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ATSG REPORTS FOURTH-QUARTER AND 2009 EARNINGS, STRONG BALANCE SHEET IMPROVEMENTS, NEW MULTI-YEAR DHL AGREEMENTS

WILMINGTON, Ohio - March 31, 2010 - Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported its financial results for the fourth quarter and full year 2009. Those results, as compared with the corresponding 2008 periods, included the following:

Fourth-Quarter and Full Year Financial Results

  • Fourth-quarter revenues from continuing operations of $250.5 million in 2009, compared with $257.0 million in 2008. Revenues from continuing operations for the full year 2009 were $823.5 million, compared with $941.7 million in 2008. ATSG’s 2009 revenue from continuing operations reflect scaled-down U.S. operations by ATSG’s principal customer, DHL, and the effect of lower aircraft fuel reimbursements, offset in part by DHL’s reimbursement of certain ABX Air employee severance and benefit payments.
  • Fourth-quarter 2009 consolidated net earnings of $11.5 million, or $0.18 per diluted share, compared with a consolidated net loss in 2008 of $64.2 million, or $1.03 per share, including impairment charges. Full-year 2009 consolidated net earnings were $34.4 million, or $0.54 per diluted share, compared to a loss of $56.0 million, or $0.90 per share in 2008.
  • Fourth-quarter Adjusted EBITDA (defined as Earnings From Continuing Operations Before Interest, Taxes, Depreciation and Amortization) of $45.0 million in 2009, versus Adjusted EBITDA of $59.9 million in 2008, excluding impairment charges. Adjusted EBITDA in 2009 was $155.8 million, versus $163.0 million in Adjusted EBITDA for 2008. Adjusted EBITDA is a non-GAAP measure of financial performance that management believes better reflects the performance of ATSG and other asset-intensive air-cargo businesses. See tables providing a reconciliation of Earnings from Continuing Operations to Adjusted EBITDA at the end of this release.
  • A series of developments throughout 2009 that yielded a much stronger year-end financial position for ATSG, including:
    • $103.0 million in 2009 operating cash flow, leading to a year-end cash balance of $83.2 million.
    • Substantial reductions in debt (down $135.1 million, or 26.4 percent) and post-retirement liabilities (down $144.6 million, or 48.6 percent).
    • More than tripling of total stockholders’ equity to $246.0 million at year-end 2009.
    • As a result, the ratio of total debt to annual Adjusted EBITDA improved to 2.4x for 2009 from 3.1x for 2008’s annual Adjusted EBITDA.

ATSG also disclosed yesterday in a separate announcement a set of new multi-year agreements between its subsidiaries and DHL for support of DHL’s U.S. air network, effective March 31, 2010. Additional information on the agreements is available on ATSG’s website, www.atsginc.com, including information in ATSG’s Form-10-K for 2009.

Joe Hete, President and CEO of ATSG, said, “Our new agreements with DHL, based on a fixed-price construct, are a huge achievement for our employees and shareholders, as well as for DHL. The comprehensive set of agreements cover leases of thirteen 767 freighter aircraft to DHL by our Cargo Aircraft Management (CAM) unit, operation of those aircraft by our ABX Air crews under a new, more competitive Collective Bargaining Agreement, and maintenance of the aircraft by our Airborne Maintenance & Engineering Services (AMES) technicians. The agreements also cover all items related to the wind-up and termination of the two commercial agreements between ABX Air and DHL, as well as the Severance and Retention Agreement.”

Hete added that, “We have completed a dramatic restructuring of our financial position, which has significantly increased shareholder equity and our financial flexibility. Our strong financial position, coupled with our unique ability to combine cargo aircraft and air transport services from our multiple businesses into customized solutions, has established a platform upon which we can deliver stronger returns on our invested capital while providing premium services to all of our customers.”

Discontinued Operations

ATSG adopted reporting for discontinued operations beginning with the third quarter of 2009. The discontinued operations are primarily ABX Air’s former support of DHL’s ground and package sorting operations under the Hub and Line-haul Services Agreement, as amended. That agreement expired on August 15, 2009. Discontinued operations also include ABX Air’s former aircraft fuel management for DHL.

