Thursday, August 28, 2014

An Interview with William J. Flynn, president and CEO of Atlas Air Cargo


William J. Flynn
(Photo Courtesy of Atlas Air)
 
An interview with William J. Flynn, president and Chief Executive Officer of Atlas Air Cargo
By: Michael Manning

William J. Flynn has been President and Chief Executive Officer of Atlas Air Worldwide Holdings Inc. since June 22, 2006 and its subsidiaries, Atlas Air Inc. and Polar Air Cargo Inc. since June 2006. Mr. Flynn has been the Chief Executive Officer and President of Polar Air Cargo Worldwide, Inc. since June 2006. He served as President and Chief Executive Officer of Agility Holdings Inc. from August 2002 to June 2006. He has spent 30 years in ... the freight forwarding and logistics industry and has held senior executive positions with PWC Logistics, and Sea-Land Service Inc. He was initially recruited in 2002 to lead when PWC Logistics acquired GeoLogistics Corporation in 2005. Before joining GeoLogistics Corp. in 2002, Mr. Flynn served as a Senior Vice President of Merchandise Service Group of CSX Transportation, the railroad unit of CSX Corporation from May 2000 to July 2002. Mr. Flynn served as Senior Vice President - Strategic Planning of CSX Corporation, where he was responsible for its e-business strategy and development, from December 1999 to April 2000. He also served as Senior Vice President of CSX Corporation from 2000 to July 2002. He held various positions at Sea-Land Service Inc., a subsidiary of CSX Corporation from 1977 to 1999. He joined Atlas in 2006. Mr. Flynn has been a Director at Republic Services, Inc. since December 5, 2008. He has been a Lead Director at Horizon Lines Inc. since May 2008. Mr. Flynn has been a Director of Horizon Lines Inc., since December 1, 2006 and Atlas Air Worldwide Holdings Inc. since May 2006. Mr. Flynn serves as a Director of Polar Air Cargo Inc., Horizon Lines LLC, Aero Logistics LLC, Polar Air Cargo Worldwide, Inc. and Atlas Air Inc. He served as a Director of Allied Waste Industries Inc. since February 19, 2007 and Agility Holdings Inc., since August 2002. In March 2003, he was awarded the Marco Polo Award by the Government of China, the highest award given to a private person for support of humanitarian activities and business development in China. Mr. Flynn holds a BA degree, summa cum laude, in Latin American Studies from the University of Rhode Island and a Master's degree from the University of Arizona
 -


(Image Courtesy of Airways Magazine)
The following interview was published in Airways Magazine's September 2014 cover issue
-

Manning: We’ve witnessed the collapse of two historical competitors: Evergreen International in January, and World Airways in March. Obviously, they were very vulnerable to the same economic pressures you face at Atlas Air Cargo. How has Atlas structured its business to avoid a similar fate?
 
-
Flynn: I think first of all it has to start with our view of the market. Our view is that air freight in particular – we do have passenger services as well – but air freight in particular is, from our point of view, an essential part of the global economy and a long-term growth industry as well. So, the underlying demand in air freight has been flat for the last couple of years. We really didn’t see any appreciable growth in 2011 and 2012, and only started to see evidence of growth in the first quarter of 2013.
-
(Photo Courtesy of Atlas Air)
But I think the good news is that has continued, and even the most recent statistics that we were looking at over the past couple of days on May numbers, in our own experience we continue to see growth on a year-over-year basis for the first five months of the year—which is typically the lower demand period. Over the year, air freight is typically second-half weighted. And so I think those are all very good signals for what the full year may be. Hopefully that will continue over what the full year will be. Recognizing that the industry is a long-term growth industry, I think there are several key components to our strategy that are important for Atlas. First, it starts with our fleet. We’ve made substantial investments ever since the company began a little over 20 years ago in having a very modern, very fuel-efficient fleet of aircraft that we could offer to our customers—offer to our ACMI (Aircraft, Crew, Maintenance, Insurance) customers and offer to our charter customers. The newest component to our fleet are nine 747-8. But of course, we have 21 747-400 freighters that we operate as well. We think that in terms of our ACMI and charter operations, that is, indeed, a modern and fuel-efficient fleet that we can bring to our customers. Beyond that, Michael, we have a scale and scope to our operation that I think that conveys and allows us to create additional value for our customers. Last year, we operated in and out of 124 countries and 400-plus cities. But if one were to look at a map of freight flow, and what are the major centers of the world through which freight flows, you would see Atlas has a high level of operation in almost all of those points. So, the scale and scope of the business, the size of our pilot force, the scale and scope of our ability to maintain our aircraft, how we have parts inventories deployed around the world—all that adds up to allowing us to create exceptional value to our customers. So, part of the answer to your question of ‘what have done that might have been different (from Evergreen International and World Airways) is the investment in the fleet, the ability to grow scale, we’ve diversified into the 767 which is the platform that a number of our customers integrated into their operations as well. We also had a very conscious effort dating back to 2006 and moving forward, that we needed to grow and diversify and not be overly-dependent on U.S. military demand for cargo and passenger service.        
-
(Photo Courtesy of Scott Wright)
Evergreen International Airlines (1975-2014)
 
