Air Transport Services Group Annual Report 2010

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FY2010 Annual Report · Air Transport Services Group

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Air Transport Services Group, Inc.
145 Hunter Drive
Wilmington, Ohio 45177
www.atsginc.com

Piecing it all together:
Bundled solutions
for the global marketplace

2010 Annual Report

OUTSIDE BACK COVER

OUTSIDE FRONT COVER

Air Transport Services Group 2010 Annual Report

To Our Shareholders

The restructuring of your company
in 2008 and 2009 paid off strongly in
2010, as a transformed ATSG gained
the attention and respect of both the air
cargo and investor markets.

2010 was a year of rebounding growth
for the air cargo industry in general, and
for ATSG in particular. Our restructured
relationship with DHL, our largest
customer, was the last piece to fall into
place in a lengthy transformation that
had begun two years earlier with the
acquisition of Cargo Holdings International
(CHI), and our results for the year
reflected those changes.

Our net income for 2010 was $39.8 million,
or sixty-two cents per share, while our pre-tax
earnings were $63.3 million from continuing
operations. That was our best performance ever
for pre-tax earnings from continuing operations.
Net cash provided by operating activities
increased 9 percent, and our long-term debt
dropped for the third year in a row, expanding
our capacity to support new growth measures in

the years to come.

Pre-tax Earnings
from continuing operations (in millions)

$63.3

$45.4

$27.8

$25.7

($56.6)

$23.6

$22.2

2004

2005

2006

2007

2008

2009

2010

Our long-term shareholders have enjoyed a
second straight year of extraordinary gains, with
a tripling of our common-share price in 2010
following a tenfold increase in 2009. That pace
made ATSG common shares one of the five
best performers of any common stock listed
on the three major U.S. exchanges ― NYSE,
NASDAQ Global Market, or Amex ― over the
last two years.

The strategy that has spurred our exceptional

transformation stems from decisions we made
to diversify our business and customer base.
At the depths of our crisis in 2008, when it
appeared that DHL would be replacing us as
its principal air transport and package handling
partner for its U.S. operations, we strengthened
our resolve and expanded the range of ways
we could apply our attractive aircraft assets and
talented employees to serve the growing air
cargo marketplace.

Solving the Puzzle

Our process of analysis and strategic
appraisal led to a fundamental truth: Our
business would be more successful if we
made it a priority to earn competitive market

returns on our aircraft assets alone,
separate from any incremental
income we might earn from
operating those aircraft

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Investor Information

Stock Information
NASDAQ: ATSG
Company documents
electronically
filed with the SEC
also may be found at
www.atsginc.com.

Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio

Registrar and Transfer Agent
Computershare Investor Services
(877) 581-5548 or (781) 575-2879
www.computershare.com/investor

By mail:
P.O. Box 43078
Providence, RI
02940-3078

By courier:
250 Royall Street
Canton, MA 02021

Annual Meeting
The annual meeting of stockholders
will be May 10, 2011, at 11 a.m.
local time at the Boyd Cultural Arts
Center, Heiland Theater (at Douglas
and College Streets), Wilmington
College, Wilmington, Ohio.

Investor Relations
Telephone inquiries may be
directed to (937) 434-2700.

Randy D. Rademacher
Senior Vice President, Chief Financial Officer of
Reading Rock, Inc. Mr. Rademacher has been a
Director of the Company since December 2006. He
is the Chairman of the Nominating and Governance
Committee and is a member of the Audit Committee.

J. Christopher Teets
Partner of Red Mountain Capital Partners
LLC. Mr. Teets has been a Director of the
Company since February 2009. He is a member
of the Compensation Committee and the
Nominating and Governance Committee.

Jeffrey J. Vorholt
Independent consultant and private investor. Mr. Vorholt
has been a Director of the Company since January
2004. He is the Chairman of the Audit Committee and
a member of the Compensation Committee.

Board of Directors

James H. Carey
Executive Vice President (Retired) of the Chase
Manhattan Bank. Mr. Carey has been the Chairman
of the Board of the Company since May 2004, and
has been a Director since August 2003. He also
is a member of the Compensation Committee and
the Nominating and Governance Committee.

James E. Bushman
Chairman of Cast-Fab Technologies, Inc., and
Chairman of Security Systems Equipment
Corporation. Mr. Bushman has been a Director
of the Company since May 2004. He is the
Chairman of the Compensation Committee
and a member of the Audit Committee.

