Air Transport Services Group

Company Profile

The timing of these postings are made at the discretion of Air Transport Services Group (ATSG). Readers should not assume that the information contained on this site has been updated or otherwise contains current information. ATSG does not review past postings to determine whether they remain accurate, and information contained in such postings may have been superseded.

ATSG is a leading provider of air cargo transportation and related services.

Air Transport Services Group, Inc. 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 world's largest owner and operator of converted Boeing 767 freighter aircraft.

Through its principal subsidiaries, including two airlines with separate and distinct U.S. FAA Part 121 Air Carrier certificates, ATSG provides aircraft leasing, air cargo lift, aircraft maintenance services and airport ground services. ATSG's subsidiaries include ABX Air, Inc.; Airborne Global Solutions, Inc.; Air Transport International, Inc.; Cargo Aircraft Management, Inc.; and Airborne Maintenance and Engineering Services, Inc., including its division, PEMCO World Air Services, Inc.

MESSAGE FROM THE CEO

Your company ended 2017 with substantial increases in revenues and earnings on the strength of very good performances by all of our businesses.

On a consolidated basis, fourth-quarter revenues increased by more than $100 million to $323 million, and by nearly $300 million for the year to $1.1 billion. Those are record totals for us since our business model changed in 2010. We earned $21.7 million, or 36 cents per share diluted in 2017, up from $21.1 million, or 33 cents per share diluted in 2016, as recorded under Generally Accepted Accounting Principles.

Two non-cash items, however, had a major effect on those GAAP results. The largest was a net loss for the year from revaluation of warrants we have issued to Amazon incrementally under commercial agreements we signed with them in 2016. These revaluations occur quarterly, and reflect changes in the size of our warrant liability from share-price changes and additional vested warrants. Unrealized losses tied to increases in that liability are in part good news for shareholders, as losses are driven mainly by increases in our stock price.

The Amazon warrant revaluation loss, plus noncash amortization of the lease incentives also tied to the warrants, was $95.7 million in 2017. The other principal item affecting our GAAP results was a $59.9 million tax benefit from the tax-law changes enacted in December.

2017’s solid performance was aided by across-the-board growth in each of our businesses and a solid peak season of airline service for our customers. In August, we completed our commitment to supply Amazon with twenty leased 767s to serve as the backbone of its new air network, plus the flight crews, maintenance, and logistics to support them. As a result, Amazon became our largest customer in 2017, accounting for 44 percent of our total revenues. DHL revenues were 24 percent, and the U.S. Military 7 percent of our total revenues.

The principal factor for the airlines was expanded flying during a busy peak, which included operations for our principal customers, DHL and Amazon, as well as some peak season flying for other customers. Taken together, our block hours exceeded the prior year by 22 percent. Also contributing to our airlines improved performance was a reduction in year-over-year expense associated with scheduled airframe inspections.

CAM, our leasing business, had a good year, despite lower margins. Additional earnings from a larger leased fleet were offset by higher lease incentives to Amazon, depreciation, and increased interest expense as CAM’s portfolio of aircraft expanded to meet the strong demand for leased 767s. CAM also absorbed a $2 million non-cash charge to its share of our interest expense tied to the convertible feature of debt we issued in late September.

2018 is off to a great start. In March 2018, the pilot employees of our subsidiary Air Transport International, Inc. ratified an amendment to the collective bargaining agreement between ATI and their representative, the Air Line Pilots Association. The amended agreement extends four years from its ratification and will support ATI’s continued growth and superior service to customers.

We are targeting $300 million in capital expenditures, roughly what we spent in 2017, mainly to deliver ten more converted Boeing 767 freighters this year, and place them with customers under multi-year dry leases. Two of those will be from a group of three additional feedstock 767-300s we are acquiring in 2018. We may buy more if our demand projections prove out.

We have adopted the FASB’s new revenue recognition standard, and revised our segment reporting structure for 2018. Under the new rules, revenues related to costs of aircraft fuel and certain other aviation-related expenses that are directly reimbursed to ATSG and controlled by the customer will be reported net of the corresponding expenses. Had those rules been in effect for 2017, our revenue would have been approximately $290 million lower than the $1.1 billion we reported, with no changes to earnings or cash flows.

Our aircraft maintenance and conversion operations will now be reported in a new segment called MRO Services. Other Activities will include our ground services, equipment leasing, and postal center services, plus corporate and other customer support operations.

