, I know you're not giving guidance, but directionally, do you think there is an opportunity to grow earnings this year. [Speech Overlap]

John W. Dietrich -- President and Chief Executive Officer

So, like we said -- like I said, we're giving guidance at this point other than what we've shared and we look forward to getting back to you as soon as possible. We've got a lot of important work ahead of us, including following what the market is doing and continuing to allocate our resources. So, we'll look forward to giving you an update on that.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

One thing I'd just add to that, Scott, as you know, yields were incredibly high in the second quarter of last year. So that's a very important thing to keep in mind. Yields have continued to be above historical yield levels, but we have not seen levels like April and May of last year. We have not seen that yet.

Scott Group -- Wolfe Research -- Analyst

Okay, that's helpful. Thank you, guys. Appreciate it.

John W. Dietrich -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of Helane Becker with Cowen. Your line is now open.

Helane Becker -- Cowen -- Analyst

Thank you very much, operator. Hi everybody, and thanks for the time here. So I wanted to ask you a question about the leverage because Spencer, you pointed out that it's down quite a bit, right? 2.1. Where -- where do you think the business runs that? But what level should -- are you aiming for or how should we think about growth beyond the 747s that are coming and balance that against the balance sheet.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Yeah, so you know that we made a commitment to reduce our leverage. And as you've seen, as you said, our net leverage and our net leverage ratio have really declined and then we're going to take on some debt next year with the 747-8s before enjoying the earnings from the 747-8s. So that will presumably increase our net leverage ratio a little bit. Ideally, we would like, we've always kind of targeted somewhere between 3% and 4% really much closer to the 3%, part of that range.

So, ideally, we think the business is right somewhere around there. We're happy that it's down at these levels, but it's probably right somewhere around 3% and again when we take on the 747-8s we will take on debt before enjoying the earnings. So it will take a little bit of time to catch that back up, just the way our calculation works.

Helane Becker -- Cowen -- Analyst

Right, exactly. So are you thinking of -- how are you thinking financing those actually maybe it's the right question.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Yeah. We have a number of opportunities to finance those and we're looking at all of them. We think that the -- the bank markets are open and available to us. We think there are some potential other opportunities with -- whether it'd be ECAs or public debt facilities. We think we have a bunch of options and we will pursue all of those.

Helane Becker -- Cowen -- Analyst

Okay, that's very helpful. And I just had a maintenance related question. Just to kind of bring the $117 million you're forecasting for the first quarter, is that, should we say, I mean you said '21 less than '20 and I think Scott pointed out $60 million less just because you pulled out maintenance forward. Is this the high watermark then, I mean normally you would do on your heavy maintenance in the first quarter anyway. So should we think about this is being like the high watermark for the year?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Well, we're not going to provide maintenance outlook beyond the first quarter today, but we did say that we expect it will be lower this year. And so, yes, the first quarter is -- the first quarter of this year is higher than the first quarter of last year. We have an incremental C check, we have an incremental D check, which is driving that. But we're not really going to comment beyond that, but yes if the first quarter is higher and the full year is lower, obviously there will be some catch-up. We think there will be catch-up between the first quarter and the end of the year.

Helane Becker -- Cowen -- Analyst

Okay, thanks very much. Have a nice day.

John W. Dietrich -- President and Chief Executive Officer

Thank you.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from the line of David Ross with Stifel. Your line is now open.

David Ross -- Stifel -- Analyst

Thank you and good morning, gentlemen.

John W. Dietrich -- President and Chief Executive Officer

Good morning.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Hi Dave.

David Ross -- Stifel -- Analyst

Just a real quick clarification question on the pilot talks, you said binding arbitration starts mid-March. Is that a 90-day process, and by that, do you expect the resolution by the end of 2Q?

John W. Dietrich -- President and Chief Executive Officer

So it is not a 90-day process. The scheduled hearings are to start in mid-March and go through the end of March. And then there are some procedural things that take place. Typically what happens is the arbitrator seeks what's called post-hearing briefs. And it's kind of a summation of both sides' arguments and their case and then he takes those matters under advisement. I think the duration, how long it takes, we have under the agreements, under the collective bargaining agreements.

There is an expedited request to the arbitrator to have the decision made as soon as possible. But there is no defined timeline that's binding on the arbitrator. I think a lot of it depends on how many open issues remain to be resolved. The more issues open, the longer it may take for the arbitrator to render a decision. That all said, nothing prevents the company and the Union from continuing to have discussions to try and narrow the scope of issues both before during and after arbitration and pending the ultimate outcome.

So a lot of variables go into that just like any kind of court proceedings. And there is no defined timeline per se, but I know both sides are committed to move forward. We certainly are and we're looking to get it done as soon as reasonably possible.

