ATSG Reports First Quarter 2014 Financial Results

  ATSG Reports First Quarter 2014 Financial Results

 Executes Leases for Four 767s; Extends Credit Agreement Under More Favorable
                                    Terms

Business Wire

WILMINGTON, Ohio -- May 6, 2014

Air Transport Services Group, Inc. (Nasdaq: ATSG), the leading provider of
medium wide-body aircraft leasing, and air cargo transportation and related
services, today reported consolidated financial results for the quarter ended
March 31, 2014, and announced new, multi-year dry-leases of Boeing 767
freighter aircraft and an amendment to its credit agreement with a consortium
of banks.

For the first quarter of 2014:

  *Revenues were $143.6 million, flat with a year ago. Increases in revenues
    from aircraft leasing and other business activities offset lower revenues
    from airline operations.
  *Earnings from continuing operations of $6.5 million, or $0.10 per share,
    were lower than earnings of $8.5 million, or $0.13 per share a year ago. A
    $4.1 million increase in depreciation and amortization expense stemming
    from the addition of more modern aircraft to ATSG’s fleet, offset
    decreases in other operating expenses.
  *Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation and
    Amortization, also adjusted for the effect of derivative transactions) was
    $38.8 million, up 4 percent from $37.3 million in the prior-year quarter.
    Adjusted EBITDA is a non-GAAP financial measure, defined and reconciled to
    comparable GAAP results in separate tables at the end of this release.
  *Today, ATSG executed a favorable amendment to its primary credit agreement
    which extends the term of the agreement until May 6, 2019, reduces
    interest rate pricing, adds a $50 million accordion feature, and improves
    its ability to execute stock repurchases and pay dividends to
    shareholders.

Separately, ATSG announced the following new-business agreements today:

  *Dry-leases for two Boeing 767-200 freighters to Cargojet, a Canadian
    airline, for terms of up to three years beginning in the second and third
    quarters this year. These aircraft are in addition to the two 767-200
    freighters Cargojet currently leases from CAM.
  *Dry-leases for two Boeing 767-300 freighters to Amerijet, a Florida based
    airline, under six-year terms beginning in the third quarter this year.
    Amerijet currently leases three 767-200 freighters from CAM.

Joe Hete, President and Chief Executive Officer of ATSG, said, “This new
business with two long-standing ATSG customers demonstrates their confidence
in the value of mid-size freighters as vital components of efficient regional
air-cargo networks, and in our bundled services offerings, which facilitate
rapid implementation and scale efficiencies. These dry lease deployments
evidence the strengthening demand for mid-size lift that we spoke of last
quarter, and bolster our confidence that we can deliver at or above the upper
range of our EBITDA guidance for 2014, based on improving performance,
particularly in the second half of the year.”

Segment Results
CAM (Aircraft Leasing)

CAM                  First Quarter
($ in thousands)     2014         2013
Revenues                 $  40,635     $  38,969
Pre-Tax Earnings     14,440       16,873
                                        

Significant Developments:

  *Higher revenues were the result of four more CAM-owned aircraft in- or
    available for service as of March 31, including four 757 combis (combined
    passenger and main-deck cargo aircraft), two 767 freighters and one 757
    freighter, less three retired DC-8 combis. Lower pre-tax earnings from
    leasing operations reflect higher depreciation on the newer added
    aircraft.
  *At March 31, CAM owned 51 Boeing cargo aircraft in service condition
    including 20 leased to external customers and 30 leased to CAM’s airline
    affiliates, and one unassigned. A table reflecting cargo aircraft in
    service is included at the end of this release.
  *CAM’s seventh owned 767-300 freighter became available for service during
    the first quarter, along with its fourth 757 combi. ATSG no longer has any
    aircraft in modification or awaiting conversion.
  *In addition to the two 767-300s that Amerijet has agreed to lease from
    CAM, it also agreed to 18-month lease extensions through 2019 for two of
    the three 767-200s it currently leases, and the right to terminate early
    the dry lease of the third leased 767-200 when the 767-300s are fully
    deployed. One of CAM's airline affiliates is operating one 767-200
    freighter in Amerijet's network under an interim ACMI agreement.
  *When fully implemented later this year, the new arrangements with Amerijet
    and Cargojet will increase the number of CAM aircraft leased to external
    customers from 20 at March 31 to 23, principally via reductions in the
    number of aircraft leased to its airline affiliates.

