Air Transport Services Group

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
È ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Commission file number 000-50368

(Exact name of registrant as specified in its charter)

Delaware
(State of Incorporation)

26-1631624
(I.R.S. Employer Identification No.)

145 Hunter Drive, Wilmington, OH 45177
(Address of principal executive offices)
937-382-5591
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Common Stock, Par Value $.01 per share
Preferred Stock Purchase Rights
(Title of class)
Name of each exchange on which registered: NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities

Act. YES ‘ NO È

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the

Act. YES ‘ NO È

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES È NO ‘

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). YES ‘ NO ‘

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or a
smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ‘
Non-accelerated filer ‘ (Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ‘ NO È
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to
the price at which the common equity was last sold, as of the last business day of the registrant’s most recently completed
second fiscal quarter: $104,028,700. As of March 31, 2010, 63,408,566 shares of the registrant’s common stock, par value
$0.01, were outstanding.

Accelerated filer È
Smaller reporting company ‘

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 11, 2010 are

incorporated by reference into Part III.

FORWARD LOOKING STATEMENTS

Statements contained in this annual report on Form 10-K, including “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” in Item 7, that are not historical facts are considered
forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995).
Words such as “projects,” “believes,” “anticipates,” “will,” “estimates,” “plans,” “expects,” “intends” and similar
words and expressions are intended to identify forward-looking statements. These forward-looking statements
are based on expectations, estimates and projections as of the date of this filing, and involve risks and
uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in
the forward-looking statements for any number of reasons, including those described in “Risk Factors” starting
on page 9 and “Outlook” starting on page 22.

Filings with the Securities and Exchange Commission

The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and
information statements and other information regarding Air Transport Services Group, Inc. at www.sec.gov.
Additionally, our filings with the Securities and Exchange Commission, including annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, are available free
of charge from our website at www.atsginc.com as soon as reasonably practicable after filing with the SEC.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
2009 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
Item 1.
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1A. Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 1B. Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 2.
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 3.
Reserved . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4.

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . .
Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 8.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure . . . .
Item 9.
Item 9A. Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 9B. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART III

Item 10. Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder

Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 13. Certain Relationships and Related Transactions, and Director Independence . . . . . . . . . . . . . . . .
Principal Accounting Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 14.

Item 15. Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PART IV

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ITEM 1. BUSINESS

General Business Development

PART I

Air Transport Services Group, Inc. (“ATSG”), through its subsidiaries, provides aircraft, airline operations
and other related services primarily to the shipping and transportation industries. ATSG wholly owns three
independent airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”), and Air
Transport International, LLC (“ATI”). These U.S. certificated airlines primarily transport cargo within the United
States and include operations in Europe, Asia, Africa and throughout the Americas. ATSG’s leasing subsidiary,
Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to ATSG’s airlines and to external customers.

ATSG was formed on December 31, 2007 from the reorganization of ABX for the purpose of creating a
holding company structure. ABX became a wholly owned subsidiary of ATSG and all of the common shares of
ABX, which were then publicly traded, were converted into common shares of ATSG. ATSG’s common shares
are publicly traded on the NASDAQ Stock Market under the symbol ATSG. ATSG is incorporated in Delaware.
ATSG’s headquarters is in Wilmington, Ohio.

ABX was incorporated in 1980 and is based in Wilmington, Ohio. ABX provides air cargo transportation
through a fleet of Boeing 767 aircraft. Between 1980 and August 2003, ABX was an affiliate of Airborne, Inc.
(“Airborne”), a publicly traded, integrated delivery service provider. On August 15, 2003, ABX was separated
from Airborne in conjunction with the acquisition of Airborne by an indirect wholly owned subsidiary of DHL
Worldwide Express, B.V. The merger agreement required Airborne to separate its air operations from its ground
operations with the air operations being retained by ABX. At that time, ABX became an independent publicly
traded company.

On December 31, 2007, ATSG completed the acquisition of Orlando, Florida based Cargo Holdings
International, Inc. (“CHI”), at that time the privately owned parent company of ATI, CCIA, and CAM. ATSG
acquired all of the outstanding stock, stock options and warrants of CHI for a combination of cash, shares of
ATSG and debt repayment. The overall transaction value was approximately $340 million. ATSG financed the
deal partially through a $270 million unsubordinated term loan.

CCIA obtained its airline operating certificate in 1996 and currently operates Boeing 727 and 757 aircraft,
primarily providing air freight transportation for BAX Global, Inc. (“BAX”). ATI, based in Little Rock,
Arkansas, began operations in 1979 and was an affiliate of BAX prior to 2006. ATI operates Boeing 767 aircraft
and McDonnell Douglas DC-8 aircraft, also for BAX, and provides airlift to the U.S. military through the Air
Mobility Command.

ATSG’s other businesses are summarized below. (When the context requires, we may use the terms
“Company” and “ATSG” in this report to refer to the business of ATSG and its subsidiaries on a consolidated
basis.)

Airborne Maintenance and Engineering Services, Inc. (“AMES”), a maintenance and repair organization;
ABX Material Services, Inc., which markets and sells aircraft parts;
ABX Cargo Services, Inc., which operates mail sorting centers for the U.S Postal Service;
ABX Equipment and Facility Services, provides contract maintenance and equipment rentals;
LGSTX Fuel, Inc. (“LGSTX”) which provides air charter brokerage services, fuel management and
specialized cargo management.

We believe that offering a range of related solutions to shippers, freight forwarders and other airlines
provides a competitive advantage to the Company and its customers. The Company services a base of customers
that have diverse lines of cargo traffic. Through its three airlines, the Company has the flexibility to provide
scalable airlift to a wide range of international locations and adjust to changes in regional market conditions. By

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the Company has the opportunity to leverage customers’ needs to generate
offering integrated services,
additional revenues. Customers can utilize the Company’s resources and capabilities to compliment their own
business needs. For example, an airline leasing aircraft from CAM can contract with AMES to conduct scheduled
aircraft heavy maintenance, and with ABX to provide routine line maintenance. By providing aircraft
maintenance to outside customers, the Company can leverage its cost structure and partially offset its own
aircraft maintenance costs.

Description of Business

During 2009, the Company operated three reportable segments, “DHL,” “ACMI Services,” and “CAM.”
The Company’s other business operations, including aircraft maintenance and modification services, aircraft part
sales, equipment leasing and maintenance, mail handling for the U.S. Postal Service (“USPS”), and specialized
services for aircraft fuel management and freight logistics do not constitute reportable segments. Financial
information about our segments and geographical revenues is presented in Note Q to the accompanying
consolidated financial statements.

DHL segment

Beginning in August 2003, ABX operated primarily under two commercial agreements; the aircraft, crew,
maintenance and insurance agreement with DHL Network Operations (USA), Inc. (“DHL ACMI agreement”)
and the hub services agreement (“Hub Services agreement”) with DHL Express (USA), Inc., both of which
became effective in conjunction with DHL’s acquisition of Airborne. Under these agreements, ABX and DHL
generally operated under a cost-plus pricing structure. (DHL Network Operations (USA), Inc. and DHL Express
(USA), Inc. are individually and collectively referred to herein as “DHL”).

During 2008, DHL began to restructure its U.S. operations in response to financial losses. In conjunction
with DHL’s U.S. restructuring and withdrawal from U.S. domestic service in 2009, the Hub Services Agreement
expired without renewal in August 2009. Under the Hub Services agreement, ABX provided staff to conduct
package sorting, as well as airport, facilities and equipment maintenance services for DHL. ABX managed a U.S.
network of 19 hubs for DHL, including DHL’s primary U.S. sorting facility which was located in the air park in
Wilmington, Ohio. DHL’s withdrawal from the intra-U.S. market had a significant impact on the Company.
Between DHL’s restructuring announcement in May 2008 and December 31 2009, ABX removed 47 McDonnell
Douglas DC-9 aircraft and five Boeing 767 aircraft from DHL service and closed all regional sorting hubs and
the Wilmington, Ohio sort operations, terminating over 8,700 positions. In 2008, ABX and DHL executed a
severance and retention agreement (“S&R agreement”), which specifies employee severance, retention and other
benefits that DHL reimburses ABX for payment to its employees who are affected by DHL’s U.S. restructuring
plan. DHL reimbursed ABX for the cost of employee severance, retention, productivity bonuses and vacation
benefits paid in accordance with the agreement.

Through March 31, 2010, ABX continued to provide airlift under the DHL ACMI agreement for DHL’s
international delivery services in the U.S. through ABX’s Boeing 767 aircraft. In March 2010, the Company and
DHL agreed to terminate the DHL ACMI agreement and executed new follow-on agreements effective March
31, 2010. Through the new agreements, CAM will lease 13 Boeing 767 aircraft to DHL for seven years each and
ABX will operate these aircraft for DHL under a crew, maintenance and insurance agreement (“CMI”) which has
an initial term of five years. See Item 7 of this report for additional information about these new agreements.

ACMI Services

The Company, through its three airlines, provides airlift to freight forwarders, other airlines and other
customers, typically under ACMI and charter contracts. A typical ACMI contract requires the ATSG airline to
supply, at a specific rate per block hour, the aircraft, crew, maintenance and insurance for specified cargo
operations, while the customer is responsible for substantially all other aircraft operating expenses, including

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fuel, landing fees, parking fees and ground and cargo handling expenses. Charter agreements usually require the
airline to provide full service, including fuel and other operating expenses, in addition to aircraft, crew,
maintenance and insurance for a fixed, all-inclusive price. Under the Company’s ACMI and charter agreements,
it has exclusive operating control of its aircraft, and its customers must typically obtain any government
authorizations and permits required to service the designated routes. The Company reports its business from
ACMI, charter and space available contracts, including the services it provides for BAX, in the ACMI Services
segment.

CCIA and ATI each have contracts to provide airlift to BAX under ACMI agreements. BAX provides
freight transportation and supply chain management services, specializing in the heavy freight market for
business-to-business shipping. Revenues from BAX operations accounted for 19% of the Company’s 2009
revenues from continuing operations. The BAX central hub is located in Toledo, Ohio. CCIA and ATI have the
exclusive right to supply all main deck freighter airlift in BAX’s U.S. domestic network through December 31,
2011.

CAM

CAM’s fleet consists of Boeing 767, Boeing 757, Boeing 727 and DC-8 aircraft. CAM leases aircraft to
ATSG airlines and to external customers usually under multi-year contracts with a schedule of fixed monthly
payments. Under a typical lease arrangement, the customer maintains the aircraft in serviceable condition at its
own cost. At the end of the lease term, the customer returns the aircraft in a maintenance condition, such as
airframe time and engine cycles, that the aircraft was in a the inception of the lease. CAM examines the
creditworthiness of potential customers, their short and long-term growth prospects, their financial condition and
backing, the experience of their management, and the impact of governmental regulation on the market when
determining the lease rate that is offered to the customer. In addition, CAM monitors the customer’s business and
financial status throughout the term of the lease. As needed, the Company can provide maintenance, training and
other services to lease customers during the course of the lease term.

Other Products and Services

U.S. Postal Service

ABX Cargo Services, Inc. (“ACS”) manages three USPS mail sort centers in Indianapolis, Indiana, Dallas,
Texas and Memphis, Tennessee. Under each of these three contracts, ACS is compensated at a firm price for
fixed costs and an additional amount based on the volume of mail handled at each sort center. The contracts have
a four-year term, with original expiration dates in either September or October 2010, with multi-year extensions
at the discretion of the USPS.

Cargo and Transportation Services

Primarily through its LGSTX subsidiary, the Company provides brokerage services for airlift. LGSTX
arranges charters for customers using third party airlines as well as ATSG owned airlines. Additionally, LGSTX
provides aircraft fuel brokerage for customers of the ATSG airlines and LGSTX provides warehousing and cargo
handling services.

Aircraft Maintenance and Modification Services

The Company provides aircraft maintenance and modification services to other airlines through ABX and
AMES. In May 2009, much of the aircraft maintenance and engineering business operations of ABX were
transferred to a newly formed ATSG subsidiary, AMES. Organizing the aircraft maintenance and engineering
capabilities separately from ABX was intended to facilitate a cost structure and marketing organization which
can better compete in the aircraft maintenance industry.

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ABX and AMES have technical expertise related to aircraft modifications as a result of ABX’s long history
in aviation. They own many Supplemental Type Certificates (“STCs”). An STC is granted by the FAA and
represents an ownership right, similar to an intellectual property right, which authorizes the alteration of an
airframe, engine or component. ABX provides digital aircraft manuals for customers in conjunction with the
modification of aircraft from passenger to cargo configuration.

AMES operates a Federal Aviation Administration (“FAA”) certificated 145 repair station, in Wilmington,
Ohio, including hangars, a component shop and engineering capabilities. AMES markets its capabilities by
identifying aviation-related maintenance and modification opportunities and matching them to its capabilities.
AMES’s marketable capabilities include the installation of avionics systems and flat panel displays for Boeing
757 and Boeing 767 cockpits. The flat panel display updates aircraft avionics equipment and reduces
maintenance costs by combining multiple display units into a single instrumentation panel. AMES has the
capabilities to perform line maintenance, heavy maintenance and airframe overhauls on DC-9, Boeing 767, 757,
737 and 727 aircraft. AMES has the capabilities to refurbish approximately 60% of the airframe components for
Boeing 767 aircraft, as well as other aircraft types.

Aircraft Parts Sales and Brokerage

ABX Material Services, Inc. (“AMS”), which holds a certificate relating to free trade zone rights, is an
Aviation Suppliers Association 100 Certified reseller and broker of aircraft parts. AMS carries an inventory of
DC-8, DC-9 and Boeing 767 spare parts and also maintains inventory on consignment from original equipment
manufacturers, resellers, lessors and other airlines. AMS customers include the commercial air cargo industry,
passenger airlines, aircraft manufacturers and contract maintenance companies serving the commercial aviation
industry, as well as other resellers.

Equipment and Facility Maintenance

ABX Equipment and Facility Services (“AEFS”) provides contract services for operators of warehouses and
facilities throughout the U.S. AEFS has a large inventory of ground support equipment, such as power units,
airstarts, deicers and pushback vehicles that it rents to airports, airlines or other customers.

Flight Crew Training

ABX and CCIA are FAA-certificated to offer flight crew training to customers and rent usage of their flight
simulators for outside training programs. ATSG owns six flight simulators, including one Boeing 767, one DC-8,
two Boeing 727 and two DC-9 flight simulators. The Company’s Boeing 767, one of its Boeing 727 and one of
its DC-9 flight simulators are level C certified and one of its Boeing 727 flight simulators is level D certified.
The level C and D flight simulators allow the Company to qualify flight crewmembers under FAA requirements
without performing check flights in an aircraft. The DC-8 and the other DC-9 flight simulators are level B
certified, which allows the Company to qualify flight crewmembers by performing a minimum number of flights
in an aircraft.

Airline Operations

Flight Operations and Control

Airline flight operations, including aircraft dispatching, flight tracking and crew scheduling, are planned and
controlled by personnel within each airline. ABX staffs aircraft dispatching and flight tracking 24 hours per day,
7 days per week from Wilmington, Ohio. CCIA flight operations, including flight tracking and crew scheduling,
are controlled by on-duty personnel from CCIA’s operations center in Orlando, Florida, and the same functions
for ATI are controlled from ATI’s operations center in Little Rock, Arkansas.

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Maintenance

Our airlines’ operations are regulated by the FAA for aircraft safety and maintenance. Each airline performs
routine inspections and airframe maintenance,
including Airworthiness Directive and Service Bulletin
compliance on all of their aircraft. The airlines’ maintenance and engineering personnel coordinate routine and
non-routine maintenance requirements. Each airline’s maintenance program includes tracking the maintenance
status of each aircraft, consulting with manufacturers and suppliers about procedures to correct irregularities and
training maintenance personnel on the requirements of its FAA-approved maintenance program. The airlines
contract with maintenance repair organizations (“MROs”) to perform heavy airframe maintenance on airframes
and engines. Each airline owns a supply of spare aircraft engines, auxiliary power units, aircraft parts and
consumable items. The number of spare items maintained is based on the fleet size, engine type operated, and the
reliability history of the item types.

Insurance

Our airline subsidiaries are required by the Department of Transportation (“DOT”) to carry liability
insurance on each of their aircraft. Their aircraft leases, loan agreements and the ACMI agreements also require
them to carry such insurance. The Company currently maintains public liability and property damage insurance,
and our airline subsidiaries currently maintain aircraft hull and liability insurance and war risk insurance for their
respective aircraft fleets in amounts consistent with industry standards. CAM’s customers are also required to
maintain similar insurance levels.

Employees

As of December 31, 2009, ATSG and its subsidiaries had approximately 2,020 employees, including 1,730
full-time employees and 290 part-time employees. ATSG employs approximately 545 flight crewmembers, 825
aircraft maintenance technicians and flight support personnel, 360 warehousing, sorting and logistics personnel,
75 employees for airport maintenance and logistics, and 215 employees for administrative functions.

On December 31, 2008, the Company had approximately 5,620 employees. The decline in the number of

employees from 2008 to 2009 is primarily due to the DHL restructuring plan and reduced shipment volumes.

Labor Agreements

The Company’s flight crewmembers are unionized employees. The table below summarizes the

representation of the Company’s flight crewmembers at December 31, 2009.

Airline

ABX
ATI
CCIA

Labor Agreement Unit

International Brotherhood of Teamsters
Airline Pilots Association
Airline Pilots Association

Contract
Amendable
Date

12/31/2014
5/1/2004
3/31/2004

Approximate
Number of
Employees
Represented

245
175
125

In November 2009, the ABX flight crewmembers ratified an amended collective bargaining agreement
(“CBA”). Several key aspects of the CBA will become effective after the CMI agreement between ABX and
DHL becomes effective on March 31, 2010. Under the Railway Labor Act (“RLA”), as amended, the labor
agreements do not expire, so the existing contract remains in effect throughout any negotiation process. If
required, mediation under the RLA is conducted by the National Mediation Board, which has the sole discretion
as to how long mediation can last and when it will end. In addition to direct negotiations and mediation, the RLA
includes a provision for potential arbitration of unresolved issues and a 30-day “cooling-off” period before either
party can resort to self-help, including, but not limited to, work stoppage.

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Training

The flight crewmembers are required to be licensed in accordance with Federal Aviation Regulation
(“FAR”) Part 121, with specific ratings for the aircraft type to be flown, and to be medically certified as
physically fit to fly aircraft. Licenses and medical certifications are subject to recurrent requirements as set forth
in the FARs to include recurrent training and minimum amounts of recent flying experience.

The FAA mandates initial and recurrent training for most flight, maintenance and engineering personnel.
Mechanics and quality control inspectors must also be licensed and qualified for specific aircraft. Our airline
subsidiaries pay for all of the recurrent training required for their flight crewmembers and provide training for
their ground service and maintenance personnel. Their training programs have received all required FAA
approvals.

Industry

The primary competitive factors in the air cargo industry are price, fuel efficiency, geographic coverage,
flight frequency, reliability and capacity. Our airline subsidiaries compete for domestic cargo volume principally
with other cargo airlines and passenger airlines which have substantial belly cargo capacity. Other cargo airlines
include Amerijet International, Inc., Astar Air Cargo, Inc. (“Astar”), Atlas Air Worldwide Holdings, Inc.,
Evergreen International, Inc., and World Airways, Inc. The industry is highly competitive.

Cargo volumes are highly dependent on the economic conditions and the level of commercial activity.
Generally, time-critical delivery needs, such as just-in-time inventory management, increase the demand for air
cargo delivery, while higher costs of jet fuel generally reduces the demand for air delivery services. When jet fuel
prices increase, shippers will consider using ground transportation if the delivery time allows. Historically, the
cargo industry has experienced higher volumes during the fourth calendar quarter of each year.

The scheduled delivery industry is dominated by integrated door-to-door carriers including DHL, the USPS,
FedEx Corporation, BAX and United Parcel Service, Inc. Although the volume of our business is impacted by
competition among these integrated carriers, we do not usually compete directly with these integrated carriers.

The aircraft maintenance industry is labor intensive and typically competes based on cost, capabilities and
reputation for reliability. U.S. airlines may contract for aircraft maintenance with MROs in other countries or
geographies with a lower labor wage base, making the industry highly cost competitive.

Intellectual Property

The Company owns a small number of U.S. patents that are used in its business operations and have
nominal commercial value. The Company also owns many STCs issued by the FAA. The Company uses these
STCs mainly in support of its own fleets; however, AMES has marketed certain STCs to other airlines.

Information Systems

The Company has invested significant management and financial resources in the development of
information systems to facilitate cargo, flight and maintenance operations. The Company utilizes its systems to
maintain records about the maintenance status and history of each major aircraft component, as required by FAA
regulations. Using its systems, the Company tracks and controls inventories and costs associated with each
maintenance task, including the personnel performing those tasks. In addition, the Company’s flight operations
systems coordinate flight schedules and crew schedules. It has developed and procured systems to track flight
time, flight crewmember duty and flight hours and crewmember training status.

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Regulation

Our subsidiaries’ air carrier operations are generally regulated by the DOT and the FAA. Those operations
must comply with numerous security and environmental laws, ordinances and regulations. In addition, they must
also comply with various other federal, state, local and foreign laws and regulations.

Environment

Under current federal, state and local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be liable for the costs of removal or clean-up of hazardous or toxic
substances on, under, or in such property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of
contamination from hazardous or toxic substances, or the failure to properly clean up such contaminated
property, may adversely affect the ability of the owner of the property to use such property as collateral for a loan
or to sell such property. Environmental laws also may impose restrictions on the manner in which a property may
be used or transferred or in which businesses may be operated and may impose remediation or compliance costs.
Under its expired air park sublease with DHL, ABX and DHL are required to defend, indemnify and hold each
other harmless from and against certain environmental claims associated with the DHL Air Park in Wilmington,
Ohio.

Our subsidiaries’ aircraft currently meet all known requirements for engine emission levels. However, under
the Clean Air Act, individual states or the U.S. Environmental Protection Agency may adopt regulations
requiring reduction in emissions for one or more localities based on the measured air quality at such localities.
Such regulations may seek to limit or restrict emissions by restricting the use of emission-producing ground
service equipment or aircraft auxiliary power units.

The federal government generally regulates aircraft engine noise at its source. However, local airport
operators may, under certain circumstances, regulate airport operations based on aircraft noise considerations.
The Airport Noise and Capacity Act of 1990 provides that, in the case of Stage 3 aircraft (all of our operating
aircraft satisfy Stage 3 noise compliance requirements), an airport operator must obtain the carriers’ consent to or
the government’s approval of the rule prior to its adoption. We believe the operation of our airline subsidiaries’
aircraft either complies with or is exempt from compliance with currently applicable local airport rules.
However, some airport authorities are considering adopting local noise regulations, and, to the extent more
stringent aircraft operating regulations are adopted on a widespread basis, our airlines subsidiaries may be
required to spend substantial funds, make schedule changes or take other actions to comply with such local rules.

The U.S. government, working through the International Civil Aviation Organization, has in the past
adopted more stringent aircraft engine emissions regulations with regard to newly certificated engines and
aircraft noise regulations applicable to newly certificated aircraft. Although these rules will not apply to any of
our airlines subsidiaries’ existing aircraft, additional rules could be adopted in the future that would either apply
these more stringent noise and emissions standards to aircraft already in operation or require that some portion of
the fleet be converted over time to comply with these new standards.

Department of Transportation

The DOT maintains authority over certain aspects of domestic air transportation, such as requiring a
minimum level of insurance and the requirement that a person be “fit” to hold a certificate to engage in air
transportation. In addition, the DOT continues to regulate many aspects of international aviation, including the
award of international routes. The DOT has separately issued to ABX, CCIA and ATI Domestic All-Cargo Air
Service Certificates for air cargo transportation between all points within the U.S., the District of Columbia,
Puerto Rico, and the U.S. Virgin Islands. Additionally, the DOT has issued ABX a Certificate of Public
Convenience and Necessity authorizing it to engage in scheduled foreign air transportation of cargo and mail

7

between the U.S. and over 88 foreign countries. Prior to issuing such certificates, and periodically thereafter, the
DOT examines a company’s managerial competence, financial resources and plans, compliance, disposition and
citizenship in order to determine whether the carrier is fit, willing and able to engage in the transportation
services it has proposed to undertake. By maintaining these certificates, the Company, through its airline
subsidiaries, can conduct all-cargo charter operations worldwide.

The DOT has the authority to impose civil penalties, or to modify, suspend or revoke our certificates for
cause, including failure to comply with federal law or DOT regulations. A corporation holding either of such
certificates must qualify as a U.S. citizen, which requires that (1) it be organized under the laws of the U.S. or a
state, territory or possession thereof, (2) that its president and at least two-thirds of its Board of Directors and
other managing officers be U.S. citizens, (3) that less than 25% of its voting interest be owned or controlled by
non-U.S. citizens, and (4) that it not otherwise be subject to foreign control. Neither type of certificate confers
proprietary rights on the holder, and the DOT may impose conditions or restrictions on such certificates. We
believe we possess all necessary DOT-issued certificates and authorities to conduct our current operations and
continue to qualify as a U.S. citizen.

Federal Aviation Administration

The FAA regulates aircraft safety and flight operations generally, including equipment, ground facilities,
maintenance, flight dispatch, training, communications, the carriage of hazardous materials and other matters
affecting air safety. The FAA issues operating certificates and operations specifications to carriers that possess
the FAA issues certificates of
the technical competence to conduct air carrier operations. In addition,
airworthiness to each aircraft that meets the requirements for aircraft design and maintenance. ABX, CCIA and
ATI believe they hold all airworthiness and other FAA certificates and authorities required for the conduct of
their business and the operation of their aircraft, although the FAA has the power to suspend, modify or revoke
such certificates for cause, or to impose civil penalties for any failure to comply with federal law and FAA
regulations.

The FAA has the authority to issue maintenance directives and other mandatory orders relating to, among
other things, the inspection and maintenance of aircraft and the replacement of aircraft structures, components
and parts, based on the age of the aircraft and other factors. For example, the FAA has required ABX to perform
inspections of its Boeing 767 aircraft to determine if certain of the aircraft structures and components meet all
aircraft certification requirements. If the FAA were to determine that the aircraft structures or components are not
adequate, it could order operators to take certain actions, including but not limited to, grounding aircraft,
reducing cargo loads, strengthening any structure or component shown to be inadequate, or making other
modifications to the aircraft. New mandatory directives could also be issued requiring the Company’s airline
subsidiaries to inspect and replace aircraft components based on their age or condition. As a routine matter, the
FAA issues airworthiness directives applicable to the aircraft operated by our airline subsidiaries, and our airlines
comply, sometimes at considerable cost, as part of their aircraft maintenance program.

The FAA has amended its policy regarding the proper application of airport rates and charges imposed on
air carriers. The amended policy provides greater flexibility to airport operators to impose charges that would
allow for the imposition of “congestion fees” rather than uniform airport fees. If airports in the U.S. seek to use
the flexibility offered by this new policy, it could have an impact on the cost of conducting our flight operations.

Transportation Security Administration

The Transportation Security Administration (“TSA”), an administration within the Department of Homeland
Security, is responsible for the screening of passengers, baggage and cargo and the security of aircraft and
airports. Our airline subsidiaries comply with all applicable aircraft and cargo security requirements. The TSA
has adopted cargo security-related rules that, have imposed additional burdens on our airlines. In addition, we
may be required to reimburse the TSA for the cost of security services it may provide to the Company’s airlines
subsidiaries in the future.

8

Other Regulations

Various regulatory authorities have jurisdiction over significant aspects of our business, and it is possible
that new laws or regulations or changes in existing laws or regulations or the interpretations thereof could have a
material adverse effect on our operations. In addition to the above, other laws and regulations to which we are
subject, and the agencies responsible for compliance with such laws and regulations, include the following:

•

•

•

•

•

The labor relations of our airline subsidiaries are generally regulated under the Railway Labor Act,
which vests in the National Mediation Board certain regulatory powers with respect to disputes
between airlines and labor unions arising under collective bargaining agreements;

The Federal Communications Commission regulates our airline subsidiaries’ use of radio facilities
pursuant to the Federal Communications Act of 1934, as amended;

U.S. Customs and Border Protection inspects cargo imported from our subsidiaries’ international
operations;

Our airlines must comply with U.S. Citizenship and Immigration Services regulations regarding the
citizenship of our employees;

The Company and its subsidiaries must comply with wage, work conditions and other regulations of
the Department of Labor regarding our employees.

Security and Safety

Security

The Company’s subsidiaries have instituted various security procedures to comply with FAA and TSA
regulations and comply with the directives outlined in the federal Domestic Security Integration Program. The
airline subsidiaries’ customers are required to inform them in writing of the nature and composition of any
freight which is classified as “Dangerous Goods” by the DOT. In addition, the Company and its subsidiaries
conduct background checks on our respective employees, restrict access to aircraft, inspect aircraft for suspicious
persons or cargo, and inspect all dangerous goods. Notwithstanding these procedures, our airline subsidiaries
could unknowingly transport contraband or undeclared hazardous materials for customers, which could result in
fines and penalties and possible damage to the aircraft.