Jeffrey A. Dominick
Managing Director and Head of Alternative
Investments and Private Equity for Babson Capital
Management LLC, a wholly owned subsidiary of
the MassMutual Financial Group. Mr. Dominick has
been a Director of the Company since February
2008 and is a member of the Nominating and
Governance Comittee and the Audit Committee.

John D. Geary
President and Chief Executive Officer
(Retired) of Midland Enterprises, Inc.
Mr. Geary has been a Director of
the Company since January
2004, and is a member
of the Nominating and
Governance Committee and
the Compensation Committee.

Joseph C. Hete
President and Chief Executive
Officer of Air Transport Services
Group, Inc. and Chief Executive
Officer of ABX Air, Inc. Mr. Hete has
been with the company since 1980.

INSIDE

INSIDE BACK COVER

Air Transport Services Group 2010 Annual Report

That appraisal led us to our strategic

approach: Instead of remaking ATSG
as just another source of charter or
ACMI (Aircraft, Crew, Maintenance
& Insurance) airlift, we set out to
become a disciplined, flexible allocator
of aircraft assets within a niche market
we could lead — the market for converted
medium widebody freighter aircraft and
most notably the reliable, fuel-efficient,
payload-flexible Boeing 767 series.

We wanted to become the company

where mid-size freighter customers
could select the pieces that best fit
their needs, from a long-term dry lease
of a single aircraft for a fixed price, all
the way to managing a complete fleet
migration program for a regional air
cargo network operator. That would
include deploying our Boeing 767
freighters on an ACMI basis using our
aircraft, crews, and ground support, and
potentially moving to long-term leases of
multiple 767s, backed by our assistance
with pilot training, engine and airframe
maintenance, and certification support.

That one-stop commitment is
evidenced by our new marketing
entity, Airborne Global Solutions,
which we created in 2010 to assist
our three airlines, aircraft maintenance
firm, aircraft leasing company, and other
businesses in generating unique combinations
of their capabilities for customers. It also is
apparent in Airborne Global Solutions’ new
advertising campaign, appearing this year in
trade journals and leading electronic media.

Adding More Pieces

In addition to implementing the DHL
agreements that took effect in April 2010,
we completed the conversion process of six
Boeing 767-200s to standard freighter
configuration and deployed them into service.

Six more Boeing 767-200s were either
awaiting or in conversion at the end of 2010.
In response to strong customer interest in
extended-range alternatives, and having nearly

exhausted the supply of Boeing 767-200
conversion prospects, we acquired our first
three larger, longer-range 767-300s during the
year, and scheduled them for modification and
deployment during 2011.

We are in the market to purchase additional

passenger Boeing 767 aircraft for freighter
conversion, but relatively tight market conditions
may persist pending Boeing’s deployment of
its next-generation mid-size 787 aircraft. We
will not bend, however, on our rigid criteria
to acquire only the best available conversion
prospects at prices that allow us to achieve
the return on invested capital requirements we
have established.

not printed

Air Transport Services Group 2010 Annual Report

Everything Fits Together

Those nine Boeing 767 aircraft that will join

our fleet in 2011 will represent incremental
revenues, earnings and cash flow for ATSG,
first from lease revenues as our leasing entity,
Cargo Aircraft Management (CAM), holds and
allocates them in a balanced way between our
own airlines and CAM’s outside customers.
Those aircraft also will bring in revenues from
services our customers will likely select from
us as we complete and deploy the nine at
the rate of about one per month through the
end of this year. We have commitments from
customers for three of them today. Before
each of the remaining six is ready to fly as
a freighter, we expect to have a contracted
customer waiting to fit it into their operations.
Our confidence about the future is rooted in
the continued strong interest in our Boeing 767s
and interlocking support capabilities. In the fall,
we were pleased to receive major commitments
to deploy our aircraft from Japan Airlines and
Amerijet. In addition, DHL retained us to provide
additional transatlantic service for them using
a 767-300 we leased from a third party, and
selected our flight crews to operate four of their
own 767-200s in the U.S. Earlier this year, Rio
Airlines of Brazil committed to lease one 767-
200 from us, and we are currently finalizing
agreements for a second. Additionally, DHL has
expanded operations with us to carry mail and
other cargo within Europe and the Middle East

2010 Revenue by Customer
from continuing operations

DHL
36%

U.S. military
14%

BAX/Schenker
29%

Other ACMI
12%

Maintenance
and other
6%

USPS
3%

with the recent addition of three Boeing 767-
200s and crews.