Manning:  Looking back, Evergreen International appeared to be a broadly diversified company--from oil exploration to helicopter services. But the company still failed. As you look at their business model, are there any segments that might be of interest to Atlas in the future that you’re currently not pursuing?  For example, offering modified 747 aerial tanker services to the U.S. Forest Service as Evergreen did? 
-
Flynn: I think we’ve taken a somewhat different tact than Evergreen—and they were very diversified, as you said, a lot of that driven by the vision of Delford Smith, their founder. But where we diversified, for example, was into aircraft dry leasing. Our historical business and our core is ACMI operations.
-
We were able to expand on that by introducing fee-MI services, where our customer owns the aircraft, but we’re operating the aircraft and maintaining it, and providing the network logistics for that. A few years ago, we didn’t have any aircraft under CMI operations. Today we have 14 under CMI operations. From that, we were able to pivot into passenger charter operations as well. Then, the third area that we’ve developed is, indeed, dry leasing. We’ve invested over a billion dollars into the dry leasing business, over the last 15 months or so. We have over 10 aircraft now in dry leasing – six of which are triple-sevens. So, we’ve taken a different approach towards diversification. What we’ve told our investors is that ACMI is our core. We’ll continue to manage our fleet with a view towards modernization—which could mean additional dash 8’s. But we’ll also continue to invest in Titan, which is our dry leasing subsidiary—there also with a focus on freighters.     
-
(Photo Courtesy of Atlas Air)
Manning: I noticed in your Strategic Growth Plan for 2014 that military transport demand is declining. In light of this development, you see opportunities to grow into segments outside of that.
-
 