David Ross -- Stifel -- Analyst

Excellent. And then, Spencer, there's been a big change in the unallocated expense line, can you talk a little bit about that and where we should I think about that for a run rate this year?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Yeah, sure. So what's included the biggest change that's included in unallocated is the CARES Act grant income. So we received that money and then as we pay qualifying non-executive US salaries, wages and benefits, then we record the grant income in unallocated. So when you're looking on a period-over-period basis, that's the item that will stand out.

David Ross -- Stifel -- Analyst

So is the $20 million of a good run rate to use for the next several quarters or when does that expire, how do you think about that?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

There is about $41 million of CARES Act grant income to the -- CARES Act that will be recognized as grant income in the first quarter of this year. So we expect that that will then be fully utilized after the first quarter. So it won't be an issue as we head into the second quarter, and then you'll see sort of more normalized unallocated expenses.

David Ross -- Stifel -- Analyst

Okay, excellent. Well, thank you very much guys.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you.

John W. Dietrich -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from the line of David Campbell with Thompson Davis. Your line is now open.

John W. Dietrich -- President and Chief Executive Officer

David, you there?

Operator

Mr. Campbell, if your line is on mute, please unmute your phone.

John W. Dietrich -- President and Chief Executive Officer

We heard some background noise, operator. So maybe it's not quite working. Maybe we move onto the next one and come back to David.

Operator

Certainly. Our next question comes from the line of Barry Haimes with Sage Asset Management. Your line is now open.

Barry Haimes -- Sage Asset Management -- Analyst

Thanks very much for taking the question. I had two really, one relative to the new planes you're buying, I'm wondering, if you looked at conversion opportunities, I would think there is a lot potentially available with finding down so much commercially. And I'm just curious how that's up and have you thought about that. And then second question, could you just remind us, I believe under the government CARES Act situation, you're precluded from buying your stock back for the moment. Could you tell us when that restriction eases up. Thank you.

John W. Dietrich -- President and Chief Executive Officer

Yeah, I'll take the first one with regard to the new planes and the conversion opportunities. Absolutely, we look -- we're looking at all opportunities. On the 747 platform, however, really the conversion market no longer exists. The freighters that are in the marketplace will be phased out over time, because they are older and the economic viability of doing 747 conversions at this time while I guess possible highly unlikely at this point.

And, but other gauges, we're looking at every opportunity, as you see from our history, we're very active in the 767 conversion market for our growth with Amazon. We went out and acquired and converted those airplanes. We're also operating the 737-800 conversions that Amazon took on lease on their own. And for us we view both of those aircraft types is still very attractive. We're also being very active and interested in the marketplace and how COVID has impacted the passenger side of the business, to see what opportunities are out there. Our Titan organization, along with our Titan JV is looking closely at all opportunities in the marketplace.

So whether conversion or otherwise, so we look forward to continuing to advance the Titan opportunities as we go forward both from a leasing, dry leasing standpoint, but an operating standpoint as well. The 777 was recently announced as a conversion candidate. We're still looking at that one as well, nothing imminent on the horizon, but I just wanted to share that we're constantly looking at fleet opportunities. And on the CARES Act, Spencer maybe you can give some guidance on the expiration of that commitment on share repurchases.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Sure. And Barry, before I talk about the CARES Act, just to add to John's comments. There hasn't been a 747-400 passenger to freighter conversion in about a decade, and as John said, we just don't expect that that's going to happen. As far as the 777-300 passenger to freighter program it will deliver its first aircraft in 2024. So it's still a number of years away.

With regard to the CARES Act, the share repurchase restriction ends in October of this year. I think that was your question there.

Barry Haimes -- Sage Asset Management -- Analyst

Great, thank you.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. [Operator Instructions] We do have a follow-up question from the line of Chris Stathoulopoulos with Susquehanna. Your line is now open.

Chris Stathoulopoulos -- Susquehana -- Analyst

Hey, thanks for taking my follow-up. Spencer, what was free cash flow ex any rent from refunds and PSP1 funds?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Are you talking about during the quarter or the full-year?

Chris Stathoulopoulos -- Susquehana -- Analyst

Both, if you have those handy.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Okay. So let's see, as far as the fourth quarter of the year free cash flow, which we calculate as operating cash flow less core capital expenditures was just -- short of $189 million, for the full year it was about $926 million, and amazingly for the full year, we had a new threshold operating cash flow greater than $1 billion. So we're very excited about that.