Our outlook for the rest of 2011 remains

bright, especially in the latter half of the
year as our converted aircraft deployments
accelerate. We expect to benefit from the
increasing interest in air cargo networks as
game-changing alternatives to slow, labor-
intensive supply chains that rely on ships, trains
and trucks to move goods around the world.
As a provider of airlift via mid-size widebody
Boeing 767s within such evolving regional and
intercontinental networks, we believe that we
can become significant participants in the ever-
faster movement of goods to market, leveraging
our unique strategy and incremental service
advantages to be even more successful.
We appreciate your support during the

restructuring of ATSG, and all of the pieces are
now in place for a rewarding future.

Joseph C. Hete
President & Chief Executive Officer
Air Transport Services Group, Inc.

not printed

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

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2010

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

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

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

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

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)

Accelerated filer
Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES

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:
$221,491,700. As of March 8, 2011, 63,652,228 shares of the registrant’s common stock, par value $0.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 10, 2011 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
2010 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Reserved

PART I

PART II

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities

Selected Consolidated Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

PART III

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Item 15.

Exhibits and Financial Statement Schedules

SIGNATURES

PART IV

Page

[THIS PAGE INTENTIONALLY LEFT BLANK]

ITEM 1. BUSINESS

General Business Development

PART I

Air Transport Services Group, Inc. (“ATSG”), provides aircraft for lease, airline operations, aircraft maintenance
and other related services primarily to the shipping and transportation industries. Through several subsidiaries, the
Company offers a wide range of capabilities serving delivery companies, freight forwarders, airlines and government
customers. ATSGwholly owns three independent airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines,
Inc. (“CCIA”), and Air Transport International, LLC (“ATI”), each of which is certificated by the U.S. Department of
Transportation. These airlines primarily transport cargo within the United States and include operations in Europe,
Asia, the Middle East and throughout the Americas. ATSG includes an aircraft leasing subsidiary, Cargo Aircraft
Management, Inc. (“CAM”), which leases its fleet of Boeing 767, 757, 727 and McDonnell Douglas DC-8 aircraft to
ATSG’s airlines and to external customers.

ABX is based in Wilmington, Ohio and operates a fleet of Boeing 767 cargo 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, and became an independent publicly traded company, in
conjunction with the acquisition of Airborne by an indirect wholly-owned subsidiary of DHL Worldwide Express, B.V.
("DHL"). ATI, based in Little Rock, Arkansas, began operations in 1979 and was an affiliate of BAX Global, Inc.
(“BAX/Schenker”) prior to 2006. ATI operates McDonnell Douglas DC-8 and Boeing 767 aircraft and provides airlift
to BAX/Schenker, the U.S. Military and various other customers. CCIA obtained its airline operating certificate in
1996 and currently operates Boeing 727 and 757 aircraft, primarily providing air freight transportation for BAX/
Schenker and DHL.

ATSGis incorporated in Delaware and its headquarters is in Wilmington, Ohio. ATSG’scommon shares are publicly
traded on the NASDAQ Stock Market under the symbol ATSG. ATSG was formed on December 31, 2007 from the
reorganization of ABX for the purpose of creating a holding company structure. On December 31, 2007, ATSG
completed the acquisition of CAM, ATI and CCIA which were together owned by a group of private investors. ATSG
acquired all of the outstanding stock, stock options and warrants of these companies for a combination of cash, shares
of ATSG and debt repayment. The overall transaction value was approximately $340 million, which ATSG partially
financed through a $270 million unsubordinated term loan.

ATSG’s other subsidiaries 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”), an aircraft maintenance and repair
organization;
AMES Material Services, Inc. ("AMS"), which markets and sells aircraft parts;
ABX Cargo Services, Inc. ("ACS"), which operates mail sorting centers for the U.S Postal Service ("USPS");
LGSTX Services, Inc (“LGSTX”) which provides contract maintenance, ground support equipment rentals
and fuel management for airlines.