Safety and Inspections

Management is committed to the safe operation of its aircraft. In compliance with FAA regulations, our
subsidiaries’ aircraft are subject to various levels of scheduled maintenance or “checks” and periodically go
through phased overhauls. In addition, a comprehensive internal review and evaluation program is in place and
active. Our subsidiaries’ aircraft maintenance efforts are monitored closely by the FAA. They also conduct
extensive safety checks on a regular basis.

ITEM 1A. RISK FACTORS

The risks described below could adversely affect our financial condition or results of operations. The risks
below are not the only risks that the Company faces. Additional risks that are currently unknown to us or that we
currently consider immaterial or unlikely could also adversely affect the Company.

Revenues and operating results from a new CMI agreement with DHL may be less than planned.

We have recently negotiated follow-on long-term Boeing 767 aircraft operating agreement with DHL.
Unlike our previous agreements with DHL, the new CMI agreement is not a cost-plus agreement; instead ABX
revenues will be based primarily on the number of aircraft operated and the number of crews provided to DHL.
The negotiated pricing structure with DHL was based on our cost projections for the next five years. Those

9

projections contained key assumptions including aircraft reliability, crewmember productivity and crewmember
compensation and benefits. If actual costs are higher than assumed or aircraft reliability is less than expected,
future operating results may be negatively impacted.

The Company’s financial condition will be affected by the degree to which it recovers contract termination costs
from DHL.

The ACMI agreement, Hub Services agreement and S&R agreement with DHL are structured as cost-plus
or cost reimbursement arrangements; however, the costs for which ABX can be reimbursed are subject to certain
limitations. DHL can dispute whether expenses ABX has incurred are reimbursable under the agreements. The
agreements give DHL, within reason, certain rights to audit ABX’s expenses. Further, the agreements stipulate
dispute and arbitration procedures. If ABX incurs excessive non-reimbursable costs, there is no assurance that
the revenues from these agreements will generate sufficient income for ABX to recover its costs.

ABX has incurred significant termination and restructuring costs as a result of DHL’s decision to restructure
its U.S. business. Such costs include aircraft, equipment and property lease termination costs, maintenance
agreement termination costs, severance benefits, injured workers’ compensation and pension and retiree medical
funding. As of December 31, 2009, DHL owes the Company $62.7 million. Conversely, the Company has
significant liabilities and commitments stemming from the wind-down of DHL’s operations, including employee
severance, retention and benefits. The Company’s liquidity and financial condition will depend on ABX’s
contractual termination rights and cash settlements from DHL. Failure to receive reimbursement of contractual
termination costs, including aircraft put values and employee severance and other wind-down costs, could result
in arbitration or legal proceedings.

If there is a significant delay in cash reimbursements from DHL, or a substantial reduction in the amounts
that DHL pays, the Company’s cash balances could decline. If ABX is not successful at recovering sufficient
termination funds from DHL, the Company may need additional sources of liquidity. In the absence of such
sources, the Company may seek to sell assets to raise liquidity or the Company could elect to reduce capital
spending by deferring the freighter modification of Boeing 767 aircraft. Operating results may be negatively
impacted if the Company were to take a charge to reduce amounts due from DHL or to lower the value of aircraft
held for sale.

The economic conditions in the U.S. and throughout the globe have impacted and may continue to impact the
Company’s operating results, financial condition and access to liquidity.

A global economic downturn could reduce the demand for delivery services offered by DHL, BAX and
other delivery businesses, in particular expedited services shipped via aircraft. During an economic slowdown,
customers generally prefer to use ground-based delivery services instead of more expensive air delivery services.
Additionally, if the price of aviation fuel rises, the demand for air delivery services may decline further. The
current economic slowdown could negatively affect our growth prospects and financial projections more severely
than we have projected.

Tight credit markets could impact the Company’s future access to liquidity.

Although the Company’s current credit agreement extends through December 31, 2012, tight credit markets
could affect the Company’s future access to liquidity. If a lender within the credit agreement declares an MAE,
availability under the revolving credit facility will be reduced by the lender’s portion of the facility. Further, the
credit agreement provides that if lenders having more than half of the outstanding dollar amount of the
commitments assert that an MAE exists at the time the Company attempts to borrow under the credit agreement,
they can assert an event of default exists under the credit agreement and require the agent to exercise its
remedies. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the credit
agreement. Given the current tight credit markets, the interest rates and other costs of a renegotiated or new

10

facility, if one can be obtained, would be more expensive and may require more rapid amortization of principal
than under the terms of the current credit agreement. After the expiration of the current credit agreement in 2012,
costs may be higher.

The Company could violate debt covenants.

The Company’s Credit Agreement and aircraft loans contain covenants including, among other things,
limitations on certain additional indebtedness, guarantees of indebtedness, and the level of annual capital
expenditures. The Credit Agreement and loans stipulate events of default including unspecified events that may
have material adverse effects on the Company. If an event of default occurs, the Company’s cost of borrowings
would increase, the contractual repayment of debt would accelerate and the Company’s ability to modify and
redeploy Boeing 767 aircraft could be limited.

Our cost of providing ACMI services could be more than the contractual revenues generated.

The airlines each develop business plans for ACMI, charter and other operating contracts by projecting
crewmembers costs, crew productivity and maintenance expenses. We may underestimate the actual costs of
providing services or the level of crewmembers, productivity when preparing for new business opportunities. The
Company’s three airlines rely on crews that are unionized. The collective bargaining agreement for ABX was
recently renegotiated and the collective bargaining agreement at the Company’s other two airlines are currently
open for renegotiation. If the renegotiation of a collective bargaining agreement increases our costs and we
cannot recover the increases in costs, we may decide to terminate contracts or curtail planned growth. Airline
operations could be interrupted and business could be adversely affected if agreements are not reached with the
crewmembers.

The Company continues to make significant investments in Boeing 767 aircraft which may affect the Company’s
operating results and financial condition.

The Company, through its subsidiaries, plans to make capital investments to modify additional Boeing 767
standard freighter aircraft for service through 2011. Our future operating results and financial condition will
depend in part on our subsidiaries’ ability to successfully deploy these aircraft in operations that provide a
positive return on investment. Our success will depend, in part, on their ability to obtain and operate additional
cargo volumes with customers other than DHL and BAX, including international markets. Deploying aircraft in
international markets can pose additional risks, regulatory requirements and costs. The Company’s future
operating results will be affected by the interest rates, limits and other terms and conditions of the borrowing
agreements.

The ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax
purposes may be further limited.

Limitations imposed on the ability to use net operating losses (“NOLs”) to offset future taxable income
could cause U.S. federal income taxes to be paid earlier than otherwise would be paid if such limitations were not
in effect and could cause such NOLs to expire unused, in each case reducing or eliminating the benefit of such
NOLs. Similar rules and limitations may apply for state income tax purposes.

In general, under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), a
corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change
NOLs to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership
of certain stockholders increases by more than 50 percentage points over such stockholders’ lowest percentage
ownership during the testing period (generally three years). The Company has at times experienced significant
ownership changes. If the Company continues to experience more ownership changes, we may face limitations
on our ability to use NOLs to offset future taxable income.

11

We may need to reduce the carrying value of the Company’s assets.

The Company owns a significant amount of aircraft, aircraft parts and related equipment. Additionally, the
balance sheet reflects assets for income tax carryforwards and other deferred tax assets. The removal of aircraft
from service or continual
losses from aircraft operations could require the Company to evaluate the
recoverability of the carrying value of those aircraft, related parts and equipment in accordance with Financial
Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic 360-10 Property, Plant,
and Equipment and result in an impairment charge.

As a result of acquiring CHI, we have recorded significant amounts of goodwill and acquisition-related
intangibles, which will be tested for impairment at least annually. If we are unable to achieve the projected levels
of operating results and these assets are impaired, it may be necessary to record a non-cash charge to earnings.

If the Company incurs operating losses or our estimates of expected future earnings indicate a decline, it
may be necessary to reassess the need for a valuation allowance for some or all of the Company’s net deferred
tax assets.

Penalties, fines, and sanctions levied by governmental agencies or the costs of complying with government
regulations could negatively affect our results of operations.

the Company’s

The operations of

transportation,
environmental, labor, employment and other laws and regulations. These laws and regulations generally require
our subsidiaries to maintain and comply with a wide variety of certificates, permits, licenses and other approvals.
Their inability to maintain required certificates, permits or licenses, or to comply with applicable laws,
ordinances or regulations could result in substantial fines or, in the case of DOT and FAA requirements, possible
suspension or revocation of their authority to conduct operations.

subsidiaries’ are subject

to complex aviation,

The costs of complying with government regulations could negatively affect our results of operations.

All aircraft in the Company’s airline subsidiaries’ in-service fleets were manufactured prior to 1990.
Manufacturer Service Bulletins and the FAA Airworthiness Directives issued under its “Aging Aircraft” program
cause operators of such aged aircraft to be subject to extensive aircraft examinations and require such aircraft to
undergo structural inspections and modifications to address problems of corrosion and structural fatigue at
specified times. Airworthiness Directives have been issued that require inspections and both major and minor
modifications to such aircraft. The FAA is currently considering the issuance of an airworthiness directive that
would require the replacement of the aft pressure bulkhead on Boeing 767-200 aircraft based on a certain number
of landing cycles. If such an Airworthiness Directive is issued, all of the Boeing 767s within the Company will
be affected over approximately a seven year period. The cost of compliance is estimated to be $1.0 million per
aircraft.

The Company is subject to the regulations of the U.S. Environmental Protection Agency and state and local
governments regarding air quality and other matters. In part, because of the highly industrialized nature of many
of the locations at which the Company operates, there can be no assurance that we have discovered all
environmental contamination for which the Company may be responsible.

Failure to maintain the operating certificates and authorities of ABX, ATI and CCIA would adversely affect our
business.

The airline subsidiaries have the necessary authority to conduct flight operations within the U.S. and
maintain Domestic All-Cargo Air Service Certificates for their domestic services, a Certificate of Public
Convenience and Necessity for Route 377 for ABX’s Canada service, and Air Carrier Operating Certificates
issued by the FAA. The continued effectiveness of such authority is subject to their compliance with applicable
statutes and DOT, FAA and TSA rules and regulations, including any new rules and regulations that may be
adopted in the future.

12

Under U.S. laws and DOT precedents, non-U.S. citizens may not own more than 25% of, or have actual
control of, a U.S. certificated air carrier. The separation of ABX from Airborne required it to file a notice of a
substantial change with the DOT. In connection with the filing, the DOT will determine whether ABX continues
to be a U.S. citizen and fit, willing and able to engage in air transportation of cargo. The DOT may determine that
DHL actually controls ABX as a result of the commercial arrangements between ABX and DHL. If the DOT
determined that ABX was controlled by DHL, the DOT could bring an enforcement action against ABX to
revoke its certificates. The DOT could take action requiring ABX to show cause that it is a U.S. citizen and that it
is fit, willing and able to engage in air transportation of cargo, or requiring amendments or modifications of the
DHL ACMI agreement, the Hub Services agreement or the other transaction documents. If ABX was unable to
modify these agreements to the satisfaction of the DOT, the DOT may seek to suspend, modify or revoke its air
carrier certificates and/or authorities.

The loss of the airlines’ authorities, including in the situation described above, would materially and

adversely affect our airline operations and would effectively eliminate our ability to operate the air services.

The Company may be affected by global climate change or by legal, regulatory or market responses to such
potential climate change.

Concern over climate change, including the impact of global warming, has led to significant federal, state,
and international legislative and regulatory efforts to limit greenhouse gas emissions. The U.S. Congress has
considered the regulation of greenhouse gas emissions. Also, the Environmental Protection Agency could
regulate greenhouse gas emissions, especially aircraft engine emissions. The cost to comply with potential new
laws and regulations could be substantial for the Company. These costs could include an increase in the cost of
the fuel and capital costs associated with updating aircraft. Until the timing, scope and extent of any future
regulation becomes known, we cannot predict its effect on the Company’s cost structure or operating results.

Reporting of financial results could be delayed.

Disagreements between ABX and DHL over the cost reimbursement provisions of the agreements with each
other or arbitration proceedings could delay future financial filings with the Securities and Exchange
Commission and the Company’s lenders. The Company’s failure to file financial reports timely could adversely
impact compliance with the Company’s credit agreement.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases corporate offices, 210,000 square feet of maintenance hangars and a 100,000-square-
foot component repair shop at the air park in Wilmington, Ohio. ABX also has the non-exclusive right to use the
airport which includes one active runway, taxi ways, and ramp space comprising approximately 300 paved acres.
The lease is with DHL and, pursuant to an amendment dated March 29, 2010, the term will end upon the earlier
to occur on August 15, 2010, or the date that DHL conveys the airport to the regional port authority. DHL is
expected to transfer ownership of the air park to a regional port authority within the next few weeks. We expect
to renew the lease, under different terms, with the regional port authority. We believe the existing facilities are
adequate to meet the Company’s current and reasonably foreseeable future needs.

Aircraft

As of December 31, 2009, the combined in-service fleet consisted of 62 aircraft, including 33 Boeing 767
aircraft, 2 Boeing 757 aircraft, 12 Boeing 727 aircraft and 15 DC-8 aircraft. The aircraft are pre-owned. Once
acquired, aircraft are modified for use in our cargo operations or our customers’ cargo operations. These aircraft
are generally described as having medium to medium wide-body cargo capabilities. The aircraft carry gross

13

payloads ranging from approximately 48,000 to 108,000 pounds. These aircraft are well suited for intra-
continental flights and medium range inter-continental flights. Eight of ABX’s Boeing 767 aircraft are not
equipped with standard cargo doors, but instead utilize the former passenger doors for the loading and unloading
of freight. While this configuration reduced the costs of modifying the aircraft from passenger to freighter
configuration, it also limits the size of the freight that can be carried onboard the aircraft and necessitates the use
of specialized containers and loading equipment. The absence of a cargo door may also negatively impact the
market value of the aircraft.

The table below shows the combined in-service fleet of owned aircraft and aircraft under capital leases by

segment, as well as the airline certificate under which they operate.

Certificate

DHL segment

Aircraft Type

Number of
Aircraft as of
Dec. 31, 2009

Year of
Manufacture

Gross Payload
(Lbs.)

Still Air Range
(Nautical Miles)

ABX . . . . . . . . . . . . . . . . . . .
ABX . . . . . . . . . . . . . . . . . . .

767-200 PC (1)
767-200 SF (2)

ACMI Services

ABX . . . . . . . . . . . . . . . . . . .
ATI . . . . . . . . . . . . . . . . . . . .
ATI . . . . . . . . . . . . . . . . . . . .
ATI . . . . . . . . . . . . . . . . . . . .
CCIA . . . . . . . . . . . . . . . . . .
CCIA . . . . . . . . . . . . . . . . . .

Total

767-200 SF (2)
DC-8-F (2)
DC-8-CF (3)
767-200 SF (2)
727-200 SF (2)
757-200 SF (2)

Total

CAM

767-200 SF (2) . . . . . . . . . . . . . . . . . . . . . . .
767-200ER (4) . . . . . . . . . . . . . . . . . . . . . . .

Total

Grand Total

8
4

12

15
11
4
2
12
2

46

3
1

4

62

1983 - 1985
1982 - 1987

67,000 - 91,000
67,000 - 91,000

1,800 - 4,400
1,800 - 4,400

1982 - 1987
1967 - 1969
1968 - 1970
1985
1973 - 1981
1984 - 1986

67,000 - 91,000
96,000 - 108,800
80,000 - 85,000
98,000
52,300 - 61,000
48,000 - 68,000

1,800 - 4,400
1,800 - 4,400
1,800 - 4,400
2,200 - 6,600
1,200 - 2,100
2,700 - 4,000

1984 - 1985
1985

In addition, as of December 31, 2009, CAM also had four Boeing 767 aircraft, not reflected in the table
above, that were undergoing modification to standard freighter configuration. The Company had operating leases
for four Boeing 767 aircraft in the DHL segment and one Boeing 727 aircraft in the ACMI Service segment. At
December 31, 2009, the Company had four spare airframes that had been removed from service. The engines and
rotables from these aircraft are being used for other aircraft in the combined fleet. Provisions of the Company’s
credit agreement require that the aircraft are maintained in airworthy condition. Exceptions to the requirement are
made on a case by case basis with the consent of the lead agent to the credit facility.

(1) These aircraft were manufactured without a large main deck cargo door for transporting freight.
(2) These aircraft are configured for standard cargo containers, including large standard main deck cargo doors.
(3) These aircraft are configured as “combi” aircraft capable of carrying passenger and cargo containers on the

main flight deck.

(4) Passenger configured aircraft.

Because an airlines flight operations can be hindered by inclement weather, sophisticated landing systems
and other equipment are utilized to minimize the effect that weather may have on flight operations. For example,
ABX’s Boeing 767 aircraft are equipped for Category III landings. This allows their crews to land under weather
conditions with runway visibility of only 600 feet at airports with Category III Instrument Landing Systems.

14

ITEM 3. LEGAL PROCEEDINGS

Department of Transportation (“DOT”) Continuing Fitness Review

ABX filed a notice of substantial change with the DOT arising from its separation from Airborne, Inc. The
filing was initially made in mid-July of 2003 and updated in April of 2005, September of 2007, December of
2007 and March of 2010 with respect to subsequent events relevant to the DOT’s analysis, including the
reorganization of ABX under a holding company structure and the acquisition of Cargo Holdings International,
Inc. The DOT will determine whether ABX continues to be a U.S. citizen and fit, willing and able to engage in
air transportation of cargo. In the event the DOT were to identify any concerns and ABX was unable to address
those concerns to the satisfaction of the DOT, the DOT could seek to suspend, modify or revoke ABX’s air
carrier certificate and other authorizations, and this would materially and adversely affect the business.

Civil Action Alleging Violations of Immigration Laws

On December 31, 2008, a former ABX employee filed a complaint against ABX, a total of four current and
former executives and managers of ABX, Garcia Labor Company of Ohio, and three former executives of the
Garcia Labor companies, in the U.S. District Court for the Southern District of Ohio. The case was filed as a
putative class action against the defendants, and asserts violations of the Racketeer Influenced and Corrupt
Practices Act (RICO). The complaint, which seeks damages in an unspecified amount, alleges that the defendants
engaged in a scheme to hire illegal immigrant workers to depress the wages paid to hourly wage employees
during the period from December 1999 to January 2005. On January 23, 2009, ABX and the four current and
former executives and managers of ABX filed an answer denying the allegations contained in the complaint. On
March 18, 2010, the Court issued a decision dismissing three of the five claims, constituting the basis of
Plaintiff’s cause of action.

The complaint is similar to a prior complaint filed by another former employee in April 2007. The prior

complaint was subsequently dismissed without prejudice at the plaintiff’s request on November 3, 2008.

FAA Enforcement Actions

The Company’s airline operations are subject to complex aviation and transportation laws and regulations
that are continually enforced by the DOT and FAA. The Company’s airlines receive letters of investigation
(“LOIs”) from the FAA from time to time in the ordinary course of business. The LOIs generally provide that
some action of the airline may have been contrary to the FAA’s regulations. The airlines’ respond to the LOIs
and if the response is not satisfactory to the FAA, it can seek to impose a civil penalty for the alleged violation.
Airlines are entitled to a hearing before an Administrative Law Judge or a Federal District Court Judge,
depending on the amount of the penalty being sought, before any penalty order is deemed final.

The FAA issued LOIs to CCIA arising from a focused inspection of that airline’s operations during the
fourth quarter which could result in the FAA seeking monetary penalties against CCIA. ABX received an LOI
from the FAA alleging that ABX failed to comply with an FAA Airworthiness Directive involving its Boeing
767 aircraft and proposing a monetary settlement. The Company believes it has adequately reserved for those
monetary penalties being proposed by the FAA, although it’s possible that the FAA may propose additional
penalties exceeding the amounts currently reserved.

Environmental Matters

The Ohio Environmental Protection Agency is contemplating a proceeding against DHL, in its capacity as
the owner of Wilmington Air, Park (“ILN”), and ABX, in its capacity as the permit holder for the stormwater
treatment system at ILN, arising from the unauthorized discharge of stormwater from ILN on or about May 7,
2008, and seeking a monetary penalty in the amount of $210,000. The monetary penalty would constitute a
reimbursable expense under the ACMI Agreement, and the Company anticipates that it would be paid in full by
DHL.

15

Other

In addition to the foregoing matters, we are also currently a party to legal proceedings in various federal and
state jurisdictions arising out of the operation of our business. The amount of alleged liability, if any, from these
proceedings cannot be determined with certainty; however, we believe that our ultimate liability, if any, arising
from the pending legal proceedings, as well as from asserted legal claims and known potential legal claims which
are probable of assertion, taking into account established accruals for estimated liabilities, should not be material
to our financial condition or results of operations.

ITEM 4. RESERVED

16

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS,
AND ISSUER PURCHASES OF EQUITY SECURITIES

Common Stock

Our common stock is publicly traded on the NASDAQ Global Select Market under the symbol ATSG. Prior
to May 21, 2008, our symbol on the NASDAQ Global Select Market was ABXA. The following table shows the
range of high and low prices per share of our common stock for the periods.

2009 Quarter Ended:

December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2008 Quarter Ended:

December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Low

High

$2.11
$2.13
$0.44
$0.17

$3.50
$4.06
$2.49
$0.84

Low

High

$0.12
$0.62
$0.78
$2.50

$0.73
$1.12
$3.65
$4.31

On March 30, 2010, there were 1,854 stockholders of record of the Company’s common stock. The closing

price of the Company’s common stock was $2.31 on March 30, 2010.

17

Performance Graph

The graph below compares the cumulative total stockholder return on a $100 investment in the Company’s
common stock with the cumulative total return of a $100 investment in the NASDAQ Global Select Market and
the cumulative total return of a $100 investment in the NASDAQ Transportation Index for the period beginning
on December 31, 2004 and ending on December 31, 2009.

s
r
a
l
l
o
D

160

120

80

40

0

12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

Air Transport Services Group, Inc.
NASDAQ Composite Index
NASDAQ Transportation Index

Air Transport Services Group, Inc.
. . . . . .
NASDAQ Composite Index . . . . . . . . . . . .
NASDAQ Transportation Index . . . . . . . . .

100.00
100.00
100.00

88.30
101.41
117.29

77.95
114.05
133.10

47.02
123.94
136.21

2.02
73.43
97.55

29.70
105.89
101.09

12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009

Dividends

The Company is restricted from paying dividends on its common stock in excess of $50.0 million during
any calendar year under the provisions of its credit agreement. Under the provisions of its promissory note due to
DHL, the Company is required to prepay the DHL note $0.20 for each dollar of dividend distributed to the
stockholders of ATSG. The same prepayment stipulation applies to stock repurchases. No cash dividends have
been paid or declared.

18

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in conjunction with the consolidated
financial statements and the notes thereto and the information contained in Item 7 of Part II, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations.” The selected consolidated financial
data and the consolidated operations data below are derived from the Company’s audited consolidated financial
statements.

As of and for the Years Ended December 31

2009

2008

2007

2006

2005

(In thousands, except per share data)

OPERATING RESULTS (1):

Continuing revenues . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . .
Net interest expense . . . . . . . . . . . . . . . . . .

$ 823,483
751,693
26,432

$ 941,686
963,638
34,667

$ 573,256
538,025
9,510

$548,576
514,014
6,772

$552,551
520,533
8,451

Earnings (loss) from continuing operations
before income taxes . . . . . . . . . . . . . . . . .
Income tax benefit (expense) (2) . . . . . . . . .

Earnings (loss) from continuing

operations . . . . . . . . . . . . . . . . . . . . . . . .

Discontinued earnings, net of tax (5) . . . . .

45,358
(17,156)

(56,619)
(6,229)

25,721
(10,898)

27,790
57,096

23,567
—

28,202

6,247

(62,848)

14,823

84,886

23,567

6,858

4,764

5,168

6,745

Net earnings (loss) . . . . . . . . . . . . . . . . . . . .

$

34,449

$ (55,990) $

19,587

$ 90,054

$ 30,312

EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS (1):

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.55
0.54

$
$

(0.90) $
(0.90) $

0.34
0.33

$
$

1.55
1.54

$
$

0.52
0.52

WEIGHTED AVERAGE SHARES (1):

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,674
63,279

62,484
62,484

58,296
58,649

58,270
58,403

58,270
58,475

SELECTED CONSOLIDATED

FINANCIAL DATA (1):

Cash and cash equivalents . . . . . . . . . . . . . .
Deferred income tax asset (2) . . . . . . . . . . .
Goodwill and intangible assets (4) . . . . . . .
Property and equipment, net . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement liabilities (3) . . . . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . .
Long-term debt, other than leases . . . . . . . .
Deferred income tax liability . . . . . . . . . . .
Stockholders’ equity . . . . . . . . . . . . . . . . . .

$

83,229
31,597
99,890
636,089
1,002,773
155,720
12,918
364,509
50,044
245,982

$ 116,114
74,979
100,777
671,552
1,101,349
299,964
72,282
440,204
—
80,392

$

59,271
35,056
210,354
690,813
1,162,967
190,028
88,483
502,319
—
200,003

$ 63,219
101,715
—
458,638
679,798
224,376
73,551
125,126
—
120,210

$ 69,473
—
—
381,645
516,043
89,319
80,908
92,276
—
113,079

(1) The consolidated financial data includes the Company’s acquisition of Cargo Holdings International, Inc. as

(2)

of December 31, 2007.
In the fourth quarter of 2006, an income tax benefit was recognized to completely reverse the valuation
allowance on ABX’s deferred tax assets.

(3) Beginning in 2006, post-retirement liabilities reflect the adoption of FASB ASC Topic 715-10.
(4)

In the fourth quarter of 2008, the Company recorded an impairment charge of $73.2 million on goodwill and
$18.0 million on acquired intangibles.
In the third quarter of 2009, ABX ceased providing hub services and fuel services for DHL. Accordingly,
these business activities are reflected as discontinued operations for all years presented.

(5)

19

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis has been prepared with reference to the historical
financial condition and results of operations of Air Transport Services Group, Inc., and its subsidiaries (“the
Company”) and should be read in conjunction with the “Risk Factors” on page 9 of this report, our historical
financial statements, and the related notes contained in this report.

INTRODUCTION

Air Transport Services Group, Inc. (the “Company”) is a holding company whose principal subsidiaries
include three independently certificated airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines,
Inc. (“CCIA”) and Air Transport International, LLC (“ATI”) and Cargo Aircraft Management, Inc. (“CAM”), an
aircraft leasing company. When the context requires, we may also use the terms “Company” and “ATSG” in this
report to refer to the business of ATSG and its subsidiaries on a consolidated basis.

SEGMENT ANALYSIS

The Company has three reportable segments: DHL, ACMI Services, and CAM. The Company’s other
business activities do not constitute reportable segments and are included in Other Activities. The Company’s
aircraft fleet is summarized below as of December 31, 2009 ($ in thousands).

DHL

ACMI
Services CAM

Total

In-service aircraft

Aircraft owned or under capital lease

12
Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Boeing 757 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Boeing 727 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
DC-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

4

17
2 —
12 —
15 —

33
2
12
15

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12

46

4 —

—

Aircraft in freighter modification

Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

4

4

62
$538,251
4

4
$ 50,472

Idle aircraft (not scheduled for revenue)
Aircraft owned or under capital lease

DC-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Boeing 727 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

3 —
1 —

1 —

3
1
1,631
1

$

As of December 31, 2009, ACMI Services was leasing 36 of its 46 in-service aircraft internally from CAM.
As of December 31, 2009, CAM had four Boeing 767 aircraft having a book value of $50.5 million, which were
in the process of being modified to standard freighter configuration and were temporarily removed from service.
ACMI Services had idle airframes with a carrying value of $1.6 million whose engines and rotables were being
used for other aircraft in the Company’s fleets. The spare airframes can be reactivated, as needed. ACMI
Services had one aircraft under an operating lease that was not scheduled for service through the end of its lease
term in October 2010.

20

DHL Segment

The Company, through ABX, has had long term contacts with DHL Network Operations (USA), Inc. and
DHL Express (USA), Inc. which are collectively referred to as “DHL,” since August 16, 2003. DHL, an
international, integrated delivery company, is the Company’s largest customer. The DHL segment accounted for
49% of the Company’s revenues from continuing operations and 61% of the Company’s pre-tax earnings from
continuing operations in 2009. ABX provides airlift including aircraft, aircraft flight crews and maintenance to
DHL under an aircraft, crew, maintenance and insurance agreement (“DHL ACMI agreement”). This agreement
will be terminated effective March 31, 2010 and replaced with new operating and lease agreements with DHL
Under a Hub Services agreement, which expired without renewal in August 2009, ABX provided package
handling, sorting and other cargo-related services to DHL.

In 2008, DHL began to restructure its U.S. operations due to continued losses. DHL’s restructuring
significantly impacted ABX’s operations. Pursuant to its 2008 restructuring plans, DHL discontinued intra-U.S.
domestic pickup and delivery services in January 2009. DHL now provides only international services to and
from the U.S. A summarized chronology of DHL’s restructuring actions in 2009 and their effects on ABX’s
operations follows:

•

•

•

•

•

•

•

In January 2009, the regional sorting hubs staffed by ABX were closed, the sort operations in
Wilmington, Ohio were downsized to process only international shipments and all of ABX’s remaining
32 DC-9 aircraft were terminated from the DHL ACMI agreement.