ACMI Services

ACMI Services                    First Quarter
($ in thousands)                 2014           2013
Revenues
Airline services                     $  87,507       $  94,892
Reimbursables                        21,089          18,159     
Total ACMI Services Revenues         108,596          113,051
                                                                 
Pre-Tax Loss                     (7,046     )   (5,404     )
                                                                 

Significant Developments:

  *First-quarter airline services revenues decreased $7.4 million to $87.5
    million, compared with the first quarter last year. Segment pre-tax loss
    increased to $7.0 million from $5.4 million. Reductions in non-U.S.
    operations, including those for DHL in the Mideast, along with continued
    carrying costs associated with underutilized aircraft, were principal
    factors. Revenues from domestic airline operations for DHL increased.
  *In the first quarter, the last of four 757 combis entered service for the
    U.S. military, completing the modernization of that fleet. The 757 combis
    have more passenger capacity and greater fuel efficiency than the DC-8
    combis they replaced.
  *During the first quarter, DHL ended ACMI agreements with Air Transport
    International (ATI) for three 767 freighters that had supported DHL's
    Mideast network. Results from three other freighters deployed by ATSG's
    airlines offset a portion of the loss of the Mideast business.
  *ACMI block hours decreased 3 percent during the first quarter, compared to
    the prior-year period.
  *As noted above, CAM's additional placements of freighter aircraft under
    dry leases to third parties will reduce the number of aircraft leased to
    ATSG's airlines, including three of five underutilized freighters leased
    to those airlines as of March 31.

Other Activities

Other Activities     First Quarter
($ in thousands)     2014         2013
Revenues                 $  26,808     $  26,254
Pre-Tax Earnings     3,017        2,181
                                        

  *Pre-tax earnings in the first quarter were driven by higher revenues from
    the Company's aircraft maintenance and postal operations. The aircraft
    maintenance business, Aircraft Maintenance and Engineering Services (AMES)
    is preparing to serve more third-party customers after its new hangar
    opens in Wilmington in June of this year.

Credit Agreement Amendment
Today, ATSG executed an amendment to its senior secured credit facility which
includes a term loan of $127.5 million, and access to a revolving credit
facility of up to $275 million, of which the Company has drawn $188.0 million.
Key features of the amendment include:

  *Extended the maturity of the term loan and revolving credit facility from
    July 2017 to May 6, 2019.
  *Reduced EBITDA-based pricing by approximately 25 basis points.
  *An accordion feature which would allow ATSG to expand the revolver
    capacity from $275 million to $325 million, subject to lenders' consent.
  *Allows for stock buybacks and dividends when the debt-to-EBITDA ratio is
    below 2.5 times after giving effect of the buyback or dividend (the
    previous requirement was under 2.0 times).

Outlook
In March, ATSG projected that its Adjusted EBITDA for 2014 would be in a range
of $165 to $170 million, excluding any results from deployments of
under-utilized aircraft. Based on today's new-business announcements,
virtually all of which commence in the second half of the year, ATSG has
greater confidence that its Adjusted EBITDA for 2014 from all sources will
meet or exceed the upper end of that guidance range, assuming improving
base-business progress in 2014.

Hete said, “Uncertainties that discouraged major investments in air-cargo
networks for many months appear to have eased, and we are seeing broad
interest in our aircraft beyond the agreements we have announced today.
Cargojet and Amerijet have signed for four of our six under-utilized
freighters, and discussions with others give us a good chance to be fully
deployed by the end of this year.