We believe that offering a range of complementary solutions to shippers, freight forwarders and other airlines
provides a competitive advantage for growth and diversification. Customers who lease our aircraft typically need
related services, such as scheduled aircraft maintenance, line maintenance and crew training which our subsidiaries
can provide. In 2010, we formed Airborne Global Solutions, Inc. ("AGS") to assist our subsidiaries in effectuating
their sales and marketing plans. Through AGS, we can better leverage our customer relationships on additional business
opportunities and market our aviation knowledge and the broad capabilities of our subsidiaries. AGS works with our
customers in identifying their business and operational requirements and then works with our subsidiaries in forming
a bundled solution of aircraft leases and related services to meet customer needs. AGS assists in marketing the
capabilities of our three airlines to provide scalable airlift to a wide range of international locations.

The Company has a concentrated base of leading customers who have diverse lines of international cargo traffic.
The three largest customers, DHL, BAX/Schenker and the U.S. Military, totaled 79% of the Company's consolidated
revenues in 2010. Information about the Company's revenues and accounts receivable with these customers is presented

in Note B to the accompanying consolidated financial statements.

Background

The Company, through ABX, has had long term contracts with DHL since August 16, 2003. Beginning in August
2003, ABX operated primarily under two commercial agreements with DHL; an aircraft, crew, maintenance and
insurance agreement (“DHL ACMI agreement”) and a hub services agreement (“Hub Services agreement”) both of
which had become effective in conjunction with DHL's acquisition of Airborne. Under these agreements, ABX and
DHL generally operated under a cost-plus pricing structure. ABX provided staff to conduct package sorting, as well
as airport, facilities and equipment maintenance services for DHL under the Hub Services agreement. In 2008, DHL
began to restructure its U.S. operations due to continued losses. Pursuant to its restructuring plans, DHL discontinued
intra-U.S. domestic pickup and delivery services and now provides only international services to and from the U.S. In
the third quarter of 2009, ABX ceased all remaining sort operations for DHL and the Hub Services agreement expired.
Additionally, in the third quarter of 2009, DHL assumed management of aircraft fueling services for its U.S. network
previously provided by ABX. The hub services operations and the aircraft fueling operations have been reported as
discontinued operations since that time.

ABX continued to provide airlift for DHL’sinternational delivery services in the U.S. through ABX’s Boeing 767
aircraft under the DHL ACMI agreement until March 2010. At that point, the Company and DHL terminated the DHL
ACMI agreement and executed new follow-on agreements effective March 31, 2010. Under the new agreements, DHL
committed to lease 13 Boeing 767 freighter aircraft from CAM and ABX was separately contracted to operate those
aircraft for DHL under a five year crew, maintenance and insurance agreement ("CMI agreement"). As of December
31, 2010, DHL was leasing 11 of the 13 aircraft from CAM, all of which ABX operates for DHL under the CMI
agreement. Two additional Boeing 767 aircraft are scheduled for lease to DHL before the end of the second quarter of
2011.

Description of Business

The Company has two reportable segments, "CAM" and “ACMI Services." Due to the similarities among the
Company's airline operations, including the CMI agreement with DHL, the airline operations were aggregated into a
single reportable segment, ACMI Services, in 2010. The Company’s other business operations, including aircraft
maintenance and modification services, aircraft part sales, equipment leasing and maintenance, mail handling for the
USPS and specialized services for aircraft fuel management, do not constitute reportable segments due to their size.
Financial information about our segments and geographical revenues is presented in Note P to the accompanying
consolidated financial statements.

CAM

CAM’s fleet consists of Boeing 767, Boeing 757, Boeing 727 and McDonnell Douglas 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 typically is required to return the aircraft in approximately the same
maintenance condition, as measured by airframe and engine time until the next scheduled maintenance event, as existed
at the inception of the lease. CAM examines the credit worthiness 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 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.

Through CAM, we plan to expand the Company's combined fleet of aircraft. Information about the Company's

commitments for aircraft expenditures is included in Note I to the accompanying consolidated financial statements.

ACMI Services

Through its three airline subsidiaries, the Company provides airline operations to DHL, BAX/Schenker, other
airlines, freight forwarders and the U.S. Military. A typical operating agreement requires the ATSG airline to supply,
at a specific rate per block hour and/or per month, the aircraft, crew, maintenance and insurance for specified cargo
operations, while the customer is responsible for substantially all other aircraft operating expenses, including fuel,
2

landing fees, parking fees and ground and cargo handling expenses. Charter agreements, including U.S. Military
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.

