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AIR TRANSPORT SERVICES GROUP ANNOUNCES NEW LONG-TERM AIRCRAFT AND
OPERATING AGREEMENTS WITH DHL
WILMINGTON, OH - March 30, 2010 – Air
Transport Services Group, Inc. (NASDAQ:ATSG) today announced the
execution of new long-term agreements under which the subsidiaries
of ATSG will continue providing aircraft and operating support to
the U.S. portion of DHL’s international logistics network.
The principal
operating agreements are:
-
A new five-year Air
Transportation Services Agreement between its subsidiary, ABX Air, and
DHL, which specifies the terms under which ABX will continue providing
767 aircraft operating support to the U.S. portion of DHL’s
international logistics network on a primarily fixed-price, rather than
cost-plus basis. The agreement covers Crew, aircraft Maintenance and
Insurance (CMI) services necessary to initially operate thirteen
scheduled Boeing 767 aircraft in DHL’s domestic cargo network through
March 2015, with an option for the parties to extend the agreement
through March 2020.
-
Seven-year lease
agreements between DHL and Cargo Aircraft Management (CAM), ATSG’s
aircraft leasing subsidiary, covering thirteen Boeing 767 freighter
aircraft, including four aircraft on which DHL held an option to lease
under an agreement struck in June 2009. Seven of the thirteen leases are
anticipated to become effective in April 2010, with all thirteen
targeted to be in place by April 2011, predicated on the conversion
schedule for standard 767 freighter door modifications currently
underway. ABX Air will provide interim 767 freighter aircraft under
similar economic terms as required by DHL until such time as all
freighter door modifications are completed.
ABX Air and DHL also
entered into an agreement terminating their current ACMI Agreement, which
had been in place since August 15, 2003, and was set to expire August 15,
2010. The termination agreement covers the settlement and release of all
residual liabilities and commitments related to the ACMI Agreement and
former Hub and Line-haul Services Agreement, as well as the Severance and
Retention Agreement between the parties.
Key features of these
agreements, as well as other significant items agreed between the parties,
are summarized below.
CMI Agreement:
-
Five year CMI
agreement beginning March 31, 2010 with a two year extension right at
DHL’s sole option and up to a five-year extension option subject to
mutual agreement
-
Provides for ABX Air
to be the exclusive operator for up to thirteen Boeing 767-200 series
aircraft operated in DHL’s U.S. domestic air network
-
Firm pricing for
2010 with confirmed annual escalations through 2012; escalations beyond
2012 based on the consumer price index; flight crew costs escalated
based on provisions of ABX Air’s labor agreement with its pilots’ union
-
Significant
incentive potential based upon monthly on-time aircraft performance
above target levels, as adjusted for controllable delays; similar
disincentive potential for service results below target levels
-
Agreed pricing
adjustments for flight crew and other costs resulting from an increase
or decrease in the number of scheduled aircraft
-
DHL to provide fuel
at its expense and will reimburse ABX Air for customary pass-through
charges
-
ABX Air to provide
spare aircraft support
-
Airborne Maintenance
& Engineering Services, Inc., an ATSG subsidiary, to provide airframe
heavy maintenance services for the thirteen aircraft from its
maintenance facility in Wilmington, Ohio, for a minimum of three years
-
Remaining $31.0
million DHL Note to be amortized on a monthly basis so as to be
extinguished at the end of the initial five year term, with no cash
payment requirement from ABX Air
-
Payment by DHL to
ABX Air of a material termination fee in the event DHL elects to
terminate for convenience (amount reduces during the five year term),
with no option to terminate during the first year
-
Payment by ABX Air
to DHL of a material termination fee in the event DHL terminates the CMI
agreement due to an ABX Air event of default (amount reduces during the
five-year term)
-
DHL’s obligations
under the CMI are guaranteed by Deutsche Post AG, DHL’s parent
Lease Agreement:
-
Initially, thirteen
767 freighter aircraft, each for a term of seven years; seven commencing
on or about April 1, 2010, with the other six anticipated to be in place
by April 2011
-
ABX Air to provide
interim 767 freighter aircraft to DHL under similar economic terms until
such time as modifications for all thirteen aircraft are completed
-
Leases are
guaranteed by Deutsche Post AG, DHL’s parent
-
Four of the thirteen
leases are for Boeing 767 aircraft for which DHL held lease options
pursuant to a June 2009 agreement
-
DHL is responsible
for the cost of routine airframe heavy maintenance during the term of
the lease
Significant Items
Resolved through Termination Agreement:
-
DHL agreed to pay
ABX Air $31.1 million in settlement of open DC-9 and Boeing 767
freighter aircraft put values
-
Pursuant to a Letter
Agreement between ABX Air and DHL signed in March 2009, ABX agreed to
pay $15.0 million toward the outstanding DHL Note balance, thereby
reducing the remaining balance outstanding to $31.0 million
-
DHL agreed to pay
ABX Air an additional $11.2 million for reimbursement of accrued
vacation paid out to ABX employees adversely impacted by DHL’s
restructuring in the United States. ABX Air agreed to seek no additional
reimbursement
Joe Hete,
ATSG President and CEO, said, "These new agreements clearly evidence the
continuing long-term relationship between ABX Air and DHL and address the
significant remaining questions relating to the impact of DHL’s U.S.