In March 2009, DHL gave ABX notice to remove five Pratt & Whitney powered Boeing 767 aircraft
having a net book value of approximately $24.0 million, from the DHL network.

On March 16, 2009, DHL agreed to restructure an unsecured promissory note and assume financial
responsibility for the capital leases associated with five Boeing 767 aircraft guaranteed by DHL. The
promissory note was subsequently amended in May 2009 and a Lease Assumption and Option
Agreement was executed in June 2009.

On April 17, 2009, DHL announced that it planned to relocate its package sorting and aircraft hub
operations from the DHL Air Park in Wilmington, Ohio to the Cincinnati/Northern Kentucky
International Airport in Hebron, Kentucky (“CVG”).

On May 12, 2009, DHL notified ABX that DHL would not be renewing the Hub Services agreement
when its term expired on August 15, 2009.

On July 24, 2009, sort operations in Wilmington ceased and the sorting and hub operations were
transferred to CVG. ABX assisted DHL with the transition to CVG by providing temporary staffing for
the CVG operations through early September 2009. In conjunction with the transfer of the hub
operations to CVG in July 2009, DHL assumed management of fueling services for its U.S. network
previously provided by ABX. ABX ceased providing aircraft fuel and related services for its aircraft
that remain in the DHL network. The hub services operations and the aircraft fueling operations are
now reported as discontinued operations.

On August 7, 2009, DHL notified ABX that DHL would not be renewing the DHL ACMI agreement
when its initial term expires on August 15, 2010. Revenues from the DHL ACMI agreement were
$282.8 million for 2009. Pre-tax earnings from the DHL ACMI agreement were $11.1 million, or 25%
of consolidated pre-tax earnings for 2009.

In 2008, ABX and DHL executed a Severance and Retention Agreement (“S&R”) to facilitate the
restructuring and wind-down of DHL’s U.S. operations. The S&R specifies employee severance, retention and
other benefits that DHL reimburses ABX for payment to its employees that are affected by DHL’s U.S.
restructuring plan. Through December 31, 2009, ABX has terminated approximately 8,700 employee positions
since DHL’s restructuring began in mid-2008. Employees received severance, retention and other benefits under
the S&R. In accordance with the agreement, DHL is obligated to reimburse ABX for the cost of non-pilot

21

employee severance, retention, productivity bonuses and vacation benefits paid. The S&R also included a
provision for DHL to fund up to $75.0 million contingent upon ABX negotiating an agreement with its pilot
union in regards to severance, retention and/or other issues arising from DHL’s U.S. restructuring plan. In
December 2009, such an agreement was reached and DHL remitted $75 million to ABX.

Pre-tax earnings from continuing operations included $16.7 million for administering the wind-down of
DHL operations under the S&R in 2009. In December 2009, ABX and the pilots’ union reached an agreement
with regard to the distribution of the $75.0 million provided by the S&R for pilot severance and benefits. To
settle the S&R funding, ABX amended the pilot pension plans in December 2009 to effectively increase benefits
of more senior crewmembers. The Company recorded a pension expense of $19.2 million for the benefit
amendments. The Company also agreed to fund the pilot pension plan with $37.8 million in 2009 in addition to
previously remitted contributions. The Company further agreed to pay $43.6 million to terminated crewmembers
for severance benefits. As a result, pre-tax earnings for 2009 included $12.2 million for settling the S&R fund
with the crewmembers. Including the additional pension contribution of $37.8 million made by the Company, the
settlement of the $75 million fund will result in a net cash outflow of approximately $6.4 million after all
payments are completed. Our pre-tax earnings from the S&R for 2009 also included $4.5 million for the
reimbursement of employee vacation benefits that ABX paid to terminated employees. Our pre-tax earnings from
continuing operations for 2008 included $0.8 million from the S&R related to reimbursed employee vacation.

Pre-tax earnings from the DHL ACMI agreement were $11.1 million for 2009 and decreased by $2.5
million compared to 2008 due to the reductions in service in conjunction with DHL’s U.S. restructuring.
Revenues from the DHL ACMI agreement reflected revenue amendments in 2009 and 2008 which effectively
fixed ABX’s pre-tax earnings from the DHL ACMI agreement for the fourth quarter of 2008 and each quarter of
2009. Prior to the revenue amendments, expenses incurred under the DHL ACMI agreement were generally
marked-up by 1.75% and included in revenues. The DHL ACMI agreement also allowed ABX to earn
incremental revenues calculated on mark-ups above the 1.75% base mark-up (up to an additional 1.60% under
the DHL ACMI agreement) from the achievement of certain cost-related and service goals specified in the two
agreements. Under the revenue amendments, annual goals were not set for 2009, nor were quarterly cost goals.
Instead, the agreed revenue for 2009 includes amounts to replace these incremental revenues.

The table below compares our DHL segment earnings from continuing operations (in thousands):

ACMI agreement
S&R agreement

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$11,124
16,727

$13,591
816

$13,612
—

Total DHL pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$27,851

$14,407

$13,612

Year Ended December 31,

2009

2008

2007

Outlook

ABX currently remains the primary provider of airlift capacity for DHL’s U.S.-based international delivery
network through its fleet of Boeing 767 aircraft. In addition to Boeing 767 aircraft provided under the primary
DHL ACMI agreement, ABX is also supplying DHL with seven Boeing 767 standard freighters under
supplemental, short-term ACMI arrangements. In June 2009, ABX and DHL executed a lease option agreement,
which gave DHL the option to lease up to four ABX Boeing 767 standard freighter aircraft under 64.5 month
lease terms, commencing August 15, 2010.

In March 2010, the Company and DHL terminated the ACMI agreement and executed new follow-on
agreements effective March 31, 2010. Under the new agreements, DHL will lease 13 Boeing 767 freighter
aircraft from CAM and ABX will operate those aircraft for DHL under a separate crew, maintenance and
insurance (“CMI”) agreement. The CMI agreement is not based on a cost-plus pricing arrangement, but instead

22

pricing will be based on a pre-defined fee, scaled for the number of aircraft operated and the number of crews
provided to DHL. The initial term of the CMI is five years, while the term of the aircraft leases are seven years.
The 13 aircraft include the four Boeing 767 aircraft which DHL already had an option to lease under the June
2009 lease option agreement. The terms of those option lease agreements will be extended from 64.5 month
terms to 84 month terms. Under the CMI agreement, ABX will be able to contract with AMES to provide
scheduled maintenance for the 13 Boeing 767 aircraft.

At the initiation of the CMI agreement, CAM will not have all 13 Boeing 767 freighter aircraft available for
lease to DHL. Until CAM completes the aircraft modification process for the 13 aircraft committed to DHL,
ABX will operate bridging aircraft for DHL under short term, month-to-month arrangements under economic
terms similar to the leases for the 13 aircraft.

In conjunction with terminating the ACMI agreement, ABX and DHL entered into a termination agreement
which addressed several open issues between the parties. The S&R agreement will also be terminated effective
April 1, 2010 and settlement of reimbursed vacation, which had been an issue of dispute between ABX and DHL,
was resolved. DHL agreed to reimburse ABX for $11.2 million of accrued vacation payments, which is in
addition to $3.2 million previously reimbursed by DHL. ABX will recognize $4.1 million of this reimbursement
in pre-tax earnings in 2010. Additionally, under the termination agreement, DHL agreed to pay ABX, in May
2010, its carrying value of $29.7 million to complete the sale of aircraft that ABX previously put to DHL. The
termination agreement also includes a fee which ABX can earn for assisting DHL in the management of workers
compensation claims. For the first quarter of 2010, we reached an agreement with DHL for approximately the
same level of mark-ups and pre-tax earnings for the DHL ACMI agreement as were recognized for the fourth
quarter of 2009.

ACMI Services Segment

Through its three airline subsidiaries, the Company provides airlift to other airlines, freight forwarders and
the U.S. military, typically through ACMI agreements. The airlines serve a variety of customers in the air cargo
industry by flying in the U.S., Europe Asia, Africa and throughout the Americas. CCIA and ATI each have
contracts to provide airlift to BAX Global, Inc. (“BAX”) under ACMI agreements. BAX provides freight
transportation and supply chain management
for
services,
business-to-business shipping. ATI also provides passenger transportation, primarily to the U.S. military, using
its DC-8 combi aircraft that are certified to carry passengers as well as cargo on the main flight deck. At
December 31, 2009, ACMI Services included 46 in-service aircraft. ABX operated 15 Boeing 767-200 freighter
aircraft that were not under the DHL ACMI agreement, while CCIA and ATI operated 14 aircraft and 17 aircraft,
respectively.

specializing in the heavy freight market

Customers are usually charged based on the number of block hours flown or the amount of aircraft and crew
resources provided during a reporting period. Typically agreements specify a minimum level of monthly revenue.
ACMI Services also include revenues from block space agreements, in which customers’ contract for specific
amounts of space on certain flights. In these agreements, customers are typically charged by the weight carried
on the aircraft during a flight, or based on the number of aircraft load positions purchased.

ACMI Services revenues, excluding directly reimbursed fuel expenses, were $289.5 million and $292.8
million during 2009 and 2008, respectively, decreasing 1% in 2009 compared to the previous year. Block hours
increased 11% for 2009, to 61,520 hours compared to 55,616 hours in 2008. Increased block hours reflect
additional Boeing 767 and Boeing 757 aircraft placed into service since mid 2008. The decline in revenues is due
to the lower cost of aviation fuel for those ACMI, block space and charter contracts that include fuel in their
price. The price per gallon of aviation fuel in 2009 declined approximately 42% compared to 2008. Excluding
those contracts that include fuel, revenues per block hour declined 3% in 2009 compared to 2008. ACMI
Services results included revenues of $13.2 million from Boeing 767 freighter aircraft that ABX supplied to DHL
during 2009 under short-term supplemental agreements compared to $8.5 million during 2008.

23

Pre-tax earnings for ACMI Services were $0.5 million for 2009 compared to a loss of $84.1 million during
2008. Our 2008 results included impairment charges totaling $91.2 million to write down goodwill and customer
relationship intangibles to their fair values. The 2009 results for ACMI Services include losses from ABX driven
by a Boeing 767 transatlantic scheduled service which commenced in January 2009. We experienced higher costs
for ABX flight crews and lower cargo volumes than expected. The costs of ABX flight crews were detrimentally
impacted due to scheduling changes caused when senior DC-9 flight crewmembers were retrained for the Boeing
767. High levels of sick occurrences among crew members in 2009 resulted in higher pay premiums for
unscheduled crewmembers who flew open routes. In January 2010, ABX terminated the scheduled transatlantic
service which generated the losses. The operation was replaced by a conventional ACMI agreement with TNT
Airways S.A., a large international shipper. Pre-tax earnings in 2009 were also negatively impacted by the timing
of scheduled maintenance checks. ABX, which expenses aircraft maintenance as it is incurred, completed eight
scheduled maintenance checks during 2009, compared to six maintenance checks during 2008. ATI and CCIA
each generated pre-tax profits for 2009.

Outlook

We believe that terminating the transatlantic scheduled service and replacing that block space agreement
with a conventional ACMI agreement will contribute to the segment’s improved profitability in 2010. In
November 2009, the ABX pilots’ union ratified an amended collective bargaining agreement (“CBA”) which
contained several key aspects that were contingent upon ABX and DHL reaching a long-term operating
agreement. We believe that when implemented, the amended CBA provides for a lower cost structure and
favorable work rules so that ABX may more effectively compete in the ACMI air cargo markets with lower cost
carriers. The amended CBA becomes fully effective after the new CMI agreement between ABX and DHL
becomes effective.

New customer agreements typically involve start-up expenses, including those for route authorities, overfly
rights, travel and other activities, and may impact future operating results. Revenue-generating service may begin
sometime later; however, depending on satisfaction of a number of conditions, including international regulations
and laws, contract negotiations, flight crew availability, and arranging resources for aircraft handling. Additional
aircraft dry leases by CAM to other airlines may adversely impact the ACMI Services operating results by
reducing utilization levels for its aircraft. Additionally, our pre-tax earnings will fluctuate due to the timing of
scheduled heavy maintenance, which, under ABX’s policy, are expensed as maintenance is performed.

CAM Segment

The Company offers aircraft leasing through its CAM subsidiary. Aircraft leases normally cover a term of
several years. In a typical leasing agreement, customers pay rent and a maintenance deposit on a monthly basis.
CAM had 43 aircraft that were under lease as of December 31, 2009, 40 of them to ABX, ATI and CCIA.

In September 2008, CAM contracted with Israel Aerospace Industries Ltd. (“IAI”) for the conversion of up
to 14 non-standard Boeing 767 aircraft to full freighter configuration. This is in addition to two Boeing 767
aircraft that CAM already had contracted to modify. The conversion primarily consists of the installation of a
standard cargo door and loading system, replacing the passenger door and loading system currently in the
aircraft. Since September 2008, CAM has successfully modified four Boeing 767 and one Boeing 757 into
standard freighters. All five aircraft were leased internally to the Company’s airlines. The completed Boeing 767
aircraft are in service under the ACMI Services segment, primarily supporting DHL under short-term
supplemental agreements. As of December 31, 2009, four Boeing 767 aircraft were undergoing freighter
modification.

Pre-tax segment earnings for CAM were $22.8 million and $18.1 million for 2009 and 2008, respectively.
that CAM has placed in service since
The increase in pre-tax earnings reflects eight additional aircraft
December 31, 2008. CAM’s results reflected an allocation of interest expense of $10.3 million and $12.4 million

24

in 2009 and 2008, respectively, based on prevailing interest rates and the carrying value of its operating assets.
CAM’s revenues for 2009 and 2008 included $49.8 million and $44.8 million, respectively, for the leasing of
aircraft to ATI, CCIA and ABX.

Outlook

The decision by DHL to terminate the DHL ACMI agreement adds impetus to management’s strategy of
modifying ABX’s non-standard Boeing 767 aircraft into standard freighter configuration. The fuel efficiency,
cubic capacity, payload and operating costs of the Boeing 767 make it a desirable freighter aircraft in medium-
range international air cargo markets and in trans-U.S. routes (less than 3,000 nautical miles). Interest in
efficient, reliable Boeing 767 aircraft remains strong. As the modified Boeing 767 aircraft become available for
service, some portion of them will be leased to DHL and others, while some may be operated by an ATSG
airline.

CAM could modify up to eight more non-standard Boeing 767 aircraft that are currently under contract to
DHL under the DHL ACMI agreement to a standard freighter configuration as the aircraft are removed from the
DHL ACMI agreement. Currently, we plan to modify all of the eight remaining non-standard Boeing 767 aircraft
into a standard freighter configuration. We will consider a number of factors, including the fleet plans of
customers, long-term demand for airlift, the quantity and quality of customer prospects, competitive alternatives
and general economic conditions, when deciding to place aircraft into the modification process. If a non-standard
Boeing 767 aircraft is not placed into the modification process, we will consider other alternatives, including the
sale of the aircraft, continuing to operate the aircraft as a non-standard freighter, or salvaging and parting-out of
the aircraft to support the Company’s other Boeing 767 aircraft.

Besides the four Boeing 767 aircraft that were undergoing modification at December 31, 2009, CAM owned
one aircraft, a Boeing 767 passenger aircraft that is scheduled for lease in the second quarter of 2010. In February
2009, CAM finalized an agreement to lease two Boeing 767 aircraft to a Miami, Florida based operator. The
lease agreement for the first of two aircraft began in March 2010 and the second is expected to begin in the
second quarter of 2010. These aircraft leases are starting later than expected because additional time was required
by the customer to obtain FAA approval and train pilots for the Boeing 767 aircraft. The Miami, Florida based
operator has an option to lease up to three additional Boeing 767 aircraft.

Other Activities

Through separate subsidiaries, the Company sells aircraft parts and provides aircraft maintenance and
modification services to other airlines. The Company also operates three U.S. Postal Service (“USPS”) sorting
facilities. The Company also provides equipment leasing and facility maintenance, as well as specialized services
for aircraft fuel management and freight logistics. These other business activities do not constitute reportable
segments. Other activities include general and administrative expenses not associated with the DHL commercial
agreements, including an allocation of ABX’s overhead expenses, starting January 1, 2008.

In May 2009, the aircraft maintenance and engineering business operations of ABX were transferred to a
newly formed ATSG subsidiary, Airborne Maintenance and Engineering Services, Inc. (“AMES”). Organizing
the aircraft maintenance and engineering capabilities separately from ABX facilitates a cost structure and
marketing organization which can better compete in the aircraft maintenance industry. AMES operates as a
Federal Aviation Administration (“FAA”) certificated 145 repair station, utilizing the Wilmington, Ohio
facilities, including hangars and a component shop, leased by ABX from DHL. ABX is AMES’s primary
customer at this time. AMES leverages the Company’s existing engineering skills and technical experience to
perform airframe maintenance, component repairs, part sales, line maintenance and avionics modifications for
other ATSG airlines, as well as external customers.

Revenues from all other activities increased $16.2 million during 2009 compared to 2008. Increased
revenues were primarily a result of an increase in aircraft and facility maintenance services when compared to

25

2008. Pre-tax earnings from all other activities were $3.5 million during 2009 compared to $7.1 million in 2008.
Lower pre-tax earnings for 2009 compared to 2008 were a result of 1) a net gain of $5.8 million recorded in 2008
stemming from the insurance proceeds for an aircraft which experienced a fire prior to engine start and 2) a
charge of $2.5 million in 2008 for professional fees stemming from the arbitration of a dispute with DHL.

Outlook

Under the follow-on agreements reached with DHL, AMES will continue to provide maintenance services
for the Company’s Boeing 767 aircraft that operate in the DHL network. Our three contracts with the USPS
generated revenues of $18.5 million in 2009. These contracts have a four-year term, with original expiration
dates in either September or October 2010 with multi-year extensions at the discretion of the USPS. It is our
understanding at this time that the USPS plans to maintain the three sorting centers that we operate.

A summary of our revenues and pre-tax earnings from continuing operations is shown below (in thousands):

Years Ended December 31

2009

2008

2007

Revenues:

DHL segment

ACMI mark-ups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&R (non-recurring)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Reimbursable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,833
121,366
271,954

$ 14,309
29,109
437,119

$ 14,697
—
464,908

Total DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services

Charter and ACMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Reimbursable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

404,153

480,537

479,605

289,514
75,157

364,671
60,685
64,914

292,836
128,174

421,010
47,480
48,707

55,580
—

55,580
—
38,071

Total Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

894,423

997,734

573,256

Eliminate internal revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(70,940)

(56,048)

—

Customer Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$823,483

$941,686

$573,256

Pre-Tax Earnings:
DHL segment

ACMI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
S&R (non-recurring)
Other Reimbursable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 11,124
16,727
—

$ 13,591
816
—

$ 13,612
—
—

Total DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairments—ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM, inclusive of interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Activities and non-reimbursed overhead . . . . . . . . . . . . . . . . . .
Net non-reimbursed interest income (expense) . . . . . . . . . . . . . . . . . . .

27,851
541
—
22,775
3,518
(9,327)

14,407
7,147
(91,241)
18,102
7,070
(12,104)

13,612
4,564
—
—
5,898
1,647

Total Pre-Tax Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 45,358

$ (56,619) $ 25,721

Discontinued Operations

Discontinued operations include the results of the hub services and the fuel management previously
provided to DHL. On July 24, 2009, sort operations in Wilmington ceased and the sorting and hub operations

26

were transferred to CVG. Revenues from the hub services were $143.0 million and $336.1 million 2009 and
2008, respectively. Pre-tax earnings from the hub services were $9.2 million, or 17% of consolidated pre-tax
earnings for 2009, and $10.8 million of consolidated pre-tax earnings, for 2008. Pre-tax earnings from hub
services included $2.6 million and $2.4 million in 2009 and 2008 respectively from the S&R to manage the
wind-down of DHL’s U.S. domestic operations. In conjunction with the transfer of the hub operations to CVG in
July 2009, DHL assumed management of fueling services for its U.S. network previously provided by ABX.
ABX ceased providing aircraft fuel and related services for its aircraft that remain in the DHL network. Revenues
from fuel were $28.5 million and $332.9 million for 2009 and 2008, respectively. ABX did not earn a mark-up
on fuel used within the DHL network.

RESULTS OF OPERATIONS

2009 compared to 2008

Summary

Customer revenues from continued operations decreased $118.2 million, or 13%, in 2009 compared to 2008,
primarily due to the DHL restructuring in the U.S. and lower fuel prices. Revenues from the DHL agreements
decreased approximately $76.4 million for 2009. Revenues from ACMI Services declined $56.3 million due to
lower aviation fuel prices in 2009 compared to 2008. This decline is a result of lower fuel prices for those ACMI,
block space and charter agreements that include fuel in their contractual price. Excluding directly reimbursed fuel
expenses, ACMI revenues declined by 1%. CAM’s revenue from leases to external customers increased to $10.9
million in 2009 from $2.7 million in 2008, reflecting additional Boeing 767 aircraft that CAM has placed in
service since mid 2008. Additionally, compared to 2008, the Company’s revenues from other activities for
outside customers grew 15%, primarily from aircraft and facility maintenance services. This reflects the
Company focus on diversifying and replacing revenues lost from the DHL ACMI agreement.

Pre-tax earnings from continuing operations were $45.4 million for 2009 compared to a pre-tax loss of

$56.6 million in 2008. The changes in pre-tax earnings between 2009 and 2008 are summarized as follows.

•

•

•

•

•

•

•

•

Pre-tax earnings in 2008 included impairment charges of $91.2 million on goodwill and intangibles
associated with ATI and CCIA.

Pre-tax earnings from the DHL ACMI agreement declined $2.5 million compared to 2008 as a result of
DHL removing aircraft in conjunction with its restructuring plans.

Pre-tax earnings for 2009 improved $15.9 million from the S&R agreement with DHL, primarily due to
settlement of benefits with ABX crewmembers.

Block hours for ACMI Services increased; however, ABX experienced losses primarily from its
transatlantic scheduled service, resulting in a combined reduction of pre-tax earnings of $6.6 million.

CAM pre-tax earnings, inclusive of interest expense allocations, improved $4.7 million due to the
deployment of additional aircraft.

Pre-tax gains from the sale of aircraft, including insurance settlements in 2008 stemming from an
aircraft fire, were $4.9 million less in 2009 compared to 2008.

Corporate expenses were $3.1 million lower in 2009 compared to 2008, when the Company incurred
professional expenses related to the arbitration of a dispute with DHL.

Net, non-reimbursed interest expense declined $2.8 million in 2009 compared to 2008 due to lower
outstanding debt levels and interest rates.

27

Aircraft block hours flown for the DHL ACMI agreement declined 78% in 2009 compared to 2008, due to
the removal of aircraft starting in June 2008. Aircraft block hours flown by the ACMI segment increased in 2009
compared to 2008, reflecting the deployment of five more Boeing 767 aircraft and two more Boeing 757 aircraft
since mid-2008.

DHL agreement aircraft block hours flown . . . . . . . . . . . . . . . . . . . . .
ACMI Services aircraft block hours flown . . . . . . . . . . . . . . . . . . . . . .

19,435
61,520

86,480
55,616

(78%)
11%

Year Ended December 31

Percentage

2009

2008

Increase (Decrease)

Operating Expenses

Salaries, wages and benefits expense decreased 5% during 2009, compared to 2008. Due primarily to the
DHL restructuring, headcount declined approximately 58% as of December 31, 2009 compared to December 31,
2008. Benefits expense includes $41.5 million and $20.3 million in 2009 and 2008, respectively, for severance
and retention benefits for terminated employees. Also, this line includes pension expense adjustments as a result
of employee terminations and plan amendments of $26.3 million and $5.5 million in 2009 and 2008,
respectively.

Fuel expense decreased $67.5 million during 2009, compared to 2008. The decrease reflects the reduction in
aircraft in service for DHL. In addition, the average price of aviation fuel decreased significantly compared to
2008. The average price of a gallon of aviation fuel decreased 42% in 2009 compared to 2008.

Maintenance, materials and repairs decreased $20.7 million during 2009 compared to 2008. The decrease is

a result of DHL’s removal of aircraft from service in conjunction with its U.S. restructuring plans.

Depreciation and amortization expense decreased $9.8 million during 2009, compared to 2008. Depreciation
expense decreased due to the removal of the ABX DC-9 fleet and five Boeing 767 aircraft since DHL’s
restructuring announcement in May 2008. The depreciation expense for 2009 also reflects the addition of one
Boeing 757 aircraft and seven Boeing 767 standard freighter aircraft that the Company has placed in service
since December 31, 2008.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased $5.3 million in 2009,
compared to 2008. The decrease is a result of DHL’s removal of aircraft from service in conjunction with its U.S.
restructuring plans.

Travel expense decreased $7.6 million during 2009 compared to 2008. The decrease is a result of DHL’s
removal of aircraft from service, and the resulting decline in required flight crew travel, in conjunction with its
U.S. restructuring plans.

Insurance increased $0.5 million during 2009 compared to 2008. The increase is a result of placing

additional freighter aircraft into service since March 2008.

Other operating expenses include professional fees, navigational services, employee training, utilities, the
cost of parts sold to non-DHL customers and gains and losses from the disposition of aircraft. Other operating
expenses increased $8.1 million during 2009 compared to 2008. During 2009, the Company incurred higher
expenses for international navigation services, reflecting increased transatlantic and European aircraft operations.
The increase in 2009 expenses also reflects expenses for expanded aircraft and facility maintenance revenues
compared to 2008. The comparison of other operating expense between 2009 and 2008 is affected by 2008
expenses related to the arbitration of a dispute with DHL and the 2008 gain on an aircraft disposition due to a
fire.

28

Interest expense decreased $10.1 million during 2009 compared to 2008. The decline in interest expense
reflects the reduction in the Company’s debt since December 2008 and lower interest rates. Interest rates on the
Company’s variable interest, unsubordinated term loan decreased from 4.5% in the fourth quarter of 2008 to
2.9% for the fourth quarter of 2009.

Interest income decreased $1.9 million during 2009, compared to 2008 due to lower short-term interest rates

on our cash and cash equivalents and a decrease in the cash and cash equivalents balance.

The effective tax rate for continuing operations was 38% for 2009 and 11% for 2008. The Company’s
effective tax rate for continuing operations in 2008 was approximately 38% of pre-tax earnings after adjusting for
approximately $73.2 million of impairment charges that were not deductible for income tax purposes. The
Company recorded a deferred tax benefit in 2009 related to the recognition of a previously unrecognized tax
position under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”)
Topic 740-10 Income Taxes. The effective settlement of this item resulted in a deferred tax benefit of $0.7
million. The remaining unrecognized tax benefits are anticipated to reverse in the next twelve months due to
statute expirations.

As of December 31, 2009, the Company had operating loss carryforwards for U.S. federal income tax
purposes of approximately $88.5 million, which will begin to expire in 2023. We expect to utilize the loss
carryforwards to offset federal income tax liabilities in the future. As a result, we do not expect to pay federal
income taxes for the next three years. The Company may, however, be required to pay alternative minimum taxes
and certain state and local income taxes before then.

2008 compared to 2007

Summary

Customer revenues from continuing operations increased $368.4 million, or 64%, in 2008 compared to
2007, primarily due to the acquisition of CHI on December 31, 2007. Revenues from CHI comprised
approximately $352.7 million of the increase in continuing revenues over 2007.

For 2008, the Company had a pre-tax continuing loss of $56.6 million including a charge of $91.2 million
for the impairment of goodwill and intangibles. For 2007 the Company had pre-tax continuing earnings of $25.7
million and there were no impairment charges. During 2008, the CHI operations, including CAM, ATI and CCIA
contributed $18.0 million of pre-tax continuing earnings after deducting interest expenses associated with the
acquisition financing. Pre-tax earnings from the DHL segment increased $0.8 million in 2008 compared to 2007
and the Company recorded a gain of $5.8 million in 2008 related to the disposition of an ABX Boeing 767
aircraft. Results for 2008 compared to 2007 were negatively impacted by declines in interest income of $2.2
million, a charge of $2.5 million associated with the ASTAR indication of interest as required by an arbitration
ruling, $3.2 million for the allocation of overhead expenses which were not reimbursed by DHL, increased other
non-reimbursed interest costs of approximately $5.0 million, professional fees related to the DHL arbitration,
increased corporate and administrative expenses and other expenses to support new business development.

29

The Company’s aircraft fleet is summarized below as of December 31, 2008 ($ in thousands).

DHL

ACMI
Services CAM

Total

In-service aircraft

Aircraft owned or under capital lease

Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
27
Boeing 757 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Boeing 727 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
DC-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
DC-9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32 —

13
1 —
13 —
16 —
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

59

43

1 —

Aircraft in freighter modification

Boeing 757 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Idle aircraft (not scheduled for revenue)

DC-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
DC-9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
—

—

2 —
2 —

3

3

1
2

1

43
1
13
16
32

105
$552,478
1

1
2
$ 52,219

2
2
1
$ 12,089

As of December 31, 2008, ACMI Services was leasing 32 of its 43 aircraft from CAM. As of December 31,

2008, CAM had three aircraft which were in the process of being modified to standard freighter configuration.