  • ATSG’s net earnings from discontinued operations were $1.2 million, or $0.02 per share in the fourth quarter of 2009, versus $5.0 million, or $0.08 per share in the fourth quarter of 2008. Net earnings from discontinued operations were $6.2 million, or $0.10 per share in 2009 and $6.9 million, or $0.11 per share in 2008.

Effective Tax Rate

ATSG’s effective tax rate was 38 percent for 2009, and 11 percent for 2008 from continuing operations (but approximately 38 percent after adjusting for approximately $73.2 million of impairment charges not deductible for income tax purposes). Operating loss carry-forwards fully offset ATSG’s U.S. federal income tax expense for 2009. ATSG does not expect to pay U.S. federal income taxes for the next three years.

Balance Sheet Improvements

A major focus of ATSG’s efforts during 2009 was the restructuring of its balance sheet in connection with changes in the scope of its service to DHL, and the reductions in personnel and aircraft required to support DHL’s U.S. package express network. The results are evident in lower effective interest rates on remaining debt.

Principal elements of the financial restructuring included:

  • Reduced total debt outstanding by 26.4% or $135.1 million, which included principal payments of $43.1 million, debt extinguishment related to its DHL promissory note of $46.3 million, and a $45.7 million reduction in aircraft capital lease obligations.

  • ATSG has agreed to pay an additional $15.0 million toward the DHL note in 2010 with a portion of the $31.1 million proceeds from DHL related to put aircraft. The remaining DHL note outstanding of $31.0 million will be amortized over the five-year term of the new DHL operating agreement, without any cash payment requirement.

  • The funded status of ABX Air’s pension and post-retirement health care plans improved by $144.6 million, which reflected company cash contributions, improved investment returns and adjustments to projected benefit liabilities for the company’s scaled-down workforce.

Segment Results

DHL

Revenues from the DHL segment declined 6.5 percent in the fourth quarter to $130.5 million, and declined 15.9 percent to $404.2 million for the year. The reductions are directly related to the reduction in aircraft and services ABX Air provided to DHL during 2009, including a 78 percent reduction in block-hours flown versus 2008.

DHL segment revenues included $10.8 million in mark-ups in 2009, compared with $14.3 million in 2008. Throughout 2009, and for the fourth quarter of 2008, mark-ups consisted of fixed amounts based on prior-period operating benchmarks, rather than as a percentage of ABX Air’s expenses, as had been the case earlier.

Segment revenues for 2009 also included $121.4 million related to the wind-down of DHL’s U.S. domestic network. Those revenues included reimbursements for ABX Air’s management of severance, post-retirement and other employee benefits as those operations wound down.

Pre-tax earnings from the DHL agreements, including the effect of severance and retention reimbursements, were $14.1 million in the fourth quarter, and $27.9 million for 2009. Comparable 2008 amounts were $8.7 million in the fourth quarter, and $14.4 million in 2008. Pre-tax earnings for 2009 included $12.2 million in the fourth quarter, and $16.7 million for the year, reflecting the settlement of the pilot-related portion of the Severance and Retention Agreement in December 2009. The pilots agreed to devote a portion of their severance funds to enhance their retirement security.

ACMI Services

Revenues from the operation of ATSG’s three cargo airlines, excluding the DHL segment, were $103.5 million in the fourth quarter of 2009, flat as compared with $104.1 million in the fourth quarter of 2008. Revenues were $364.7 million for 2009, and $421.0 million for 2008, including fuel and other direct reimbursement payments. Excluding reimbursable amounts, segment revenues declined 1.1 percent for the year, while block hours operated increased 11 percent.

Pre-tax income from the ACMI Services segment was $0.5 million in 2009, including a loss of $1.0 million in the fourth quarter. Results for 2009 included a pre-tax loss from transatlantic scheduled cargo service that did not achieve expected volumes or operating cost levels. That scheduled service was replaced earlier this year with ACMI service, for which the customer is responsible for obtaining sufficient volumes to cover costs.

The fourth quarter of 2008 included pretax charges of $91.2 million for impairments of intangible assets related to customer relationships and goodwill for businesses that ATSG acquired at the end of 2007. Excluding those impairments, segment pre-tax earnings were $7.1 million in 2008, including $6.0 million in the fourth quarter.