We also took steps last year to de-risk our balance sheet, while preserving our long-term access to attractive low-cost growth capital. In March, we amended our secured revolving credit facility to add $120 million in borrowing capacity. In August, we offloaded a portion of our pension liability to an annuity underwriter. And in September, we issued $259 million in 1.125% convertible notes.

As of January 1, 2018, nearly 80 percent of our $575 million in debt principal was fixed rate, with an average coupon rate of under 3 percent. We entered 2018 with $291 million available under our revolving credit facility. Our cash flow from operations, which rose 22 percent in 2017, should continue to grow as our fleet expands, even as we continue to maintain a conservative debt leverage profile.

Our additional 767 aircraft purchases and planned deployments in 2018 are the best way we can tell you that we are very positive about the economy in general, and the express-network portion of the air cargo business that we serve directly. We expect all of our 2018 aircraft deployments to be straight external dry leases that the customer will operate. Most are already committed to customers, and most will use some or all of our maintenance capabilities.

A significant part of the market opportunity we serve is driven by increases in e-commerce fulfillment demand, which is driving the growth of express networks providing same- and second-day service to points throughout the U.S. and around the world. Our goal is to remain the No. 1 source of dedicated midsize freighters that are essential elements of those networks.

With that goal in mind, we are expanding our aircraft type offerings within the midsize niche to offer models that can efficiently extend those networks into smaller markets.

We teamed with Precision Conversions last year to develop a converted freighter variant of the Airbus A321, an aircraft with a great record of reliability and efficiency for passenger airlines around the world. It combines the operating efficiency of a smaller narrow-body like the Boeing 737, but with the cubic capacity of the larger narrow-body Boeing 757s we operate today. Once approved, we intend for CAM to invest in A321s and convert them to freighters to support customers eager for the cost-efficient capacity they can provide.

Our strategy remains to maximize cash flow and invest it where we can find the highest return. For now, that’s primarily to invest in the very same attractive aircraft assets that have made us so successful thus far and have delivered the substantial shareholder returns we all have enjoyed the last few years.

ATSG BOARD OF DIRECTORS

Randy D. Rademacher Sr. Vice President and Chief Financial Officer for Reading Rock, Inc. Rademacher has served as the Chief Financial Officer for Reading Rock, Inc., a privately owned manufacturer and distributor of concrete products and other building materials, since 2008. Rademacher was formerly the Chief Financial Officer for The Armor Group, a privately owned manufacturer of industrial and commercial products, from 2006 to 2008. Rademacher was the President of Dynus Corporation, a privately owned telecommunications company, from June 2005 to October 2005, and the President of Comair Holdings LLC, from 1999 to 2005. During his career at Comair Holdings LLC, Rademacher held a number of positions, including Senior Vice President and Chief Financial Officer from 1993 to 1999, Vice President of Finance from 1989 to 1993, Controller from 1986 to 1989, and Director of Corporate Finance from 1985 to 1986. Prior to that, Rademacher was a CPA for Arthur Andersen & Co. from 1979 to 1985. Mr. Rademacher has been a Director of the Company since December 2006 and Chairman of the Board since May 2015. He is a member of both the Audit Committee and the Nominating and Governance Committee.

Richard M. Baudouin Senior Advisor for Infinity Transportation Baudouin is Senior Advisor for Infinity Transportation, a company owned by Global Atlantic Financial Corp., since 2016. Prior to his current role at Infinity Transportation, Mr. Baudouin was a principal of Infinity Aviation Capital, LLC, an investment firm involved in aircraft leasing, from 2011 to 2016, and was a co-founder and former managing director of Aviation Capital Group, a commercial aircraft leasing company, from 1989 to 2010. ACG was acquired by Pacific Life Insurance Co. in 2005, and is now one of the world’s largest aircraft leasing companies, with more than 260 Airbus and Boeing passenger and freighter aircraft, leased to approximately 90 airlines in 40 countries. Mr. Baudouin has been a Director of the Company since January 2013. He is the Chairman of the Nominating and Governance Committee and is a member of the Audit Committee.