restructuring on ABX Air. Exiting the cost-plus structure of the ACMI
Agreement in favor of the CMI Agreement and aircraft leases provides us an
opportunity to achieve appropriate market returns for our assets for years
forward, and our customer the opportunity to lock in flexibility and
excellent service at a predictable price. We are very pleased to continue
to support DHL as it provides its customers premium service for their
international freight transiting the United States."
Ken Allen, Chief
Executive Officer of DHL Express and member of the Management Board of the
world’s largest logistics company, Deutsche Post World Net, added, "We
have a high regard for the service capability of ABX Air and the 767
freighter aircraft it operates on our behalf in the U.S. network, and are
pleased to continue to partner with them under the new CMI arrangement."
Hete concluded, "After
months of intensive negotiations, the agreements we are announcing today
truly reflect a new chapter for ABX Air. These agreements, coupled with
the five-year collective bargaining agreement recently executed with its
flight crews, position ABX Air to be a major player in the global ACMI
market for years to come. Having emerged from the events of the past year
with a stronger balance sheet, greater long-term security and diversity of
cash flows, and renewed focus on serving our customers, I believe the ATSG
family of companies is well positioned to generate attractive returns for
its shareholders and excellent service to its customers in 2010 and
beyond."
Conference Call
Air Transport Services Group will
host a conference call to review its financial results for 2009 and these
agreements with DHL on Thursday, April 1, 2010, at 10:00 a.m. Eastern
Daylight Savings time. Participants should dial (888) 713-4215 and
international participants should dial (617) 213-4867 ten minutes before
the scheduled start of the call and ask for conference ID #23057952.
The call will also be
webcast live (listen-only mode) and will include slides that will progress
automatically during the call. If you are joining the teleconference and
wish to access the slides please go either to the Company's website at
www.atsginc.com, or to
www.earnings.com for individual investors, and
www.streetevents.com for institutional investors. A replay of the
conference call will be available beginning two hours after the conclusion
of the call. It will be available by phone for eight days after the call
at (888) 286-8010 (international callers (617) 801-6888); use pass code ID
#81854905. The webcast replay will remain available for 30 days.
About ATSG
ATSG is a leading provider of air cargo transportation and related
services to domestic and foreign air carriers and other companies that
outsource their air cargo lift requirements. Through five principal
subsidiaries, including three airlines with separate and distinct U.S. FAA
Part 121 Air Carrier certificates, ATSG provides air cargo lift, aircraft
leasing, aircraft maintenance services, airport ground services, fuel
management, specialized transportation management, and air charter
brokerage services. ATSG’s subsidiaries include ABX Air, Inc., Air
Transport International, LLC, Capital Cargo International Airlines, Inc.,
Cargo Aircraft Management, Inc., LGSTX Services, 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, the timely completion of 767 freighter modifications
as anticipated under the new agreements with DHL, ABX Air’s ability to
maintain on-time service under the CMI Agreement, 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. |
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