DHL Segment

On May 28, 2008, DHL announced a plan to restructure its U.S. business and eight months later ceased its
intra-U.S. domestic pickup and delivery services. As a result, ABX’s revenues from the DHL ACMI agreement
declined 6% in 2008 compared to 2007 due to reductions in the services provided to DHL during 2008. Pre-tax
earnings for the DHL segment were $25.2 million for 2008 compared to $21.2 million for 2007. In November
2008, ABX and DHL amended the pricing provisions of the ACMI agreement (“revenue amendment”). The
revenue amendment, which became effective October 1, 2008, effectively fixed ABX’s pre-tax earnings for the
DHL agreements for the fourth quarter of 2008, including the incremental mark-ups. Under the revenue
amendment, ABX billed DHL the base revenues and incremental revenues that ABX would have earned based
on its 2008 service and cost performance levels had the DHL restructuring not occurred. Additionally, under the
S&R agreement, DHL reimbursed ABX for employee accrued vacation benefits that ABX paid to terminated
employees. Pre-tax earnings for 2008 in the DHL segment, included $0.8 million in reimbursement of vacation
benefits paid to employees.

ACMI Services Segment

ACMI Services revenues, excluding reimbursed expenses, were $292.8 million for 2008, increasing $237.3
million compared to 2007. Approximately $18.9 million of this growth was organic to ABX, while the remaining
increase resulted from the acquisition of ATI and CCIA. ABX’s organic growth reflects the deployment of four
additional Boeing 767 aircraft into service since mid-2007. The ACMI Services segment had a pre-tax loss of
$84.1 million for 2008, including impairment charges of $91.2 million for goodwill and intangible assets. The
ACMI Services segment had pre-tax earnings of $4.6 million for 2007 and there were no impairment charges. In
2008, segment results for ACMI Services were positively impacted by CCIA and ATI, which contributed $5.0
million to pre-tax earnings.

30

In 2008, ABX incurred significant maintenance expenses compared to 2007 periods due to planned
C-checks, which are expensed as incurred for Boeing 767-200 aircraft. ABX flight crew wages negatively
impacted 2008 results, when ABX flight crews decided not to voluntarily bid for extra flying, as is customary. As
a result, ABX assigned the trips at an additional cost. During 2008, ATI and CCIA incurred approximately $1.1
million of expenses (excluding intercompany lease charges of $1.9 million from CAM) while completing the
FAA certification process to add aircraft types to their respective operating certificates. ATI added the Boeing
767 to its operating certificate, while CCIA added the Boeing 757.

ACMI Services results included revenues of $8.5 million from Boeing 767 freighter aircraft that ABX
supplied during 2008 under a supplemental agreement with DHL. Additionally, ABX charged a carrying cost to
DHL for ad hoc usage of ABX Boeing 767 aircraft that were not under the DHL ACMI agreement. Such costs
were based on block hours flown and a pre-established rate. The costs are included in ACMI expenses subject to
mark-up and accordingly reflected in the DHL segment revenues with a corresponding expense reduction to
ACMI Services. ACMI Services expenses were credited $4.3 million for 2008.

The global economic recession affected U.S. customers, including BAX. ATI and CCIA each reduced their
planned flying for BAX in 2009 by removing aircraft from BAX’s U.S. network. ATI planned to operate seven
aircraft in the BAX network in 2009 compared to nine DC-8 aircraft in 2008, and CCIA planned to operate eight
aircraft in 2009, compared to twelve Boeing 727 aircraft for BAX’s U.S. network in 2008. In accordance with
FASB ASC Topic 350-20 Intangibles – Goodwill and Other, we tested the recorded goodwill associated with
ATI and CCIA for impairment. To test the goodwill, we determined the fair values of ATI and CCIA separately
using industry market multiples and discounted cash flows, utilizing a market-derived rate of return. After
comparing the fair values of each reporting unit to their respective carrying values, the Company recognized an
impairment charge of $73.2 million to reduce the combined ATI and CCIA goodwill to $55.4 million in 2008.
The impairment charge was precipitated by a large-scale drop in market values of transportation companies and
higher costs of capital emerging from the credit crisis in the fourth quarter of 2008. Projected cash flows for the
airlines were expected to decline beginning in 2009 due to the deep economic recession.

In conjunction with the goodwill test, we recorded a charge of $18.0 million in 2008 to reduce ATI’s and
CCIA’s customer relationship intangibles to their fair value at December 31, 2008. The Company recognized an
impairment charge in December 2008, because the carrying amount of the finite lived intangible was determined
to not be recoverable. The carrying amount of the finite lived intangible assets was determined to not be
recoverable because the carrying amount exceeded the sum of the undiscounted cash flows expected to result
from its use and eventual disposition. The amount of the impairment charge was measured as the amount by
which the carrying amount exceeded its fair value. The fair value of these assets was derived using projected
revenues from existing customers and related attrition rates using the guidance under FASB ASC Topic 360-10
Property, Plant, and Equipment, separately from a discounted cash flow model used for goodwill impairment.
The projected net cash flows attributed to existing customers were discounted using an estimated cost of capital
based on market participant assumptions. The impairment charge reflects lower projected revenues and earnings
in future years from existing customers. Deep recessionary conditions in the U.S. caused the demand for airlift
from ATI and CCIA’s major customer to decline. Additionally, ATI experienced reductions in flying for the U.S.
military.

CAM Segment

Segment earnings for CAM were $18.1 million for 2008 and reflect an allocation of interest expense based
on prevailing interest rates and the carrying value of its operating assets. CAM’s 2008 revenues included $44.8
million for the leasing of aircraft to ATI, CCIA and ABX. At December 31, 2008, CAM had 34 aircraft that were
under lease to subsidiaries of the Company, including two idle aircraft. During 2008, CAM began leasing two
Boeing 767 aircraft to an external customer under a long-term lease. CAM had two Boeing 767 aircraft and one
Boeing 757 aircraft that were undergoing freighter modification as of December 31, 2008.

31

Other Activities

Revenues from Other activities increased $10.6 million to $48.7 million in 2008 compared 2007. Increased
revenues were primarily a result of an increase in aircraft parts sales and maintenance services when compared to
2007. Of this increase, $10.0 million was for the inter-company aircraft part sales and maintenance services
within the ATSG companies. Internal sales and earnings were eliminated from the consolidated results.

Pre-tax earnings from other activities were $7.1 million in 2008 compared to $5.9 million in 2007. Pre-tax
earnings in 2008 included a net gain of approximately $5.8 million related to the disposition of an ABX Boeing
767 aircraft that experienced a fire prior to engine start. The aircraft was fully insured and the Company’s insurer
rendered the aircraft a complete loss. This gain was offset in 2008 by expenses resulting from an arbitration
matter with DHL. In accordance with the arbitrator’s ruling, ABX recorded a $2.5 million non-reimbursable
expense in 2008 for professional fees stemming from ASTAR Air Cargo’s (“ASTAR”) 2007 indication of
interest and issued a corresponding expense credit to DHL. Additionally, ABX and DHL agreed to an overhead
allocation of $3.2 million for 2008, thus reducing revenue from DHL and increasing non-DHL expenses
accordingly.

Discontinued Operations

Our pre-tax earnings from discontinued DHL operations increased by $3.2 million for 2008 compared to
2007. Our pre-tax earnings from the discontinued DHL operations for 2008 included $2.4 million for the
reimbursement of employee vacation benefits that ABX paid to terminated employees under the S&R agreement.
Incremental and base mark-ups for the Hub services agreement in 2008 were $8.3 million compared to $7.7
million in 2007.

CHI

The holding company, ATSG, acquired all outstanding ownership of Orlando, Florida based Cargo Holdings
International, Inc. (“CHI”) on December 31, 2007. CHI was the parent company of CCIA, ATI and CAM. The
consolidated financial statements of ATSG include the results of CHI and its primary subsidiaries, including
CAM, CCIA, and ATI, as of the date of acquisition. Accordingly, the activities of CHI are not included in
ATSG’s consolidated statements of earnings or consolidated statements of cash flows for 2007.

The acquisition of CHI had a significant impact on the Company’s financial results. Unaudited pro forma
combined financial information for 2007 is presented in Note E of the accompanying consolidated financial
statements. The unaudited pro forma information is not necessarily indicative of what the Company’s results of
operations actually would have been had the acquisition been completed by the earlier dates indicated. In
addition, the unaudited pro forma financial information does not purport to project the future financial position or
operating results of the combined company. The unaudited pro forma financial information was prepared using
the purchase method of accounting with ATSG as the acquirer. Accordingly, the historical consolidated financial
information has been adjusted to give effect to the impact of the consideration issued in connection with the
acquisition. More detailed unaudited pro forma results and the basis of adjustments are included in ATSG’s 8-K/
A submitted for filing with the Securities and Exchange Commission on March 14, 2008.

The purchase price for all of CHI’s equity securities was approximately $259 million, consisting of
approximately $215 million in cash from the Company, $18 million in cash from CHI and the value of four
million common shares of the Company, valued at $25 million, which were issued to certain shareholders. The
Company also repaid $101 million of CHI’s existing indebtedness under its senior credit facility and acquired
approximately $20 million in CHI cash. The overall transaction value was approximately $340 million. The
Company obtained $270 million of these funds from a new unsubordinated term loan. The acquisition of CHI
and its wholly owned subsidiaries results in a number of strategic benefits, including improved economies from a
larger base of operations and expanded market leadership in Boeing 767 freighter services.

32

Operating Expenses

Our expenses were driven by operational variables, including the number of aircraft hours flown and the
volume and size of packages handled for DHL. Pounds processed reflect the weight of a package at multiple
times as it moves through the network.

Year Ended December 31,

Percentage

2008

2007

Increase (Decrease)

Pounds processed for DHL (in millions) . . . . . . . . . . . . . . . . . . . . . . .
DHL agreement aircraft block hours flown . . . . . . . . . . . . . . . . . . . . .
ACMI Services aircraft block hours flown . . . . . . . . . . . . . . . . . . . . . .

2,054
86,480
55,616

2,686
94,098
14,414

(24%)
(8%)
286%

Aircraft block hours flown for the DHL ACMI agreement declined 8% in 2008 compared to 2007, due to
the removal of DC-9 aircraft starting in June 2008 and the removal of seven aircraft from service in 2007.
Aircraft block hours flown by the ACMI segment increased in 2008 compared to 2007, reflecting the acquisition
of CCIA and ATI on December 31, 2007 and the deployment of four Boeing 767 aircraft by ABX since
mid-2007.

Salaries, wages and benefits expense increased by $66.4 million during 2008 compared to 2007. The
expense included $47.2 million for CHI salaries, wages and benefits during 2008. The increase reflects $20.3
million for employee retention benefits incurred as a result of the DHL restructuring. In 2008, the pension
expense includes a net charge of $5.5 million additional pension expense related to employee terminations in
conjunction with the DHL restructuring. During 2008, ABX base salaries and wages began to decline as DHL’s
restructuring led to a reduction in personnel.

Fuel expense increased by $176.4 million in 2008 compared to 2007. CHI accounted for $173.2 million of
the fuel increase. In addition to fuel for the CHI operations, the average price of aviation fuel increased
significantly in 2008 compared to 2007. The average price of a gallon of aviation fuel increased 46% in 2008
compared to 2007.

Maintenance, materials and repairs increased $12.3 million during 2008 compared to 2007. The acquisition
of CHI accounted for $15.8 million of the increase during the year ended December 31, 2008. ABX’s
maintenance expenses declined due to reductions in its aircraft fleet.

Depreciation and amortization expense increased by $42.1 million during the year ended December 31,
2008 compared to 2007. The acquisition of CHI accounted for $37.7 million of the depreciation and amortization
expense in 2008. The increase also reflects the addition of four Boeing 767-200 aircraft that ABX placed in
service since mid-2007.

Landing and ramp expense, which includes the cost of deicing chemicals, increased by $10.6 million during
the year ended December 31, 2008 compared to 2007. The acquisition of CHI accounted for $10.7 million of the
increase in 2008.

Travel expense increased by $8.8 million during the year ended December 31, 2008 compared to 2007. The
CHI operations accounted for $11.8 million of the increase in 2008. ABX’s travel expenses declined in 2008
compared to 2007 when ABX was rotating crews to Japan. In 2008, ABX established a domicile in Japan, thus
reducing crew travel expense.

Insurance expense increased by $5.5 million during the year ended December 31, 2008 compared to 2007.
The CHI operations accounted for nearly all of the increase in 2008 with $5.1 million of insurance expenses
during the year.

33

Other operating expenses include professional fees, navigational services, employee training, utilities, the
costs of parts sold to non-DHL customers, supplies and gains and losses from the disposition of aircraft. Other
operating expenses increased by $8.5 million, including a $5.8 million gain on an aircraft disposition due to a
fire. The increase for 2008 included a $3.2 million charge associated with the ASTAR indication of interest and
$6.9 million for the inclusion of the CHI operations.

Interest Income and Expense

Interest expense increased by $22.9 million for the year ended December 31, 2008 compared to 2007.
Interest expense increased by approximately $17.3 million for the unsubordinated term loan used to finance the
Company’s purchase of CHI. During 2008, the Company had at times drawn from the revolving credit facility.
Interest expense for 2008 includes interest for draws from the revolving credit facility and reflects an expense for
a whole year of borrowings under four aircraft term loans executed in 2007.

Interest income decreased by $2.2 million for the year ended December 31, 2008 compared to 2007 due to

lower invested balances and short-term interest rates on our cash, cash equivalents and marketable securities.

Income Tax

Income tax expense for continuing operations was $6.2 and $10.9 million for 2008 and 2007, respectively.
The 2008 impairment charge to goodwill and intangibles is not deductible for income tax purposes. The
Company’s effective tax rate for continuing operations in 2008 was approximately 38% of pre-tax earnings after
adjusting for approximately $73.2 million of non-deductible impairment charges, compared to an effective tax
rate of 42% in 2007. Certain discrete items reduced the overall effective tax rate in 2008 compared to 2007. Due
to the completion of an IRS examination by the Company, the Company recorded a $1.3 million reduction to its
liabilities of uncertain tax positions in 2008. This decrease in the liability is reflected on the financial statements
as an increase to the net operating loss carryforwards, deferred tax assets and a deferred tax benefit. During 2008,
the Company placed a tax-effected valuation allowance against state deferred tax assets of $0.6 million because
the reduced flying from DHL’s restructuring limited our ability to utilize them.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

During 2009, the Company’s debt obligations declined $135.1 million to $377.4 million as of December 31,
2009. The decline included principal payments of $43.1 million paid by the Company. Additionally, the
Company negotiated an amendment with DHL regarding the unsecured DHL promissory note. DHL agreed to
extinguish $46.3 million of principal balance and the Company agreed to pay DHL $15.0 million of the principal
balance, which we will pay when the sale of the aircraft put to DHL is completed in May 2010. Further, DHL
assumed all of ABX’s financial obligations for five Boeing 767 aircraft under capital leases, retroactive to
January 31, 2009, totaling $45.7 million. In return, ABX granted DHL a credit of $10.0 million as prepaid rent
toward the lease of four other aircraft. The $10.0 million credit is reflected in unearned revenue on the
Company’s balance sheet. Additionally, during 2009, the Company’s combined liability for the underfunded
status of the pension plans declined by $147.6 million. This improvement reflects cash contributions made by the
Company into the pension master trusts, improved investment returns during 2009 and the curtailment of
previously projected benefit liabilities due to the reduction in the number of employees and the freezing of
employee pension plan benefits.

Operating Cash flows

Net cash generated from operating activities were $103.0 million, $161.7 million and $95.5 million for
2009, 2008 and 2007, respectively. Reduced operating cash flows in 2009 compared to 2008 reflect additional
pension payments of $43.5 million in 2009 compared to 2008. The decrease in operating cash flows in 2009 from
2008 was driven by the pay-off of vendor payables and payments for employee wages, severance and benefits.
As ABX’s operations for DHL were scaled back, cash in-flows from the operations declined while vendors and
former employees were paid.

34

All of the cash generated from the discontinued operations was classified as operating cash flows because
there were no assets or debts related to discontinued operations that generated investing or financing cash flows.
Net operating cash used in discontinued operations was $13.1 million in 2009 primarily due to payments of
severance and employee benefits in advance of DHL’s reimbursement to ABX. Net operating cash generated
from discontinued operations was $18.7 million in 2008 primarily reflecting advances from DHL for aircraft fuel
costs.

Capital Expenditures

Cash payments for capital expenditures were $101.2 million in 2009 compared to $111.9 million and $160.2
million in 2008 and 2007, respectively. Capital spending levels were primarily a result of aircraft acquisitions
and related freighter modification costs. Capital expenditures in 2009 included cargo modification costs for ten
aircraft. One Boeing 767 extended range freighter was purchased in the fourth quarter of 2009, completing a
purchase commitment made in 2007 when the Company acquired CHI. Our capital expenditures for 2009
included $69.6 million for aircraft acquisition and modifications, $25.6 million for required heavy maintenance
and $6.0 million for other equipment costs. Our capital expenditures for 2008 and 2007 included the cargo
modification costs for nine and eleven aircraft, respectively. During 2009, we completed five cargo modifications
compared to six and seven completed cargo modifications in 2008 and 2007, respectively.

Proceeds from the disposal of equipment included $30.3 million in 2008 from insurance proceeds for an
aircraft. During 2008, the aircraft experienced a fire prior to engine start and was rendered a complete loss by the
Company’s insurer.

Financing Activities

Net cash used in financing activities were $43.1 million and $79.8 million in 2009 and 2008, respectively,
while $356.4 million of net cash was generated from financing activities in 2007. During 2009, the Company did
not draw on the revolver loan and made principal payments of $43.1 million. During 2008, the principal
payments of $116.8 million included $47.5 million paid by a subsidiary of the Company to the lead banks of the
Credit Agreement to invest in the Company’s unsubordinated term loan. This intercompany loan is eliminated in
consolidation. During 2008, debt origination costs were $1.5 million. During 2007, the Company raised $378.8
million to finance five Boeing aircraft and the acquisition of CHI.

Commitments

The table below summarizes the Company’s contractual obligations and commercial commitments (in

thousands) as of December 31, 2009.

Contractual Obligations

Long-term debt, including interest payments . . . . . . . . .
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unconditional purchase obligations . . . . . . . . . . . . . . . .
Employee severance and retention benefits . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .

Payments Due By Period

Total

$448,353
13,767
13,236
16,636
18,959
1,746

Less Than
1 Year

$ 60,760
7,432
6,345
16,636
18,959
1,746

2-3
Years

4-5
Years

After 5
Years

$241,098
6,335
4,438
—
—
—

$31,923
—
2,441
—
—

$114,572
—
12
—
—

Total contractual cash obligations . . . . . . . . . . . . . . . . .

$512,697

$111,878

$251,871

$34,364

$114,584

The long-term debt bears interest at 2.87% to 7.36% per annum.

35

The Company’s balance sheet as of December 31, 2009 reflects $15.0 million as a current liability payable
to DHL related to the DHL promissory note. As amended on May 8, 2009, the Company agreed to pay DHL
$15.0 million of the principal balance of the DHL promissory note, while DHL agreed to extinguish an additional
$46.3 million of its principal balance. We expect to pay the $15 million from the proceeds of aircraft puts the
Company has billed to DHL, when the sale of the aircraft to DHL is completed (see Note B to the accompanying
financial statements). The due date for the remaining $31.0 million remains unchanged, August 2028. Until that
time, the promissory note continues to bear interest at a rate of 5% per annum, and DHL will continue to
reimburse ABX the interest expense from the note at least through 2012.

Unconditional purchase obligations of $16.6 million as of December 31, 2009 reflects the estimated
remaining cost to complete the modification of four aircraft that were undergoing freighter conversion at year
end 2009. If CAM were to cancel the conversion program as of December 31, 2009, it would owe the vendor,
IAI, in addition to payments for aircraft currently undergoing modification, approximately $0.7 million for
non-recurring engineering costs and approximately $7.5 million associated with additional conversion part kits
which have been ordered.

Employee severance and retention benefits reflect amounts payable under the S&R agreement with DHL.
ABX provides employee severance benefits, retention payments and vacation payouts to ABX employees that are
affected by DHL’s restructuring plans. DHL is contractually obligated to reimburse ABX after ABX makes the
related benefit payments.

The table includes the contingent liability of $1.7 million, as interpreted by FASB ASC Topic 740-10
Income Taxes, formerly FASB Interpretation No. 48, Accounting for Income Taxes. At December 31, 2009, the
total amount of unrecognized tax benefits of $4.2 million includes $1.7 million recorded as a non-current liability
that would be paid from cash and a $2.5 million reduction to the net operating loss deferred tax asset. The
amount of the liability and the timing of its recognition are subject to significant uncertainty and are contingent
on the occurrence of future events, such as audits and examinations by various income tax authorities.

The Company provides defined benefit pension plans to certain employee groups. The table above does not
include cash contributions for pension funding due to the absence of scheduled maturities. The timing of pension
and post-retirement healthcare payments cannot be reasonably determined, except for $40.1 million scheduled to
be paid in 2010, including $25.0 million that ABX agreed to contribute to the pilots plan if a follow-on CMI
agreement was reached with DHL. We will periodically evaluate whether to make additional contributions.

Provisions of the Company’s Credit Agreement requires that cash proceeds from the sale of equipment and
recoveries from insurance proceeds must be reinvested in like-kind assets within 180 days of receipt or remitted
as a repayment against the term loan. Aggregate proceeds exceeding $75.0 million in a calendar year must be
remitted as a repayment against the term loan, except that the Company is not required to remit proceeds from
the put of aircraft to DHL toward the term loan. At this time, we do not anticipate a required repayment of the
term loan with proceeds from the sale of equipment or insurance recoveries.

Liquidity

At December 31, 2009, the Company had approximately $83.2 million of cash balances. The Company had
$41.9 million of unused credit facility, net of outstanding letters of credit of $14.6 million, through a syndicated
Credit Agreement that expires in December 2012. As of December 31, 2009, DHL owed the Company $62.7
million. Additionally, ABX has $29.7 million of aircraft
that are in the process of being sold to DHL.
Conversely, the Company has significant liabilities and commitments stemming from the wind-down of DHL’s
operations including employee severance, retention and benefits. Based on the newly executed follow–on
agreements with DHL, the Company is scheduled to be fully paid for the aircraft in May 2010.

36

Credit Agreement

Through its Credit Agreement, the Company has a syndicated, unsubordinated term loan and a revolving
credit facility that are collateralized by substantially all the aircraft, property and equipment owned by the
Company that are not separately collateralized under aircraft loans or capital leases. The lenders currently consist
of 15 U.S.-based banks. Under the Credit Agreement, the Company is subject to expenses, covenants and
warranties that are usual and customary. The Credit Agreement contains covenants including, among other
things, limitations on certain additional indebtedness, guarantees of indebtedness, and the level of annual capital
expenditures. The Credit Agreement stipulates events of default including unspecified events that may have a
material adverse effect on the Company. The conditions of the Credit Agreement and the aircraft loans cross-
default. If a lender within the Credit Agreement declares a material adverse event (“MAE”), availability under
the revolving credit facility will be reduced by that lender’s portion of the facility. Further, the Credit Agreement
provides that if lenders having more than half of the outstanding dollar amount of the commitments assert that an
MAE exists at the time the Company attempts to borrow under the Credit Facility, they can assert that an event
of default exists under the Credit Agreement and require the lead bank to exercise its remedies. If an event of
default occurs, the Company may be forced to repay, renegotiate or replace the Credit Agreement. Considering
the current tight credit markets, the interest rates and other costs of a renegotiated or new facility, assuming the
Company could obtain a new facility, would be more expensive and may require more rapid amortization of
principal than under the terms of the current Credit Agreement. The Company is in compliance with all financial
covenants specified in the Credit Agreement.

Outlook

Through CAM, we have contracted with an aircraft maintenance and modification provider, IAI, to convert
some of ABX’s Boeing 767 aircraft from passenger door loading systems to standard freighter configuration.
CAM has the right to convert up to eight more Boeing 767 aircraft at IAI through 2011. We currently plan to
modify all of these aircraft as well as complete four aircraft that were in the modification process as of
December 31, 2009. We plan to finance the cost of modifying aircraft with existing cash, cash generated from
aircraft sold to DHL under existing put options, and cash generated from operations during the modification
period. We estimate the total level of capital spending for 2010 will be approximately $102 million.

The Company provides defined benefit pension plans to certain employee groups (see Note K to the
accompanying financial statements). Scheduled cash contributions to the defined benefit pension plans are
currently estimated to be at least $40.1 million in 2010. We will periodically evaluate whether to make additional
contributions.

Management currently believes that the Company has adequate sources of liquidity in place to operate its
businesses, make planned capital expenditures, meet
its anticipated financial obligations and remain in
compliance with its financial covenants during 2010. These sources of liquidity include its internally generated
cash flows, funds from the sale of aircraft to DHL and the availability of credit under the Company’s Credit
Agreement. There are circumstances beyond the Company’s control that could adversely impact liquidity in the
near term, such as 1) weakening demand for Boeing 767 aircraft, 2) the failure to recover wind-down and
termination costs from of DHL, or 3) a decision by the Company’s lenders to declare an event of default under
the Credit Agreement.

If management should conclude that the Company has insufficient liquidity to fund its operations, it would
carefully evaluate a number of alternatives including the sale of assets, the suspension of planned capital
expenditures, further cost reductions in its operations and the securing of additional financing.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with
unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special

37

purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet
arrangements or other contractually narrow or limited purposes. As of December 31, 2009, we are not involved
in any material unconsolidated SPE transactions.

Certain of our operating leases and agreements contain indemnification obligations to the lessor or one or
more other parties that are considered ordinary and customary (e.g. use, tax and environmental indemnifications),
the terms of which range in duration and are often limited. Such indemnification obligations may continue after
the expiration of the respective lease or agreement. No amounts have been recognized in our financial statements
for the underlying fair value of guarantees and indemnifications.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as
certain disclosures included elsewhere in this report, are based upon our consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to select appropriate accounting policies and make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingencies. In certain cases, there are alternative policies or estimation techniques which could
be selected. On an ongoing basis, we evaluate our selection of policies and the estimation techniques we use,
including those related to revenue recognition, post-retirement liabilities, bad debts, self-insurance reserves,
accruals for labor contract settlements, valuation of spare parts inventory, useful lives, salvage values and
impairment of property and equipment, income taxes, contingencies and litigation. We base our estimates on
historical experience, current conditions and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our
accounting treatment with respect to commitments and contingencies. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following significant and critical accounting
policies involve the more significant judgments and estimates used in preparing the consolidated financial
statements.

Revenue Recognition

Revenues from DHL were determined based on expenses incurred during a period under the two
commercial agreements with DHL and are recognized when the related services were performed. Except for the
amendments described below, expenses incurred under these agreements were generally subject to a base
mark-up of 1.75%, which was recognized in the period the expenses were incurred. Certain costs, the most
significant of which include interest on the promissory note due to DHL, rent, ramp and landing fees, incurred
under the two commercial agreements were reimbursed and included in revenues without mark-up.

Both agreements also allowed the Company to earn incremental mark-up above the base 1.75% mark-up (up
to 1.60% under the DHL ACMI agreement, and 2.10% under the Hub Services agreement) as determined from
the achievement of certain cost-related and service goals outlined in the two commercial agreements. The
agreements stipulated the setting of quarterly and annual cost-related goals and annual service goals expressly
specified in each of the two agreements. The Company measured quarterly goals and records incremental
revenues in the quarter in which earned. Historically, at the end of each fiscal year, the Company measured the
achievement of annual goals and recorded any incremental revenues earned by achieving the annual goals during
the fourth quarter.

ABX and DHL amended the DHL ACMI agreement and the Hub Services agreement to set the base
mark-up and incremental mark-up to specific amounts for the fourth quarter of 2008 and for each quarter of
2009. Under these revenue amendments, annual goals were not set for 2009, nor was a quarterly cost goal.
Instead, the agreed revenue for each of the four quarters of 2009 included amounts to replace the incremental

38

revenues. In 2008, ABX and DHL executed a severance and retention agreement (“S&R agreement”) which
specifies employee severance, retention and other benefits that DHL reimburses ABX for payment to its
employees that are displaced in conjunction with DHL’s U.S. restructuring plan. The Company’s revenues for
2009 includes reimbursement for certain expenses incurred under the commercial agreements, the incremental
revenues set by the revenue amendments and reimbursement for employee severance, retention and other benefit
costs incurred during the year.

ACMI revenues from customers other than DHL are typically recognized based on hours flown or the
amount of aircraft and crew resources provided during a reporting period. Charter service revenues are
recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft parts
and fuel sales are recognized when the parts and fuel are delivered. Revenues earned and expenses incurred in
providing aircraft-related maintenance, repair or technical services are recognized in the period in which the
services are completed and delivered to the customer. Revenues derived from transporting freight and sorting
parcels are recognized upon delivery of shipments and completion of service.

Lease revenues from aircraft leases are recognized as operating lease revenue on a straight-line basis over

the term of the applicable lease agreements.

Goodwill and Intangible Assets

In accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”) Topic 350-20 Intangibles—Goodwill and Other, we assess in the fourth quarter of each year whether the
Company’s goodwill acquired in acquisitions is impaired. Additional assessments may be performed on an
interim basis whenever events or changes in circumstances indicate an impairment may have occurred.
Indefinite-lived intangible assets are not amortized but are assessed for impairment annually, or more frequently
if impairment indicators occur. Finite-lived intangible assets are amortized over their estimated useful economic
lives and are periodically reviewed for impairment.

