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ATSG REPORTS RESULTS FOR SECOND QUARTER 2012

Announces Two-Year Award for Combi Flying

WILMINGTON, Ohio - August 2, 2012 - Air Transport Services Group, Inc. (NASDAQ:ATSG) today reported financial results as follows for the second quarter of 2012:

Summary GAAP Results          
    Quarter Ended June 30,     Six Months Ended June 30,
(in millions, except per-share amounts)   2012   2011   Chg.     2012   2011   Chg.
Revenues   $ 153.6     $ 193.1     $ (39.5 )     $ 299.1     $ 368.2     $ (69.1 )
Pre-tax Earnings from Continuing Operations   $ 18.2     $ 19.7     $ (1.5 )     $ 28.9     $ 24.2     $ 4.7  
Net Earnings from Continuing Operations   $ 11.2     $ 12.3     $ (1.1 )     $ 17.9     $ 15.2     $ 2.7  
Earnings Per Share from Continuing Operations   $ 0.17     $ 0.19     $ (0.02 )     $ 0.28     $ 0.24     $ 0.04  
Adjusted (non-GAAP) Results *                          
Revenues excluding Reimbursed Expenses   $ 133.2     $ 143.4     $ (10.2 )     $ 261.8     $ 274.3     $ (12.5 )
Adjusted Pre-tax Earnings from Continuing Operations   $ 18.0     $ 19.3     $ (1.3 )     $ 28.3     $ 30.7     $ (2.4 )
Adjusted EBITDA from Continuing Operations   $ 43.1     $ 46.7     $ (3.6 )     $ 77.2     $ 84.5     $ (7.3 )

* A table defining and reconciling adjusted results to comparable GAAP measures is provided at the end of this release.

"Our results for the second quarter are indicative of both our good internal progress toward reorganizing our ACMI Services operations, and the uncertain economic conditions that are causing some regional customers to prolong the commitment process," Joe Hete, President and CEO of ATSG, said. “While our business with global carriers like DHL continues to expand, regional market conditions are proving challenging to other customers. But we can still deploy our unique assets, complementary services, and leverage our strong balance sheet to adapt and grow as market conditions change because of our dominant global market share of mid-sized 767 freighters in a mix of long-term dry leases or shorter-term ACMI operating agreements."

Earnings for the first half of 2011 included an aggregate $6.8 million in net charges related to the 2011 refinancing of ATSG's credit facilities. Adjusted EBITDA from Continuing Operations excludes the effect of these items. Revenues also include reimbursement of certain expenses, particularly fuel, from some of ATSG's customers, including $35.0 million in reimbursement revenues in the second quarter of 2011 from former customer D.B. Schenker (Schenker), a North American logistics company.

Operating Results

Aircraft Leasing

Pre-tax earnings for Cargo Aircraft Management (CAM) were $16.7 million, up 22 percent from the year-earlier period. Revenues increased 16 percent to $38.1 million compared to the same period a year ago. CAM's second-quarter revenues and pre-tax earnings reflect a $0.7 million reserve for unpaid rent associated with a Boeing 767-200 freighter under dry lease to a regional air carrier.

At the end of June, CAM owned 54 aircraft in serviceable condition, including 21 leased to external customers and 32 leased to its ATSG airline affiliates. Additionally, ATSG airlines operate six freighters (four Boeing 767-200s, and two 767-300s) under operating leases with third parties. During the recent second quarter, ATSG added three Boeing 767-300 freighter aircraft. ATSG's aircraft fleet at year-end 2011, at June 30, 2012, and its current outlook for aircraft in service at the end of 2012 are summarized in a table at the end of this release.

ACMI Services

Second quarter revenues for ATSG's airline operations were $101.3 million, excluding fuel and other reimbursed expenses, down from $115.1 million in the second quarter of 2011. The second-quarter pre-tax loss of $1.6 million was down from a $4.6 million pre-tax profit in the second quarter of 2011, but a $6.6 million improvement from the first quarter of 2012.

Results for the second quarter of 2011 included $25.0 million in airline services revenues from Schenker. As previously reported, Schenker ended its North American air freight network agreements with ATSG in the second half of 2011. Decreased segment results for the second quarter of 2012 primarily reflect the loss of the Schenker business and delays in customer commitments to ATSG aircraft.

ATSG is reorganizing its two airlines that served Schenker. The operations of Air Transport International (ATI) and Capital Cargo International Airlines (CCIA) are being combined, with CCIA's operations expected to merge into ATI by the end of 2012. Significant savings in these operations have already been achieved, as personnel expenses at ATI and CCIA have been reduced 24 percent from second-quarter 2011 levels. Further overhead expense reductions are expected in the second half, offset in part by expenses related to the reorganization.