And then you were asking about the refund of excess rent. And so for the fourth quarter, that was about $6.6 million and for the full year, that was about $37 million, $38 million, $39 million, sorry.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay. Has any of the airline sub supply for PSP2?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

We have not, no.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay and then just going back to this, the topic of cash deployment here, which I mean this is a very unique place for Atlas to be all things considered, even if I don't know, we put on 400 tail for these 747s you're taking next year and assuming you finance half of those and very modest assumptions around EBITDA for next year, this year and next year. I mean there is still here a lot of cash exiting or going through kind of early innings of the recovery. So should we think about that the priorities are going to be more on the aircraft side, I know twin aisles are expected to be weaker than single aisles given what's happening on the long haul international travel side. Could we see something along perhaps an acquisition, be a smaller airline, you haven't done anything I think since 2016 or perhaps something you know downstream in logistics or sort of complementary side of things. And any color there, helpful. Thanks.

John W. Dietrich -- President and Chief Executive Officer

So, Chris, from my perspective, from an operating standpoint, my focus is more on the larger widebody aircraft. While we value all our fleets, our strength in our kind of core business starts with the -- with the larger widebody aircraft. From a leasing standpoint, all opportunities are on the table but again, I think our Titan platform is more freighter centric or aircraft that can become freighters on the conversion from a feedstock standpoint. That's one of the core philosophies of Titan. But there are other opportunities in the marketplace that have attractive returns, everything's on the table.

In terms of beyond that, M&A and all the other things, for which we could deploy our capital. I just would say this, everything's on the table from our standpoint, and we want to be sure that we are judicious during this volatile period of time through COVID. You know I have a couple of times now stressed the operating environment and some of the challenges that have been presented to the team. These results and I'm not saying this in a boastful way, but these results don't just happen, there were extraordinary workarounds on the international scale to continue to operate into foreign locations that had some varying and very restrictive quarantine testing requirements, access to hotels, restaurants, the basics of food and shelter.

And I'm not overstating that. So we want to be sure that as we get through this period, I think better times are ahead with the vaccine. But if you follow the media, everything has been slower than people thought. So it's important for us to be responsible and prudent with our cash in the near term, but it's a long-winded way of saying, everything's on the table in the longer term.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay, thank you. And John, to your point there, maybe if you could help us frame here, you know you addressed it in your prepared remarks and certainly the press release, a bounce about some repositioning expense or headwinds due to COVID. So just maybe if you could give us departures for fourth quarter not block hours but departures absolute year-on-year or maybe sequentially. And then also where are we with the AMC movement restrictions and what are we seeing there with utilization on the related aircraft. Thanks.

John W. Dietrich -- President and Chief Executive Officer

Yeah. So I'll talk on the AMC piece. Spencer, I don't know if you have information on departures or whether that's anything we're in a position to provide at this point. But on the AMC, you're right and particularly in the early part of 2020 when COVID hit, the military put a stop movement order in place which affected certainly the passenger demand significantly and also had ripple effects on cargo demand. And that remained in place until mid to later part of 2020. That stop movement order has since been lifted.

But the demand on the passenger side has not yet fully recovered. But we expect that to get to more normalized levels as we move through the year and especially as the vaccine starts to roll out and get more traction.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay. And anything on the departures?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

The only thing I would say on departure is that they've really been growing year over year over year, our departures continue to grow. We typically well from an operational standpoint, we look at all of it but I typically focus a bit more on the hours that we operate or the Charter flights that we operate. That's how we can bill our customers.

Chris Stathoulopoulos -- Susquehana -- Analyst

Okay. If I could just get one last one here. The 11 planes that Amazon purchased in January, I don't think I've seen anyone pick up the CMI leases. Are you bidding on those? Thanks.

John W. Dietrich -- President and Chief Executive Officer

We're going to -- we're going to be competing for every aircraft that our customers have to offer. So you're right. I -- there has nothing been reported. But we're going to do everything we can to secure as much business as we can, from Amazon and all our customers.

Chris Stathoulopoulos -- Susquehana -- Analyst

Thanks for the time today.

John W. Dietrich -- President and Chief Executive Officer

Thank you, Chris.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thanks Chris.

Operator

Thank you. We do have a follow-up question from the line of Scott Group with Wolfe Research. Your line is now open.

Scott Group -- Wolfe Research -- Analyst

Hey guys, thanks for the follow-up. Just quickly, how should we think about excess rent refunds this year?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Sure, Scott. There is just a tiny amount left, small amount left. We won last tranche of it in May of this year and it should be about $4.5 million. And then that program should be completed.

Scott Group -- Wolfe Research -- Analyst

Okay, very helpful. And then when you guys first started buying the 747-8s almost a decade ago, you guys talked about pretty significant initial earnings accretion per plane per month with the maintenance holidays. Is there any reason to think the math would be any different for the next fours that you guys are taking?

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Yeah, we provided that that information back then because the planes were late. And so we have included the earnings from those planes in our guidance and then when the planes relate from Boeing, we let everyone know that just that amount of earnings would not be -- will not be happening in that period of time, but it was never meant to really be a sort of forecast going forward for those earnings. But clearly in the early days of the aircraft, the early years of the aircraft, they don't need maintenance. There are warranties and things like that are available on the aircraft, if there are any sort of maintenance issues.