Application of the goodwill impairment test requires significant judgment, including the determination of
the fair value of each reporting unit that has goodwill. The Company has two reporting units, ATI, and CAM that
have goodwill. We estimate the fair value of ATI separately using a market approach and an income approach
utilizing discounted cash flows applied to a market-derived rate of return. We estimate the fair value of CAM
using only the income approach due to lack of appropriate market comparables. The market approach utilizes
market multiples from comparable publicly traded companies. The market multiples include revenues, EBIT
(earnings before interest and taxes) and EBITDA (earnings before interest, taxes, depreciation and amortization).
We derive cash flow assumptions from many factors including recent market trends, expected revenues, cost
structure, aircraft maintenance schedules and long-term strategic plans for the deployment of aircraft. Key
assumptions under the discounted cash flow models included projections for the number of aircraft in service,
capital expenditures, long-term growth rates, operating cash flows and market-derived discount rates.

The first step of the goodwill impairment test requires a comparison of the fair value of the reporting unit to
its respective carrying value. If the carrying value of a reporting unit is less than its fair value, no indication of
impairment exists and a second step is not performed. If the carrying amount of a reporting unit is higher than its
fair value, there is an indication that an impairment may exist and a second step is performed. In the second step,
fair values are assigned to all of the assets and liabilities of a reporting unit, including any unrecognized
intangible assets, and the implied fair value of goodwill is calculated. If the implied fair value of goodwill is less
than the recorded goodwill, an impairment loss is recorded for the difference and charged to operations.

We have used the assistance of an independent business valuation firm in estimating an expected market
rate of return, and in the development of a market approach for ATI using multiples of EBITDA, EBIT and
revenues from comparable publicly traded companies. Based on our analysis, as of December 31, 2009, CAM
and ATI’s fair values each exceeded their carrying values by 16%.

39

The Company’s key assumptions used for goodwill testing include uncertainties. Those uncertainties
include the level of demand for cargo aircraft by shippers, the U.S. military and freight forwarders and CAM’s
ability to lease aircraft near expected modification completion dates. We anticipate, as of December 31, 2009,
that CAM will successfully modify at least twelve Boeing 767 aircraft into standard freighter configuration over
the next two years (this is in addition to five aircraft modifications during 2009) and deploy them with DHL and
other customers under long-term lease agreements. We expect that ATI will continue to operate for its major
customer and for the U.S. military. The demand for customer airlift is projected based on inputs from customers,
the volume of bids requested by the U.S. military, management’s interface with customer planning personnel and
aircraft utilization trends. Certain events or changes in circumstances could negatively impact our key
assumptions. Customer preferences for cargo aircraft may be impacted by changes in aviation fuel prices. DHL
and other customers may decide that they do not need as many aircraft as projected, or they may find alternative
airlift.

The Company’s finite lived intangible assets are for customer relationships acquired with ATI. These assets
are amortized over their estimated useful economic lives and reviewed for impairment whenever events or
changes in circumstances indicate that carrying amounts may not be recoverable. The fair value of this asset was
derived using projected revenues from existing customers and related attrition rates using the guidance under
FASB ASC Topic 360-10 Property, Plant and Equipment separately from a discounted cash flow model used for
goodwill impairment. The projected net cash flows attributed to existing customers were discounted using an
estimated cost of capital, based on market participant assumptions.

Depreciation

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s
useful life or lease term. We periodically evaluate the estimated service lives and residual values used to
depreciate our property and equipment. The acceleration of depreciation expense or the recording of significant
impairment losses could result from changes in the estimated useful lives of our assets. We may change the
estimated useful lives due to a number of reasons, such as the existence of excess capacity in our air system or
ground networks, or changes in regulations grounding or limiting the use of aircraft.

Self-Insurance

We self-insure certain claims relating to workers’ compensation, aircraft, automobile, general liability and
employee healthcare. We record a liability for reported claims and an estimate for incurred claims that have not
yet been reported. Accruals for these claims are estimated utilizing historical paid claims data, recent claims
trends and, in the case of employee healthcare and workers’ compensation, an independent actuarial evaluation.
Changes in claim severity and frequency could result in actual claims being materially different than the costs
provided for in our results of operations. We maintain excess claim coverage with common insurance carriers to
mitigate our exposure to large claim losses.

Contingencies

We are involved in legal matters that have a degree of uncertainty associated with them. We continually
assess the likely outcomes of these matters and the adequacy of amounts, if any, provided for these matters.
There can be no assurance that the ultimate outcome of these matters will not differ materially from our
assessment of them. There also can be no assurance that we know all matters that may be brought against us at
any point in time.

Income Taxes

We account for income taxes under the provisions of FASB ASC Topic 740-10 Income Taxes. The
objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the
current year and deferred tax liabilities and assets for the future tax consequences of events that have been

40

recognized in the Company’s financial statements or tax returns. Judgment is required in assessing the future tax
consequences of events that have been recognized in the Company’s financial statements or tax returns.
Fluctuations in the actual outcome of expected future tax consequences could materially impact the Company’s
financial position or its results of operations.

The Company has significant deferred tax assets including net operating loss carryforwards (“NOL CFs”)
for federal income tax purposes which begin to expire in 2023. Based upon projections of taxable income, we
determined that it was more likely than not that all the net deferred tax assets, related to federal income taxes,
including the NOL CF’s will be realized prior to their expiration. Accordingly, we do not have an allowance
against these deferred tax assets at this time. During 2008, we placed a valuation allowance against state deferred
tax assets because the reduced flying from DHL’s restructuring limited our ability to utilize them.

We recognize the impact of a tax position, if that position is more likely than not of being sustained on

audit, based on the technical merits of the position.

Post-retirement Obligations

The Company sponsors qualified defined benefit pension plans for ABX’s flight crewmembers and other
eligible employees. The Company also sponsors non-qualified, unfunded excess plans that provide benefits to
executive management and crewmembers that are in addition to amounts permitted to be paid through our
qualified plans under provisions of the tax laws. By December 31, 2009, we had amended each defined benefit
plan to freeze the accrual of additional benefits and we had provided notification to the affected employees. The
Company also sponsors unfunded post-retirement healthcare plans for ABX’s flight crewmembers and non-flight
crewmember employees.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting
and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate
assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid.
The long-term nature of these benefit payouts increases the sensitivity of certain estimates on our post-retirement
costs. In actuarially valuing our pension obligations and determining related expense amounts, assumptions we
consider most sensitive are discount rates, expected long-term investment returns on plan assets and future salary
increases. Other assumptions concerning retirement ages, mortality and employee turnover also affect the
valuations. For our post-retirement healthcare plans, consideration of future medical cost trend rates is an
important assumption in valuing these obligations. Actual results and future changes in these assumptions could
result in future costs that are materially different than those recorded in our annual results of operations.

Our actuarial valuation includes an assumed long-term rate of return on pension plan assets of 7.0%. Our
assumed rate of return is based on a targeted long-term investment allocation of 50% equity securities, 45% fixed
income securities and 5% real estate. The actual asset allocation at December 31, 2009 was 48.1% equities,
42.0% fixed income, 2.2% real estate and 7.7% cash. The Company’s pension investments include $34.3 million
(7% of the Company’s assets) whose fair values have been estimated in the absence of readily determinable fair
values. Such investments include private equity, multi-fund investments and real estate funds. Management’s
estimates are based on information provided by the fund managers or general partners of those funds.

In evaluating our assumption regarding expected long-term investment returns on plan assets, we consider a
number of factors including: our historical plan returns in connection with our asset allocation policies, assistance
from investment consultants hired to provide oversight over our actively managed investment portfolio and long-
term inflation assumptions. The selection of the expected return rate materially affects our pension costs. We
reduced our expected long-term rate of return from 7.5% to 7.0% after analyzing current expected returns on
investment vehicles. If we were to lower our long-term rate of return assumption by a hypothetical 100 basis
points, expense in 2009 would be increased by approximately $5.1 million. We use a market value of assets as of
the measurement date for determining pension expense.

41

In selecting the interest rate to discount estimated future benefit payments that have been earned to date to
their net present value (defined as the projected benefit obligation), we match the plan’s benefit payment streams
to high-quality bonds of similar maturities. The selection of the discount rate not only affects the reported funded
status information as of December 31 (as shown in Note K to the accompanying financial statements) but also
affects the succeeding year’s pension and post-retirement healthcare costs. The discount rates selected for
December 31, 2009, based on the method described above, was 6.00% for three plans and 5.85% for two plans. If
we were to lower our discount rates by a hypothetical 50 basis points, pension expense in 2009 would be
increased by approximately $2.9 million.

The assumed future increase in salaries and wages is no longer a significant estimate in determining pension
costs because each defined benefit pension plan was frozen during 2009 with respect to additional benefit
accruals.

The following table illustrates the sensitivity of the aforementioned assumptions on our pension expense (in

thousands):

Change in assumption

100 basis point decrease in rate of return . . . . . . . . . . . . . . . . .
50 basis point decrease in discount rate . . . . . . . . . . . . . . . . . .
Aggregate effect of all the above changes . . . . . . . . . . . . . . . .

Discontinued Operations

Effect of change

December 31, 2009

2009
Pension
expense

$5,086
2,883
7,969

Funded
status

$ —
(47,586)
(47,586)

Accumulated
other
comprehensive
income (pre-tax)

$ —
47,586
47,586

In accordance with the guidance of FASB ASC Topic 205-20 Presentation of Financial Statements, a
business component whose operations are discontinued is reported as discontinued operations if the cash flows of
the component have been eliminated from the ongoing operations of the Company and the Company will no
longer have any significant continuing involvement in the business component. The results of discontinued
operations are aggregated and presented separately in the consolidated statement of operations. FASB ASC Topic
205-20 requires the reclassification of amounts presented for prior years to reflect their classification as
discontinued operations.

Exit Activities

We account for the costs associated with exit activities in accordance with FASB ASC Topic 420-10 Exit or
Disposal Cost Obligations. One-time, involuntary employee termination benefits are generally expensed when
the Company communicates the benefit arrangement to the employee that it will no longer require the services of
the employee beyond a minimum retention period. Liabilities for contract termination costs associated with exit
activities are recognized in the period incurred and measured initially at fair value. Pension obligations are
accounted for in accordance with FASB ASC Topic 715-30 Compensation—Retirement Benefits in the event that
the expected working life of employees is significantly reduced due to terminations or a pension plan is
suspended.

NEW ACCOUNTING PRONOUNCEMENTS

In October 2009, the FASB issued an Accounting Standards Update (ASU No. 2009-13) pertaining to
multiple-deliverable revenue arrangements. The new guidance will affect accounting and reporting for
companies that enter
into multiple-deliverable revenue arrangements with their customers when those
arrangements are within the scope of ASC 605-25 Revenue Recognition—Multiple-Element Arrangements. The
new guidance will eliminate the residual method of allocation and require that arrangement consideration be

42

allocated at the inception of the arrangement to all deliverables using the relative selling price method. The new
guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted and the guidance may be applied
retroactively. We are currently evaluating the impact that ASU No. 2009-13 will have on our consolidated
financial position, results of operations, and cash flows.

In December 2009,

the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities, which incorporates into the FASB Codification amendments
to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, made by Statement of Financial
Accounting Standard No. 167, Accounting for Variable Interest Entities, to require that a comprehensive
qualitative analysis be performed to determine whether a holder of variable interests in a variable interest entity
also has a controlling financial interest in that entity. In addition, the amendments require that the same type of
analysis be applied to entities that were previously designated as qualified special-purpose entities. The
amendments are effective as of the start of the first annual reporting period beginning after November 15, 2009,
for interim periods within the first annual reporting period, and for all subsequent annual and interim reporting
periods. We do not expect the adoption of ASU No. 2009-17 to have a material impact on our consolidated
financial position, results of operations, and cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company faces financial exposure to changes in interest rates. As of December 31, 2009, we have
$158.7 million of fixed interest rate debt and $218.7 million of variable interest rate debt outstanding. Variable
interest rate debt exposes us to differences in future cash flows resulting from changes in market interest rates.
Variable interest rate risk can be quantified by estimating the change in annual cash flows resulting from a
hypothetical 20% increase in interest rates. A hypothetical 20% increase or decrease in interest rates would have
resulted in a change in interest expense of approximately $1.9 million for the year ended December 31, 2009.

The debt issued at fixed interest rates is exposed to fluctuations in fair value resulting from changes in
market interest rates. Fixed interest rate risk can be quantified by estimating the increase in fair value of our long-
term debt through a hypothetical 20% increase in interest rates. As of December 31, 2009, a 20% increase in
interest rates would have decreased the fair value of our fixed interest rate debt by approximately $10.6 million.

To reduce the effects of fluctuating LIBOR-based interest rates on interest payments that stem from its
variable rate outstanding debt, the Company entered into interest rate swaps in January 2008. Under the interest
rate swap agreements, the Company will pay a fixed rate of 3.105% and receive a floating rate that resets
quarterly based on LIBOR. For the outstanding notional value, the Company expects that the amounts received
from the floating leg of the interest rate swap will offset fluctuating payments for interest expense because
interest rates for its outstanding debt and the interest rate swap are both based on LIBOR and reset quarterly. The
notional values were $121.5 million as of December 31, 2009. See Note M in the accompanying financial
statements for discussion of our accounting treatment for these hedging transactions.

We are exposed to concentration of credit risk primarily through cash deposits, cash equivalents, marketable
securities and derivatives. As part of our risk management process, we monitor and evaluate the credit standing
of the financial institutions with which we do business. The financial institutions with which we do business are
generally highly rated. We are exposed to counterparty risk, which is the loss we could incur if a counterparty to
a derivative contract defaulted.

At December 31, 2009, the ABX defined benefit pension plan had total investment assets of $509.7 million
under investment management. See Note K in the accompanying financial statements for further discussion of
these assets.

In the ordinary course of our business, we are exposed to market risk for changes in the price of jet and
diesel fuel; however, this risk is largely mitigated by reimbursement through the DHL ACMI agreement and
charter agreements with other customers.

43

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consolidated Statements of Stockholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Page

45
46
47
48
49
50

44

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Air Transport Services Group, Inc.
Wilmington, Ohio

We have audited the accompanying consolidated balance sheets of Air Transport Services Group, Inc. and
subsidiaries (the “Company”) as of December 31, 2009 and 2008, and the related consolidated statements of
operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31,
2009. Our audits also included the financial statement schedule listed in the Table of Contents at Item 15a(2).
These financial statements and financial statement schedule are the responsibility of
the Company’s
management. Our responsibility is to express an opinion on the financial statements and financial statement
schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2009 and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2009, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth therein.

As discussed in Note B to the consolidated financial statements, the Company’s two principal customers
account for substantially all of the Company’s revenue. The Company’s financial security is dependent on its
relationship with these customers.

As discussed in Note K to the consolidated financial statements, the defined benefit postretirement plan
assets include investments valued at $226,000,000 as of December 31, 2008, whose fair values have been
estimated by management in the absence of readily determinable fair values. Management’s estimates are based
on information provided by the fund managers or the general partners.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the Company’s internal control over financial reporting as of December 31, 2009, based on the
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated March 31, 2010 expressed an unqualified
opinion on the Company’s internal control over financial reporting.

DELOITTE & TOUCHE LLP

Dayton, Ohio
March 31, 2010

45

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

ASSETS
CURRENT ASSETS:

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Marketable securities—available-for-sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowance of $1,288 in 2009 and $469 in 2008 . . . . .
Due from DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid supplies and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft and engines held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill

December 31

2009

2008

83,229
—
25,036
62,672
5,226
7,093
31,597
30,634

245,487
636,089
21,307
—
10,113
89,777

$ 116,114
26
24,495
63,362
11,259
11,151
20,172
2,353

248,932
671,552
25,281
54,807
11,000
89,777

TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,002,773

$1,101,349

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued severance and retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note J)

STOCKHOLDERS’ EQUITY:

38,174
44,077
18,959
16,429
51,737
15,340

184,716
325,690
152,297
44,044
50,044

$

36,618
63,500
67,846
13,772
61,858
14,813

258,407
450,628
294,881
17,041
—

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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additional paid-in capital
Accumulated deficit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

634
502,822
(211,085)
(46,389)

632
460,155
(245,534)
(134,861)

TOTAL STOCKHOLDERS’ EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

245,982

80,392

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY . . . . . . . . . . . .

$1,002,773

$1,101,349

See notes to consolidated financial statements.

46

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
OPERATING EXPENSES

Salaries, wages and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fuel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Maintenance, materials and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Landing and ramp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Travel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent
Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of acquired intangibles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTEREST EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE

INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EARNINGS (LOSS) FROM CONTINUING OPERATIONS . . . . . . . . . . . . .
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAX . . . . .

Years Ended December 31

2009

2008

2007

$823,483

$941,686

$573,256

380,276
109,242
83,964
66,621
29,236
21,761
10,926
10,918
—
—
38,749

400,644
176,722
93,752
87,344
34,526
29,407
8,947
10,454
73,178
18,063
30,601

334,218
296
51,635
75,050
23,930
20,591
5,204
5,002
—
—
22,099

751,693
(26,881)
449

963,638
(37,002)
2,335

538,025
(14,067)
4,557

45,358
(17,156)

28,202
6,247

(56,619)
(6,229)

(62,848)
6,858

25,721
(10,898)

14,823
4,764

NET EARNINGS (LOSS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 34,449

$ (55,990) $ 19,587

EARNINGS (LOSS) PER SHARE—Basic

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.45

$

(1.01) $

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.10

0.11

NET EARNINGS (LOSS) PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.55

$

(0.90) $

EARNINGS (LOSS) PER SHARE—Diluted

Continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.44

$

(1.01) $

Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

0.10

0.11

NET EARNINGS (LOSS) PER SHARE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

0.54

$

(0.90) $

0.26

0.08

0.34

0.25

0.08

0.33

WEIGHTED AVERAGE SHARES

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,674

62,484

58,296

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63,279

62,484

58,649

See notes to consolidated financial statements.

47

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Years Ended December 31

2009

2008

2007

OPERATING ACTIVITIES:

Net earnings (loss) from continuing operations . . . . . . . . . . . . . . . . . . .
Net earnings from discontinued operations . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings (loss) to net cash provided by

$ 28,202
6,247

$ (62,848) $ 14,823
4,764

6,858

operating activities:

Impairment of goodwill and acquired intangibles . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and post-retirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock-based compensation . . . . . . . . . . . . . . . . . .
Gains on asset disposition, net of impairments . . . . . . . . . . . . . . .

Changes in assets and liabilities, net of assets aquired:

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory and prepaid supplies . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses, salaries, wages, benefits and other

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension and post-retirement liabilities . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—
84,587
25,268
19,743
1,316
(1,896)

4,436
8,241
1,871
(10,655)

(36,373)
(32,190)
4,187

91,241
94,451
11,196
9,790
2,208
(5,579)

(32,518)
9,583
(29,888)
(7,015)

72,735
1,767
(330)

—
51,747
16,853
13,589
2,381
(1,878)

(30,910)
(2,995)
5,093
17,287

5,267
(774)
259

NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . .

102,984

161,651

95,506

INVESTING ACTIVITIES:

Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from the disposal of property and equipment . . . . . . . . . . . . .
Proceeds from the redemptions of marketable securities . . . . . . . . . . . .
Acquisition of CHI, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(101,227)
8,406
26
—
—
—

(111,877)
41,125
49,610
(3,840)
—
—

(160,166)
3,255
19,934
(296,918)
(10,246)
(11,725)

NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . . . . .

(92,795)

(24,982)

(455,866)

FINANCING ACTIVITIES:

Principal payments on long-term obligations . . . . . . . . . . . . . . . . . . . .
Proceeds from borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financing fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(43,074)
—
—

(116,816)
38,500
(1,510)

(12,971)
378,750
(9,367)

NET CASH PROVIDED BY (USED IN) FINANCING

ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(43,074)

(79,826)

356,412

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . .
CASH AND CASH EQUIVALENTS AT END OF YEAR . . . . . . . . . . .

(32,885)
116,114

56,843
59,271

(3,948)
63,219

$ 83,229

$ 116,114

$ 59,271

SUPPLEMENTAL CASH FLOW INFORMATION:

Interest paid, net of amount capitalized . . . . . . . . . . . . . . . . . . . . . . . . .
Federal and state income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 24,093
3,118
$

$ 34,278
228
$

$ 13,061
3
$

SUPPLEMENTAL NON-CASH INFORMATION:

Debt extinguished . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 91,985
1,749
$
—

$

See notes to consolidated financial statements.

48

—
2,064

—
8,564
— $ 24,680

$

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)

Common Stock

Number Amount

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

BALANCE AT JANUARY 1, 2007 . . . . . . . . . . . . . . . . 58,539,300
Issuance of common shares . . . . . . . . . . . . . . . . . . . . . . 4,000,000

$585
40

$431,071
24,640

$(207,836)

$(103,610)

Stock-based compensation plans

Grant of restricted stock . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common shares . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock awards and restricted stock . . . .

104,978
6,000

1

(1)

2,381

Comprehensive income

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . .
Adjustment to initially record uncertain tax

positions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34,440

19,587

(1,295)

Total

$ 120,210
24,680

—
—
2,381

19,587
34,440

$ 54,027

(1,295)

BALANCE AT DECEMBER 31, 2007 . . . . . . . . . . . . . 62,650,278
Stock-based compensation plans

$626

$458,091

$(189,544)

$ (69,170)

$ 200,003

Grant of restricted stock . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common shares . . . . . . . . . . . . . . . . . . . . . .
Forfeited restricted stock . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock awards and restricted stock . . . .

636,100

6

1,034 —
(40,100) —

(6)
(138)
—
2,208

Comprehensive loss

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss, net of tax . . . . . . . . . . . . . .

Total comprehensive loss . . . . . . . . . . . . . . . . . . . . . .

—
(138)
—
2,208

(55,990)
(65,691)

$(121,681)

(55,990)

(65,691)

BALANCE AT DECEMBER 31, 2008 . . . . . . . . . . . . . 63,247,312
Stock-based compensation plans

$632

$460,155

$(245,534)

$(134,861)

$ 80,392

Grant of restricted stock . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common shares . . . . . . . . . . . . . . . . . . . . . .
Forfeited restricted stock . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of stock awards and restricted stock . . . .
Debt extinguishment, net of tax . . . . . . . . . . . . . . . . . .

Comprehensive income

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income, net of tax . . . . . . . . . . . .

Total comprehensive income . . . . . . . . . . . . . . . . . . .

200,000
19,952
(50,700)

2
1
(1)

(2)
(83)
1
1,316
41,435

—
(82)
—
1,316
41,435

34,449
88,472

$ 122,921

34,449

88,472

BALANCE AT DECEMBER 31, 2009 . . . . . . . . . . . . . 63,416,564

$634

$502,822

$(211,085)

$ (46,389)

$ 245,982

See notes to consolidated financial statements.

49

NOTE A—SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES

The Company evaluated subsequent events through the date the financial statements were issued and filed
with the Securities and Exchange Commission. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have been included.

Nature of Operations

The Company includes three independently certificated airlines through its wholly owned subsidiaries. Its
airline subsidiaries are ABX Air, Inc. (“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”), and Air
Transport International, LLC (“ATI”). The airlines primarily operate as cargo airlines within the U.S. The
Company’s operations include a wholly owned aircraft leasing business, Cargo Aircraft Management, Inc.
(“CAM”). CAM leases aircraft to each of the Company’s airlines as well as to non-affiliated airlines.

ABX provides airlift including aircraft flight crews and maintenance to DHL Network Operations (USA),
Inc. under an aircraft, crew, maintenance and insurance agreement (“DHL ACMI agreement”). Under a Hub
Services agreement, ABX provided package handling, sorting and other cargo-related services to DHL Express
(USA), Inc. through August 2009 (DHL Network Operations (USA), Inc. and DHL Express (USA), Inc. are
collectively referred to as “DHL”). DHL, an international, integrated delivery company, is the Company’s largest
customer, accounting for 55% of the Company’s revenues from continuing operations in 2009.

Through its airline subsidiaries, the Company provides airlift to other customers typically through ACMI
agreements. CCIA and ATI each have contracts to provide airlift to BAX Global, Inc. (“BAX”) under ACMI
agreements. BAX provides freight transportation and supply chain management services, specializing in the
heavy freight market for business-to-business shipping. ATI also provides passenger transportation, primarily to
the U.S. military, using its McDonnell Douglas DC-8 combi aircraft, which are certified to carry passengers as
well as cargo on the main deck.

In addition to its airline operations and aircraft leasing services, the Company (i) sells aircraft parts,
(ii) provides aircraft and equipment maintenance services; (iii) operates three mail sorting facilities for the U.S.
Postal Service (“USPS”); and (iv) provides specialized services for aircraft fuel management and freight
logistics.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions that affect amounts reported
in the consolidated financial statements. Estimates and assumptions are used to record allowances for
uncollectible amounts, self-insurance reserves, spare parts inventory, depreciation and impairments of property,
equipment, goodwill and intangibles, labor contract settlements, post-retirement obligations, income taxes,
impact on the
contingencies and litigation. Changes in estimates and assumptions may have a material
consolidated financial statements.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiaries. Intercompany balances and transactions are eliminated. The accounts of CHI and its subsidiaries,
including CAM, CCIA and ATI, are included in the consolidated financial statements as of the date of
acquisition; accordingly, the activities of CHI are not included in the consolidated statements of operations and
consolidated statements of cash flows for 2007.

50

Cash and Cash Equivalents

The Company classifies short-term, highly liquid investments with maturities of three months or less at the
time of purchase as cash and cash equivalents. These investments, consisting of money market funds, are
recorded at cost, which approximates fair value. Substantially all deposits of the Company’s cash are held in
accounts that exceed federally insured limits. The Company deposits cash in common financial institutions which
management believes are financially sound.

Inventory

The Company’s inventory is comprised primarily of expendable spare parts and supplies used for its aircraft
fleets. These items are generally charged to expense when issued for use. The Company values aircraft spare
parts inventory at weighted-average cost and maintains a related obsolescence reserve. The Company records an
obsolescence reserve on a base stock of inventory for each fleet type. The amortization of base stock for the
obsolescence reserve corresponds to the expected life of each fleet type. Additionally, the Company monitors the
usage rates of inventory parts and segregates parts that are technologically outdated or no longer used in its fleet
types. Slow moving and segregated items are actively marketed and written down to their estimated net
realizable values based on market conditions.

Management analyzes the inventory reserve for reasonableness at the end of each quarter. That analysis
includes consideration of the expected fleet life, amounts expected to be on hand at the end of a fleet life, and
recent events and conditions that may impact the usability or value of inventory. Inventory values reflect
obsolescence reserves of $7.2 million and $7.0 million for 2009 and 2008, respectively. Events or conditions that
may impact
the expected life, usability or net realizable value of inventory include additional aircraft
maintenance directives from the Federal Aviation Administration, changes in Department of Transportation
regulations, new environmental laws and technological advances.

Marketable Securities

Marketable securities classified as available-for-sale are recorded at their estimated fair market values, and
any unrealized gains and losses are included in accumulated other comprehensive income or loss within
stockholders’ equity, net of tax. Interest on marketable securities is included in interest income. Realized gains
and losses of any securities sold are based on the specific identification method.

Goodwill and Intangible Assets

In accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB
ASC”) Topic 350-20 Intangibles—Goodwill and Other, the Company assesses, during the fourth quarter of each
year, whether acquired goodwill is impaired. Additional impairment assessments may be performed on an
interim basis if the Company finds it necessary. Finite-lived intangible assets are amortized over their estimated
useful economic lives and are periodically reviewed for impairment. Indefinite-lived intangible assets are not
amortized but are assessed for impairment annually in the fourth quarter.

Property and Equipment

Property and equipment are stated at cost, net of any impairment recorded, in accordance with FASB ASC
Topic 360-10 Property, Plant and Equipment. The cost and accumulated depreciation of disposed property and
equipment are removed from the accounts with any related gain or loss reflected in earnings from operations.

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s

useful life or lease term. Depreciable lives are as follows:

Aircraft and flight equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
Package handling and ground support equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles and other equipment

5 to 20 years
5 to 10 years
3 to 8 years

51

The Company periodically evaluates the useful lives, salvage values and fair values of property and
equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result
from changes in the estimated useful lives of assets due to a number of reasons, such as an assessment done
quarterly to determine if excess capacity exists in the air or ground networks, or changes in regulations governing
the use of aircraft.

Long-lived assets are reviewed for impairment when circumstances indicate the carrying value of an asset
may not be recoverable. For assets that are to be held and used, impairment is recognized when the estimated
undiscounted cash flows associated with the asset or group of assets is less than the carrying value. If impairment
exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference
between the carrying value and fair value. Fair values are determined considering quoted market values,
discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the
lower of carrying value or fair value less the cost to sell.

The airlines’ General Electric CF6 engines that power the Boeing 767 aircraft are maintained under “power
by the hour” agreements with engine maintenance providers. Under the power by the hour agreements, the
engines are maintained by the service providers for a fixed fee per flight hour; accordingly, the cost of engine
maintenance is generally expensed as flight hours occur. Maintenance for the airlines’ other aircraft engines are
typically contracted to service providers on a time and material basis. The Company’s accounting policy for
major airframe and engine maintenance varies by subsidiary. ATI, CCIA and CAM capitalize the cost of major
maintenance and amortize the costs over the useful life of the overhaul. ABX expenses the cost of airframe and
engine overhauls as incurred.