Joseph C. Hete President and Chief Executive Officer of ATSG, Inc. Hete has been President and Chief Executive Officer of ATSG, Inc., since September 2007 and Chief Executive Officer of ABX Air, Inc. since August 2003. He was the President of ABX Air, Inc., from January 2000 to February 2008 and the Chief Operating Officer of ABX Air, Inc. from January 2000 to August 2003. From 1997 until January 2000, he held the position of Senior Vice President and Chief Operating Officer of ABX Air, Inc. Hete served as Senior Vice President, Administration, of ABX Air, Inc. from 1991 to 1997, and Vice President, Administration, of ABX Air, Inc. from 1986 to 1991. Mr. Hete has been with the company since 1980.

Raymond E. Johns, Jr. Executive Vice President of FlightSafety International Inc. Johns has been Executive Vice President of FlightSafety International Inc., a global provider of flight training for commercial, business and military aviation professionals and flight simulation equipment, since 2014. Prior to his retirement from the military, Mr. Johns led the U.S. Air Force Air Mobility Command at Scott Air Force Base in Illinois. He retired with the rank of General in January 2013, capping a 36-year military career. Mr. Johns has been a Director of the Company since October 2017. He is a member of both the Audit Committee and Nominating and Governance Committee.

J. Christopher Teets Partner of Red Mountain Capital Partners LLC Teets has served as a Partner of Red Mountain Capital Partners LLC, an investment management firm, since February 2005. Before joining Red Mountain Capital Partners LLC, Teets was an investment banker at Goldman, Sachs & Co. Teets joined Goldman, Sachs & Co. in 2000. Prior to Goldman Sachs, Teets worked in the investment banking division of Citigroup. Teets has served as a director of Encore Capital Group, Inc. since May 2007 and as a director of Marlin Business Services Corp. since May 2010, and previously served as a director of Affirmative Insurance Holdings, Inc. Mr. Teets has been a Director of the Company since February 2009. He is the Chairman of the Compensation Committee and a member of the Nominating and Governance Committee.

Jeffrey J. Vorholt Independent consultant and private investor Vorholt was most recently a full-time faculty member at Miami University (Ohio) and concurrently an Adjunct Professor of Accountancy at Xavier University (Ohio), from 2001 to 2006. Vorholt, a CPA and attorney, was the Chief Financial Officer of Structural Dynamics Research Corporation from 1994 until its acquisition by EDS in 2001. Previously, he served as the Senior Vice President of Accounting and Information Systems for Cincinnati Bell Telephone Company and the Senior Vice President, Chief Financial Officer and Director for Cincinnati Bell Information Systems, which is now Convergys Corporation. Vorholt is currently a Director and the Chairman of the Audit Committee for Softbrands, Inc., a global provider of enterprise-wide application software. Mr. Vorholt has been a Director of the Company since January 2004. He is the Chairman of the Audit Committee and is a member of the Compensation Committee.

Joe Hete President and Chief Executive Officer Joseph C. Hete is the president and chief executive officer of Air Transport Services Group, Inc. (ATSG), a $660 million company that is a leading provider of air cargo transportation and related services to domestic and foreign air carriers and other companies.

Hete is responsible for establishing the strategic planning for all the entities under the ATSG umbrella. He is a 30-year veteran of ABX Air. Hete joined ABX Air as an Accounting Manager in September of 1980 and held positions as Treasurer, Director of Strategic Planning, and Director of Administration from 1981 to 1985. He was promoted to Senior Director of Administration in 1985, to Vice President of Administration in 1986 and to Senior Vice President of Administration in 1991. In early 1997, he was named Chief Operating Officer, and he was named President and COO in December of 1999. He became CEO in August of 2003. In December 2007, Air Transport Services Group, Inc. (ATSG) was formed from the reorganization of ABX Air for the purpose of creating a holding company structure; Hete was name chief executive officer and president. On December 31, 2007, ATSG completed the acquisition of Cargo Holdings International. Prior to ABX Air, he held positions as General Accounting Supervisor and Staff Accountant at Anderson IBEC from 1977 to 1980.

Hete earned his bachelors of science degree in Accounting from the University of Akron.

Rich Corrado Chief Operating Officer Richard F. Corrado is the Chief Operating Officer for ATSG. He is responsible for all aspects of the day-to-day operations of ATSG's airlines, maintenance, and service businesses. Additionally, he is also President of ATSG subsidiary Cargo Aircraft Management, ATSG’s aircraft leasing company.