In March 2010, the Company and DHL terminated the DHL ACMI agreement and executed new follow-on
that DHL either leased

agreements. Through the new agreements, effective March 31, 2010, ABX operates aircraft
from CAM or owns itself. The new CMI agreement with DHL has an initial term of five years.

CCIA and ATI each have contracts to provide airlift to BAX/Schenker under ACMI agreements. BAX/Schneker
provides freight transportation and supply chain management services, specializing in the heavy freight market for
business-to-business shipping. The BAX/Schenker central hub is located in Toledo, Ohio. CCIA and ATI have the
exclusive right to supply all main deck freighter airlift in BAX/Schenker's U.S. domestic network through December
31, 2011.

ATI provides airlift to the Air Mobility Command ("AMC"), which is organized under the U.S. Military. ATI
contracts its unique fleet of McDonnell Douglas DC-8 combi aircraft to the AMC. The combi aircraft are capable of
carrying passengers and cargo containers on the main flight deck. AMC awards flights to U.S. certificated airlines
through annual contracts. For the government fiscal year 2011, AMC awarded ATI three international routes for combi
aircraft. These routes are for destinations that are not within the areas of the Middle East conflicts. Additionally, ATI
often operates temporary "expansion" routes for the AMC using its McDonnell Douglas DC-8 combi and freighter
aircraft.

The Company has limited exposure to fluctuations in the price of aviation fuel under our contracts with DHL,
BAX/Schenker and the U.S. Military. ATI procures the aircraft fuel for BAX/Schenker's U.S. domestic network and
is reimbursed by BAX/Schenker for the price paid for fuel used. The charter agreements with the U.S. Military are
based on a preset pegged fuel price and include a subsequent true-up to the actual fuel prices within two cents per
gallon. DHL, like most of our ACMI customers, procures the aircraft fuel and fueling services necessary for their
flights.

U.S. Postal Service

Since September 2004, the Company has provided mail sorting services under contracts with the USPS. Our
subsidiary, ACS, manages 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. Each contract was renewed in 2010 and has a two-year term, with
expiration dates in either September or October 2012.

Cargo and Transportation Services

The Company provides brokerage services for airlift by arranging charters for customers using third party airlines

as well as ATSG owned airlines.

Aircraft Maintenance and Modification Services

The Company provides aircraft maintenance and modification services to other airlines through its ABX and AMES
subsidiaries. In May 2009, much of the aircraft maintenance, component repair 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.

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 is AS9100 quality certified for the aerospace
industry. AMES markets its capabilities by identifying aviation-related maintenance and modification opportunities
3

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 modernizes 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 and heavy maintenance on DC-9, Boeing 767, 757, 737 and
727 aircraft. AMES has the capabilities to refurbish airframe components, including approximately 60% of the
components for Boeing 767 aircraft.

Aircraft Parts Sales and Brokerage

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

LGSTX, formerly named ABX Equipment and Facility Services, Inc., provides contract services for aviation support
and facility services throughout the U.S. LGSTX 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. LGSTX is also
licensed to resell aircraft fuel. LGSTX arranges fueling services for customers and can provide fuel for aircraft charter
customers.

Flight Crew Training

ABX and CCIAare FAA-certificatedto offer flight crew training to customers and rent usage of their flight simulators
for outside training programs. The Company has five flight simulators in operation, including one Boeing 767, one
DC-8, one Boeing 727 and two DC-9 flight simulators. The Company’s Boeing 767, its Boeing 727 and one of its DC-9
flight simulators are level C certified. The level C flight simulators allow the Company to qualify flight crewmembers
under FAArequirements 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. All Company airline operations are conducted pursuant to authority granted
to them by the FAA. 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’soperations center in Orlando, Florida, and the same functions for ATI are controlled from ATI’s
operations center in Little Rock, Arkansas.

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”), including AMES, 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 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, 2010, ATSG and its subsidiaries had approximately 2,065 employees, including 1,790 full-
time employees and 275 part-time employees. ATSG employs approximately 600 flight crewmembers, 910 aircraft
maintenance technicians and flight support personnel, 315 warehousing, sorting and logistics personnel, 65 employees
for airport maintenance and logistics, 25 employees for sales and marketing and 150 employees for administrative
functions. On December 31, 2009, the Company had approximately 2,020 employees.