Capitalized Interest

Interest costs incurred while aircraft are being modified are capitalized as an additional cost of the aircraft
until the date the asset is placed in service. Capitalized interest was $1.8 million for 2009, $3.1 million for 2008
and $2.1 million for 2007.

Discontinued Operations

In accordance with the guidance of FASB ASC topic 205-20 Presentation of Financial Statements, a
business component whose operations are discontinued is reported as discontinued operations if the cash flows of
the component have been eliminated from the ongoing operations of the Company, and the Company will no
longer have any significant continuing involvement in the business component. The results of discontinued
operations are aggregated and presented separately in the consolidated statement of operations. FASB ASC topic
205-20 requires the reclassification of amounts presented for prior years to reflect their classification as
discontinued operations.

Exit Activities

The Company accounts for the costs associated with exit activities in accordance with FASB ASC Topic
420-10 Exit or Disposal Cost Obligations. One-time, involuntary employee termination benefits are generally
expensed when the Company communicates the benefit arrangement to the employee and requires no significant
future services, other than a minimum retention period, for the employee to earn the termination benefits.
Liabilities for contract termination costs associated with exit activities are recognized in the period incurred and
measured initially at fair value. Pension obligations are accounted for in accordance with FASB ASC Topic
715-30 Compensation—Retirement Benefits in the event that a significant number of employees are terminated or
a pension plan is suspended.

Self-Insurance

The Company is self-insured for certain claims relating to workers’ compensation, aircraft, automobile,
liability and employee healthcare. The Company maintains excess claim coverage with common

general

52

insurance carriers to mitigate its exposure to large claim losses. The Company records a liability for reported
claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are
estimated utilizing historical paid claims data, recent claims trends and, in the case of employee healthcare and
workers’ compensation, an independent actuarial evaluation. Other liabilities included $41.3 million and $10.0
million at December 31 2009 and 2008, respectively, for self-insurance reserves. Changes in claim severity and
frequency could result in actual claims being materially different than the costs reserved.

Income Taxes

Income taxes have been computed using the asset and liability method, under which deferred income taxes
are provided for the temporary differences between the financial reporting basis and the tax basis of the
Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A
valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets
will not be fully realized. Tax credits are accounted for as a reduction of income taxes in the year in which the
credit originates.

Under FASB ASC Topic 740-10 Income Taxes, the Company recognizes the benefit of a tax position taken
on a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits
of the position. An uncertain income tax benefit is not recognized if it has a less than a 50% likelihood of being
sustained. The Company recognizes interest and penalties accrued related to uncertain tax positions in operating
expense.

Comprehensive Income

Comprehensive income (loss) includes net earnings or loss and other comprehensive income or loss. Other
comprehensive income or loss results from changes in the Company’s pension liability, unrealized gains and
losses on available-for-sale marketable securities and gains and losses associated with interest rate hedging
instruments.

Fair Value Information

Assets or liabilities that are required to be measured at fair value are reported using the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
FASB ASC Topic 820-10 Fair Value Measurements and Disclosures establishes three levels of input that may be
used to measure fair value:

•

•

•

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for
identical, unrestricted assets or liabilities.

Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or
liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant
to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the
determination of fair value requires significant management judgment or estimation.

Revenue Recognition

Revenues from DHL were determined based on expenses incurred during a period under the two
commercial agreements with DHL and were recognized when the related services are performed. Except for the
amendments described below, expenses incurred under these agreements were generally subject to a base

53

mark-up of 1.75%, which was recognized in the period the expenses were incurred. Certain costs, the most
significant of which include interest on the promissory note due to DHL, rent and ramp and landing fees incurred
under the two commercial agreements were reimbursed and included in revenues without mark-up.

Both agreements also allowed the Company to earn incremental mark-up above the base 1.75% mark-up (up
to 1.60% under the DHL ACMI agreement, and 2.10% under the Hub Services agreement) as determined from
the achievement of certain cost-related and service goals outlined in the two commercial agreements. The
agreements stipulated the setting of quarterly and annual cost-related goals and annual service goals expressly
specified in each of the two agreements. The Company measured quarterly goals and recorded incremental
revenues in the quarter in which earned. Historically, at the end of each fiscal year, the Company measured the
achievement of annual goals and recorded any incremental revenues earned by achieving the annual goals during
the fourth quarter.

ABX and DHL amended the DHL ACMI agreement and the Hub Services agreement to set the base
mark-up and incremental mark-up to specific amounts for fourth quarter of 2008 and for each quarter of 2009.
Under these revenue amendments, annual goals were not set for 2009, nor were quarterly cost goals. Instead, the
agreed revenue for 2009 included amounts to replace the incremental revenues. In 2008, ABX and DHL executed
a severance and retention agreement (“S&R agreement”), which specifies employee severance, retention and
other benefits that DHL is obligated to reimburse ABX for payment to its employees that were affected in
conjunction with DHL’s U.S. restructuring plan. DHL reimburses ABX for the cost of employee severance,
retention, productivity bonuses and vacation benefits paid in accordance with the agreement. The Company’s
2009 revenues included reimbursement for certain expenses incurred under the commercial agreements, the
incremental revenues set by the revenue amendments and reimbursement for employee severance, retention and
other benefit costs incurred during the quarter.

ACMI revenues from customers other than DHL are typically recognized based on hours flown or the
amount of aircraft and crew resources provided during a reporting period. Charter service revenues are
recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft parts
and fuel sales are recognized when the parts and fuel are delivered. Revenues earned and expenses incurred in
providing aircraft-related maintenance, repair or technical services are recognized in the period in which the
services are completed and delivered to the customer. Revenues derived from transporting freight and sorting
parcels are recognized upon delivery of shipments and completion of services.

Lease revenues from aircraft leases are recognized as operating lease revenue on a straight-line basis over

the term of the applicable lease agreements.

New Accounting Pronouncements

In October 2009, the FASB issued an Accounting Standards Update (ASU No. 2009-13) pertaining to
multiple-deliverable revenue arrangements. The new guidance will affect accounting and reporting for
companies that enter
into multiple-deliverable revenue arrangements with their customers when those
arrangements are within the scope of ASC 605-25 Revenue Recognition—Multiple-Element Arrangements. The
new guidance will eliminate the residual method of allocation and require that arrangement consideration be
allocated at the inception of the arrangement to all deliverables using the relative selling price method. The new
guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal
years beginning on or after June 15, 2010. Early adoption is permitted and the guidance may be applied
retroactively. We are currently evaluating the impact that ASU No. 2009-13 will have on our consolidated
financial position, results of operations, and cash flows.

In December 2009,

the FASB issued ASU No. 2009-17, Improvements to Financial Reporting by
Enterprises Involved with Variable Interest Entities, which incorporates into the FASB Codification amendments
to FASB Interpretation No. 46(R), Consolidation of Variable Interest Entities, made by Statement of Financial

54

Accounting Standard No. 167, Accounting for Variable Interest Entities, to require that a comprehensive
qualitative analysis be performed to determine whether a holder of variable interests in a variable interest entity
also has a controlling financial interest in that entity. In addition, the amendments require that the same type of
analysis be applied to entities that were previously designated as qualified special-purpose entities. The
amendments are effective as of the start of the first annual reporting period beginning after November 15, 2009,
for interim periods within the first annual reporting period, and for all subsequent annual and interim reporting
periods. We do not expect the adoption of ASU No. 2009-17 to have a material impact on our consolidated
financial position, results of operations, and cash flows.

NOTE B—SIGNIFICANT CUSTOMERS

DHL

In 2008, DHL began to restructure its U.S. operations due to continued losses. DHL’s restructuring
significantly impacted ABX’s operations. Pursuant to its 2008 restructuring plans, DHL discontinued intra-U.S.
domestic pickup and delivery services in January 2009. The Hub Services agreement expired without renewal in
August 2009. ABX continues to provide DHL with airlift for its international services to and from the U.S. ABX
provided aircraft, aircraft flight crews and maintenance to DHL primarily under the DHL ACMI agreement
through March 31, 2010.

Subsequent Event

In March 2010, the Company and DHL terminated the DHL ACMI agreement and executed new follow-on
agreements effective March 31, 2010. Under the new agreements, DHL will lease 13 Boeing 767 freighter
aircraft from CAM and ABX will operate those aircraft for DHL under a separate crew, maintenance and
insurance (“CMI”) agreement. The CMI agreement will not be based on a cost-plus pricing arrangement, but
instead pricing would be based on a pre-defined fee, scaled for the number of aircraft operated and the number of
crews provided to DHL. The initial term of the CMI is five years, while the term of the aircraft leases are seven
years. The 13 aircraft include the four Boeing 767 aircraft which DHL already had an option to lease under the
June 2009 lease option agreement. The terms of those option lease agreements will be extended from 64.5 month
terms to 84 month terms. Under the CMI agreement, ABX will be able contract with Airborne Maintenance and
Engineering Services, Inc. (“AMES”), a wholly owned subsidiary of the Company, to provide scheduled
maintenance for the 13 Boeing 767 aircraft.

At the initiation of the CMI agreement, CAM will not have all 13 Boeing 767 freighter aircraft available for
lease to DHL. Until CAM completes the aircraft modification process for the 13 aircraft committed to DHL,
ABX will provide bridging aircraft to DHL under short term, month-to-month leases with economic terms
similar to the leases for the 13 aircraft.

In conjunction with the termination of the ACMI agreement, ABX and DHL entered into a termination
agreement which addressed several open issues between the parties. Under the termination agreement, DHL
agreed to pay ABX, in May 2010, its carrying value of $29.7 million to complete the sale of aircraft that ABX
previously put to DHL under provisions of the ACMI. The S&R agreement will also be terminated effective
April 1, 2010 and DHL agreed to reimburse ABX for $11.2 million of accrued vacation payments which is in
addition to $3.2 million previously reimbursed by DHL. The Company’s financial results do not reflect the
recognition of $4.1 million of the reimbursement to ABX for additional vacation payments because the revenue
recognition requirements under GAAP were not met as of December 31, 2009.

S&R agreement

Through December 31, 2009, ABX has terminated approximately 8,700 employee positions since DHL’s
restructuring began in mid-2008. Employees receive severance, retention and other benefits under the S&R
agreement executed between ABX and DHL. The S&R agreement specifies employee severance, retention and

55

other benefits, which obligates DHL to reimburse ABX’s payments for employees that are affected by DHL’s
U.S. restructuring plan. The same agreement includes provisions to pay ABX for crewmember benefits up to $75
million after ABX and the collective bargaining unit for the crewmembers reach an agreement in regard to the
use of those funds for severance, pension funding or other issues arising from DHL’s U.S. restructuring plan. In
December 2009, such an agreement was reached and DHL remitted $75 million to ABX. To settle the S&R
funding, ABX amended the pilot pension plans in December 2009 to effectively increase benefits of more senior
crewmembers. The Company recorded a pension expense of $19.2 million for the benefit amendments. The
Company also agreed to fund the pilot pension plan with $37.8 million in 2009 in addition to previously remitted
contributions. The Company further agreed to pay $43.6 million to terminated crewmembers for severance
benefits. As a result, pre-tax earnings for 2009 included $12.2 million for settling the S&R fund with the
crewmembers.

Balances with DHL

As a result of DHL’s U.S. restructuring plans, ABX incurred significant termination and wind-down costs.
Such costs include severance, vacation payments, medical coverage and workers’ compensation claims to former
employees. Such costs are reimbursable to ABX under the provisions of its agreements with DHL. DHL and
ABX have an ongoing process to verify that ABX’s costs are subject to reimbursement. To the extent that DHL
has not reimbursed ABX’s cost, ABX reflects the amount due from DHL as a receivable.

As specified in the DHL ACMI agreement with DHL, ABX is advanced funds on the first business day of
each week for the costs budgeted to be incurred for the upcoming week. Unearned revenue includes the portion
of a scheduled payment from DHL that relates to revenues earned in the next quarter. Accounts receivable is
primarily from the revenues earned under the commercial agreements. Accounts payable is interest payable on
the promissory note. The Company’s balance sheets included the following balances related to transactions with
DHL (in thousands):

Assets (Liabilities):
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft put to DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued severance and retention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal portion of note to DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2009

2008

$ 62,672
29,656
(265)
(18,959)
(12,880)
(46,000)

$ 63,362
393
(392)
(67,846)
(8,749)
(92,276)

Net asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 14,224

$(105,508)

BAX Global

A substantial portion of the Company’s revenues, cash flows and liquidity are also dependent on BAX.
Revenues from services performed for BAX were approximately 19% and 24% of the Company’s total revenues
from continuing operations for the years ended December 31, 2009 and 2008, respectively. Under their
agreements with BAX, ATI and CCIA have the right to be the exclusive providers of main deck freighter lift in
the BAX U.S. network through December 31, 2011.

56

The Company’s balance sheets include the following balances related to revenue transactions with BAX (in

thousands):

Assets (Liabilities):
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,097
(624)

$ 2,101
(1,529)

Net asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$4,473

$

572

December 31

2009

2008

NOTE C—WIND-DOWN COSTS

As a result of DHL’s U.S restructuring plan, the Company has incurred costs to reduce the scope of its
operations. Under the S&R agreement between DHL and ABX, the severance and retention benefits provided to
employees are refunded to ABX by DHL after payments are made by ABX. Wind-down expenses are reflected in
the DHL segment and discontinued operations. The wind-down expenses incurred for the years ended
December 31, 2009 and 2008 are summarized below (in thousands):

Accrued costs at December 31, 2007 . . . . . . . . . . . . . . . . . . . . . .
Costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued costs at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . .
Costs incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Severance
Benefits

Retention
Benefits

$ —
34,051
(5,131)
28,920
81,658
(91,802)

$ —
45,373
(6,447)
38,926
28,687
(67,430)

Total

$

—
79,424
(11,578)
67,846
110,345
(159,232)

Accrued costs at December 31, 2009 . . . . . . . . . . . . . . . . . . . . . .

$ 18,776

$

183

$ 18,959

In addition to the payments reflected above, the Company contributed $37.8 million in 2009 to the ABX
pilots’ pension plan in settlement of certain provisions of the S&R. Wind-down costs in 2010 are not expected to
be significant.

NOTE D—DISCONTINUED OPERATIONS

On July 24, 2009, DHL ceased the sort operations in Wilmington, Ohio and transferred the hub operations
to CVG. ABX assisted DHL with the transition from Wilmington to CVG by providing temporary staffing for
the CVG operations through early September 2009. In conjunction with the transfer of the aircraft hub operations
to CVG in July 2009, DHL assumed management of fueling services for its network previously provided by
ABX. ABX ceased providing aircraft fuel and related services for its aircraft that remain in the DHL network.
ABX’s Hub Services operations and the aircraft fueling operations, which previously had been reported in the
DHL segment, are reported as discontinued operations for all periods presented.

57

ABX sponsors defined benefit plans for retirees that include the former employees of the hub operation.
Additionally, ABX is self insured for medical coverage and workers’ compensation. Provisions for the cost of
employee injuries were significant in 2009 as a result of ceasing sort operations in Wilmington and record
unemployment levels. Besides cash outflows, the Company may incur expenses in the future related to pension
obligations, reserves for medical expenses and wage loss for former employees. Carrying amounts of significant
assets and liabilities of the discontinued operations are below (in thousands):

December 31

2009

2008

Assets
Receivable due from DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,587
—

$ 29,872
121

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$21,587

$ 29,993

Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee compensation and benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement

$

3
48,280
25,420

$

2,332
63,172
45,928

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$73,703

$111,432

The revenues and pre-tax earnings of the discontinued operations are below (in thousands):

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$171,545
9,233
$

$669,060
$ 10,790

$601,259
7,567
$

December 31

2009

2008

2007

NOTE E—ACQUISITION OF CHI

On December 31, 2007, the Company acquired all of the outstanding equity securities of CHI. Historically,
CHI operations primarily consisted of two cargo airlines, CCIA and ATI, and an aircraft leasing company, CAM.
The purchase price for all of CHI’s equity securities was approximately $259 million, consisting of
approximately $215 million in cash from ABX, $18 million in cash from CHI and four million of the Company’s
common shares, valued at approximately $25 million, which were issued to certain shareholders of CHI. The
Company also repaid $101 million of CHI’s existing indebtedness under its senior credit facility and acquired
$20 million of CHI cash. The overall transaction value was approximately $340 million, excluding transaction
costs. The Company obtained approximately $270 million of these funds from a new unsubordinated term loan.

The transaction was accounted for using the purchase method of accounting as required by FASB ASC
Topic 805-10 Business Combinations. Accordingly, the purchase price has been allocated to tangible and
identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the date of
the acquisition. The excess of the purchase price over the estimated fair value of net assets acquired was recorded
as goodwill. The purchase price exceeded the fair value of the net assets acquired due to the strategic
opportunities and benefits associated with complementary aircraft types and marketing capabilities. Strategic
opportunities and potential benefits include the following:

•

•

•

•

Increased customer diversification and revenues

Expanded customer solution offerings and entry into aircraft leasing market

Improved economies from a larger base of operations

Expanded market leadership in Boeing 767 freighter airlift

58

Unaudited Pro Forma Condensed Combined Financial Information

The following table provides unaudited pro forma condensed combined financial

information from
continuing operations (in thousands) for the Company after giving effect to the acquisition described above and
the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed
combined financial statements. This information is based on adjustments to the historical consolidated financial
statements of CHI using the purchase method of accounting for business combinations. The unaudited pro forma
adjustments do not include any of the cost savings and other synergies anticipated to result from the acquisition.
These unaudited pro forma results are based on assumptions considered appropriate by management and include
all material adjustments as considered necessary. These unaudited pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of results that would have actually been reported
as of the date or for the year presented had the acquisition taken place on such date or at the beginning of the year
indicated, or to project the Company’s financial position or results of operations which may be reported in the
future (in thousands).

Pro forma revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma earnings before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma diluted earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2007

$877,790
94,048
31,478
18,590
0.30

$

The unaudited pro forma results above exclude non-recurring charges recorded by CHI that were directly
related to the acquisition by the Company. Combined results for the Company and CHI for the year ended
December 31, 2007 were adjusted for the following in order to create the unaudited pro forma results in the table
above:

•

•

•

•

Adjustment reflecting an increase in depreciation expense of $3.2 million for the year ended
December 31, 2007, reflecting the net
impact of fair value adjustments in property, plant and
equipment.

Adjustment to reflect estimated additional intangible asset amortization expense of $2.6 million for the
year ended December 31, 2007, resulting from the fair value adjustments to CHI’s intangible assets.

Adjustment to reflect additional interest expense of $20.4 million for the year ended December 31,
2007, respectively, related to the $270 million unsubordinated term loan used to finance the
acquisition.

Pro forma diluted earnings per share reflects the issuance of four million shares of the Company.

NOTE F—GOODWILL AND OTHER INTANGIBLE ASSETS

In conjunction with the Company’s annual test of goodwill under FASB ASC Topic 350-20 and 350-30
Intangibles—Goodwill and Other, goodwill and customer relationship intangible assets were found to be
impaired as of December 31, 2008. The Company recognized an impairment to reduce the value of the customer
relationship intangible and recorded goodwill associated with ACMI Services to $7.0 million and $55.4 million,
respectively. The Company determined the fair values of ATI and CCIA separately using industry market
multiples and discounted cash flows utilizing a market-derived rate of return. The impairment charge was
precipitated by a large-scale drop in market values of publicly traded transportation companies, higher costs of
capital beginning in the fourth quarter of 2008, and declines in projected cash flows due the deep economic
recession. The goodwill was tested as of December 31, 2009 and found not to be impaired.

59

Changes in the carrying amount of goodwill for the years ended December 31, 2009 and 2008, by reportable

segment, are as follows (in thousands):

ACMI
Services

CAM

Total

Balance as of December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase price adjustment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$142,806
(452)
(13,928)
134
(73,178)

$35,848
(113)
(1,373)
33
—

$178,654
(565)
(15,301)
167
(73,178)

Balance as of December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 55,382

$34,395

$ 89,777

Balance as of December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 55,382

$34,395

$ 89,777

Information regarding our other intangible assets as of December 31, 2009 and 2008 is as follows (in

thousands):

Customer Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 31

2009

2008

Net Book
Value

$ 6,113
4,000

Net Book
Value

$ 7,000
4,000

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$10,113

$11,000

The customer relationship intangible amortizes over seventeen more years while the airline certificates have
indefinite lives and therefore are not amortized. At December 31, 2009, the cost and accumulated amortization of
the customer relationships was $7.0 million and $0.9 million, respectively. During 2009, the company recorded
amortization expense of $0.9 million. During 2008, the Company recorded amortization expense of $2.6 million
and recorded an impairment charge of $18.0 million for customer relationship intangibles.

NOTE G—FAIR VALUE MEASUREMENTS

The Company’s money market funds, short-term available-for-sale securities and derivative financial
instruments are reported on the Company’s consolidated balance sheet at fair values based on market values from
identical or comparable transactions. The fair value of the Company’s derivative financial instruments are based
on observable inputs (Level 2) from comparable market transactions. The use of significant unobservable inputs
(Level 3) was not necessary in determining the fair value of the Company’s financial assets and liabilities.

The following table reflects assets and liabilities that are measured at fair value on a recurring basis as of

December 31, 2009 (in thousands):

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Assets

Cash equivalents—money market . . . . . . . . . . . . . . . . .

Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Liabilities

Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$—

$—

$—

$—

$63,831

$63,831

$ (3,715)

$ (3,715)

$—

$—

$—

$—

$63,831

$63,831

$ (3,715)

$ (3,715)

60

For fair value information on the pension assets refer to Note K.

As a result of higher market interest rates compared to the stated interest rates of the Company’s fixed and
variable rate debt obligations, the fair value of the Company’s debt obligations was approximately $33.1 million
less than the carrying value, which was $377.4 million at December 31, 2009. The non-financial assets, including
goodwill and intangible assets, are measured at fair value on a non-recurring basis.

NOTE H—PROPERTY AND EQUIPMENT

At December 31, 2009, the Company’s subsidiaries owned or leased under capital leases 59 aircraft,
consisting of 30 Boeing 767, two Boeing 757, 12 Boeing 727, and 15 McDonnell Douglas DC-8 aircraft.
Additionally, as of December 31, 2009, CAM owned aircraft with a cost of $66.7 million and accumulated
depreciation of $5.7 million under leases to external customers. As of December 31, 2009, CAM had four aircraft
with a cost of $50.5 million undergoing modification to standard freighter configuration. Property and
equipment, to be held and used, consisted of the following (in thousands):

December 31,
2009

December 31,
2008

Aircraft and flight equipment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Support equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vehicles and other equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 842,235
51,903
1,883
1,255

$ 899,315
50,823
1,832
1,272

Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

897,276
(261,187)

953,242
(281,690)

Property and equipment, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 636,089

$ 671,552

Aircraft and flight equipment

leases as of
December 31, 2009 and $55.0 million as of December 31, 2008. Accumulated depreciation and amortization
includes $9.2 million as of December 31, 2009 and $17.5 million as of December 31, 2008 for property held
under capital leases.

includes $25.0 million of property held under capital

ACMI Services had three DC-8 airframes and one 727 airframe with a carrying value of $1.6 million whose
engines and rotables were being used for other aircraft in the Company’s fleets. The spare airframes can be
reactivated as needed.

Aircraft and Engines Held For Sale

The DHL ACMI agreement granted ABX certain rights to put to DHL any aircraft that is removed from
service prior to the expiration of the ACMI. In conjunction with the termination of the ACMI agreement effective
March 31, 2010, ABX no longer has the right to put more aircraft to DHL.

The Company had the following aircraft at December 31, 2009 that had been removed from service and

were classified as available for sale:

•

•

Five Boeing 767 non-standard freighter aircraft with a carrying value of $23.8 million and 26 DC-9
aircraft with a carrying value of $5.9 million that had been put to DHL. These carrying values are
reflected in the DHL reportable segment.

ABX had various spare DC-9 and DC-8 engines and airframes with a carrying value of $1.0 million
that were classified as available for sale. These carrying values are not reflected in a reportable
segment and are shown in “Other.” These remaining aircraft and engines held for sale are being
marketed to parts dealers and private operators.

61

Gains or losses from the sale of aircraft and spare engines are recorded in other operating expenses on the

statement of earnings.

NOTE I—DEBT OBLIGATIONS

Long-term obligations consisted of the following (in thousands):

December 31

2009

2008

Unsubordinated term loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revolving credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Aircraft loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations-Boeing 767 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital lease obligations-Boeing 727 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Promissory note due to DHL, unsecured . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other capital leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$200,250
18,500
99,759
—
12,421
46,000
497

$222,500
18,500
106,928
52,864
18,648
92,276
770

Total long-term obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

377,427
(51,737)

512,486
(61,858)

Total long-term obligations, net

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$325,690

$450,628

The Company entered into a Credit Agreement with a consortium of lenders on December 31, 2007 that
provides for a $75.0 million revolving credit facility and an unsubordinated term loan through December 2012.
The unsubordinated term loan and the revolving credit facility are collateralized by substantially all the aircraft,
property and equipment owned by the Company that are not collateralized under aircraft loans or capital leases.
Under the Credit Agreement, interest rates are adjusted quarterly based on the Company’s earnings before
interest and taxes and on prevailing LIBOR or prime rates. At December 31, 2009, the unhedged portion of the
unsubordinated term loan bears a variable interest rate of LIBOR (90-day) plus 2.63% (2.89% at December 31,
2009). The agreement provides for the issuance of letters of credit on the Company’s behalf. As of December 31,
2009, the unused revolving credit facility totaled $41.9 million, net of draws of $18.5 million and outstanding
letters of credit of $14.6 million. The revolving credit facility at December 31, 2009 carried an interest rate of
LIBOR (30-day) plus 2.63% (2.87% at December 31, 2009).

The aircraft loans are collateralized by seven aircraft, and fully amortize by 2018 with interest rates ranging
from 6.74% to 7.36% per annum payable monthly. Capital lease obligations for seven Boeing 727 aircraft carry a
fixed implicit rate of 6.50% and expire between 2010 and 2012. At the termination of the leases, the Company is
subject to normal aircraft return provisions for maintenance of the aircraft.

The scheduled annual principal payments on long-term debt as of December 31, 2009 for the next five years

are as follows (in thousands):

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Principal
Payments

$ 51,737
36,305
183,380
9,468
10,151
86,386

$377,427

62

In January, 2008, DHL made a demand for payment in full of the unsecured promissory note. In its demand,
DHL asserted that the acquisition by the Company of Cargo Holdings International, Inc. (“CHI”) and the related
financing transaction, which closed on December 31, 2007, constituted a “change of control” under the terms of
the promissory note. On March 16, 2009, the Company and DHL reached a binding agreement to amend the
promissory note and on May 8, 2009, the promissory note was formally amended to resolve DHL’s assertion.
DHL agreed it would relinquish its claim that the Company’s acquisition of CHI and the related financing
transaction constituted a “change of control.” The Company agreed to pay DHL $15.0 million of the principal
balance, while DHL agreed to extinguish an additional $46.3 million of principal balance. In March 2009, the
Company recorded the extinguishment of $46.3 million as a capital transaction due to the related party nature of
ABX’s relationship with DHL stemming from ABX’s separation from Airborne, Inc. in August 2003. Net of the
income tax effects, paid-in capital increased by $29.5 million due to the extinguishment. Based on the anticipated
principal payment in 2010, the Company’s balance sheet as of December 31, 2009 reflects the $15.0 million as a
current liability. The due date for the remaining $31.0 million remains unchanged, August 2028. Until that time,
the promissory note continues to bear interest at a rate of 5% per annum, and DHL will continue to reimburse
ABX the interest expense from the note at least through 2012.

In June 2009, ABX executed a Lease Assumption and Option Agreement with DHL pursuant to which DHL
(i) assumed financial responsibility for the capital leases associated with five Boeing 767 aircraft that ABX was
operating on behalf of DHL under the DHL ACMI agreement; and (ii) was granted the option to lease up to four
Boeing 767-200 freighter aircraft from ABX. ABX agreed that, upon DHL’s request, it would continue operating
the five Boeing 767 aircraft under the DHL ACMI agreement. ABX granted DHL a credit of $2.5 million as
prepaid rent toward each of the four lease option aircraft.

In conjunction with the Lease Assumption and Option Agreement with DHL, the lease agreements for the
five Boeing 767 capital lease aircraft were settled and terminated with the lessor during 2009. The Company
recorded DHL’s assumption of the lease obligations and debt extinguishment of $45.7 million as a capital
transaction due to the related party nature of ABX’s relationship with DHL stemming from ABX’s separation
from Airborne, Inc. in August 2003. As a result, paid-in capital increased by $11.9 million. The increase in
paid-in capital reflects the removal of aircraft having a net book value of $20.9 million, the recognition of the
$10.0 million liability for future rent credits granted to DHL, the settlement of recent lease payments and
expenses of $3.9 million, and the tax effect of $6.8 million as well as the extinguishment of the debt.

