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U.S. Drawdown to Affect Atlas Air

The aviation transport company Atlas Air Worldwide Holdings (AAWW) announced a large increase in profit for the most recent quarter but warned that they would see their business suffer as the U.S. military cuts back on requirements to support troops in Iraq and Afghanistan. The company reported that full year earnings would be above estimates at about $4.35.

They did say that they are expected to fly about 4,000 hours less of missions for the U.S. Defense Department in the rest of the year from the just over 10,000 projected at the beginning. This warning caused the company’s stock to decline over fifteen percent for the day. It closed at $50.24 last night.

The U.S. military has utilized not only its own lift assets from the Air Force to provide support to the troops in Iraq and Afghanistan over the last nine years but also relied heavily on commercial transportation providers such as DHL and Atlas. Because of the long supply line through Pakistan much of the cargo and troops move via air to Afghanistan.

There have also been concerns raised with the delays in Boeing (BA) 747-800 transport program which may affect Atlas’ capabilities. The company will take possession of three of the new aircraft next year to operate for British Airways.

Once the draw down of troops in Iraq is complete and the removal of troops in Afghanistan begins in 2011 the demand for things like this service will begin a steady decline. This will affect a variety of companies providing not only transport but support services across the two countries for the U.S. and its Allies. The effect on revenue, profit and stock prices may be quite dramatic in the next few years as the industry adjusts to the new level of demand from the U.S. military.

In the next few years the industry may see some winnowing out as the market declines. Atlas Air due to their strong commercial base will do well but will feel the effects of the contraction of the U.S. and European defense budgets.

Photo from Deanster1983′s flickr photostream.

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