“The growing EBITDA we project, and reductions in our obligations for capital
expenditures and pension funding, will significantly improve our cash flow
this year. Our recent success at placing additional aircraft under multi-year
customer arrangements, and continued interest in those still available for
deployment, gives us confidence that we will make even greater cash flow gains
as the year progresses. With a strong balance sheet and cash flow, we are
poised to invest where it can generate the most attractive shareholder
returns.”

Conference Call
ATSG will host a conference call on May 7, 2014, at 9:00 a.m. Eastern time to
review its financial results for the first quarter of 2014. Participants
should dial 888-895-5479 and international participants should dial
847-619-6250 ten minutes before the scheduled start of the call and ask for
conference pass code 37157156. The call will also be webcast live (listen-only
mode) via www.atsginc.com 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 May 7, 2014,
beginning at 2:00 p.m. and continuing through March 14, 2014, at (888)
843-7419 (international callers 630-652-3042); use pass code 37157156#. The
webcast replay will remain available via www.atsginc.com and www.earnings.com
for 30 days.

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 two 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,
Inc.; Cargo Aircraft Management, 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
number and timing of deployments of our aircraft, our operating airlines'
ability to maintain on-time service and control costs, 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.

                                              
                                                   
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)
                                                   
                                                   Three Months Ended
                                                   March 31,
                                                   2014          2013
REVENUES                                           $ 143,593       $ 143,279
                                                                             
OPERATING EXPENSES
Salaries, wages and benefits                       43,065          43,309
Fuel                                               12,260          14,361
Maintenance, materials and repairs                 24,879          22,134
Depreciation and amortization                      24,979          20,920
Rent                                               7,310           6,779
Travel                                             4,573           4,727
Landing and ramp                                   2,738           4,065
Insurance                                          1,205           1,511
Other operating expenses                           8,748          9,060     
                                                   129,757         126,866
                                                                          
OPERATING INCOME                                   13,836          16,413
OTHER INCOME (EXPENSE)
Interest income                                    19              21
Interest expense                                   (3,823    )     (3,132    )
Net gain on derivative instruments                 299            290       
                                                   (3,505    )     (2,821    )
                                                                          
EARNINGS FROM CONTINUING OPERATIONS BEFORE         10,331          13,592
INCOME TAXES
INCOME TAX EXPENSE                                 (3,809    )     (5,091    )
                                                                          
EARNINGS FROM CONTINUING OPERATIONS                6,522           8,501
                                                                             
EARNINGS (LOSS) FROM DISCONTINUED                  211            (1        )
OPERATIONS, NET OF TAX
NET EARNINGS                                       $ 6,733        $ 8,500   
                                                                             
EARNINGS PER SHARE - Basic
Continuing operations                              $ 0.10         $ 0.13    
Discontinued operations                            —              —         
NET EARNINGS PER SHARE                             $ 0.10         $ 0.13    
                                                                             
EARNINGS PER SHARE - Diluted
Continuing operations                              $ 0.10         $ 0.13    
Discontinued operations                            —              —         
NET EARNINGS PER SHARE                             $ 0.10         $ 0.13    
                                                                             
WEIGHTED AVERAGE SHARES
Basic                                              64,148         63,810    
Diluted                                            65,141         64,524    
                                                                             

                                                          
                                                                 
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)
                                                                 
                                               March 31,         December 31,
                                               2014              2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents                      $ 27,102          $ 31,699
Accounts receivable, net of allowance          50,827            52,247
of $698 in 2014 and $717 in 2013
Inventory                                      10,608            9,050
Prepaid supplies and other                     12,754            9,730
Deferred income taxes                          13,957            13,957
Aircraft and engines held for sale             2,487            2,995       
TOTAL CURRENT ASSETS                           117,735           119,678
                                                                             
Property and equipment, net                    817,441           838,172
Other assets                                   36,761            21,143
Pension assets, net of obligations             16,887            14,855
Intangibles                                    4,826             4,896
Goodwill                                       34,395           34,395      
TOTAL ASSETS                                   $ 1,028,045      $ 1,033,139 
                                                                             