Under the Credit Agreement, the Company is subject to expenses, covenants and warranties that are usual
and customary. The Credit Agreement contains covenants including, among other things, limitations on certain
additional indebtedness, guarantees of indebtedness, and the level of annual capital expenditures. The Credit
Agreement stipulates events of default, including unspecified events that may have material adverse effects on
the Company. If a lender within the Credit Agreement declares a material adverse event (“MAE”), availability
under the revolving credit facility will be reduced by that lender’s portion of the facility. Further, the Credit
Agreement provides that if lenders having more than half of the outstanding dollar amount of the commitments
assert that an MAE exists at the time the Company attempts to borrow under the Credit Agreement, the lenders
can assert that an event of default exists under the Credit Agreement and require the lead bank to exercise its
remedies. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Credit
Agreement. The conditions of the Credit Agreement and the aircraft loans cross-default. The Company is
currently in compliance with the financial covenants specified in the Credit Agreement. The Company is
restricted from paying dividends on its common stock in excess of $50.0 million during any calendar year under
the provisions of the Credit Agreement.

NOTE J—COMMITMENTS AND CONTINGENCIES

Leases

The Company leases airport facilities and certain operating equipment under operating lease agreements.
ABX leases portions of the air park in Wilmington, Ohio under a lease agreement with DHL, the term of which

63

expires upon the earlier to occur of August 15, 2010, or the date that DHL conveys to air park to the local port
authority. DHL is expected to transfer ownership of the air park to a regional port authority in the next few
weeks. The Company expects to renew the lease, under different terms, with the regional port authority.
Expenses for DHL facility lease and sorting equipment were approximately $5.4 million, $12.2 million and $2.0
million for the years ended 2009, 2008 and 2007, respectively, and were reimbursed by DHL without mark-up.
Other operating lease expense was $6.6 million, $6.6 million and $3.9 million for the years ended 2009, 2008 and
2007, respectively.

Lease commitments under long-term capital and operating leases at December 31, 2009, are as follows (in

thousands):

Capital
Leases

Operating
Leases

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 7,432
6,035
300
—
—
—

$ 6,345
2,297
2,141
1,873
568
12

Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$13,767

$13,236

Less: interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(849)

Principal obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$12,918

Commitments

On September 15, 2008, CAM entered into an agreement with Israel Aerospace Industries Ltd. (“IAI”) for
the conversion of up to fourteen Boeing 767-200 passenger door freighters to a standard freighter configuration.
The conversion primarily consists of the installation of a standard cargo door and loading system. At
December 31, 2009, the Company owned four Boeing 767 aircraft that were in modification from passenger door
freighter to standard freighter configuration. The Company anticipates costs of approximately $16.6 million to
complete the modification of these aircraft. If CAM were to cancel the conversion program as of December 31,
2009, it would owe IAI, in addition to payments for aircraft currently undergoing modification, approximately
$0.7 million for non-recurring engineering costs and approximately $7.5 million associated with additional
conversion part kits which have been ordered.

Guarantees and Indemnifications

Certain operating leases and agreements of the Company contain indemnification obligations to the lessor,
or one or more other parties that are considered ordinary and customary (e.g. use, tax and environmental
indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations
may continue after expiration of the respective lease or agreement.

Department of Transportation (“DOT”) Continuing Fitness Review

ABX filed a notice of substantial change with the DOT arising from its separation from Airborne, Inc. The
filing was initially made in mid-July of 2003 and updated in April of 2005, September of 2007, December of
2007 and March of 2010 with respect to subsequent events relevant to the DOT’s analysis, including the
reorganization of ABX under a holding company structure and the acquisition of Cargo Holdings International,
Inc. The DOT will determine whether ABX continues to be a U.S. citizen and fit, willing and able to engage in
air transportation of cargo. In the event the DOT were to identify any concerns and ABX was unable to address
those concerns to the satisfaction of the DOT, the DOT could seek to suspend, modify or revoke ABX’s air
carrier certificate and other authorizations, and this would materially and adversely affect the business.

64

Civil Action Alleging Violations of Immigration Laws

On December 31, 2008, a former ABX employee filed a complaint against ABX, a total of four current and
former executives and managers of ABX, Garcia Labor Company of Ohio, and three former executives of the
Garcia Labor companies, in the U.S. District Court for the Southern District of Ohio. The case was filed as a
putative class action against the defendants, and asserts violations of the Racketeer Influenced and Corrupt
Practices Act (RICO). The complaint, which seeks damages in an unspecified amount, alleges that the defendants
engaged in a scheme to hire illegal immigrant workers to depress the wages paid to hourly wage employees
during the period from December 1999 to January 2005. On January 23, 2009, ABX and the four current and
former executives and managers of ABX filed an answer denying the allegations contained in the complaint. On
July 24, 2009, ABX and the current and former executives of ABX filed a motion to dismiss the complaint,
which motion is currently pending. On March 18, 2010, the Court issued a decision dismissing three of the five
claims, constituting the basis of Plaintiff’s cause of action.

The complaint is similar to a prior complaint filed by another former employee in April 2007. The prior

complaint was subsequently dismissed without prejudice at the plaintiff’s request on November 3, 2008.

FAA Enforcement Actions

The Company’s airline operations are subject to complex aviation and transportation laws and regulations
that are continually enforced by the DOT and FAA. The Company’s airlines receive letters of investigation
(“LOIs”) from the FAA from time to time in the ordinary course of business. The LOIs generally provide that
some action of the airline may have been contrary to the FAA’s regulations. The airlines’ respond to the LOIs
and if the response is not satisfactory to the FAA, it can seek to impose a civil penalty for the alleged violation.
Airlines are entitled to a hearing before an Administrative Law Judge or a Federal District Court Judge,
depending on the amount of the penalty being sought, before any penalty order is deemed final.

The FAA issued LOIs to CCIA arising from a focused inspection of that airline’s operations during the
fourth quarter which could result in the FAA seeking monetary penalties against CCIA. ABX received an LOI
from the FAA alleging that ABX failed to comply with an FAA Airworthiness Directive involving its Boeing
767 aircraft and proposing a monetary settlement. The Company believes it has adequately reserved for those
monetary penalties being proposed by the FAA, although it’s possible that the FAA may propose additional
penalties exceeding the amounts currently reserved.

Other

In addition to the foregoing matters, the Company is also currently a party to legal proceedings in various
federal and state jurisdictions arising out of the operation of their business. The amount of alleged liability, if
any, from these proceedings cannot be determined with certainty; however, the Company believes that their
ultimate liability, if any, arising from the pending legal proceedings, as well as from asserted legal claims and
known potential legal claims which are probable of assertion, taking into account established accruals for
estimated liabilities, should not be material to the Company’s financial condition or results of operations.

65

Employees Under Collective Bargaining Agreements

As of December 31, 2009, the flight crewmembers of ABX, ATI and CCIA were represented by labor

unions listed below:

Airline

Labor Agreement Unit

ABX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ATI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Airline Pilots Association
CCIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Airline Pilots Association

International Brotherhood of Teamsters

Percentage
of
Company’s
Employees

12.2%
8.6%
6.3%

In November 2009, the ABX flight crewmembers ratified an amended collective bargaining (“CBA”).
Several key aspects of the CBA are effective April 1, 2010 in conjunction with the new CMI agreement between
ABX and DHL.

NOTE K—PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined
benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements.
ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans
are unfunded. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded.
All of ABX’s pension and post-retirement plans are accounted for under FASB ASC Topic 715-20
Compensation—Retirement Benefits.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting
and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate
assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid.
The long-term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement
costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and
determining related expense amounts are discount rates, expected long-term investment returns on plan assets
and future salary increases. Additionally, other assumptions concerning retirement ages, mortality and employee
turnover also affect the valuations. Consideration of future medical cost trend rates is a critical assumption in
valuing ABX’s post-retirement healthcare obligations. Actual results and future changes in these assumptions
could result in future costs significantly higher than those recorded in our results of operations.

66

ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding
ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below (in
thousands). The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings
and service to-date of current employees.

Funded Status

Pension Plans

Post-retirement
Healthcare Plans

2009

2008

2009

2008

Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . .

$ 629,236

$ 570,452

$ 33,142

$ 30,120

Change in benefit obligation

Obligation as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Curtailment gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 633,793
12,870
37,699
(78,067)
1,550
19,189
1,673
(17,571)
18,100

$ 599,846
33,310
38,515
(50,317)
1,072
125
1,918
(13,810)
23,134

$ 30,120
649
1,767
—
—
—
—
(1,515)
2,121

$ 32,269
1,867
2,053
(2,773)
—
—
—
(1,554)
(1,742)

Obligation as of December 31 . . . . . . . . . . . . . . . . . . . . . . . .

$ 629,236

$ 633,793

$ 33,142

$ 30,120

Change in plan assets

Fair value as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual (loss) gain on plan assets . . . . . . . . . . . . . . . . . . . . . .
Plan transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 366,583
75,796
1,674
83,174
(17,571)

$ 445,086
(106,210)
1,918
39,599
(13,810)

$ — $ —
—
—
1,554
(1,554)

—
—
1,515
(1,515)

Fair value as of December 31 . . . . . . . . . . . . . . . . . . . . . . . .

$ 509,656

$ 366,583

$ — $ —

Funded status

Recorded liabilities—net underfunded . . . . . . . . . . . . . . . . .

$(119,580) $(267,210) $(33,142) $(30,120)

During 2009, the Company amended each defined benefit pension plan to freeze the accrual of additional
benefits and had provided notification to the affected employees. In December 2009, the defined benefit pension
plans for ABX crewmembers were amended to grant more service credit to active participants for their years of
service that occurred before the pension plan was initiated. Employer contributions to the defined benefit pension
plans for ABX crewmembers included additional amounts of $37.8 million pursuant to an agreement with the
ABX pilots’ union.

The pre-tax amounts in accumulated other comprehensive loss that have not yet been recognized as

components of net periodic benefit expense at December 31, 2009 are as follows (in thousands):

Unrecognized prior service cost . . . . . . . . . . . . . . . . . . . . . .
Unrecognized net actuarial loss . . . . . . . . . . . . . . . . . . . . . .

$ —
58,873

$

7,314
191,046

$ —
2,369

Accumulated other comprehensive loss . . . . . . . . . . . . . . . .

$58,873

$198,360

$2,369

2009

2008

2009

2008

$—
248

$248

Pension Plans

Post-Retirement
Healthcare Plans

67

Components of Net Periodic Benefit Cost

ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans

for the years ended December 31, 2009, 2008 and 2007 are as follows (in thousands):

Pension Plans

Post-Retirement
Healthcare Plans

2009

2008

2007

2009

2008

2007

Service cost . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . .
Curtailment (gain) loss . . . . . . . . . . . . . .
Special termination benefits . . . . . . . . . .
Net amortization and deferral . . . . . . . . .

$ 12,870
37,699
(29,569)
25,048
1,550
27,434

$ 33,310
38,515
(36,367)
6,887
1,072
6,902

$ 650
$ 35,695
1,767
33,405
(31,801) —
—
—
—

—
—
10,781

$2,183
1,980
633

$1,868
2,053
—
(911) —
—
—
—

72

Net periodic benefit cost . . . . . . . . . . . . .

$ 75,032

$ 50,319

$ 48,080

$2,417

$3,082

$4,796

The net periodic expense includes a net curtailment charge of $25.0 and $6.0 million for 2009 and 2008,
respectively, to recognize prior service cost of employees terminated in conjunction with the DHL restructuring,
as prescribed by FASB ASC Topic 715-30.

The following table sets forth the amounts of unrecognized net actuarial loss recorded in accumulated other
comprehensive income expected to be recognized as components of net periodic benefit expense during 2010 (in
thousands):

Post-
Retirement
Healthcare
Plans

Pension
Plans

Amortization of actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$2,068

$97

Assumptions

Assumptions used in determining ABX’s pension obligations at December 31 were as follows:

Pension Plans

2009

2008

2007

Discount rate (for qualified and non-qualified plans) . . . .
Expected return on plan assets . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase (pilots)
. . . . . . . . . . . . . . .
Rate of compensation increase (non-pilots) . . . . . . . . . . . .

5.85% - 6.00% 5.85% - 6.20% 6.50%
8.00%
4.50%
4.00%

7.00%
4.50%
4.00%

7.50%
4.50%
4.00%

Net periodic benefit cost was based on the discount rate assumptions at the end of the previous year.

The discount rate used to determine post-retirement healthcare obligations was 5.85% for both pilots and
non-pilots at December 31, 2009. The discount rates were 6.20% for pilots and 5.85% for non-pilots at
December 31, 2008 and 6.50% for both pilots and non-pilots at December 31, 2007. Post-retirement healthcare
plan obligations have not been funded. The healthcare cost trend rate used in measuring post-retirement
healthcare benefit costs was 8.75% for 2010, decreasing each year by 0.25% until it reaches a 5% annual growth
rate in 2025. The effects of a 1% increase and decrease in the healthcare cost trend rate on 2009 cost and the
accumulated post-retirement benefit obligation at December 31, 2009, are shown below (in thousands):

Effect on service and interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect on accumulated post-retirement benefit obligation . . . . . . . . . . . . . .

$ 295
$3,685

$ (241)
$(3,041)

1% Increase

1% Decrease

68

Plan Assets

The weighted-average asset allocations by asset category are as shown below:

Asset category

Composition of Plan Assets
as of December 31

2009

2008

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8%
48%
42%
2%

4%
40%
52%
4%

100%

100%

ABX uses an investment management firm to advise it in developing and executing an investment policy.
The portfolio is managed with consideration for diversification, quality and marketability. The targeted asset
allocation is 50% equity securities, 45% fixed income securities and 5% real estate. The investment policy
permits the following ranges of asset allocation: equities – 22.5% to 69.3%; fixed income securities – 38.0% to
76.5%; real estate – 3% to 7%; cash – 0% to 10%. Except for U.S. Treasuries, no more than 10% of the fixed
income portfolio and no more than 5% of the equity portfolio can be invested in securities of any single issuer.

An actuarial firm advised ABX in developing the overall expected long-term rate of return on plan assets.
The overall expected long-term rate of return was developed using various market assumptions in conjunction
with the plans’ targeted asset allocation. The assumptions were based on historical market returns.

Cash Flows

In 2009, ABX made contributions to its defined benefit pension plans of $83.2 million. ABX estimates that
its contributions in 2010 will be approximately $40.1 million for its defined benefit pension plans and $2.1
million for its post-retirement healthcare plans.

The following benefit payments, which reflect expected future service, as appropriate, are expected to be

paid out of the respective plans as follows (in thousands):

2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Years 2015 to 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Pension
Benefits

$ 19,059
20,986
22,998
25,426
28,436
183,044

Post-retirement
Healthcare
Benefits

$ 2,078
2,012
1,911
1,930
2,052
12,119

Fair Value Measurements

The pension plan assets are valued at fair value. The following is a description of the valuation
methodologies used for the investments measured at fair value, including the general classification of such
instruments pursuant to the valuation hierarchy.

Temporary Cash Investments—These investments consist of U.S. dollars and foreign currencies held in
master trust accounts at The Bank of New York Mellon Corporation. Foreign currencies held are reported in
terms of U.S. dollars based on currency exchange rates readily available in active markets. These temporary
cash investments are classified as Level 1 investments.

69

Corporate Stock—This investment category consists of common and preferred stock issued by
domestic and international corporations that are regularly traded on exchanges and price quotes for these
shares are readily available. These investments are classified as Level 1 investments.

Common Trust Funds—Common trust funds are comprised of shares or units in non-publicly traded
funds whereby the underlying assets in these funds (cash, cash equivalents, fixed income securities and
equity securities) are publicly traded on exchanges and price quotes for the assets held by these funds are
readily available. Holdings of common trust funds are classified as Level 2 investments.

Mutual Funds—Investments in this category include shares in registered mutual funds, unit trust and
commingled funds. These funds consist of domestic equity, international equity and fixed income strategies.
Investments in this category that are publicly traded on an exchange and have a share price published at the
close of each business day are classified as Level 1 investments and holdings in the other mutual funds are
classified as Level 2 investments.

Fixed Income Investments—Securities in this category consist of US Government or Agency
securities, state and local government securities, corporate fixed income securities or pooled fixed income
securities. Securities in this category that are valued utilizing published prices at the close of each business
day are classified as Level 1 investments. Those investments valued by bid data prices provided by
independent pricing sources are classified as Level 2 investments.

Real Estate—The real estate investment in a commingled trust account consists of publicly traded real
estate investment trusts and collateralized mortgage backed securities as well as private market direct
property investments. The valuations for the holdings in these investments are not based on readily
observable inputs and are classified as Level 3 investments.

Hedge Funds and Private Equity—These investments are not readily tradable and have valuations that
are not based on readily observable data inputs. The fair value of these assets is estimated based on
information provided by the fund managers or the general partners. Therefore, these assets are classified as
Level 3.

As of December 31, 2009, the pension plan assets measured at fair value on a recurring basis were as

follows (in thousands):

Plan assets

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Temporary cash investments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common trust funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Corporate stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedge funds and private equity . . . . . . . . . . . . . . . . . . . . . . . . .

$

50
—
42,257
94,713
6,750
—
—

$ — $ — $

46,690
—
157,777
127,150
—
—

—
—
—
—
11,160
23,109

50
46,690
42,257
252,490
133,900
11,160
23,109

Total plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$143,770

$331,617

$34,269

$509,656

70

ABX’s pension investments include hedge funds, private equity and real estate funds whose fair values have
been estimated in the absence of readily determinable fair values. Management’s estimates are based on
information provided by the fund managers or general partners of those funds. The following table presents a
reconciliation of the beginning and ending balances of the fair value measurements using significant Level 3
unobservable inputs (in thousands).

January 1, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Realized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases & settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$20,349
—
2,199
561

$23,109

Hedge Funds &
Private Equity

Real Estate
Investments

$ 21,315
—
(10,155)
—

Total

$41,664
—
(7,956)
561

$ 11,160

$34,269

Crew Sick Leave Post-retirement Benefit

ATI provides a sick leave benefit for ATI crewmembers that accumulates through participant retirement

dates. The status of the plan as of December 31, 2009 and 2008 is summarized as follows (in thousands):

Post-retirement
Sick Leave

2009

2008

Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,002

$ 2,643

Change in benefit obligation

Obligation as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actuarial (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,643
209
159
—
—

(9)

$ 2,886
235
160
(248)
(21)
(369)

Obligation as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 3,002

$ 2,643

Change in plan assets

Fair value as of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Fair value as of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
—
—

$ —

$ —
21
(21)

$ —

Funded status

Recorded liabilities—net underfunded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(3,002)

$(2,643)

Accumulated other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

572

$

617

Assumptions used in determining the crew sick leave post-retirement obligations at December 31 were as

follows:

Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.32% 6.40% 6.00%
4.00% 4.00% 4.00%

Expected benefit payments for the next five years (in thousands) are $337 for 2010, $332 for 2011, $293 for
2012, $288 for 2013 and $226 for 2014. Benefit payments for 2015 to 2019 are expected to be $1.2 million in
aggregate.

Post-Retirement Plan

2009

2008

2007

71

Defined Contribution Plans

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both
voluntary employee salary deferrals and by employer matching contributions on employee salary deferrals. ABX
also sponsors a defined contribution profit sharing plan, which is coordinated and used to offset obligations
accrued under the qualified defined benefit plans. Contributions to this plan, except contributions for the ABX’s
pilots, were discontinued in 2000. Expenses for defined contribution retirement plans were as follows (in
thousands):

Capital accumulation plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Profit sharing plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,299
547

$6,484
1,062

$8,758
1,068

Total expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$5,846

$7,546

$9,826

Years Ended December 31

2009

2008

2007

NOTE L—INCOME TAXES

At December 31, 2009, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for
federal income tax purposes of approximately $88.5 million, which begin to expire in 2023. The deferred tax
asset balance includes $1.3 million net of a $0.9 million valuation allowance related to state NOL CFs, which
have remaining lives ranging from one to twenty years. During the second quarter of 2008, ABX recorded a
valuation allowance against these state NOLs for potential changes in network operations. These NOL CFs are
attributable to excess tax deductions related primarily to the accelerated tax depreciation of fixed assets.

The significant components of the deferred income tax assets and liabilities as of December 31, 2009 and

2008 are as follows (in thousands):

Deferred tax assets:

Net operating loss carryforward and federal credits . . . . . . . . . . . . . . . .
Capital and operating leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement employee benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Employee benefits other than post-retirement . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:

December 31

2009

2008

$ 31,789
—
40,682
22,128
12,426

$ 35,873
18,503
103,045
11,659
7,745

107,025

176,825

Accelerated depreciation and impairment charges . . . . . . . . . . . . . . . . .
Partnership items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt reacquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance against deferred tax assets . . . . . . . . . . . . . . . . . .

(94,382)
(12,274)
(16,196)
(2,009)
(611)

(86,721)
(12,147)
—
(2,367)
(611)

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(125,472)

(101,846)

Net deferred tax asset (liability) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (18,447)

$ 74,979

72

The following summarizes the Company’s income tax provisions (in thousands):

Years Ended December 31

2009

2008

2007

Current taxes:

State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

399

$ 371

$

112

Deferred taxes:
Federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16,624
133

16,757

4,897
961

5,858

9,669
1,117

10,786

Total income tax expense from continuing operations . . . . . . . . . . . .

$17,156

$6,229

$10,898

Income tax expense from discontinued operations . . . . . . . . . . . . . . .

$ 2,986

$3,931

$ 2,803

Income tax provison for debt extinguishment . . . . . . . . . . . . . . . . . . .

$23,612

$ —

$ —

The reconciliation of income tax from continuing operations computed at the U.S. statutory federal income

tax rates to effective income tax rate is as follows:

Statutory federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of non-deductible goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of other non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Years Ended December 31

2009

2008

2007

35.0% (35.0%) 35.0%
0.8%
1.5% 3.1%
0.0% 45.2% 0.0%
1.4% 3.0%
1.7%
1.3%
0.3% (2.1%)

Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

37.8% 11.0% 42.4%

The reconciliation of income tax from discontinued operations computed at the U.S. statutory federal

income tax rates to effective income tax rate is as follows:

Statutory federal tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal tax benefit . . . . . . . . . . . . . . . . . . . . . . . .
Tax effect of other non-deductible expenses . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35.0% 35.0% 35.0%
1.3%
1.3%
1.2%
0.7%
(3.8%)
0.2%
0.0%
0.0% (0.1%)

Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

32.4% 36.4% 37.0%

Years Ended December 31

2009

2008

2007

The Company implemented the provisions of FASB ASC Topic 740-10 Income Taxes, formerly FASB
Interpretation No. 48, Accounting for Income Taxes (“FIN 48”) related to uncertain tax provisions, as of
January 1, 2007. This interpretation requires financial statement recognition of the impact of a tax position, if that
position is more likely than not of being sustained on audit, based on the technical merits of the position. The
cumulative effect of applying the provisions of the interpretation was recorded as a $1.3 million charge to the
accumulated deficit as of January 1, 2007. This amount represented the total amount of unrecognized tax benefits
as of the date of adoption, and when recognized in 2008, impacted the effective tax rate.

At December 31, 2009, the total amount of unrecognized tax benefits of $4.2 million included $1.7 million
recorded as a non-current liability and a $2.5 million reduction to the net operating loss deferred tax asset. The
unrecognized tax benefits, if recognized, would not materially impact the effective tax rate for the period of

73

recognition. Accrued interest and penalties on tax positions are recorded as a component of interest expense.
Total accrued interest and penalties on tax positions were $0.7 million at December 31, 2009 and $0.8 million at
December 31, 2008. Interest expense was immaterial for 2009, 2008 and 2007.

Changes in unrecognized tax benefits are as follows (in thousands):

As of January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . . .
Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reductions for tax positions of prior years . . . . . . . . . . . . . . . . . . . . . .

$ 5,496
—
—
(1,209)

$ 9,376
170
(2,756)
(1,294)

$1,295
—
8,081
—

As of December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 4,287

$ 5,496

$9,376

2009

2008

2007

The Company files income tax returns in the U.S. federal jurisdiction and various international, state and
local jurisdictions. The returns may be subject to examination by the Internal Revenue Service (“IRS”) and other
jurisdictional authorities. International returns consist of disclosure returns where the Company is covered by the
sourcing rules of U.S. international treaties.

Prior to 2008, ABX and CHI filed separate consolidated federal tax returns with their respective wholly-
owned subsidiaries. ABX’s federal consolidated returns for 2003 through 2006 were examined by the IRS during
2008. No significant changes were issued as a result of the examination. Accordingly, in 2008 the Company
reversed $1.3 million of unrecognized tax benefits recorded at the time of implementation of FIN 48. The IRS
concluded its examinations of CHI’s federal consolidated returns for 2004 through 2007 during 2009. This
examination also resulted in no significant changes. In 2009, the Company reversed another $1.2 million of
unrecognized tax benefits recorded related to the CHI acquisition. The unrecognized tax benefits related to the
acquisition of CHI, if recognized, would not materially impact the effective tax rate. The remaining unrecognized
tax benefits are anticipated to reverse in the next twelve months due to statute expirations.

The consolidated federal tax returns for the years 2003 and 2006 for ABX and the years 2001 and 2007 for
CHI remain open to federal examination only to the extent of net operating loss carryforwards carried over from
or utilized in those years. Effective in 2008, the Company began to file federal tax returns under the new
common parent of the consolidated group that includes ABX, CHI and all the wholly-owned subsidiaries. All
returns related to the new consolidated group remain open to examination. State and local returns filed for 2004
though 2009 are generally also open to examination by their respective jurisdictions.

NOTE M—DERIVATIVE INSTRUMENTS

To reduce the effects of fluctuating LIBOR-based interest rates on interest payments that stem from its
variable rate outstanding debt, the Company entered into interest rate swaps having combined original notional
values of $135.0 million in January 2008. The notional values step downward in conjunction with the underlying
debt through December 31, 2012. Under the interest rate swap agreements, the Company will pay a fixed rate of
3.105% and receive a floating rate that resets quarterly based on LIBOR. For the outstanding notional value, the
Company expects that the amounts received from the floating leg of the interest rate swap will offset fluctuating
payments for interest expense because interest rates for its outstanding debt and the interest rate swap are both
based on LIBOR and reset quarterly. In accordance with FASB ASC Topic 815-30 Derivatives and Hedging, the
Company accounts for the interest rate swaps as cash flow hedges. There was no ineffective portion of the
derivatives.

74

The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses. The table

below provides information about the Company’s interest rate swaps at December 31, 2009 (in thousands):

Expiration Date

December, 31

2009

2008

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

Notional
Amount

Market
Value
(Liability)

December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.105% $76,500
3.105% 45,000

$(2,336) $85,000
50,000
(1,379)

$(3,430)
(2,027)

At December 31, 2009, accumulated other comprehensive loss included unrecognized losses of $2.1 million,

net of tax, for derivative instruments.

NOTE N—OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes the following transactions for the years ended December 31, 2009, 2008

and 2007 (in thousands):

2009
Actuarial gain for pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications to net income:

Before Tax

Income Tax
(Expense)
or Benefit

Net of
Tax

$ 112,054
1,742

$(40,715) $ 71,339
1,110

(632)

Hedging gain realized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement actuarial gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(114)
25,451
(2,166)
1,983

41
(9,238)
786
(720)

(73)
16,213
(1,380)
1,263

Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 138,950

$(50,478) $ 88,472

2008
Actuarial loss for pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications to net income:

Hedging gain realized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(108,629) $ 39,434
(8)
1,981

22
(5,457)

$(69,195)
14
(3,476)

(122)
1,914
4,294
4,988

45
(721)
(1,561)
(1,871)

(77)
1,193
2,733
3,117

Other comprehensive (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(102,990) $ 37,299

$(65,691)

2007
Actuarial gain for pension liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized (loss) on marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain on derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassifications to net income:

Hedging gain realized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Post-retirement actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 36,573
(4)
329

$(13,026) $ 23,547
(2)
173

2
(156)

(109)
5,963
6,072
4,818
$ 53,642

42
(2,156)
(2,166)
(1,742)

(67)
3,807
3,906
3,076
$(19,202) $ 34,440

75

NOTE O—STOCK-BASED COMPENSATION

The Company’s Board of Directors has granted stock incentive awards to certain employees and board
members pursuant to a long-term incentive plan which was approved by the Company’s stockholders in May
2005. Employees have been awarded non-vested stock units with performance conditions, non-vested stock units
with market conditions and non-vested restricted stock. The restrictions on the non-vested restricted stock awards
lapse at the end of a specified service period, which is approximately three years from the date of grant.
Restrictions could lapse sooner upon a business combination, death, disability or after an employee qualifies for
retirement. The non-vested stock units will be converted into a number of shares of Company stock depending on
performance and market conditions at the end of a specified service period, lasting approximately three years.
The performance condition awards will be converted into a number of shares of Company stock depending on the
Company’s average return on equity during the service period. Similarly, the market condition awards will be
converted into a number of shares depending on the appreciation of the Company’s stock compared to the
NASDAQ Transportation Index. Board members were granted time-based awards with approximately a
six-month vesting period, which will settle when the board member ceases to be a director of the Company. The
Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below
summarizes award activity.

