The air freight carrier’s $800m term loan due 2030 appears to be holding more steady, with quotes remaining at 100.79, relatively unchanged from earlier in the week. Both tranches were issued in early 2023 to fund its approximately $5.2bn take-private acquisition by Apollo, J.F. Lehman and Hill City Capital.

Yesterday afternoon, news broke that Atlas Air would be ending its eight-year-long partnership with Amazon, with its 25 Amazon-controlled planes to be gradually deployed to other operators by mid-2025.

The end of the partnership is a major reason why the bonds have sold off, according to two sources following the credit. One noted that business with Amazon accounted for around 15% of Atlas Air’s revenue. However, it was also pointed that the company said it was looking to redeploy resources into more profitable routes with higher utilization.

“The Amazon announcement was a surprise and people are trying to size up the materiality of that,” said the second source. “It’s a sizable portion of their revenue, so it could mitigate earnings.”

Downdrafts

To that point, Atlas Air has already been facing earnings pressure unrelated to the Amazon announcement, according to both sources, who said the company reported a year-over-year decline in EBITDA earlier today for its Q1 24 ending on 31 March.

One of the sources noted that weather disruptions in Alaska, FAA-mandated inspections for certain Boeing aircrafts and tied-up US government funding for Ukraine all contributed to the decline.

“The earnings didn’t fall off a cliff, but they were soft, which is in line with what they’ve experienced periodically over the last year,” the first source said. “That impacted price movement on the debt too — confidence in this credit is down right now.”

Atlas Air bills itself as the world’s largest outsourced aircraft operator, servicing clients in industries ranging from the military to retail and e-commerce. The company is rated Ba1/BB-/BB on the corporate level, with a stable outlook from each agency.

In last month’s ratings report, Moody’s flagged Atlas Air’s revenue concentration with Amazon, the US military and logistics provider DHL Group as one of its “credit challenges”, along with the company’s high reliance on secured debt, which restrains its liquidity strength.

Moving forward, an Atlas Air spokesperson said the company will reallocate resources to expand its investments in global, long-haul services with wide-body aircrafts, which have seen “the strongest demand from our customers.”

Atlas Air and J.F. Lehman did not return requests for comment. Apollo declined to comment and Hill City Capital could not be reached for comment.