ATSG`s Third Quarter Results Reflect DHL Transition, Leasing Gains

http://www.businesswire.com/news/home/20091112006347/en

ABX Air, Pilots Reach Tentative Collective Bargaining Agreement
WILMINGTON, Ohio--(Business Wire)--
Air Transport Services Group, Inc. (NASDAQ: ATSG), today reported its financial
results for the third quarter of 2009. Those results, compared with results for
the third quarter of 2008, included the following:

* Revenues from continuing operations of $174.2 million, down 27 percent from a
year ago, reflecting primarily the scaled-down U.S. operations of DHL, the
company`s principal customer, which now provides international-only package
express services to and from the United States.
* Pre-tax earnings from continuing operations of $4.6 million, essentially flat
with year-earlier levels, reflecting ATSG`s expanded aircraft leasing operation
and lower earnings from DHL and other ACMI operations.
* Consolidated net earnings of $3.7 million, or $0.06 per diluted share in the
third quarter of 2009, down 25 percent, principally due to an unfavorable
comparison with 2008`s provision for income taxes. A $1.3 million non-recurring
tax benefit was recorded in the third quarter last year. Income tax expense for
ATSG is a deferred, non-cash item.
* Reduced debt by $37.0 million compared with June 30, 2009 levels, and by
$106.5 million, or 21 percent, since December 31, 2008. Improved coverage
ratios, and a decline in the base LIBOR rate, have reduced the interest rate on
our variable-rate facilities by nearly 400 basis points from a year ago.

Separately, ABX Air, a cargo airline for ATSG, announced today that it has
reached a tentative agreement on an amended collective bargaining agreement
(CBA) with representatives of Local 1224 of the International Brotherhood of
Teamsters. The local represents approximately 600 current and former ABX Air
flight crew employees. The agreement is subject to a number of conditions,
including ratification by Local 1224 members covered by the CBA and a new
agreement between ABX Air and DHL for airline operations in the U.S., replacing
the current ACMI Agreement.

"Our results for the third quarter are consistent with our 2009 goals, which are
to roll out more converted freighters and related air cargo services for new
customers, drive out costs and strengthen our balance sheet to remain
competitive in a weak but reviving economy, and complete the details of a new,
more comprehensive relationship with our ABX Air flight crews and with DHL,"
ATSG President and CEO Joe Hete said. "That work continues, but we expect to
report more progress later this year and in 2010 as economic conditions
improve."

Financial Highlights

ATSG`s third-quarter 2009 EBITDA (Earnings before Interest, Taxes, Depreciation
and Amortization) from Continuing Operations decreased to $30.8 million, from
$37.0 million in the year-earlier period. EBITDA from Discontinued Operations
was $1.5 million for the quarter, compared with $1.6 million for the third
quarter of 2008 (See Reconciliation of EBITDA to GAAP Net Earnings at the end of
this release). EBITDA is a non-GAAP measure of financial performance that
management believes better reflects the cash-generating performance of
asset-intensive, financially leveraged businesses such as ATSG.

The provision for income taxes for the third quarter was $2.3 million, compared
with $1.0 million in the third quarter of 2008. The third-quarter 2008 provision
for income taxes included a $1.3 million reduction in a reserve tied to reviews
of our prior-year returns. Our deferred tax assets continue to offset the vast
majority of our current income tax obligations.

Overall interest expense for the third quarter declined by $2.4 million compared
with a year ago. DHL`s agreement to cancel $46.3 million in principal amount of
ABX Air`s obligation under its promissory note to DHL was a significant factor.
Our first lien debt to EBITDA coverage ratios improved this year, and the
underlying base rate of our debt has declined. Rates on our variable interest,
non-hedged, unsubordinated term loan have declined from 6.8 percent in the third
quarter of 2008 to 2.9 percent for the third quarter of 2009.

For the first nine months of 2009, ATSG`s revenues and net earnings from
continuing operations were $573.0 million and $17.9 million, respectively, or
$0.28 per diluted share. For the first nine months of 2008, revenues and net
earning from continuing operations were $684.7 million and $6.3 million,
respectively, or $0.10 per diluted share.

Segment Results

DHL

Revenues from ATSG`s ongoing role in DHL`s U.S. air network under the principal
ACMI Agreement were down 38 percent to $69.8 million, including reimbursable
fuel and wind-down costs. Pre-tax earnings from those same operations, based on
fixed-dollar markups, decreased 17 percent to $1.9 million for the quarter from
a year earlier, when markups were primarily cost-plus. ABX Air`s operations for
DHL were sharply curtailed in January 2009 as DHL chose to limit its package
delivery service within the U.S. to international shipments.