On a sequential-quarter basis, the $6.6 million improvement in ACMI Services' pre-tax earnings from the first quarter of 2012 included stronger results from all three airline affiliates. More than two-thirds of that improvement came from ATI and CCIA, including a combination of increased revenues and net savings from the reorganization.

In June, ATI began operating three Boeing 767-200 freighters for DHL in the Middle East, bringing the total number of 767s in service for DHL in that region to four. It was originally anticipated that these three aircraft would go into service in the first quarter. Also, in June, ABX Air began to operate one 767-200 and one 767-300 freighter for DHL in the U.S.

First-half ACMI Services results also were affected by higher employee pension and engine maintenance expenses, and delays in aircraft deployments. Second-quarter ACMI block hours were down 15 percent overall from a year ago, but increased 15 percent excluding block hours operated for Schenker in the second quarter of 2011.

Other Activities

Second quarter revenues from ATSG's other businesses rose 5 percent from the second quarter of 2011 to $26.7 million before the elimination of inter-company results. Pre-tax profit from other activities totaled $3.2 million, nearly double the $1.7 million earned a year earlier. Higher revenues from ATSG's aircraft maintenance subsidiary (AMES) as well as the improved efficiency of mail sorting operations yielded improved results from those businesses. 

Outlook for Second Half 2012

ATSG's outlook for the second half of 2012 remains positive overall, as revenues, earnings and cash flow (as measured by our Adjusted EBITDA), are all expected to improve compared with the first half of the year.

As noted above, ATI was awarded another two-year agreement for combi service beginning with the government's 2013 fiscal year in October, maintaining ATI's status as the military's sole source of combi service, primarily serving remote locations around the world.

Hete noted, "We are particularly proud to have been selected by the U.S. military to remain its exclusive supplier of combi service, and we look forward to the transition from our DC-8 combis to a more efficient 757-based combi fleet. The two-year revenue stream from the military validates our investment in the Boeing 757 platform and our plan to merge CCIA's Boeing 757 operation with ATI's military flying expertise."

Hete continued, "Our efforts to drive out costs while remaining prepared to seize new-business opportunities that achieve our investment return hurdles will continue. Our ACMI Services businesses are steadily recovering from the loss of our Schenker business, and weathering the impact of economic trends on our more regionally focused customers. We remain confident that we have the customer demand for our expanding fleet of modified aircraft. The delays in projected start dates, however, for 767 aircraft deployments are now significant enough that our previously issued guidance is no longer appropriate. We now expect Adjusted EBITDA from Continuing Operations for 2012 to be approximately $170 million. We will continue to aggressively pursue both cost savings and new business that can yield even stronger results in 2013 and beyond."

Conference Call

ATSG will host a conference call on Friday, August 3, 2012, at 10:00 a.m. Eastern time to review its financial results for the second quarter of 2012. Participants should dial 800-591-6923 and international participants should dial 617-614-4907 ten minutes before the scheduled start of the call and ask for conference pass code 55450067. 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 on August 3, 2012, beginning at 2:00 p.m. and continuing through Friday, August 10, 2012, at 888-286-8010 (international callers 617-801-6888); use pass code 11883104. The webcast replay will remain available via the link below and www.earnings.com for 30 days.
 

 
 

Live Webcast - Second Quarter 2012 Conference Call
August 3, 2012 at 10:00 a.m. Eastern daylight saving time
 
 


About 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.

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 cost and timing associated with the modification and deployment of Boeing 767 and Boeing 757 aircraft, the availability and cost to acquire used passenger aircraft for freighter modification, ATSG's continuing ability to place modified aircraft into commercial service, ABX Air's ability to maintain on-time service and control costs under its operating agreement with DHL, ATSG's effectiveness in restructuring its airline operations affected by DB Schenker's restructuring of its U.S. air cargo operations, 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 AND ADJUSTED PRE-TAX EARNINGS SUMMARY FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
UNAUDITED ADJUSTED EBITDA FROM CONTINUING OPERATIONS NON-GAAP RECONCILIATION
IN-SERVICE AIRCRAFT FLEET

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

    Three Months Ended     Six Months Ended
    June 30,     June 30,
    2012   2011     2012   2011
REVENUES   $ 153,554     $ 193,061       $ 299,060     $ 368,188  
                   
