ATSG is reorganizing its two airlines that served Schenker, Air Transport International (ATI) and Capital Cargo International Airlines (CCIA). CCIA's operations will merge into ATI, generating significant savings in these operations beginning in 2013.

Delayed aircraft deployments also affected ACMI Services results. Two Boeing 767-300 freighters entered service on an ACMI basis in October on international routes. Those aircraft had been projected to enter service in August. ATSG's latest two-year combi (combination passenger/freighter) service award from the U.S. Military also began in October, under terms that will allow ATSG to replace its four DC-8 combis with more modern, efficient 757-200s. The combi business has been a steady, reliable source of cash flow generation to ATI for several years.

Third-quarter ACMI block hours were down 16 percent overall from a year ago, but increased 6 percent excluding block hours operated for Schenker in the third quarter of 2011.

Other Activities

Third quarter revenues from ATSG's other businesses increased 2 percent, to $26.8 million, before the elimination of inter-company results. Pre-tax profit from other activities was $3.4 million down 8 percent from the year-earlier quarter but up sequentially from the second quarter this year. During the third quarter, ATSG completed agreements with the U.S. Postal Service extending ATSG's management of USPS sorting facilities in Indianapolis, Dallas, and Memphis for two more years.

Outlook for the Fourth Quarter and 2013

Hete said that ATSG continues to project strong gains in its GAAP earnings for 2012 as a whole, improved results for the second half of 2012 versus the first half, and substantial growth in revenues, earnings and cash flow in 2013.

"But when setting our $170 million target for Adjusted EBITDA for 2012, we had assumed no further delays in our projections of aircraft deployments," he said. "Unfortunately, those delays have continued beyond what we projected in August. We now expect our Adjusted EBITDA for 2012 to approximate $160 million, including approximately $40 million in the fourth quarter."

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