ABX Air has paid to approximately 8,600 terminated employees associated with the
DHL book of business approximately $18.4 million for accrued vacation benefits
since DHL`s restructuring began in mid-2008, including $3.3 million in the third
quarter this year. ABX Air contends that DHL is obligated to reimburse ABX for
those payments in full. DHL has declined to do so since an initial $3.2 million
reimbursement payment in March 2009 for 2008 vacation benefit costs. ABX Air
believes it can demonstrate the validity of its claim. It is discussing this
matter with DHL in the context of broader negotiations toward future aircraft
leases under a restructured business relationship between the companies when the
current ACMI Agreement expires in August 2010.

Third-quarter net earnings from discontinued operations, consisting of ABX Air`s
support of DHL`s sorting and aircraft fuel management operations, were $0.9
million for both 2009 and 2008. The Hub Services agreement with DHL expired
midway through the third quarter this year, as DHL moved its principal U.S.
operations from Wilmington to the regional airport serving Cincinnati, Ohio. ABX
Air continued to support DHL`s sorting operations in Cincinnati through a
transition ending in September.

CAM/Leasing

Pretax earnings from Cargo Aircraft Management (CAM), ATSG's aircraft leasing
business, were $6.1 million for the third quarter, up 51 percent. Its 41
aircraft under lease at September 30, up from 35 a year ago, excludes one
767-200 freighter it purchased in October for $17.8 million. CAM had three 767
freighters under dry lease arrangements with non-ATSG carriers at September 30
this year, compared with two a year earlier. It expects to lease two more 767s
during the fourth quarter under a previously disclosed lease agreement with
Amerijet International of Ft. Lauderdale, Fla.

CAM will ultimately be the owner of 14 767s that ATSG intends to convert to full
freighter configuration by the end of 2011. Ownership is transferred from ABX
Air to CAM upon commencing the modification process. The first of the 14
aircraft has been completed and is in service. Three more were undergoing
modification as of September 30. The first of those three is already in revenue
service. The second will be in service by the end of this month.

ACMI Services

At September 30, 2009, ACMI Services included 47 in-service cargo aircraft
operated by three airlines: ABX Air, CCIA and ATI, up from 44 a year ago. More
aircraft in service led to a 12 percent increase in block hours flown during the
quarter. But revenues, excluding directly reimbursed fuel expenses, were down 12
percent to $70.3 million. Revenues declined because of the effect of sharply
lower fuel prices on customer contracts that include fuel in the service price.

Pre-tax earnings for the ACMI Services segment decreased to a loss of $0.9
million for the third quarter compared with a profit of $0.9 million a year
earlier. Lower than expected cargo volumes for a transatlantic scheduled service
that ABX Air began in January was the largest contributor to the loss. ABX Air`s
other operating results were below expectations. ATI and CCIA improved upon
third-quarter results from a year ago.

Other Activities

Revenues from all other activities increased 14 percent to $17.8 million,
attributable to more aircraft and facility maintenance services for internal
customers than a year ago. The pre-tax earnings from all other activities were
$0.1 million in the third quarter, up from a $0.2 million pre-tax loss a year
earlier. A larger portion of unreimbursed overhead expenses, compared with a
year ago, are being borne by ATSG as the DHL operations wind down.

Outlook

"The tentative agreement on an amended CBA with our ABX Air pilots was a major
achievement, although it is subject to a ratification vote and includes
provisions that require matching commitments from DHL," Hete said. "We look
forward to resolving this and other matters with our pilot groups, and
completing action on several significant outstanding issues still pending with
DHL. That will clear the way toward relationships that benefit our customers,
our shareholders and our employees, and allow us to leverage all of our
capabilities in cost-effective airlift and ground support, together with our
maintenance and logistics services."

Conference Call

ABX Air will host a conference call to review its financial results for the
third quarter of 2009 on Friday, November 13, at 10:00 a.m. Eastern time.
Participants should dial (888) 713-4217 and international participants should
dial (617) 213-4869 ten minutes before the scheduled start of the call and ask
for conference ID #50812465. The call will also be webcast live (listen-only
mode) via the link below and also via www.earnings.com for individual investors
and www.streetevents.com for institutional investors. A replay of the conference
call will be available an hour after the conclusion of the call. It will be
available by phone for five days after the call at (888) 286-8010 (international
callers (617) 801-6888); use pass code ID #74007074. The webcast replay will
remain available via the link below and www.earnings.com for 30 days.