Flynn: Yes, that’s exactly right. I think that anybody who has been participating in military service cargo or passenger services had to expect that demand would contract, as we’ve withdrawn from Iraq and the process of withdrawing from Afghanistan. So, it was urgent, in a way, for us to develop additional areas of our business model. And again, we’ve made an investment the dash 8’s. That was about a billion and a half dollars in those assets and they’re performing well for our customers. And then we did a parallel investment into Titan over the past couple of years, which—if you were to look at our 10-Q for the First Quarter, you’d see a strong growth and contribution in both ACMI and in dry leasing—which offsets the contraction in military (flying), and military will further contract as we complete the withdrawal from Afghanistan over the next year or whenever the (Obama) Administration’s timetable is. I’ll just clarify. There will still be some ongoing military opportunities for business—passenger charter and some cargo. But it’ll be at a much smaller level of operations, more consistent with the pre-9/11 environment than what it’s been for the last thirteen years.
-
(Photo Courtesy of Atlas Air)
Manning: What were some of the considerations that went into your decision to order the new Boeing 747-8 series aircraft for the Atlas fleet?
-
Flynn: Well, there were several. We knew that at some point in time, customers and we ourselves would be looking for—consistent with our view, the most modern and fuel efficient aircraft available in the market. Aircraft from the freight perspective that would produce the lowest cost to move a kilo or a ton of cargo from Hong Kong to Cincinnati, or Shanghai to Frankfurt—number one.
-
Number two, we’ve been operating Boeing freighters for quite a long time—and believe they are excellent freighters—and believe that the 747-8 would be just another great extension of the 747 line from over 40 years ago now. So, what does the 747-8 offer? Well, it offers several things. It offers greater cargo-carrying capacity, substantially-improved fuel efficiency, it utilizes the new gen-ex engines that are being used on the 787, it incorporates a lot of the design features of the 787, including the wing design. It’s an all-metal aircraft. It’s not a carbon fiber aircraft. But it takes advantage of the engineering and design features of the 787. From an ownership point of view, we anticipate that the long life, or the full life maintenance costs to maintain the 747-8 and the engines will be lower than even the full-life maintenance costs of the 747-400’s. So, our view is that it’s a great freighter that certainly something that our customers would want. From the economic point of view it would be a great investment for the company and generate solid returns for us and for our shareholders.
-
(Photo Courtesy of Atlas Air)
Manning: Are you satisfied with Atlas’ current fleet composition of Boeing 737’s, a 757, the 767’s, 777’s and 747’s or do you foresee any changes?
-
Flynn: Well, you’ve basically run down a list of the freighters that are available in the marketplace. We manage our fleet aggressively. Certainly, I could envision a certain amount of 747-8’s. But in doing so, we would likely reduce the number of 747-400’s. It wouldn’t necessarily be additive. But in exchanging our 747-400’s or exiting our 747-400’s and adding the dash 8’s, there is, I think, real earnings upside potential in that for the company and value for our customers. I expect that we’ll also continue to invest in Titan. So, there the 777 is a very attractive aircraft from a leasing point of view, and I suspect that there will be opportunities to invest in 767’s as well—767’s for freighters. The smaller aircraft, the 737’s and the 757 are probably more opportunistic. The fleet is just smaller. It has more limited application than the other aircraft do, so we’ll probably want to invest in the mid-size and the larger freighters just so we’ve got the best opportunity to deploy them across the market.
-
Manning:  Will Atlas remain an all-Boeing operator, or have you considered Airbus at any point as part of your fleet composition?
-
Flynn:  Well, right now the only freighter that’s being offered is the A330-200 and that’s a very good freighter. But what we haven’t seen a lot of ACMI opportunity for that freighter. And so the fullest suite of offering right now is by Boeing. I understand that Airbus may be considering an A350 freighter, and if they do, that certainly is something we’d look at. But I don’t know if they’re committed to that freighter yet and what the timing or the delivery of those units might be. But in terms of the large wide-body freighters, there really only are Boeing freighters—the 777, the new 747-8 or the 747-400. There is no large freighter from any other manufacturer.
-
(Photo Courtesy of Atlas Air)
Manning:  In years past, airlines such as Champion Air and Sun Country relied heavily on relationships with travel agencies. What is your assessment of the demand for leisure passenger charters?
-
Flynn: I would say that we’re actually learning about that, Michael. We first started passenger operations as a CMI operator for SonAir, a subsidiary operator of Sonangol—who is the Angolan state oil company. And what they were looking to do is to have a dedicated service in a luxury configuration between Houston and Luanda to serve the U.S. and Angolan oil and energy companies. That actually got us into passenger operations—that’s how we started. After a year of flying for Sonangol, we were qualified to offer services to the military and we submitted an application to be considered for military operations and were approved by the Air Mobility Command. So, we began passenger operations for the U.S. military. What we found was that there is, indeed, a passenger charter market that’s a commercial passenger charter market, and we’ve been somewhat successful in that over the last couple of years. Basically, that drives higher utilization on the aircraft that we have for the passenger operations for the military. Going forward, I’d say we’re still in the learning mode. How big is that market? What would be the right investment to be in that market? And then you raised a very good question: What are the best sales and distribution channels? Most of commercial passenger charter operations come from well known brokers. So, I’d say we’re in the learning mode and haven’t decided how much more investment might be required, and what would be appropriate for us going forward.