CAM/Leasing

Pre-tax earnings from Cargo Aircraft Management (CAM), ATSG's aircraft leasing business, were $6.1 million for the fourth quarter, up 24.1 percent, and $22.8 million for 2009, up 25.8 percent. It had 43 aircraft under lease at December 31, up from 36 a year earlier, included three 767-200 freighters leased to third parties as of the fourth quarter.

The fourteen 767s that are being converted to full freighter configuration will be placed with CAM and leased to third parties or to ATSG airlines. Nine of the fourteen converted 767s will be leased to DHL and deployed in its U.S. network. Three of the conversions had been completed by the end of 2009.

CAM recently delivered the first of two dry-leased 767 freighters to Amerijet International Inc. under seven-year lease agreements. The agreements include engine maintenance under CAM’s contract with Delta TechOps, training for Amerijet pilots through ABX Air, airframe maintenance by Airborne Maintenance and Engineering Services (AMES), and other technical and operating support.

“These leases with Amerijet demonstrate the expansive range of support services that we can offer to our customers as they build their cargo operations,” Hete said. “Inquiries for our fuel-efficient 767s are growing as both air cargo demand and aircraft fuel prices pick up again, and we are fully prepared to respond with complete turnkey solutions.”

Other Activities

Revenues from all other activities increased by 58.7 percent to $22.1 million for the fourth quarter, and by 33.3 percent to $64.9 million for the year. The increase includes a greater volume of aircraft and facility maintenance services for external customers than a year ago. 2009 pre-tax earnings from all other activities were $0.6 million in the fourth quarter of 2009 and $9.3 million in the fourth quarter of 2008. Pre-tax earnings were $3.5 million for the year, compared with the prior-year’s $7.1 million. Fourth-quarter 2008 results included a one-time gain of $5.8 million stemming from aircraft insurance proceeds.

ATSG Business Model

Over the course of the past three years, ATSG has successfully transformed the business model from one that was highly dependent on cost-plus contracts with DHL, to a diversified model with a particular emphasis on operating margins and returns on invested capital. Key components of ATSG’s unique business model include:

  • A fleet of 62 aircraft, backed by a broad spectrum of air transport services and capabilities which include dry leasing, ACMI, third-party maintenance and technical services, equipment leasing and facility management services and logistics services

  • A diversified mix of customers which, in addition to DHL, include BAX/Schenker, TNT, Quantas, the U.S. Military, and the U.S. Postal Service

With new long term agreements in place with DHL that more appropriately reflect the value of ATSG’s assets and service capabilities, coupled with a more diversified breadth of customers and businesses, ATSG is poised to generate superior returns, relative to its historic business model which was dominated by low margin, cost-plus contracts with DHL.

Outlook

Commenting on the business outlook, Hete said, “ATSG is seeing strong demand for its assets and services across the globe. As previously announced this month, we leased the first of two 767 aircraft to Amerijet for dry lease. In addition, this past weekend, we delivered a second 767 to TNT for ACMI service in their European network. With our DHL partnership entering a new and exciting phase, and its related uncertainty behind us, I am as excited as ever about ATSG’s growth opportunities. The conversion program for nine more 767s will only enhance our capabilities and allow us to meet the growing demands of our customers.”

Hete continued, “The structure of the new DHL agreements unlocks the potential of our valuable aircraft assets, allowing us to earn a significantly better return on our invested capital than under the legacy agreements. To a greater degree than in the past, our margins will depend on our ability to control costs and innovate, while meeting or exceeding the service quality standards that our customers expect, which I’m confident our people can deliver. With those priorities, and a more competitive collective bargaining agreement in place with ABX Air, I look forward to improving upon our historic financial performance 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 link below, 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.
 

 
 

Live Webcast
April 1, 2010 at 10:00 a.m. Eastern daylight time
Fourth Quarter and Fiscal 2009 Conference Call
Windows Media Player required
 
 


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, changes in market demand for our assets and services, the timely completion of 767 freighter modifications as anticipated under ABX Air’s new operating agreement with DHL, ABX Air’s ability to maintain on-time service and control costs under its new operating agreement with DHL, 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.

