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ATSG's Adjusted Pre-Tax Earnings Up 34 Percent

Outlook

DB Schenker Relationship

Since September, DHL has provided DB Schenker with a portion of its air-cargo services via DHL's hub at the Cincinnati/Northern Kentucky International Airport. It's ATSG's understanding that DHL and DB Schenker are discussing a potential long-term outsourced air cargo agreement beginning in 2012. We expect that ABX Air, as an operator of DHL's U.S. air cargo network, and potentially other ATSG airlines, would continue to provide airlift and route coverage that DHL requires to serve DB Schenker's customers. Regardless of the outcome of those discussions, however, ATSG is marketing for sale its DC-8 and 727 freighter fleets and associated parts, excluding four DC-8 combi aircraft serving the U.S. military, and is reducing its workforce and operating expenses as appropriate.

“We are managing ATSG for maximum cash flow even under uncertain economic conditions," Hete said, "emphasizing long-term leases of freighter aircraft as opportunities arise, but also capitalizing on our unique aircraft, crew, maintenance and insurance (ACMI) capabilities in the mid-sized freighter category, and our ability to offer related incremental heavy maintenance, cargo handling and logistics services to meet continuing and seasonal market requirements. We are managing expenses very carefully while pursuing our growth goals through continued investment in more modern, mid-sized aircraft. As we retire our DC-8 and Boeing 727 freighter fleets, we expect to reduce our annual capitalized maintenance expenditures by $15-20 million starting in 2012. Further, we continue to project annual Adjusted EBITDA to exceed $200 million in 2012."

Conference Call

ATSG will host a conference call on Tuesday, November 8, 2011, at 10:00 a.m. Eastern time to review its financial results for the third quarter of 2011. Participants should dial 866-314-5232 and international participants should dial 617-213-8052 ten minutes before the scheduled start of the call and ask for conference pass code 20493963. The call also will be webcast live (listen-only mode) via www.atsginc.com and www.earnings.com for individual investors, and via www.streetevents.com for institutional investors. A replay of the conference call will be available by phone on Tuesday, November 8, 2011 beginning at 2:00 p.m. and continuing through Tuesday, November 15, 2011, by dialing 888-286-8010 (international callers 617-801-6888); use pass code 90780875. The webcast replay will remain available via www.atsginc.com and www.earnings.com for 30 days.

About ATSG

ATSG is a leading provider of aircraft leasing and air cargo transportation and related services to domestic and foreign air carriers and other companies that outsource their air cargo lift requirements. ATSG, through its leasing and airline subsidiaries, is the largest owner and operator of converted Boeing 767 freighter aircraft in the World. Through its principal subsidiaries, including three airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance services, airport ground services, fuel management, specialized transportation management, and air charter brokerage services. ATSG's subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, LLC; Cargo Aircraft Management, Inc.; Capital Cargo International Airlines, 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, changes in market demand for our assets and services, the cost and timing associated with the modification and deployment of Boeing 767 and Boeing 757 aircraft, the availability and cost to acquire used passenger aircraft for freighter modification, ATSG's continuing ability to place newly-modified aircraft into commercial service, ABX Air's ability to maintain on-time service and control costs under its operating agreement with DHL, the rate at which DB Schenker restructures its U.S. air cargo operations and ATSG's ability to redeploy or sell surplus aircraft resulting therefrom, 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

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
REVENUES $ 195,480 $ 167,726 $ 563,668 $ 488,781
 
OPERATING EXPENSES
Salaries, wages and benefits 48,872 41,074 140,546 129,830
Fuel 41,829 33,745 130,145 98,203
Depreciation and amortization 22,616 22,758 68,865 65,310
Maintenance, materials and repairs 23,740 22,446 67,426 57,355
Landing and ramp 5,691 5,419 18,128 17,830
Travel 7,575 5,667 20,803 16,383
Rent 5,872 4,881 16,946 12,257
Insurance 2,720 2,130 7,464 7,122
Impairment of goodwill and acquired intangibles 5,079 5,079
Impairment of aircraft and related equipment 22,065 22,065
Other operating expenses 10,931   8,378   29,481   26,956  
196,990 146,498 526,948 431,246
       
OPERATING INCOME (1,510 ) 21,228 36,720 57,535
OTHER INCOME (EXPENSE)
Interest income 29 83 128 241
Interest expense (3,304 ) (4,641 ) (10,944 ) (14,424 )
Write off of unamortized debt issuance costs (2,886 )
Unrealized gain/(loss) on derivative instruments (1,881 )   (5,437 )  
(5,156 ) (4,558 ) (19,139 ) (14,183 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (6,666 ) 16,670 17,581 43,352
 
INCOME TAX BENEFIT(EXPENSE) 1,840 (5,282 ) (7,246 ) (15,299 )
       
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (4,826 ) 11,388 10,335 28,053
 
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX 24 (230 ) (74 ) (58 )
       