OPERATING EXPENSES                  
Salaries, wages and benefits   44,570     45,326       91,674     91,674  
Fuel   14,084     48,640       27,924     88,316  
Maintenance, materials and repairs   25,270     22,380       48,384     43,686  
Depreciation and amortization   21,514     23,878       41,814     46,249  
Landing, ramp, rent and insurance   11,950     13,860       23,756     28,255  
Travel   5,566     6,918       11,544     13,228  
Other operating expenses   8,998     9,258       18,560     18,550  
    131,952     170,260       263,656     329,958  
OPERATING INCOME   21,602     22,801       35,404     38,230  
OTHER INCOME (EXPENSE)                  
Interest income   38     33       66     99  
Interest expense   (3,671 )   (3,537 )     (7,218 )   (7,640 )
Unrealized gain/(loss) on derivative instruments   202     376       662     (3,556 )
Write off of unamortized debt issuance costs       (16 )         (2,886 )
    (3,431 )   (3,144 )     (6,490 )   (13,983 )
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   18,171     19,657       28,914     24,247  
INCOME TAX EXPENSE   (6,952 )   (7,377 )     (11,033 )   (9,086 )
EARNINGS FROM CONTINUING OPERATIONS   11,219     12,280       17,881     15,161  
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAX   (160 )   19       (390 )   (98 )
NET EARNINGS   $ 11,059     $ 12,299       $ 17,491     $ 15,063  
                   
EARNINGS PER SHARE - Basic                  
Continuing operations   $ 0.18     $ 0.19       $ 0.28     $ 0.24  
Discontinued operations   (0.01 )              
NET EARNINGS PER SHARE   $ 0.17     $ 0.19       $ 0.28     $ 0.24  
                   
EARNINGS PER SHARE - Diluted                  
Continuing operations   $ 0.17     $ 0.19       $ 0.28     $ 0.24  
Discontinued operations             (0.01 )    
NET EARNINGS PER SHARE   $ 0.17     $ 0.19       $ 0.27     $ 0.24  
                   
WEIGHTED AVERAGE SHARES                  
Basic   63,431     63,333       63,431     63,233  
Diluted   64,393     64,172       64,383     64,055  
                           
 

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

    June 30,     December 31,
    2012     2011
ASSETS          
CURRENT ASSETS:          
Cash and cash equivalents   $ 47,527       $ 30,503  
Accounts receivable, net of allowance of $457 in 2012 and $434 in 2011   39,817       42,278  
Inventory   8,657       8,906  
Prepaid supplies and other   7,777       9,785  
Deferred income taxes   17,418       31,548  
Aircraft and engines held for sale   5,474       9,831  
TOTAL CURRENT ASSETS   126,670       132,851  
           
Property and equipment, net   778,113       748,913  
Other assets   19,558       18,579  
Intangibles   5,938       6,396  
Goodwill   86,980       86,980  
TOTAL ASSETS   $ 1,017,259       $ 993,719  
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
CURRENT LIABILITIES:          
Accounts payable   $ 37,165       $ 48,360  
Accrued salaries, wages and benefits   20,645       23,226  
Accrued expenses   10,287       10,291  
Current portion of debt obligations   17,239       13,223  
Unearned revenue   11,071       12,487  
TOTAL CURRENT LIABILITIES   96,407       107,587  
               
Long term debt obligations   345,956       333,681  
Post-retirement liabilities   180,286       185,562  
Other liabilities   63,281       54,212  
Deferred income taxes   40,140       42,530  
           
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; 64,261,289 and 64,015,789 shares issued and outstanding in 2012 and 2011, respectively   643       640  
Additional paid-in capital   522,427       520,613  
Accumulated deficit   (130,568 )     (148,059 )
Accumulated other comprehensive loss   (101,313 )     (103,047 )
TOTAL STOCKHOLDERS’ EQUITY   291,189       270,147  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 1,017,259       $ 993,719  
                   
 

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

    Three Months Ended     Six Months Ended
    June 30,     June 30,
    2012   2011     2012   2011
Revenues                  
CAM Leasing   $ 38,067     $ 32,762       $ 75,918     $ 64,890  
ACMI Services                  
Airline services   101,261     115,050       197,603     217,500  
Reimbursables   20,369     49,659       37,222     93,914  
Total ACMI Services   121,630     164,709       234,825     311,414  
Other Activities   26,682     25,469       55,103     50,907  
Total Revenues   186,379     222,940       365,846     427,211  
Eliminate internal revenues   (32,825 )   (29,879 )     (66,786 )   (59,023 )
Customer Revenues   $ 153,554     $ 193,061       $ 299,060     $ 368,188  
                   
