Air Transport Services Group

ATSG'S FOURTH QUARTER PRETAX EARNINGS FROM CONTINUING OPERATIONS INCREASES 17 PERCENT

Continued Freighter Fleet Expansion Will Drive Growth in 2012

WILMINGTON, Ohio - March 5, 2012 - Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported improved financial results for the fourth quarter of 2011. Highlights of the fourth quarter, compared to the prior-year period include:

  • Pretax earnings from continuing operations were $23.3 million, up 17 percent. The total includes $0.6 million in 2011 unrealized gains on derivative instruments.
  • Net earnings from continuing operations were $13.5 million, or $0.21 per share diluted, up 14 percent.
  • EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) totaled $48.7 million, up five percent. For more information, see the table included in this release describing and reconciling EBITDA and other non-GAAP measures to GAAP results.
  • Revenues of $166.5 million, down 7 percent. Excluding reimbursable expenses, primarily fuel, revenues increased 5 percent.

"Results from nine additional 767 freighters in service in the fourth quarter of 2011, compared to the fourth quarter 2010, helped to offset the effect of the wind-down of our business with DB Schenker through the quarter," Joe Hete, President and CEO of ATSG, said. “Some of that cargo volume shifted to the freighters we operate for DHL, allowing us to retire the majority of our older 727 and DC-8 aircraft and to start to restructure our airline operations. We purchased two more 767-300 aircraft in February 2012 for deployment later this year, recognizing their advantages and appeal to major air cargo network operators. This aircraft type continues to offer lower capital risk and attractive after-tax cash returns due to our passenger-to-freighter conversion strategy.”

Operating Results

CAM Leasing

Cargo Aircraft Management (CAM) recorded pretax earnings of $16.7 million, up 26 percent for the fourth quarter, and $60.0 million, up 44 percent, for the year. Revenues increased 28 percent to $38.5 million for the fourth quarter and grew by 39 percent for the year to $140.5 million.

At the end of 2011, CAM owned 52 aircraft that were available for service, of which 21 were in service under long term dry leases with external customers. A table showing ATSG's aircraft in service at year-end and a fleet projection for the end of 2012 is included at the end this release.

In February 2012, CAM and its customer First Air agreed to a three-year extension of First Air's lease of a CAMowned Boeing 767-200 freighter that had been due to expire in 2012. None of CAM's 21 externally leased 767 freighters has a lease expiration date before June 2015, and the average remaining lease term exceeds five years.

ACMI Services

Fourth-quarter revenues were $108.3 million, excluding fuel and other reimbursed expenses, down one percent from the fourth quarter of 2010. Fourth-quarter pretax earnings from ACMI Services were $1.8 million, compared with $6.0 million in the fourth quarter of 2010.

Excluding results from Schenker for 2010 and 2011, fourth-quarter ACMI revenues excluding reimbursables were $96.5 million, up 14 percent from a year earlier. Fourth-quarter block hours excluding Schenker increased eight percent to 20,245. Revenues per block hour excluding Schenker increased primarily because of the addition of higher lease-rate 767-300 aircraft to the ACMI fleet mix and due to operating an increased number of shorter air routes.

Fourth-quarter ACMI earnings comparisons to 2010 were substantially affected by the reduction in the Company's operations for DB Schenker, by rate reductions for services to the U.S. Military, and by the cost of training and transitioning eligible DC-8 and 727 flight crew members to other aircraft types. The majority of these transitioning and related reorganization costs continue into 2012 and, combined with seasonality factors and an increase in expenses related to ABX Air's frozen pension plans, will result in a pretax loss for this segment in the first quarter.

Other Activities

Revenues from ATSG's other businesses rose 15 percent to $28.0 million before elimination of inter-company results. Pre-tax profit from other activities totaled $4.3 million in the fourth quarter of 2011, compared with $2.4 million a year earlier. Additional revenues from the Company's aircraft maintenance and postal businesses drove the improved results.

2011 Full Year Results

Revenues in 2011 increased nine percent to $730.1 million, including $160.7 million in reimbursements for fuel and related expenses, compared to $667.4 million in 2010. Schenker-related revenues were 15 percent of total revenues excluding reimbursables in 2011. ATSG's 2011 net earnings from continuing operations were $23.9 million, or 37 cents per share, down from $39.9 million, or 62 cents per share in 2010.

Pretax earnings for 2011 included $27.1 million in impairment charges related to aircraft asset values, goodwill and customer intangibles as a result of DB Schenker's network phase-out, $2.9 million in write-offs of unamortized debt issuance costs, and an aggregate $4.9 million in unrealized losses on derivative instruments. In 2010, pretax earnings included $3.5 million in gains from reimbursements for severance and retention benefits. Pretax earnings from continuing operations, adjusted for these items, increased 27 percent to $75.8 million in 2011. Adjusted EBITDA increased nine percent to $180.8 million in 2011.

2012 Outlook

"We will devote significant resources in the first quarter toward realigning our ACMI Services businesses for growth. As a result, our first quarter 2012 financial results are expected to be below first-quarter 2011 levels. After the first quarter, we expect to grow toward a range of $190 to $200 million in adjusted EBITDA for the year, including the effect of increased pension expense and increases in engine maintenance costs," Hete said.

“Our 2012 results will benefit from a full year of gains from the owned and leased aircraft which entered service during 2011, as well as owned and leased aircraft which we plan to add during 2012. Aircraft added during 2011 included nine 767 freighters and one 757 freighter. Additions planned for 2012 include seven more 767s, and two 757 combis. We also intend to leverage the more flexible credit facility we negotiated last spring to help fund future fleet expansion. More important, our fleet is substantially more modern, more fuel efficient, and more reliable than ever before, at a time when those efficiencies and performance levels are vital to both our existing and potential customers. We remain confident about the continued customer interest and strong yield potential from our investments in converted freighter assets, and about the service commitment of those who support them," Hete said.

Conference Call

ATSG will host a conference call on Tuesday, March 6, 2012, at 10:00 a.m. Eastern time to review its financial results for the fourth quarter of 2011. Participants should dial 800-706-7748 and international participants should dial 617-614-3473 ten minutes before the scheduled start of the call and ask for conference pass code 38617936. The call also will be webcast live (listen-only mode) via the link below 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 the same day beginning at 1:00 p.m. and continuing through Tuesday, March 13, 2012, by dialing 888-286-8010 (international callers 617-801-6888); use pass code 18575315. The webcast replay will remain available via the link below and www.earnings.com for 30 days.

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

For more information, contact:
Quint O. Turner
Chief Financial Officer
Air Transport Services Group, Inc.
937-382-5591

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