NET EARNINGS $ (4,802 ) $ 11,158   $ 10,261   $ 27,995  
 
EARNINGS (LOSS) PER SHARE - Basic
Continuing operations $ (0.08 ) $ 0.18   $ 0.16   $ 0.45  
Discontinued operations        
NET EARNINGS (LOSS) PER SHARE $ (0.08 ) $ 0.18   $ 0.16   $ 0.45  
 
EARNINGS (LOSS) PER SHARE - Diluted
Continuing operations $ (0.08 ) $ 0.18   $ 0.16   $ 0.44  
Discontinued operations   (0.01 )    
NET EARNINGS (LOSS) PER SHARE $ (0.08 ) $ 0.17   $ 0.16   $ 0.44  
 
WEIGHTED AVERAGE SHARES
Basic 63,334   62,811   63,267   62,805  
Diluted 63,334   64,202   64,078   64,076  
 
           
 

  AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 
September 30, December 31,
2011 2010
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 28,779 $ 46,543
Accounts receivable, net of allowance of $1,207 in 2011 and $1,090 in 2010 42,360 40,876
Inventory 8,685 7,205
Prepaid supplies and other 10,667 10,132
Deferred income taxes 11,977   12,879  
TOTAL CURRENT ASSETS 102,468 117,635
 
Property and equipment, net 742,233 658,756
Other assets 19,902 25,227
Intangibles 6,458 9,259
Goodwill 86,980   89,777  
TOTAL ASSETS $ 958,041   $ 900,654  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 50,698 $ 40,558
Accrued salaries, wages and benefits 24,824 24,145
Accrued expenses 11,894 12,144
Current portion of debt obligations 13,085 36,591
Unearned revenue 11,935   10,794  
TOTAL CURRENT LIABILITIES 112,436 124,232
 
Long-term debt obligations 323,055 265,937
Post-retirement liabilities 101,862 116,614
Other liabilities 57,991 52,048
Deferred income taxes 47,475 39,746
 
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; 64,069,154 and 63,652,228 shares issued and outstanding in 2011 and 2010, respectively 641 637
Additional paid-in capital 520,152 518,925
Accumulated deficit (160,990 ) (171,251 )
Accumulated other comprehensive loss (44,581 ) (46,234 )
TOTAL STOCKHOLDERS’ EQUITY 315,222   302,077  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 958,041   $ 900,654  
 
           
 

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED PRE-TAX EARNINGS AND ADJUSTED PRE-TAX EARNINGS SUMMARY

FROM CONTINUING OPERATIONS

NON-GAAP RECONCILIATION

(In thousands)

 
Three Months Ended Nine Months Ended
September 30, September 30,
2011   2010 2011   2010
Revenues:
CAM Leasing $ 37,045 $ 28,559 $ 101,935 $ 71,176
ACMI Services
Airline services 118,936 102,366 336,436 322,277
Other Reimbursables 44,100 40,351 138,014 101,967
Severance and Retention activities       4,000  
Total ACMI Services 163,036 142,717 474,450 428,244
Other Activities 26,335   23,040   77,242   63,188  
Total Revenues 226,416 194,316 653,627 562,608
Eliminate internal revenues (30,936 ) (26,590 ) (89,959 ) (73,827 )
Customer Revenues $ 195,480   $ 167,726   $ 563,668   $ 488,781  
 
Pre-tax Earnings from Continuing Operations:
CAM, inclusive of interest expense 16,156 11,991 43,256 28,282
ACMI Services
Airline services 2,758 3,448 4,808 11,369
Severance and Retention activities       3,549  
2,758 3,448 4,808 14,918
Asset impairments (27,144 ) (27,144 )
Other Activities 3,672 3,124 7,001 5,600
Net, unallocated interest expense (227 ) (1,893 ) (2,017 ) (5,448 )
Write off of unamortized debt issuance costs (2,886 )
Net loss on derivative instruments (1,881 )   (5,437 )  
Total Pre-tax Earnings (Loss) $ (6,666 ) $ 16,670 $ 17,581 $ 43,352
 
Adjustments to Pre-tax Earnings (Loss):
Add Asset impairment charges 27,144 27,144
Add Net loss on derivative instruments 1,881 5,437
Add Write-off of unamortized debt issuance costs 2,886
Less DHL Severance and Retention activities       (3,549 )
Adjusted Pre-tax Earnings $ 22,359   $ 16,670   $ 53,048   $ 39,803  
 

Notes: During the first half of 2011, the Company refinanced its long-term debt, recorded charges to write-off unamortized debt origination costs associated with terminated credit agreements and recognize losses for certain interest rate swaps which had been designated as hedges of the previous debt. Severance and Retention activities reflect compensation from DHL for ABX's costs and efforts to support DHL's U. S. network restructuring in 2008 through March 2010. Other Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such costs include fuel used, landing fees and certain aircraft maintenance expenses.

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