Pre-tax Earnings from Continuing Operations              
CAM, inclusive of interest expense   16,667     13,634       33,485     27,100  
ACMI Services   (1,582 )   4,560       (9,797 )   2,050  
Other Activities   3,228     1,675       5,229     3,329  
Net, unallocated interest expense   (344 )   (572 )     (665 )   (1,790 )
Net gain (loss) on derivative instruments   202     376       662     (3,556 )
Write off of unamortized debt issuance costs       (16 )         (2,886 )
Total Pre-tax Earnings   $ 18,171     $ 19,657       $ 28,914     $ 24,247  
                   
Adjustments to Pre-tax Earnings              
Less Net (Gain) Loss on derivative instruments   (202 )   (376 )     (662 )   3,556  
Add Write-off of unamortized debt issuance costs       16           2,886  
Adjusted Pre-tax Earnings   $ 17,969     $ 19,297       $ 28,252     $ 30,689  
                                   

Notes: During the first half of 2011, the Company refinanced its long-term debt, recorded charges to write-off unamortized debt origination costs associated with terminated credit agreements and recognized losses for certain interest rate swaps which had been designated as hedges of the previous debt. Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such costs include fuel used, landing fees and certain aircraft maintenance expenses. The decline in reimbursable revenues during 2012 compared to 2011 reflects the discontinuation of D.B. Schenker's air network in the fourth quarter of 2011.

Adjusted Pre-tax Earnings is defined as Earnings from Continuing Operations Before Income Taxes plus derivative losses, less derivative gains, plus the write-off related to the termination of certain credit agreements in conjunction with the refinancing of the Company's debt. Management uses Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. Adjusted Pre-tax earnings from Continuing Operations is a non-GAAP financial measure and should not be considered an alternative to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP.


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED ADJUSTED EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION
NON-GAAP RECONCILIATION
(in thousands)

    Three Months Ended     Six Months Ended
    June 30,     June 30,
    2012   2011     2012   2011
                   
Earnings from Continuing Operations Before Income Taxes   $ 18,171     $ 19,657       $ 28,914     $ 24,247  
Interest Income   (38 )   (33 )     (66 )   (99 )
Interest Expense   3,671     3,537       7,218     7,640  
Depreciation and Amortization   21,514     23,878       41,814     46,249  
EBITDA from Continuing Operations   $ 43,318     $ 47,039       $ 77,880     $ 78,037  
Less Net (Gain) Loss on derivative instruments   (202 )   (376 )     (662 )   3,556  
Add Write-off of unamortized debt issuance costs       16           2,886  
                   
Adjusted EBITDA from Continuing Operations   $ 43,116     $ 46,679       $ 77,218     $ 84,479  
                                   

EBITDA and Adjusted EBITDA from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations Before Income Taxes or any other performance measure derived in accordance with GAAP.

EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense, depreciation, and amortization expense. Adjusted EBITDA from Continuing Operations is defined as EBITDA from Continuing Operations plus net derivative losses, less derivative gains, plus the write-off related to the termination of certain credit agreements in conjunction with the refinancing of the Company's debt.

Management uses EBITDA from Continuing Operations as an indicator of the cash-generating performance of the operations of the Company. Management uses Adjusted EBITDA and Adjusted Pre-tax Earnings from Continuing Operations to assess the performance of its operating results among periods. EBITDA and Adjusted EBITDA from Continuing Operations, and Adjusted Pre-tax Earnings should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity.


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
IN-SERVICE AIRCRAFT FLEET

Aircraft Types
    December 31,   June 30,   December 31,
    2011   2012   2012 Projected
            Operating           Operating           Operating
    Total   Owned   Lease   Total   Owned   Lease   Total   Owned   Lease
B767-200   40   36   4   41   37   4   41   37   4
B767-300   3   2   1   6   4   2   9   7   2
B757-200   3   3     3   3     4   4  
B757 Combi               1   1  
DC-8   3   3     2   2     2   2  
DC-8 Combi   4   4     4   4     3   3  
B727-200   4   4     4   4     3   3  
Total Aircraft In-Service   57   52   5   60   54   6   63   57   6
                                     
Owned Aircraft Placements
    December 31,   June 30,   December 31,
    2011   2012   2012 Projected
                                     
ATSG airlines       31           33           30-36    
External customers       21           21           21-27    
        52           54                


 

 
 

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

 
             
             

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