ATTACHMENTS:
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
CONDENSED CONSOLIDATED BALANCE SHEETS
PRE-TAX EARNINGS SUMMARY
NON-GAAP RECONCILIATION

RETURN TO PRESS RELEASES


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)

 

           
    Three Months Ended   Year Ended
    December 31   December 31
    2009   2008   2009   2008
                 
REVENUES   $ 250,510     $ 256,964     $ 823,483     $ 941,686  
                 
OPERATING EXPENSES                
Salaries, wages and benefits   123,084     116,752     380,276     400,644  
Fuel   33,682     37,193     109,242     176,722  
Depreciation and amortization   21,610     25,374     83,964     93,752  
Maintenance, materials and repairs   18,108     21,412     66,621     87,344  
Landing and ramp   6,446     7,772     29,236     34,526  
Travel   5,873     6,537     21,761     29,407  
Rent   3,901     1,867     10,926     8,947  
Insurance   2,612     3,456     10,918     10,454  
Impairment of goodwill   -     73,178     -     73,178  
Impairment of acquired intangibles   -     18,063     -     18,063  
Other operating expenses   11,783     2,036     38,749     30,601  
    227,099     313,640     751,693     963,638  
                 
INTEREST EXPENSE   (5,833 )   (9,321 )   (26,881 )   (37,002 )
INTEREST INCOME   68     305     449     2,335  
EARNINGS FROM CONTINUED   17,646     (65,692 )   45,358     (56,619 )
OPERATIONS BEFORE INCOME TAXES                
                 
INCOME TAXES   (7,334 )   (3,480 )   (17,156 )   (6,229 )
                 
EARNINGS FROM CONTINUED   10,312     (69,172 )   28,202     (62,848 )
OPERATIONS                
                 
EARNINGS FROM DISCONTINUED   1,196     4,956     6,247     6,858  
OPERATIONS NET OF TAX                
                 
NET EARNINGS   $ 11,508     $ (64,216 )   $ 34,449     $ (55,990 )
                 
EARNINGS PER SHARE - Basic                
Continuing operations   $ 0.16     $ (1.11 )   $ 0.45     $ (1.01 )
Discontinued operations   0.02     0.08     0.10     0.11  
NET EARNINGS PER SHARE   $ 0.18     $ (1.03 )   $ 0.55     $ (0.90 )
                 
EARNINGS PER SHARE - Diluted                
Continuing operations   $ 0.16     $ (1.11 )   $ 0.44     $ (1.01 )
Discontinued operations   0.02     0.08     $ 0.10     0.11  
NET EARNINGS PER SHARE   $ 0.18     $ (1.03 )   $ 0.54     $ (0.90 )
                 
WEIGHTED AVERAGE SHARES                
Basic   62,686     62,549     62,674     62,484  
Diluted   63,573     62,549     63,279     62,484  

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

 

         
    December 31,   December 31,
    2009   2008
ASSETS        
         
CURRENT ASSETS:        
Cash and cash equivalents   $ 83,229     $ 116,114  
Marketable securities - available-for-sale   -     26  
Accounts receivable, net of allowance of $1,288 in 2009 and $469 in 2008   25,036     24,495  
Due from DHL   62,672     63,362  
Inventory   5,226     11,259  
Prepaid supplies and other   7,093     11,151  
Deferred income taxes   31,597     20,172  
Aircraft and engines held for sale   30,634     2,353  
TOTAL CURRENT ASSETS   245,487     248,932  
         
Property and equipment, net   636,089     671,552  
Other assets   21,307     25,281  
Deferred income taxes   -     54,807  
Intangibles   10,113     11,000  
Goodwill   89,777     89,777  
TOTAL ASSETS   $ 1,002,773     $ 1,101,349  
         
LIABILITIES AND STOCKHOLDERS' EQUITY        
CURRENT LIABILITIES:        
Accounts payable   $ 38,174     $ 36,618  
Accrued salaries, wages and benefits   44,077     63,500  
Accrued severance and retention   18,959     67,846  
Accrued expenses   16,429     13,772  
Current portion of debt obligations   51,737     61,858  
Unearned revenue   15,340     14,813  
TOTAL CURRENT LIABILITIES   184,716     258,407  
             
Long-term obligations   325,690     450,628  
Post-retirement liabilities   152,297     294,881  
Other liabilities   44,044     17,041  
Deferred income taxes   50,044     -  
         