So they are absolutely more profitable in the early years, and we'll see what the overall market is like this is -- this is a strong market. As John said, we hope to place them with a great customer at a great rate and we'll just have to see how the profitability as we have pretty good expectations.

John W. Dietrich -- President and Chief Executive Officer

Yeah. The other thing I'd add to that just from an operational standpoint. And this is true of aircraft that are in production for a while. The longer the aircraft are in production, generally speaking, the better the aircraft perform, meaning that the likes of Boeing and GE, you get the kinks out over time. These aircraft are likely to be somewhat lighter than some of the other 747-8s and the engines performing at their peak performance compared to the earlier deliveries. So we're excited about that and think that's a great value proposition to our customers as well as they review the opportunity.

Scott Group -- Wolfe Research -- Analyst

That makes sense. Thank you, guys again. Appreciate it.

John W. Dietrich -- President and Chief Executive Officer

Thank you.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our last question comes from the line of David Campbell with Thompson Davis. Your line is now open.

David Campbell -- Thompson Davison Company -- Analyst

Yeah, thanks for taking my question. I had to step off the phone, may have missed -- I may have missed something that I'm asking about the -- in the, as you know, January and February every year are distorted by the changes in the Chinese New Year. And this year we have also the problem of the port congestion on the West Coast, on the West Coast there into your business in January and February I guess. But what about March, March is a seasonal peak as you know and I was wondering if you'd seen or had any discussions with your customers about demand in the -- in the month of March or this year.

John W. Dietrich -- President and Chief Executive Officer

Yeah, I think that's reflected in our first quarter guidance. You know, a lot of the variables that we talked about which favored air freight in 2020 continued into 2021 Q1. Lunar New Year for example because of COVID and the desire the Chinese government to limit travel, we saw a unique environment where factories, many of them stayed open during Lunar New Year, which was unprecedented.

You also see the demand for international passenger air travel continuing to be down, which is a favorable environment that's not going to last forever. The passenger carriers I expect will have a tremendous appetite to get their aircraft back up in the air as quickly as possible. But then, then what, will people be willing to travel? So that remains to be seen, but I think March is a reflection of what we saw in January, February, adding to a couple of comments I just made.

David Campbell -- Thompson Davison Company -- Analyst

Thanks, and my second question is related to Amazon. Amazon is adding aircraft all the time, it seems. Correct me if I'm wrong. Is there primarily aircraft designed for domestic use in the United States. I think, and if not, if they're not using international cargo, is that because they need the operating rights and they don't have operating rights bilateral or rights into these countries.

John W. Dietrich -- President and Chief Executive Officer

Yeah, David, I can't speak for Amazon. They're going to do what they're going to do with those airplanes. Generally speaking, the type of aircraft they're acquiring are more regional not long haul, wide body international but that's their call where they're going to deploy them and I don't think they're public with that yet.

David Campbell -- Thompson Davison Company -- Analyst

But they don't have any restrictions internationally by not having --

John W. Dietrich -- President and Chief Executive Officer

I can't speak to Amazon. I mean they don't operate -- they don't operate their own Air Operating Certificate this time. So that I do know. They would deploy those aircraft to carriers I suspect that would be able to operate them wherever they want to operate them. But they themselves as Amazon to-date, do not have their own Air Operating Certificate, which by definition means they don't have air route rights.

David Campbell -- Thompson Davison Company -- Analyst

All right. All right. Okay, thank you very much.

John W. Dietrich -- President and Chief Executive Officer

Thank you, David.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. This concludes today's question-and-answer session. I would now like to turn the call back to Atlas Air for closing remarks.

John W. Dietrich -- President and Chief Executive Officer

Okay. Thank you, operator. And thanks to all of you for your great questions. On behalf of all the employees, Spencer and I would like to thank you for your interest in Atlas Air Worldwide. We appreciate you sharing your time with us today and we hope you and your families remain safe and we look forward to speaking with you again soon. So thank you all so much.

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Thank you, operator.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

Ed McGarvey -- Senior Vice President and Treasurer

John W. Dietrich -- President and Chief Executive Officer

Spencer Schwartz -- Executive Vice President and Chief Financial Officer

Bob Labick -- CJS Securities -- Analyst

Chris Stathoulopoulos -- Susquehana -- Analyst

Scott Group -- Wolfe Research -- Analyst

Helane Becker -- Cowen -- Analyst

David Ross -- Stifel -- Analyst

Barry Haimes -- Sage Asset Management -- Analyst

David Campbell -- Thompson Davison Company -- Analyst

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