About ATSG

ATSG is a leading provider of air cargo transportation and related services to
domestic and foreign air carriers and other companies that outsource their air
cargo lift requirements. Through five principal subsidiaries, including three
airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates,
ATSG provides air cargo lift, aircraft leasing, aircraft maintenance services,
airport ground services, fuel management, specialized transportation management,
and air charter brokerage services. ATSG`s subsidiaries include ABX Air, Inc.,
Air Transport International, LLC, Capital Cargo International Airlines, Inc.,
Cargo Aircraft Management, Inc., LGSTX Services, Inc., and Airborne Maintenance
and Engineering Services, Inc. For more information, please see www.atsginc.com.

Except for historical information contained herein, the matters discussed in
this release contain forward-looking statements that involve risks and
uncertainties. There are a number of important factors that could cause Air
Transport Services Group's ("ATSG's") actual results to differ materially from
those indicated by such forward-looking statements. These factors include, but
are not limited to, the timing for and extent to which ABX Air is reimbursed for
costs incurred, or arising from the termination of services, under its
commercial agreements with DHL, and expenditures made under its Severance and
Retention Agreement with DHL, the ratification of the tentative agreement
reached between ABX Air and its pilot employees to amend their collective
bargaining agreement, the timely conversion and deployment of Boeing 767
aircraft, the consummation of definitive agreements for the provision by ABX Air
of future services to DHL beginning upon the termination of the ACMI Service
Agreement, and other factors that are contained from time to time in ATSG's
filings with the U.S. Securities and Exchange Commission, including its Annual
Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully
review this release and should not place undue reliance on ATSG's
forward-looking statements. These forward-looking statements were based on
information, plans and estimates as of the date of this release. ATSG undertakes
no obligation to update any forward-looking statements to reflect changes in
underlying assumptions or factors, new information, future events or other
changes.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)

Three Months Ended Nine Months Ended
September 30 September 30
2009 2008 2009 2008

REVENUES $ 174,202 $ 239,686 $ 572,973 $ 684,722

OPERATING EXPENSES
Salaries, wages and benefits 74,127 98,614 257,191 283,892
Fuel 27,068 54,504 75,560 139,529
Depreciation and amortization 19,954 24,282 62,354 68,378
Maintenance, materials and repairs 15,217 20,674 48,513 65,932
Landing and ramp 5,828 6,603 22,790 26,754
Travel 5,524 7,201 15,888 22,790
Rent 2,629 2,355 7,025 7,080
Insurance 2,731 2,663 8,306 6,998
Other operating expenses 10,315 10,053 26,967 28,645
163,393 226,949 524,594 649,998

INTEREST EXPENSE (6,236 ) (8,609 ) (21,048 ) (27,681 )
INTEREST INCOME 74 511 381 2,030
EARNINGS FROM CONTINUED OPERATIONS BEFORE INCOME TAXES 4,647 4,639 27,712 9,073

INCOME TAXES (1,792 ) (531 ) (9,822 ) (2,749 )

EARNINGS FROM CONTINUED OPERATIONS 2,855 4,108 17,890 6,324

EARNINGS FROM DISCONTINUED OPERATIONS NET OF TAX 882 857 5,051 1,902

NET EARNINGS $ 3,737 $ 4,965 $ 22,941 $ 8,226

EARNINGS PER SHARE - Basic
Continuing operations $ 0.05 $ 0.07 $ 0.29 $ 0.10
Discontinued operations 0.01 0.01 0.08 0.03
NET EARNINGS PER SHARE $ 0.06 $ 0.08 $ 0.37 $ 0.13

EARNINGS PER SHARE - Diluted
Continuing operations $ 0.05 $ 0.07 $ 0.28 $ 0.10
Discontinued operations 0.01 0.01 0.08 0.03
NET EARNINGS PER SHARE $ 0.06 $ 0.08 $ 0.36 $ 0.13

WEIGHTED AVERAGE SHARES
Basic 62,685 62,508 62,670 62,462
Diluted 63,731 62,631 63,181 62,655

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

September 30, December 31,
2009 2008
ASSETS

CURRENT ASSETS:
Cash and cash equivalents $ 89,699 $ 116,114
Marketable securities - available-for-sale - 26
Accounts receivable, net of allowance of $1,205 in 2009 and $419 in 2008 22,239 24,495
Due from DHL 72,832 63,362
Inventory 6,523 11,259
Prepaid supplies and other 8,900 11,151
Deferred income taxes 20,171 20,172
Aircraft and engines held for sale 32,521 2,353
TOTAL CURRENT ASSETS 252,885 248,932