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; 63,416,564 and 63,247,312 shares issued and outstanding in 2009 and 2008, respectively
  634     632  
Additional paid-in capital   502,822     460,155  
Accumulated deficit   (211,085 )   (245,534 )
Accumulated other comprehensive loss   (46,389 )   (134,861 )
TOTAL STOCKHOLDERS' EQUITY   245,982     80,392  
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY   $ 1,002,773     $ 1,101,349  

 


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
PRE-TAX EARNINGS SUMMARY
FROM CONTINUING OPERATIONS
(In thousands)

 

         
    Three Months Ended December 31   Year Ended December 31
    2009   2008   2009   2008
Revenues:              
  DHL              
  ACMI $ 58,005     $ 116,920     $ 282,787     $ 451,428  
  S&R agreement 72,453     22,667     121,366     29,109  
  Total DHL 130,458     139,587     404,153     480,537  
  ACMI Services              
  Charter and ACMI 81,409     82,145     289,514     292,836  
  Other Reimbursable 22,103     21,985     75,157     128,174  
  Total ACMI Services 103,512     104,130     364,671     421,010  
  CAM 16,970     13,803     60,685     47,480  
  Other Activities 22,085     13,918     64,914     48,707  
Total Revenues 273,025     271,438     894,423     997,734  
  Eliminate internal revenues (22,515 )   (14,474 )   (70,940 )   (56,048 )
Customer Revenues $ 250,510     $ 256,964     $ 823,483     $ 941,686  
                 
                 
Pre-tax Earnings:              
  DHL              
  ACMI $ 1,865     $ 7,863     $ 11,124     $ 13,591  
  S&R agreement 12,210     816     16,727     816  
  Total DHL 14,075     8,679     27,851     14,407  
  ACMI Services (961 )   5,952     541     7,147  
  Impairments - ACMI Services -     (91,241 )   -     (91,241 )
  CAM 6,079     4,898     22,775     18,102  
  Other Activities 578     9,312     3,518     7,070  
  Net non-reimbursed interest income (expense) (2,125 )   (3,292 )   (9,327 )   (12,104 )
Total Pre-tax Earnings $ 17,646     $ (65,692 )   $ 45,358     $ (56,619 )

 


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
NON-GAAP RECONCILIATION
Earnings from Continuing Operations to Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
and Earnings Before Interest, Taxes, Depreciation, Amortization and Impairment Charges (Adjusted EBITDA)
(Unaudited, in thousands)

 

           
      Three Months Ended Dec. 31,   Year Ended Dec. 31,
      2009   2008   2009   2008
                   
GAAP Earnings (Loss) from Continuing                
  Operations   $ 10,312     $ (69,172 )   $ 28,202     $ (62,848 )
  Income Tax Expense   7,334     3,480     17,156     6,229  
  Interest Income   (68 )   (305 )   (449 )   (2,335 )
  Interest Expense   5,833     9,321     26,881     37,002  
  Depreciation and Amortization   21,610     25,374     83,964     93,752  
                   
EBITDA from Continuing Operations   $ 45,021     $ (31,302 )   $ 155,754     $ 71,800  
                   
  Impairment-goodwill   -     $ 73,178     -     $ 73,178  
  Impairment-acquired intangibles   -     18,063     -     18,063  
                   
Adjusted EBITDA                
  from Continuing Operations   $ 45,021     $ 59,939     $ 155,754     $ 163,041  
                   
                   
Total Debt                
  Current portion of debt obligations           $ 51,737     $ 61,858  
  Long-term obligations           325,690     450,628  
  Total Debt           $ 377,427     $ 512,486  
                   
Debt divided by Adjusted EBITDA           2.4     3.1  

EBITDA and Adjusted EBITDA are a non-GAAP financial measures and should not be considered alternatives to net income (loss) or any other performance measure derived in accordance with GAAP. EBITDA is defined as income (loss) from operations plus net interest expense, provision for income taxes, depreciation and amortization. The Company’s management uses these adjusted financial measures in conjunction with GAAP finance measures to monitor and evaluate the performance of the Company, including as a measure of liquidity. EBITDA and Adjusted EBITDA should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, or as alternative measures of liquidity. 
 

 
 

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For more information, co
ntact:
Air Transport Services Group, Inc.
Quint Turner
937-382-5591

 
             
             

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