WILMINGTON, Ohio--(Business Wire)--
Air Transport Services Group, Inc. (NASDAQ:ATSG) said today that
arbitrators have ruled that its subsidiary, ABX Air, was entitled to
full reimbursement of its general overhead expense from its principal
customer DHL during 2007. The arbitrators also ruled that ABX Air
began earning more than 10% of its total revenues from non-DHL
customers effective as of January 1, 2008, and directed DHL and ABX
Air to commence negotiating in good faith to determine a reasonable
allocation of ABX Air's overhead expenses related to its provision of
non-DHL services.
In November 2007, ABX Air and DHL agreed to arbitrate provisions
of their ACMI and Hub Services agreements that cover the allocation of
ABX Air's overhead expenses between DHL and its third-party
operations. The dispute centered on a claim by DHL that certain ABX
Air expenses beginning in the second quarter of 2007 were no longer
eligible for reimbursement in full by DHL, because ABX Air's revenues
from other customers had exceeded a 10% threshold of its total
revenues. DHL also claimed that ABX Air's costs in maintaining its
public company status and certain professional fees incurred by ABX
Air with respect to an unsolicited indication of interest from another
airline were not recoverable under the agreements.
"We are very pleased that the arbitrators upheld our position on
the principal matter before them, which was whether fuel expenses
reimbursed to ABX Air without markup by DHL should be included in ABX
Air's revenues for the purpose of determining an overhead allocation,"
ATSG Chief Executive Officer Joe Hete said. "They ruled that DHL
failed to demonstrate that ABX Air had incorrectly treated the
reimbursement for its fuel expenditures as revenue under generally
accepted accounting principles, and therefore ABX Air's revenues from
sources other than DHL did not exceed 10% of its total revenues during
the second quarter of 2007. As a result, there is no requirement for
ABX Air to allocate a portion of its overhead expenses to its non-DHL
businesses during 2007."
However, the arbitrators did conclude that ATSG's revenues
attributable to non-DHL services, including those associated with
ABX's affiliates, such as the Cargo Holdings International, Inc.
("CHI") companies acquired by ATSG on December 31, 2007, are to be
included for purposes of triggering an allocation of overhead expenses
under the agreements. The ruling stated that "regardless of the
treatment of fuel as an element of revenue, that the 10 percent
threshold has been met, as from January 1, 2008. The parties are thus
required to negotiate in good faith a reasonable allocation of
overhead costs attributable to ABX's third-party business."
Hete said that ABX Air and DHL will begin negotiations to
determine which ABX Air expenses are directly related to its non-DHL
operations, which expenses are properly subject to allocation, and an
appropriate allocation formula. He said he could not predict when such
negotiations might be completed, nor how much incremental overhead
expense ATSG might have to absorb without reimbursement. "Even before
receiving the arbitration results, we anticipated that we would
trigger the requirement to negotiate an allocation in the near
future," Hete said. "We believe that we can deliver good returns for
our shareholders from our non-DHL businesses even with a reasonable
allocation of overhead to their results."
Additionally, while noting that costs required to maintain
public-company status are reimbursable by DHL under the agreements,
except to the extent otherwise allocable to non-DHL business, the
arbitrators ruled that ATSG is solely responsible for expenses it
incurred to consider and analyze an expression of interest from ASTAR
Air Cargo in acquiring ABX Air, and to prepare and complete its
acquisition of CHI at year-end 2007. ATSG expects a $2.4 million
reduction to second quarter 2008 pre-tax earnings associated primarily
with the ASTAR indication of interest.
Lastly, the arbitrators also determined that DHL's withholding of
$8.8 million in payments to ABX Air for 10 days last November based on
DHL's interpretation of the agreements was not a material default
under the agreements.
Hete noted that the overhead allocation discussions will be
conducted separately from other discussions with DHL concerning its
plans to reduce the scope of its business with ABX Air as part of the
restructuring of its U.S. operations.
"We continue to seek full and fair treatment of our employees and
others potentially at risk of losing their jobs and businesses over
DHL's decision to contract with UPS for air network and ground support
services. We are continuing to pursue our plan to maximize returns to
our shareholders by providing superior service to DHL's customers, by
making plans to recover our investment in aircraft released from DHL
through all of the means at our disposal, and by expanding our growing
and profitable non-DHL businesses," he said.
About Air Transport Services Group, Inc. (ATSG)
Air Transport Services Group, Inc. (NASDAQ: 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 also provides aircraft leasing,
aircraft maintenance services, airport ground services, fuel
management, specialized transportation management, and air charter
brokerage services. ATSG subsidiaries include ABX Air, Inc., Air
Transport International, LLC, Cargo Aircraft Management, Inc., Capital
Cargo International Airlines, Inc., and LGSTX Services, Inc.
Except for historical information contained herein, the matters
discussed in this release contain forward-looking statements that
involve risks and uncertainties. Air Transport Services Group, Inc.'s
actual results may differ materially from the results discussed in the
forward-looking statements. There are a number of important factors
that could cause the Company's actual results to differ materially
from those indicated by such forward-looking statements. These factors
include, but are not limited to, further reductions in the scope of
services ABX Air performs under its ACMI and Hub Services agreements
with DHL, the consummation of an agreement between DHL and UPS that
results in ABX Air's loss of a significant portion of the services it
currently provides to DHL, the negotiation of new terms under the ACMI
and Hub Services agreements for allocation of overhead expenses,
ATSG's success in identifying new customers to replace services
terminated by DHL, and other factors that are contained from time to
time in Air Transport Services Group's filings with the U.S.
Securities and Exchange Commission, including the Company's 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
the Company's forward-looking statements. These forward-looking
statements were based on information, plans and estimates as of the
date of this release. Air Transport Services Group undertakes no
obligation to update any forward-looking statements to reflect changes
in underlying assumptions or factors, new information, future events
or other changes.
ATSG
Quint Turner, 937-382-5591
Copyright Business Wire 2008
