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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