Property and equipment, net 614,433 671,552
Other assets 22,225 25,281
Deferred income taxes 1,040 54,807
Intangibles 10,335 11,000
Goodwill 89,777 89,777
TOTAL ASSETS $ 990,695 $ 1,101,349

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 32,825 $ 36,618
Accrued salaries, wages and benefits 37,605 63,500
Accrued severance and retention 13,718 67,846
Accrued expenses 20,628 13,772
Current portion of debt obligations 55,487 61,858
Unearned revenue 17,251 14,813
TOTAL CURRENT LIABILITIES 177,514 258,407
Long-term obligations 350,463 450,628
Post-retirement liabilities 239,292 294,881
Other liabilities 44,321 17,041

STOCKHOLDERS' EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock - -
Common stock, par value $0.01 per share; 75,000,000 shares authorized; 63,460,734 and 63,247,312 shares issued and outstanding in 2009 and 2008, respectively 635 632
Additional paid-in capital 495,551 460,155
Accumulated deficit (222,593 ) (245,534 )
Accumulated other comprehensive loss (94,488 ) (134,861 )
TOTAL STOCKHOLDERS' EQUITY 179,105 80,392
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 990,695 $ 1,101,349

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
PRE-TAX EARNINGS SUMMARY
FROM CONTINUING OPERATIONS
(In thousands)

Three Months Ended September 30 Nine Months Ended September 30
2009 2008 2009 2008
Revenues:
DHL $ 69,801 $ 112,806 $ 273,695 $ 340,950
ACMI Services
Charter and ACMI 70,296 79,434 208,105 210,691
Other Reimbursable 20,195 37,442 53,054 106,189
Total ACMI Services 90,491 116,876 261,159 316,880
CAM 16,046 11,964 43,715 33,677
Other Activities 17,838 15,708 42,829 34,789
Total Revenues 194,176 257,354 621,398 726,296
Eliminate internal revenues (19,974 ) (17,668 ) (48,425 ) (41,574 )
Customer Revenues $ 174,202 $ 239,686 $ 572,973 $ 684,722

Pre-tax Earnings:
DHL $ 1,929 $ 2,326 $ 13,776 $ 5,728
ACMI Services (926 ) 879 1,502 1,195
CAM 6,115 4,038 16,696 13,204
Other Activities 140 (219 ) 2,939 (2,242 )
Net non-reimbursed interest income (expense) (2,611 ) (2,385 ) (7,201 ) (8,812 )
Total Pre-tax Earnings $ 4,647 $ 4,639 $ 27,712 $ 9,073

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION
Net Earnings To Earnings Before Interest, Taxes, Depreciation And Amortization (EBITDA)
(Unaudited)

Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2009 2008 2009 2008

GAAP Earnings from Continuing
Operations $ 2,855 $ 4,108 $ 17,890 $ 6,324
Income Tax Expense 1,792 531 9,822 2,749
Interest Income (74 ) (511 ) (381 ) (2,030 )
Interest Expense 6,236 8,609 21,048 27,681
Depreciation and Amortization 19,954 24,282 62,354 68,378

Earnings Before Interest, Taxes
Depreciation and Amortization from Continuing Operations
$ 30,763 $ 37,019 $ 110,733 $ 103,102

GAAP Earnings from
Discontinued Operations
Net of Tax 882 857 5,051 1,902
Income Tax Expense from
Discontinued Operations 508 492 2,913 1,091
Depreciation and Amortization from
Discontinued Operations 147 213 623 287

Earnings Before Interest, Taxes
Depreciation and Amortization from Discontinued Operations
1,537 1,562 8,587 3,280

Earnings Before Interest, Taxes
Depreciation and Amortization $ 32,300 $ 38,581 $ 119,320 $ 106,382

EBITDA is a non-GAAP financial measure and should not be considered an
alternative to net income (loss) or any other performance measure derived in
accordance with GAAP. EBITDA is defined as income (loss) from operations plus
net interest expense, provision for income taxes, depreciation and amortization.
The Company`s management uses this adjusted financial measure in conjunction
with GAAP financial measures to monitor and evaluate the performance of the
Company, including as a measure of liquidity. EBITDA should not be considered in
isolation or as a substitute for analysis of the Company`s results as reported
under GAAP, or as an alternative measure of liquidity.

Air Transport Services Group, Inc.
Quint Turner, 937-382-5591

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