Years Ended December 31

2009

2008

2007

Outstanding at beginning of period . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Converted . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Awards

1,667,100
295,200
(196,774)
(259,976)

Outstanding at end of period . . . . . . . . . . .

1,505,550

Weighted
average
grant-date
fair value

$4.24
0.93
6.33
5.66

$3.07

Number of
Awards

748,700
1,353,800
(293,050)
(142,350)

1,667,100

Weighted
average
grant-date
fair value

$7.64
2.95
6.03
6.14

$4.24

Weighted
average
grant-date
fair value

$7.37
8.13
7.62
—

$7.64

Number
of Awards

597,000
319,100
(167,400)

—

748,700

Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . .

283,939

$4.18

222,173

$5.62

178,825

$7.70

The average grant-date fair value of each performance condition award, non-vested restricted stock award
and time-based award granted by the Company was $0.93, $2.95 and $7.83 for 2009, 2008 and 2007,
respectively, the value of the Company’s stock on the date of grant. The average grant-date fair value of each
market condition award granted was $2.96 and $9.20 for 2008 and 2007, respectively. There were no market
condition awards granted in 2009. The market condition awards were valued using a Monte Carlo simulation
technique based on volatility over three years for the awards granted in 2008 and 2007 using daily stock prices
and using the following variables:

Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.71% 4.67%
41.5% 44.1%

2008

2007

For the years ended December 31, 2009, 2008 and 2007, the Company recorded expense of $1.3 million,
$2.2 million and $2.4 million, respectively, for stock incentive awards. The Company assumed forfeitures of
101,400 shares in 2009, 80,200 shares in 2008 and none in 2007. At December 31, 2009, there was $0.8 million
of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-
average period of 1.0 years. As of December 31, 2009, 1,505,550 awards were outstanding. None of the awards
were convertible, and none of the outstanding shares of restricted stock had vested as of December 31, 2009.
These awards could result in a maximum number of 1,814,975 additional outstanding shares of the Company’s
common stock depending on service, performance and market results through December 31, 2011.

76

NOTE P—EARNINGS PER SHARE

The calculation of basic and diluted earnings (loss) per common share follows (in thousands, except per

share amounts):

December 31

2009

2008

2007

Earnings (loss) from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$28,202

$(62,848) $14,823

Weighted-average shares outstanding for basic earnings per share . . . . . . . . . . . .
Common equivalent shares:

62,674

62,484

58,296

Effect of stock-based compensation awards . . . . . . . . . . . . . . . . . . . . . . . . . .

605

—

353

Weighted-average shares outstanding assuming dilution . . . . . . . . . . . . . . . . . . . .

63,279

62,484

58,649

Basic earnings (loss) per share from continuing operations . . . . . . . . . . . . . . . . . .

Diluted earnings (loss) per share from continuing operations . . . . . . . . . . . . . . . .

$

$

0.45

0.44

$

$

(1.01) $

0.26

(1.01) $

0.25

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 630,300 shares, 616,800 shares and 251,700 shares of restricted stock for 2009, 2008 and
2007, respectively, which are accounted for as part of diluted weighted average shares outstanding in diluted
earnings per share. The number of equivalent shares that were not included in weighted average shares
outstanding assuming dilution, because their effect would have been anti-dilutive, is immaterial for 2009 and
2007 and 7,529,000 shares for 2008.

77

NOTE Q—SEGMENT INFORMATION

The Company operates in three reportable segments, as described below. The DHL segment consists of the
air cargo transportation services provided to DHL under the DHL ACMI agreement. The DHL segment earnings
include interest expense that is reimbursed under the DHL agreement. The ACMI Services segment consists of
the ACMI and charter services that the Company provides outside of the DHL ACMI agreement. The CAM
segment consists of the Company’s aircraft leasing operations, and its segment earnings includes an allocation of
interest expense based on aircraft values. The Company’s other activities, which include contracts with the
USPS, aircraft parts sales and maintenance services, fuel management and logistics services, do not constitute
reportable segments and are combined in “All other” with interest income, unallocated interest expense and inter-
segment profit eliminations. Inter-segment revenues are valued at arms-length, market rates. Cash, cash
equivalents, marketable securities and deferred tax assets are reflected in Assets—All other below. The
Company’s segment information for continuing operations is presented below (in thousands):

Year Ended December 31

2009

2008

2007

Total revenues:

DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminate Inter-segment revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 404,153
364,671
60,685
64,914
(70,940)

$ 480,537
421,010
47,480
48,707
(56,048)

$479,605
55,580
—
38,071
—

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 823,483

$ 941,686

$573,256

Customer revenues

DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 404,153
364,072
10,926
44,332

$ 480,537
419,749
2,729
38,671

$479,605
55,580
—
38,071

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 823,483

$ 941,686

$573,256

Depreciation and amortization expense:

DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Segment earnings (loss):

DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

$

$

$

$

$

24,842
35,205
22,869
1,048

83,964

27,851
541
22,775
(5,809)

41,718
35,532
15,687
815

$ 41,523
9,363
—
749

93,752

$ 51,635

14,407
(84,094)
18,102
(5,034)

$ 13,612
4,564
—
7,545

Total from continuing operations . . . . . . . . . . . . . . . . . . . . . . . . .

$

45,358

$ (56,619) $ 25,721

December 31

2009

2008

Assets:

DHL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ACMI Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
CAM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 195,176
287,800
351,172
21,587
147,038
$1,002,773

$ 280,825
297,300
259,321
29,993
233,910
$1,101,349

78

During 2009, the Company had capital expenditures of $28.0 million, $0.2 million and $72.1 million for the
ACMI services, DHL and CAM segments, respectively. The ACMI Services segment includes an impairment
charge of $73.2 million on the goodwill and $18.0 million on its acquired intangibles for ATI and CCIA for
2008. Interest income of $0.4 million, $2.3 million and $4.6 million is included in All other pre-tax earnings for
2009, 2008 and 2007, respectively. Interest expense of $5.5 million for 2009, $7.9 million for 2008 and $9.1
million for 2007 is reimbursed through the commercial agreements with DHL and included in the DHL segment
earnings above. The remaining interest is included in the All other category. Prior to 2008, all ABX overhead
expenses were reimbursed by DHL. Beginning in 2008, a portion of overhead expenses are reflected in All other
above and not reimbursed by DHL.

Entity-Wide Disclosures

The Company’s international revenues were approximately $165.4 million, $177.5 million and $47.3
million for 2009, 2008 and 2007, respectively, derived primarily from international flights departing from or
arriving in foreign countries. All revenues for the DHL segment are attributed to U.S. operations.

NOTE R—QUARTERLY RESULTS (Unaudited)

The following is a summary of quarterly results of operations (in thousands, except per share amounts):

2009
Revenues from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Net earnings from continuing operations . . . . . . . . . . . . . . . . . . . .
Net earnings from discontinued operations . . . . . . . . . . . . . . . . . . .
Weighted average shares:

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

$211,776
8,197
2,900

$186,995
6,838
1,269

$174,202
2,855
882

$250,510
10,312
1,196

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,638
62,800

62,685
63,011

62,685
63,731

62,686
63,573

Earnings per share from continuing operations

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.13
0.13

$
$

0.11
0.11

$
$

0.05
0.05

$
$

0.16
0.16

2008
Revenues from continuing operations . . . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) from continuing operations . . . . . . . . . . . . . . .
Net earnings from discontinued operations . . . . . . . . . . . . . . . . . . .
Weighted average shares:

$220,719
2,877
910

$224,317
(661)
135

$239,686
4,108
857

$256,964
(69,172)
4,956

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62,417
62,651

62,460
62,460

62,508
62,631

62,549
62,549

Earnings (loss) per share from continuing operations

Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
$

0.05
0.05

$
$

(0.01) $
(0.01) $

0.07
0.07

$
$

(1.11)
(1.11)

During the fourth quarters of 2008, the Company recognized revenues of $4.4 million for achieving annual
cost-related and service goals under the DHL ACMI agreement with DHL. For 2009, the agreements with DHL
were amended such that the revenue from cost-related and service goals were recognized quarterly. In the fourth
quarter of 2008, the Company recorded an impairment charge of $73.2 million on goodwill and $18.0 million on
acquired intangibles.

79

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of December 31, 2009, the Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Based upon the evaluation, the Company’s Chief Executive
Officer, and its Chief Financial Officer concluded that the Company’s disclosure controls and procedures were
effective.

Changes in Internal Controls

There were no changes in the Company’s internal controls over financial reporting during the fourth quarter
of 2009 that materially affected or are reasonably likely to materially affect the Company’s internal controls over
financial reporting.

Management’s Annual Report on Internal Controls over Financial Reporting

The management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. The Company’s internal control system is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in
accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation.

The Company’s management assessed the effectiveness of the company’s internal control over financial
reporting as of December 31, 2009. In making this assessment, it used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

Based on management’s assessment of those criteria, management believes that, as of December 31, 2009,

the Company’s internal control over financial reporting was effective.

The Company’s registered public accounting firm has issued an attestation report on our assessment of the

Company’s internal control over financial reporting. That report follows.

March 31, 2010

80

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of Air Transport Services Group, Inc.
Wilmington, Ohio

We have audited the internal control over financial reporting of Air Transport Services Group, Inc. and
subsidiaries (the “Company”) as of December 31, 2009, based on criteria established in Internal Control—
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The
Company’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management’s Annual Report on Internal Controls over Financial Reporting. Our responsibility is to express an
opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects. Our
audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of,
the company’s principal executive and principal financial officers, or persons performing similar functions, and
effected by the company’s board of directors, management, and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of
collusion or improper management override of controls, material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal
control over financial reporting to future periods are subject to the risk that the controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2009, based on the criteria established in Internal Control—Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements and financial statement schedule as of and for the year
ended December 31, 2009 of the Company and our report dated March 31, 2010 expressed an unqualified
opinion on those financial statements and financial statement schedule and included explanatory paragraphs
regarding the Company’s two principal customers and the Company’s defined benefit plan investments whose
fair values have been estimated by management in the absence of readily determinable fair values.

DELOITTE & TOUCHE LLP

Dayton, Ohio
March 31, 2010

81

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this Item is contained in part in the Proxy Statement for the 2010 Annual Meeting of
Stockholders under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” and “Corporate Governance and Board Matters.” The information contained therein is
incorporated herein by reference.

Executive Officers

The following table sets forth information about the Company’s executive officers. The executive officers

serve at the pleasure of the Company’s Board of Directors.

Name

Age

Information

Joseph C. Hete . . . . . . . . . . . . . . . . . . . . . .

55

President and Chief Executive Officer, Air Transport Services
Group, Inc., since December 2007 and Chief Executive
Officer, ABX Air, Inc., since August 2003.

Mr. Hete was President of ABX Air, Inc. from January 2000
to February 2008. Mr. Hete was Chief Operating Officer of
ABX Air, Inc. from January 2000 to August 2003. From 1997
until January 2000, Mr. Hete held the position of Senior Vice
President and Chief Operating Officer of ABX Air, Inc. Mr.
Hete served as Senior Vice President, Administration of ABX
Air,
from 1991 to 1997 and Vice President,
Administration of ABX Air, Inc. from 1986 to 1991. Mr. Hete
joined ABX Air, Inc. in 1980.

Inc.

Quint O. Turner . . . . . . . . . . . . . . . . . . . . .

47 Chief Financial Officer, Air Transport Services Group, Inc.,
since February 2008 and Chief Financial Officer ABX Air,
Inc. since December 2004.

W. Joseph Payne . . . . . . . . . . . . . . . . . . . .

46

Mr. Turner was Vice President of Administration of ABX Air,
Inc. from February 2002 to December 2004. Mr. Turner was
Corporate Director of Financial Planning and Accounting of
ABX Air, Inc. from 1997 to 2002. Prior to 1997, Mr. Turner
held positions of Manager of Planning and Director of
Financial Planning of ABX Air, Inc. Mr. Turner joined ABX
Air, Inc. in 1988 as a Staff Auditor.

Senior Vice President, Corporate General Counsel and
Secretary, Air Transport Services Group, Inc., since February
2008 and Vice President, General Counsel and Secretary
ABX Air, Inc. since January 2004.

Mr. Payne was Corporate Secretary/Counsel of ABX Air, Inc.
from January 1999 to January 2004, and Assistant Corporate
Secretary from July 1996 to January 1999. Mr. Payne joined
ABX Air, Inc. in April 1995.

82

Name

Age

Information

John W. Graber . . . . . . . . . . . . . . . . . . . . .

52

President, ABX Air, Inc., since February 2008.

Mr. Graber was Chief Operating Officer of ABX Air, Inc.,
from July 2007 to February 2008. Mr. Graber held positions
as President and General Manager of AAR Aircraft Services-
Indianapolis, a division of AAR Corp. from 2006 to 2007. Mr.
Graber also held the positions of Senior Vice President of
Operations and General Manager of the military and charter
businesses at ATA Airlines, Inc. from 1993 to 2006. (ATA
Airlines, Inc. filed for bankruptcy in April 2008.)

The executive officers of the Company are appointed annually at the Board of Directors meeting held in
conjunction with the annual meeting of stockholders. There are no family relationships between any directors or
executive officers of the Company.

ITEM 11. EXECUTIVE COMPENSATION

The response to this Item is contained in the Proxy Statement for the 2010 Annual Meeting of Stockholders
under the captions “Executive Compensation” and “Director Compensation,” and the information contained
therein is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The responses to this Item are contained in the Proxy Statement for the 2010 Annual Meeting of
Stockholders under the captions “Equity Compensation Plan Information,” “Voting at the Meeting,” “Stock
Ownership of Management” and “Common Stock Ownership of Certain Beneficial Owners,” and the information
contained therein is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The response to this Item is contained in part in the Proxy Statement for the 2010 Annual Meeting of
Stockholders under the captions “Related Person Transactions” and “Independence,” and the information
contained therein is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this Item is contained in the Proxy Statement for the 2010 Annual Meeting of Stockholders
under the caption “Fees of the Independent Registered Public Accounting Firm,” and the information contained
therein is incorporated herein by reference.

83

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) List of Documents filed as part of this report:

(1) Consolidated Financial Statements

The following are filed in Part II, item 8 of this Form 10-K Annual Report:

Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Earnings
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

Schedule II—Valuation and Qualifying Account

Balance at
beginning
of period

Additions
charged to
cost and
expenses

Deductions

Balance at end
of period

Description

Accounts receivable reserve:

Year ended:

December 31, 2009 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2007 . . . . . . . . . . . . . . . . . . . . . . . . . .

$469,112
363,144
516,000

$877,220
545,894
103,948

$ 58,289
439,926
256,804

$1,288,043
469,112
363,144

All other schedules are omitted because they are not applicable or are not required, or because the required

information is included in the consolidated financial statements or notes thereto.

(3) Exhibits

The following exhibits are filed with or incorporated by reference into this report.

Exhibit No.

Description of Exhibit

2.1

2.2

2.3

2.4

2.5

Plan of acquisition, reorganization, arrangement, liquidation or succession.

Agreement and Plan of Merger, dated as of March 25, 2003, by and among Airborne, Inc., DHL
Worldwide Express B.V. and Atlantis Acquisition Corporation (included as Appendix A to the
proxy statement/prospectus which is a part of this registration statement). (1)

Agreement and Plan of Reorganization, dated as of October 17, 2007, by and among ABX Air,
Inc., ABX Holdings, Inc. and ABX Merger Sub, Inc. (19)

Preferred Stock Rights Agreement, dated October 17, 2007, by and between ABX Holdings, Inc.
and National City Bank. (19)

Agreement and Plan of Reorganization and Certificate of Merger, dated December 31, 2007,
between ABX Air, Inc., ABX Holdings, Inc. and ABX Merger Sub, Inc. (29).

Stock Purchase Agreement dated November 1, 2007, by and among ABX Holdings, Inc., CHI
Acquisition Corp., Cargo Holdings International, Inc., the Significant Shareholders Named and the
Parties Subsequently Joining Hereto Pursuant to Joinder Agreements. (29)

84

Exhibit No.

Description of Exhibit

Articles of Incorporation

3.1

3.2

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

Certificate of Incorporation of ABX Holdings, Inc. (incorporated by reference to the Form 8-A/A
of ABX Holdings, Inc. filed with the Securities and Exchange on January 2, 2008). (19)

Bylaws of ABX Holdings, Inc. (incorporated by reference to the Form 8-A/A of ABX Holdings,
Inc. filed with the Securities and Exchange on January 2, 2008). (19)

Instruments defining the rights of security holders

Specimen of common stock of ABX Holdings, Inc. (3)

Preferred Stock Rights Agreement dated December 31, 2007 by and between ABX Holdings, Inc.
and a rights agent. (19)

Material Contracts

Form of Master Separation Agreement dated as of the effective date of the merger, by and among
Airborne, Inc., ABX Air, Inc. and Wilmington Air Park LLC. (included as Appendix B to the
proxy statement/prospectus which is a part of this registration statement) (1)

Form of ACMI Service Agreement, dated as of the effective date of the merger, by and between
ABX Air, Inc. and Airborne, Inc. (Certain portions have been omitted based upon a request for
confidential treatment. The nonpublic information has been filed with the Securities and Exchange
Commission.) (2)

Form of Hub and Line-Haul Services Agreement dated as of the effective date of the merger, by
and between ABX Air, Inc. and Airborne, Inc. (1)

Form of Performance Guaranty dated as of the effective date of the merger, by and between DHL
Holdings USA, Inc. and Airborne, Inc. with respect
to the Hub and Line-Haul Services
Agreement. (1)

Form of Performance Guaranty dated as of the effective date of the merger, by and between DHL
Holdings USA, Inc. and Airborne, Inc. with respect to the ACMI Service Agreement. (1)

First Non-Negotiable Promissory Note issued by ABX Air, Inc. in favor of Airborne Inc., (5)

Form of Second Non-Negotiable Promissory Note issued by ABX Air, Inc. in favor of DHL
Holdings (USA), Inc. (1)

Form of Transition Services Agreement, dated as of the effective date of the merger, by and
between ABX Air, Inc. and Airborne, Inc. (1)

Form of Wilmington Airpark Sublease, dated as of the effective date of the merger, by and
between ABX Air, Inc. and Airborne, Inc. (1)

Form of Employee Matters Agreement dated as of the effective date of the merger, by and
between Airborne, Inc. and ABX Air, Inc. (1)

Form of Tax Sharing Agreement dated as of the effective date of the merger, by and between
Airborne, Inc. and ABX Air, Inc. (1)

Participation Agreement dated as of August 16, 2001, among ABX Air, Inc., as lessee, Mitsui &
Co. Ltd., as finance lessor, Tomair LLC, as Owner Participant, and Wells Fargo Bank Northwest,
National Association, as Owner Trustee. (1)

Lease Agreement dated as of August 21, 2001, between Owner Trustee, as lessor, and ABX Air,
Inc., as lessee. (1)

Form of change in control agreement with CEO and each of the next four highest paid officers. (4)

Form of Retention Bonus Agreement with CEO and each of the next four highest paid officers. (4)

10.15a

Form of Amendment to Retention Bonus Agreement. (15)

85

Exhibit No.

Description of Exhibit

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

Director compensation fee summary. (6)

Form of Executive Incentive Compensation Plan for CEO and the next four highest paid
officers. (9)

Credit Agreement, dated as of March 31, 2004. (7)

Amendment No.1-dated June 18, 2004 to the Credit Agreement dated as of March 31, 2004. (8)

Form of Long-Term Incentive Compensation plan for officers, dated July 12, 2005. (10)

Amendment to the Hub and Line-Haul Services Agreement, dated August 9, 2005. (11)

Form of Long-Term Incentive Compensation Plan for directors, dated October 4, 2005. (12)

Aircraft modification agreement with Israel Aircraft Industries, Ltd. (13)

Consent
Agreement. (13)

to Assignment of ACMI Service Agreement and Hub & Line-Haul Services

Agreement with DHL, dated March 15, 2006. (13)

Letter from DHL dated July 19, 2006, notifying ABX Air, Inc. of a change to the scope of services
under the DHL ACMI agreement. (14)

Aircraft Loan and Security Agreement and related promissory note, dated August 24, 2006, by and
among ABX Air, Inc. and Chase Equipment Leasing, Inc. (14)

Aircraft Loan and Security Agreement and related promissory note, dated October 10, 2006, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (15)

Aircraft Loan and Security Agreement and related promissory note, dated February 16, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (16)

Aircraft Loan and Security Agreement and related promissory note, dated April 25, 2007, by and
among ABX Air, Inc. and Chase Equipment Leasing, Inc. (17)

Aircraft Loan and Security Agreement and related promissory note, dated July 18, 2007, by and
among ABX Air, Inc. and Chase Equipment Leasing, Inc. (18)

Credit Agreement dated December 31, 2007, among ABX Holdings, Inc., ABX Air, Inc., CHI
Acquisition Corp., SunTrust Bank as Administrative Agent, Regions Bank as Syndication Agent
and the other lenders from time to time a party thereto. (19)

Guarantee and Collateral Agreement dated December 31, 2007, executed by ABX Holdings, Inc.,
ABX Air, Inc., CHI Acquisition Corp. and each direct and indirect subsidiary of ABX Holdings,
Inc. (19)

Escrow Agreement dated December 31, 2007, among ABX Holdings, Inc., ABX Air, Inc., the
thereto and Wells Fargo Bank, National
Significant Shareholders who are signatories
Association. (19)

Securities Purchase Agreement dated December 31, 2007, among ABX Holdings, Inc., ABX Air,
Inc. and the Significant Shareholders who are signatories thereto. (19)

Form of Senior Subordinated Convertible Note of ABX Holdings, Inc. (19)

Form of Senior Subordinated Notes of ABX Air, Inc. (19)

Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (29)

Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (29)

Employment Agreement between Cargo Holdings International, Inc. and Peter Fox, dated
November 1, 2007. (19)

86

Exhibit No.

Description of Exhibit

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

10.55

10.56

10.57

10.58

10.59

First Amendment to Credit Agreement. (20)

First Amendment
Shareholders. (21)

to Escrow Agreement, among ABX Holdings, Inc. and the Significant

Assignment Agreement with SunTrust Bank and ABX Material Services, Inc. (22)

Assignment Agreement with Regions Bank and ABX Material Services, Inc. (22)

Severance and Retention Agreement dated August 15, 2008, between DPWN Holdings (USA),
Inc. and ABX Air, Inc. (23)

Agreement dated September 9, 2008, between Israel Aerospace Industries Ltd. and Cargo Aircraft
Management, Inc. for airline conversion. (23)

Second Amendment to the ACMI Services Agreement by and between DHL Network Operations
(USA), Inc. as successor in interest to the Airborne (“Groundco”) and ABX Air, Inc. (“Airco”),
dated August 15, 2003, as previously amended on April 27, 2004 (“ACMI Agreement”), dated
November 8, 2008. (24)

Third Amendment to the Hub and Line-Haul Services Agreement by and between DHL Express
(USA), Inc. as successor in interest to the Airborne (“Groundco”) and ABX Air, Inc. (“Airco”),
dated August 15, 2003, as previously amended on April 27, 2004 (“ACMI Agreement”) and
August 8, 2005 (the “Hub Services Agreement”) dated November 9, 2008. (24)

Second Amendment, dated January 30, 2009, to Escrow Agreement among Air Transport Services
Group, Inc., ABX Air, Inc., each of the significant shareholders listed on the Schedule of
Significant Shareholders attached thereto, and Wells Fargo Bank, NA, as escrow agent. (25)

Second Amendment, dated November 9, 2008, to the ACMI Service Agreement, by and between
DHL Network Operations (USA), Inc. and ABX Air, Inc., dated August 15, 2003. (26)

Third Amendment, dated November 9, 2008, to the Hub and Line-Haul Services Agreement, by
and between DHL Express (USA), Inc. and ABX Air, Inc., dated August 15, 2003. (26)

Letter Agreement, dated April 16, 2009, Concerning Base and Incremental Markup for the Second
Quarter of 2009 under the ACMI Service Agreement, by and between DHL Network Operations
(USA), Inc. and ABX Air, Inc., dated August 15, 2003. (27)

Letter Agreement, dated April 16, 2009, Concerning Base and Incremental Markup for the Second
Quarter of 2009 under the Hub and Line-Haul Services Agreement, by and between DHL Express
(USA), Inc. and ABX Air, Inc., dated August 15, 2003. (27)

Amended and Restated First Non-Negotiable Promissory Note between ABX Air, Inc., as maker,
and DHL Express (USA), Inc., as holder, dated May 8, 2009. (27)

Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated
May 8, 2009. (27)

Lease Assumption and Option Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc., dated May 29, 2009. (27)

Letter Agreement, dated November 9, 2009, Concerning Base and Incremental Markup for the
Third Quarter of 2009 under the ACMI Service Agreement, by and between DHL Network
Operations (USA), Inc. and ABX Air, Inc., dated August 15, 2003. (28)

Letter Agreement, dated November 9, 2009, Concerning Base and Incremental Markup for the
Third Quarter of 2009 under the Hub and Line-Haul Services Agreement, by and between DHL
Express (USA), Inc. and ABX Air, Inc., dated August 15, 2003. (28)

Fourth Amendment, dated November 11, 2009, to the Hub and Line-Haul Services Agreement, by
and between DHL Express (USA), Inc., as successor in interest to Airborne, Inc. (“Groundco”)
and ABX Air, Inc. (“Airco”), dated August 15, 2003. (28)

87

Exhibit No.

Description of Exhibit

10.60

Letter Agreement, dated March 4, 2010, Concerning Base and Incremental Markup for the Fourth
Quarter of 2009 under the ACMI Service Agreement, by and between DHL Network Operations
(USA), Inc. and ABX Air, Inc., dated August 15, 2003, filed herewith.

Code of Ethics

14.1

Code of Ethics—CEO and CFO. (6)

List of Significant Subsidiaries

21.1

List of Significant Subsidiaries of Air Transport Services Group, Inc., filed within.

Consent of experts and counsel

23.1

Consent of independent registered public accounting firm, filed herewith.

Certifications

31.1

31.2

32.1

32.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.

(1)

(2)

(3)

(4)

(5)

Incorporated by reference to the Company’s Registration Statement Form S-4 filed on May 9, 2003 with the
Securities and Exchange Commission.
Incorporated by reference to the Company’s Registration Statement Form S-4/A filed on June 18, 2003 with
the Securities and Exchange Commission, as amended.
Incorporated by reference to the Company’s Registration Statement Form S-4/A filed on July 9, 2003 with
the Securities and Exchange Commission, 2003, as amended.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on November 14, 2003
with the Securities and Exchange Commission.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 25, 2004 with the
Securities and Exchange Commission.

(6) The Company’s Code of Ethics can be accessed from the Company’s Internet website at www.atsginc.com.
(7)
(8)

Incorporated by reference to the Company’s 8-K filed on April 7, 2004.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on August 11, 2004 with
the Securities and Exchange Commission.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed on May 14, 2004 with the
Securities and Exchange Commission.

(9)

(10) Incorporated by reference to the Company’s 8-K filed on July 12, 2005.
(11) Incorporated by reference to the Company’s 8-K filed on August 9, 2005.
(12) Incorporated by reference to the Company’s 8-K filed on October 4, 2005.
(13) Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 16, 2006 with the

Securities and Exchange Commission.

(14) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on August 9, 2006.

(15) Incorporated by reference to the Company’s Annual Report of Form 10-K/A filed on August 14, 2007 with

the Securities and Exchange Commission.

(16) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A, filed with the Securities and

Exchange Commission on August 14, 2007.

(17) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on August 14, 2007.

88

(18) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on November 14, 2007.

(19) Incorporated by reference to the Company’s 8-K/A, submitted for filing with the Securities and Exchange

Commission on March 14, 2008.

(20) Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange

Commission on January 25, 2008.

(21) Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange

Commission on March 21, 2008.

(22) Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange

Commission on August 13, 2008.

(23) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on November 14, 2008.

(24) Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 23, 2009 with the

Securities and Exchange Commission.

(25) Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange

Commission on February 5, 2009.

(26) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on May 11, 2009.

(27) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on August 10, 2009.

(28) Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and

Exchange Commission on November 12, 2009.

(29) Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 17, 2008 with the

Securities and Exchange Commission.

89

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant

has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Air Transport Services Group, Inc.

Signature

/S/

JOSEPH C. HETE
Joseph C. Hete

Title

Date

President and Chief Executive Officer

March 31, 2010

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by

the following persons in the capacities and on the date indicated:

Signature

Title

Date

/S/

JAMES H. CAREY
James H. Carey

/S/

JAMES E. BUSHMAN
James E. Bushman

/S/

JEFFREY A. DOMINICK
Jeffrey A. Dominick

/S/

/S/

JOHN D. GEARY
John D. Geary

JOSEPH C. HETE
Joseph C. Hete

Director and Chairman of the
Board

Director

Director

Director

Director, President and Chief
Executive Officer

March 31, 2010

March 31, 2010

March 31, 2010

March 31, 2010

March 31, 2010

/S/ RANDY D. RADEMACHER

Director

March 31, 2010

Randy D. Rademacher

/S/

J. CHRISTOPHER TEETS
J. Christopher Teets

/S/

JEFFREY J. VORHOLT
Jeffrey J. Vorholt

/S/ QUINT O. TURNER

Quint O. Turner

Director

Director

March 31, 2010

March 31, 2010

Chief Financial Officer

March 31, 2010

90