-
Manning: Recently, Lufthansa Cargo has postponed a decision on whether to accept Boeing 777 freighters. We’ve noticed that Air France-KLM, Singapore, and Japan Airlines have all reduced the number of freighters they operate. This trend must bode well for Atlas. What are your views on these developments?
-
Flynn: It’s interesting as you point out that several very well known freighter-operators—we might consider them some of the pioneers of freighter operations internationally--are changing their business mix around their cargo and freight operation. But others are growing and other parts of the world are growing and creating new opportunities for us as we see higher rates of growth in some of the emerging markets and emerging economies. So I agree with you. It does create a new opportunity for us. Either with traditional airlines, in terms of providing ACMI or CMI operations for them, or working with airlines that are just beginning to really develop their freighter operations and freighter profile, and working with them to help them grow their business, and thereby grow ours as well.
-
Manning:  What are your thoughts on the IATA request for its members to shave 48 hours off shipping times? The agency contends that out of the 6.5 days on average it takes to get air freight from door to door, only a few hours is actually spent in the air. Is Atlas changing its procedures with freight forwarders and ground handlers to meet this challenge?
-
(Photo Courtesy of Seth Jaworski)
Flynn: I was at the conference in Doha just a week and a half ago, and that was discussed and that’s being discussed at the Cargo summit as well. I think what IATA is underscoring is that there is a need to accelerate the process by which freight is tendered to a forwarder or broker—whoever the receiving party is. And then ultimately move the destination, and it’s either available at the door for pickup or delivery and they are focusing on the process, as opposed to the actual flight time, cause flight times are what they are and certainly not more than that. I think there’s a number of questions there. I think it’s the right focus though, because air freight is expensive. By nature, if you look at what moves air freight it perishable, it’s time-sensitive, it’s high value—there are any number of considerations. I do think there are opportunities to take time out of the supply chain. So, what does Atlas do here? We continue to develop, I think, a suite of information products that our ACMI customers can use and our charter customers can use. That information, more than anything can be uploaded into their supply chain system so they can provide for their own operations and to their customers, an in-transit visibility on the air product. And hopefully, better information can flow back to origin and forward to destination, so that more time and coordination can be made with customs, clearances, airport operations and either door pickup or door delivery.
-
(Photo Courtesy of Atlas Air)
Manning: What can we expect from Atlas and it’s subsidiaries in the foreseeable future?
                                                                                 -
Flynn: Our very firm belief here is that air freight is a growth industry and an important part of the economy. We’ve made substantial investments to be a leading provider of very high quality services to our customers—and to add to that—to be advisors and consultants to our customers as they think about their operations and their businesses. We will continue to invest in our company in our fleet. I do think that we do have a very deep understanding of global air freight and international markets. I think you’ll see Atlas continuing to not only grow with longstanding customers, but develop new customers, and maybe more so in the emerging north-south market between Latin America and the rest of the world and between South Sahara (East-West) Africa from the Middle East, which is a well established market already.

My thanks to thank Bonnie Rodney and William J. Flynn for making this interview possible.


 

7 comments:

Lisa @ Two Bears Farm said...

That's quite an interview!

Stephen Hayes said...

You certainly ask all the right questions and your skills as an interviewer are apparent in this superb interview.

Michael Manning said...

Lisa and Stephen: Thanks very much and have a great weekend! :)

sage said...

I learn a lot from your interviews as this is one market that I don't know much about... Thanks for enlightening me and for publishing these.

Michael Manning said...

Thanks Sage: Mine is certainly a different blog page. But then guitarist Jeff Beck restores hot rods in his spare time, and Boston's Tom Scholz worked for Polaroid while building his recording studio. So, with eclectic examples as these, I shrug my shoulders and share something different too. Thanks for reading!

Sandy Carlson said...

What a great interview. It must be tough to be a leader in this industry.

Michael Manning said...

Sandy: Bill is clearly an excellent CEO whom I found very easy to visit with. His insights are fascinating about an industry segment that is not well known by the general public.