Corrado joined ATSG as Chief Commercial Officer in April 2010 and was elected to his current position in September 2017. Prior to joining ATSG, Corrado held leadership positions in the consulting and air express industry. He served as President of Transform Consulting Group (2006-2010). He served at DHL Express, as the Executive Vice President of Air Products & Services (2004-2006) and Executive Vice President of Business Development (2003-2004) after the DHL acquisition of Airborne Express. He was the only former Airborne executive named to the DHL US Management Board. At Airborne Express he held several positions over a 17 year period, most notably Senior Vice President of Marketing (2000-2003), and Vice President, Administration for ABX Air (1999-2000). Corrado also held the position of Senior Manager at Ernst & Young, LLP.

Corrado earned his Bachelor of Arts degree in Economics cum laude from Harvard University, and an MBA from Boston College.

Quint Turner Chief Financial Officer From December 2004 to February 2008, Mr. Turner served as Chief Financial Officer of ABX Air, Inc. Turner was Vice President of Administration of ABX Air, Inc. from February 2002 to December 2004. Turner was Corporate Director of Financial Planning and Accounting of ABX Air, Inc. from 1997 to 2002. Prior to 1997, Turner held positions of Manager of Planning and Director of Financial Planning of ABX Air, Inc. Turner joined ABX Air, Inc. in 1988 as a Staff Auditor.

Joe Payne Chief Legal Officer and Secretary W. Joseph Payne is the Chief Legal Officer and Secretary for ATSG. Payne is responsible for directing the Company’s legal and regulatory affairs, as well as overseeing corporate compliance, governance and security matters. He advises the Board of Directors and senior management on a variety of legal issues, including with respect to the development and implementation of strategic initiatives, business transactions, corporate governance and compliance matters, and litigation. Payne also retains and oversees the work of outside counsel.

Payne joined ABX Air as a Contract Manager in April 1995 and held positions as Assistant Corporate Secretary and Corporate Secretary/Counsel from July 1996 to January 2004. He was promoted to Vice President, General Counsel and Secretary of ABX Air in January 2004. In December 2007, ATSG was formed from the reorganization of ABX Air for the purpose of creating a holding company structure and Payne was named Senior Vice President, Corporate General Counsel and Secretary of ATSG. In May 2016, he was named Chief Legal Officer and Secretary.

Prior to joining ABX Air, Payne practiced law in the greater Cincinnati area from 1992 to 1995 and worked as an accountant for Hook-SuperX Drugs from 1987 to 1989, prior to attending law school.

Payne earned a Juris Doctor from the University of Dayton School of Law, and a Bachelor of Business Administration from the University of Cincinnati College of Business Administration, where he majored in accounting.

Mike Berger

Mike Berger Chief Commercial Officer Mike Berger is the Chief Commcerial Officer for ATSG. He is responsible for all aspects of the global commercial marketing strategy, including marketing, direct sales, advertising, external communications, brand strategy, service/product development and portfolio marketing. Additionally, he is also President of ATSG subsidiary Airborne Global Solutions, ATSG’s consulting and marketing subsidiary responsible for selling the bundled solutions of the ATSG portfolio of companies.

Berger joined ATSG in February 2018. Berger's most recent role prior to joining ATSG was Chief Commercial Officer for Dicom Transportation Group of Canada. Prior to that he held senior management positions in major air express companies including TNT Europe, DHL, and Airborne Express. He holds a bachelors degree in business management and marketing from Temple University.

Matt Fedders Vice President, Corporate Controller Mr. Fedders was promoted to Vice President in May 2013. He has been Corporate Controller since June 2008. Prior to this he held the role of Director, Financial Reporting/Controller for ABX Air, Inc. since joining the company in October 2003.

Russ Smethwick Vice President, Corporate Development Mr. Smethwick was promoted to Vice President in March 2017. He has been Director of Strategic Planning since 2007. Prior to joining ATSG, Russ led the M&A program for FirstGroup PLC's North American services division. He also has worked in commercial banking for Provident Bank, Fifth Third, and National Bank of Canada. He holds a bachelor's degree in accounting from Ohio University, a master's degree in business administration from Xavier University, and is a Certified Public Accountant (CPA).

