|BOARD OF DIRECTORS|
|STOCK AND FILINGS|
WILMINGTON, Ohio - May 10, 2010 - Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported financial results for its first quarter ended March 31, 2010, as compared with results for the first quarter of 2009.
First Quarter Financial Summary:
Joe Hete, President and CEO of ATSG, said, "Our first-quarter 2010 financial results, excluding ABX Air’s DHL-related operations, improved sharply from January through March, but pre-tax earnings still fell short of acceptable levels for the quarter as a whole. The first quarter results were generated under customer contract terms and a labor cost structure at ABX Air that have changed dramatically, and as such are not representative of ATSG’s anticipated future performance for the rest of 2010."
First Quarter Highlights:
"This was a transitional quarter for us, as we moved to complete the changes to our operations driven by the terms of our recently completed agreements with DHL and the ABX flight crews," Hete said. "The groundbreaking agreements with DHL will unlock the value of our aircraft assets, and give us greater opportunities to achieve margin improvement through fixed versus cost-plus pricing. At the same time, DHL has our pledge to continue to be a reliable, high-quality air transport partner for years to come. The combined impact of these agreements, along with further operational improvements and cost reductions in our airlines and other businesses, give me confidence that our results will improve significantly as the year progresses."
ABX Air continued to support DHL under the terms of the ACMI Agreement, which terminated at the end of the first quarter. Reimbursable operating expenses were higher in 2009 in part because ABX Air continued to support a full domestic express network for DHL through the end of January 2009, which required additional ABX Air aircraft and operating personnel.
DHL segment pre-tax earnings were $8.3 million in the first quarter of 2010, which included $4.7 million from mark-ups and $3.5 million from the S&R agreement. In 2009, pretax earnings of $8.1 million included $3.6 million from markups and $4.5 million from the S&R agreement.
Results related to ABX Air’s former management of DHL’s sorting operations, and facilities and fuel management, have been included in discontinued operations since DHL reassumed responsibility for those services in the third quarter of 2009.
ACMI Services Segment
The ACMI Services segment includes all ACMI and air charter services provided by ATSG’s airlines outside ABX Air’s former ACMI Agreement with DHL. First-quarter revenues for that segment in 2010 were $76.9 million, excluding reimbursement revenues of $21.3 million, up 10 percent from revenues in the first quarter of 2009 of $69.9 million, excluding reimbursement revenues of $16.1 million. Revenue-generating block hours for this segment increased four percent compared with the first quarter of 2009, reflecting additional aircraft in service. The segment had a pre-tax loss of $0.9 million, compared with a profit of $1.9 million in the year-earlier period.
All three of ATSG’s cargo airlines experienced operating challenges during the quarter that affected pre-tax results. A Boeing 727 operated by Capital Cargo International Airlines sustained significant damage during a January windstorm, requiring costly re-deployment of a less efficient replacement aircraft. ABX Air’s agreement with TNT for blocked-space charter service across the Atlantic continued at a loss through January, when it was converted to ACMI service on a profitable basis. And Air Transport International experienced aircraft maintenance and operating challenges that prevented it from achieving anticipated customer service revenue incentives early in the quarter. By March, however, all three airlines were generating substantially improved operating results, which have continued into the current quarter.
CAM Leasing Segment
Cargo Aircraft Management (CAM) recorded revenues from aircraft leasing operations of $17.8 million during the first quarter, up 36.8 percent from $13.0 million in 2009. CAM had 45 aircraft under lease at the end of the quarter, of which 41 were leased to ATSG airlines and four to outside customers, including the Amerijet lease completed in February. Segment pre-tax earnings of $6.5 million were up 37.7 percent from $4.8 million. CAM began leasing seven 767 freighters to DHL effective with the new agreements in April. CAM will increase to 13 the number of 767s it leases to DHL next year as more non-standard 767 aircraft complete the modification process to full freighters.
Revenues from other businesses rose 50.9 percent to $17.5 million from $11.6 million. These businesses had a combined pre-tax loss of $1.3 million in the first quarter of 2010, compared with a profit of $0.7 million a year earlier. The 2010 loss includes a charge of $0.5 million to reserve for an insurance deductible related to the wind-damaged CCIA aircraft referenced above. The 2009 first quarter pre-tax earnings of $0.7 million included a gain of $1.7 million from the sale of spare aircraft engines and parts.
Net non-reimbursed interest expense for the quarter declined by $0.4 million compared with the first quarter 2009, reflecting a more favorable interest rate environment and significant reductions in outstanding debt.
Potential Fleet Expansion
Separately, ATSG announced that CAM recently executed a letter of intent for the purchase of three 767-300 extended-range, passenger-configured aircraft.
"Our goal is to acquire, convert to standard freighters, and begin deployment of those aircraft beginning in early 2011," Hete said. "These 767-300ERs have additional payload capacity as well as greater range than our 767-200 freighters, and will increase the customer base we can support in both the leasing and ACMI market. Due to similar flight deck configurations, flight crews that are qualified on the 767-200 can also become qualified on the 767-300 with minimal additional training, thus providing for cost-efficient crewing. We believe that marrying 767-200 and 767-300 capabilities will further differentiate ATSG in the medium wide body segment of the air cargo industry, while allowing us to leverage ATSG’s existing infrastructure."
Market values for converted 767-300ER freighters, including conversion costs , range from $28.5 million to $31.5 million, according to Air Cargo Management Group. If CAM elects to purchase the aircraft, they would be modified to standard freighter configuration. The purchase would be subject to, among other conditions, a satisfactory inspection of the aircraft, review of documentation, and satisfactory arrangements with an aircraft modification provider. The Company expects to be able to finance the purchase and modification within the limits of its existing credit facilities, and to deploy the aircraft at attractive returns on invested capital.
Hete concluded, "The recent improvement in our stock price evidences the market’s recognition that ATSG is in the best position of its seven years as an independent, publicly traded company to deploy its attractive aircraft assets, technical and operating expertise, and greater market-driven focus to achieve our growth and profitability targets over the near and long term. We fully embrace our commitment to capture these opportunities, consistently communicate about our progress, and reward our shareholders for their support."
ATSG will host a conference call to review its financial results for the first quarter of 2010 on Tuesday, May 11, 2009, at 3:00 p.m. Eastern Daylight Time. Participants should dial 888-713-4199 and international participants should dial 617-213-4861 ten minutes before the scheduled start of the call and ask for conference pass-code 40341763.
The call will also 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 on May 11 beginning at 6:00 p.m. and
continuing through Tuesday, May 18, 2010, at 888-286-8010 (international
callers 617-801-6888); use pass-code 18271572. The webcast replay will
remain available via the link below or
www.earnings.com for 30 days.
May 11, 2010 at 3:00 p.m. Eastern daylight time
First Quarter 2010 Conference Call
Windows Media Player required
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 Aircraft Management, Inc.; Capital Cargo International Airlines, 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 Boeing 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.NON-GAAP RECONCILIATION
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AIR TRANSPORT SERVICES GROUP, INC. AND
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TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
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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