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable                               $ 30,361          $ 34,818
Accrued salaries, wages and benefits           23,400            23,163
Accrued expenses                               9,497             9,695
Current portion of debt obligations            23,873            23,721
Unearned revenue                               8,887            8,733       
TOTAL CURRENT LIABILITIES                      96,018            100,130
                                                                             
Long term debt                                 350,718           360,794
Post-retirement obligations                    30,207            30,638
Other liabilities                              62,243            62,740
Deferred income taxes                          113,273           109,869
                                                                             
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;
64,850,537 and 64,618,305 shares               649               646
issued and outstanding in 2014 and
2013, respectively
Additional paid-in capital                     525,347           524,953
Accumulated deficit                            (120,080    )     (126,813    )
Accumulated other comprehensive loss           (30,330     )     (29,818     )
TOTAL STOCKHOLDERS’ EQUITY                     375,586          368,968     
TOTAL LIABILITIES AND STOCKHOLDERS’            $ 1,028,045      $ 1,033,139 
EQUITY
                                                                             



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
                                                March 31,
                                                2014          2013
Revenues
CAM                                             $ 40,635        $ 38,969
ACMI Services
Airline services                                87,507          94,892
Reimbursables                                   21,089         18,159    
Total ACMI Services                             108,596         113,051
Other Activities                                26,808         26,254    
Total Revenues                                  176,039         178,274
Eliminate internal revenues                     (32,446   )     (34,995   )
Customer Revenues                               $ 143,593      $ 143,279 
                                                                          
Pre-tax Earnings from Continuing Operations
CAM, inclusive of interest expense              14,440          16,873
ACMI Services                                   (7,046    )     (5,404    )
Other Activities                                3,017           2,181
Net, unallocated interest expense               (379      )     (348      )
Net gain on derivative instruments              299            290       
Total Pre-tax Earnings                          $ 10,331        $ 13,592
                                                                          
Adjustments to Pre-tax Earnings
Less net gain on derivative instruments         (299      )     (290      )
Adjusted Pre-tax Earnings                       $ 10,032       $ 13,302  
                                                                          

Adjusted Pre-tax Earnings is defined as Earnings from Continuing Operations
Before Income Taxes less derivative gains. 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
                                             March 31,
                                             2014              2013
                                                                            
Earnings from Continuing
Operations Before Income                     $  10,331           $  13,592
Taxes
Interest Income                              (19        )        (21        )
Interest Expense                             3,823               3,132
Depreciation and                             24,979             20,920     
Amortization
EBITDA from Continuing                       $  39,114           $  37,623
Operations
Less net gain on derivative                  (299       )        (290       )
instruments
                                                                         
Adjusted EBITDA from                         $  38,815          $  37,333  
Continuing Operations
                                                                            

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 less derivative gains.

Management uses EBITDA from Continuing Operations as an indicator of the
cash-generating performance of the operations of the Company. Management uses
Adjusted EBITDA from Continuing Operations to assess the performance of its
operating results among periods. EBITDA and Adjusted EBITDA from Continuing
Operations 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 CARGO AIRCRAFT FLEET

Aircraft Types
               December 31,                March 31,                   December 31,
                   2013                          2014                          2014 Projected
                                 Operating                   Operating                   Operating
                   Total   Owned   Lease         Total   Owned   Lease         Total   Owned   Lease
B767-200           40      36      4             40      36      4             40      36      4
B767-300           8       6       2             9       7       2             9       7       2
B757-200           4       4       —             4       4       —             4       4       —
B757 Combi         3       3       —             4       4       —             4       4       —
Total
Aircraft           55      49      6             57      51      6             57      51      6
In-Service
                                                                                               
Owned Aircraft In Serviceable Condition
                   December 31,                  March 31,                     December 31,
                   2013                          2014                          2014 Projected
                                                                                               
ATSG                       29                            30                            24-28
airlines
External                   20                            20                            23-27
customers
Unassigned                 —                             1                             —
                           49                            51
                                                                                               

Contact:

ATSG Inc.
Quint O. Turner, 937-382-5591
Chief Financial Officer
 
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