Sarah Williams Vice President, Taxation Ms. Williams was promoted to Vice President in March 2018. She joined the company in 2007, serving first as Manager of Taxation and later Director of Taxation. She is a CPA with 18 years of public accounting experience serving as outsourced tax director for a variety of publicly traded companies and large privately held companies. She holds a Masters of Tax from Capital Law School and a Bachelors of Business-Accounting from Western Michigan University.

ATSG BOARD COMMITTEES

Air Transport Services Group (ATSG) is committed to strong corporate governance practices. The Board of Directors has a standing Audit Committee, Compensation Committee, and Nominating and Governance Committee. Each committee consists exclusively of non-employee directors.

In addition, ATSG has adopted the following policies and guidelines:

  • A Code of Ethics that sets forth the policies and business practices that apply to the Company's Chief Executive Officer, Chief Financial Officer, and Vice President of Administration.
  • Corporate Governance Guidelines that help the Board of Directors oversee the work of management in the conduct of the Company’s business and seek to serve the long-term interests of stockholders.
  • A Code of Conduct for Conducting Business that set forth the policies and business practices that apply to all of the Company’s employees.
  • A Corporate Compliance Plan to implement a program that promotes an organizational culture that encourages ethical conduct and a commitment to compliance. This plan incorporates immigration compliance.
  • An Insider Trading Policy that applies to the Company's directors, officers and employees, their family members, and specially designated outsiders who have access to the Company's material nonpublic information.

Audit Committee

The Audit Committee is generally charged with the appointment, compensation, retention, evaluation, and oversight of the work of the independent auditors; reviewing and discussing with management and the independent auditors the Company’s annual audited and quarterly financial statements; reviewing the internal audit function; overseeing the integrity, adequacy and effectiveness of the Company’s internal accounting and financial controls; and approving and monitoring the Company’s compliance with its codes of conduct.

Compensation Committee

The Compensation Committee is generally charged with reviewing, evaluating and making recommendations to the full Board with respect to the Company’s overall compensation policies, including bonuses and benefits; reviewing, evaluating and making recommendations to the full Board on matters relating to the CEO’s compensation; considering and approving the selection, retention and remuneration arrangements for other executive officers; reviewing and evaluating performance target goals for non-executive senior officers and employees; and establishing and reviewing the compensation for non-employee directors.

Nominating and Governance Committee

The Nominating and Governance Committee is generally charged with identifying individuals qualified to become members of the Board in accordance with the criteria approved by the Board; making recommendations to the full Board with respect to director nominees for each annual meeting of the stockholders; developing and recommending to the Board a set of corporate governance principles applicable to the Company; and overseeing the evaluation of the Board and management.

Code of Ethics

The Code of Ethics sets forth the policies and business practices that apply to the Company’s Chief Executive Officer, Chief Financial Officer and Vice President, Administration. The Code of Ethics addresses such topics as compliance with laws; full, fair, accurate and timely disclosure of financial results; professional, honest and ethical conduct; conflicts of interest; reporting procedures and accountability.

Corporate Governance Guidelines

The Corporate Governance Guidelines help the Board of Directors fulfill its responsibility to stockholders to oversee the work of management in the conduct of the Company’s business and to seek to serve the long-term interests of stockholders. These Guidelines are intended to ensure that the Board has the necessary authority and practices in place to review and evaluate the Company’s business operations as needed and to make decisions that are independent of the Company’s management.

Code of Conduct for Conducting Business

The Code of Conduct for Conducting Business sets forth the policies and business practices that apply to all of the Company’s employees. The Code of Conduct addresses such topics as compliance with laws; moral and ethical conduct; equal employment opportunity; promoting a work environment free from harassment or discrimination; and the protection of intellectual property and proprietary information.

Corporate Compliance Plan

The Corporate Compliance Plan has been designed to govern the development and implementation of a corporate compliance program that promotes an organizational culture that encourages ethical conduct and a commitment to compliance. This plan also reflects the Company's commitment both to hiring personnel who are lawfully permitted to work in the United States and to contracting with temporary agencies that provide lawfully-documented workers.

Insider Trading Policy

The Insider Trading Policy sets forth the policies and practices for preventing improper insider trading or tipping. The Policy applies to the Company's directors, officers and employees, their family members, and specially designated outsiders who have access to the Company's material nonpublic information.

Investor Relations Contact Information

Air Transport Services Group, Inc.
Attn: Investor Relations
145 Hunter Drive
Wilmington, OH 45177