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, 2010.

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
7/31/2013

Approximate
Number of
Employees
Represented

12.4%
10.1%
6.4%

Under the Railway Labor Act (“RLA”), as amended, the crewmember labor agreements do not expire, so the
existing contract remains in effect throughout any negotiation process. If required, mediation under the RLAis 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.

Training

The flight crewmembers are required to be licensed in accordance with Federal Aviation Regulation (“FAR”), 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 FAAmandates initial and recurrent training for most flight, maintenance and engineering personnel. Mechanics
and quality control inspectors must also be licensed and qualified to perform maintenance on the Company operated
and maintained 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, aircraft 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., AstarUSA, Inc. (“Astar”), AtlasAirWorldwideHoldings, Inc., National Airlines,Evergreen
International, Inc., and World Airways, Inc. The industry is capital intensive and 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 due to increased shipments during the
holiday season.

The scheduled delivery industry is dominated by integrated door-to-door carriers including DHL, the USPS, FedEx
Corporation, BAX/Schenker 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 them.

Competition for aircraft leasing is generally effected by aircraft type, aircraft availability and lease rates. We target

our leases to cargo airlines and delivery companies seeking medium widebody airlift.

The aircraft maintenance industry is labor intensive and typically competes based on cost, capabilities and reputation
for quality. 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 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 crewmember flight and duty time, and crewmember
training status.

Regulation

Our subsidiaries’ airline operations are generally regulated by the DOT, the FAA and the TSA. 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 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.

In addition, the European Commission has approved the extension of the European Union Emissions Trading

Scheme ("ETS") for greenhouse gas emissions to the airline industry. Under this decision, all Company airline subsidiary
flights to and from any airport in any member state of the European Union will be covered by the ETS requirements
beginning in 2012, and each year we will be required to submit emission allowances in an amount equal to the carbon
dioxide emissions from such flights.

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 have adopted local
noise regulations, and, to the extent more stringent aircraft operating regulations are adopted on a widespread basis,
our airline 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 airline 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, CCIA and ATI Certificates of Public Convenience and Necessity authorizing
each of them to engage in scheduled foreign air transportation of cargo and mail between the U.S. and over 88 foreign
countries. By maintaining these certificates, the Company, through its airline subsidiaries, can conduct all-cargo charter
operations worldwide. 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.

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 technical
competence to conduct air carrier operations. In addition, the FAA issues certificates of 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 airworthiness 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. In addition to the FAA practice of issuing airworthiness directives as conditions warrant, the
FAA has adopted new policies to address issues involving older, but still economically viable aircraft, on a more
systematic basis. New FAA regulations mandate that aircraft manufacturers establish limits on aircraft flight cycles
before which widespread fatigue damage might occur. Once these limits are established, carriers must then incorporate
them into their maintenance programs over time. Once the limits are reached, airlines will be unable to continue to
operate the aircraft without the FAA first granting an extension of time to the operator. As the manufacturers have not
yet set the new limits, the Company cannot yet estimate the impact of the new rule on any of its airline subsidiaries.

The FAA has amended its policy regarding the proper application of airport rates and charges imposed on airlines.
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.

The FAA requires each of the airline subsidiaries to implement a drug and alcohol testing program with respect to

all employees that engage in safety sensitive functions. Each of the airlines comply with these regulations.

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 and our customers. Among other things, the
TSA requires each airline to perform criminal history background checks on all employees. In addition, we may be
required to reimburse the TSA for the cost of security services it may provide to the Company’s airline subsidiaries in
the future.

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 FAAregulations, 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.

The economic conditions in the U.S. and throughout the globe may negatively impact the demand for the Company’s
aircraft and services.

Air cargo transportation volumes are strongly correlated to general economic conditions, including the price of
aviation fuel. An economic downturn could reduce the demand for delivery services offered by DHL, BAX/Schenker
and other delivery businesses, in particular expedited services shipped via aircraft. Accordingly, an economic downturn
could reduce the demand for airlift and cargo aircraft leases. During an economic slowdown, customers generally
prefer to use ground-based delivery services instead of more expensive air delivery services. If the price of aviation
fuel rises significantly, the demand for cargo aircraft and air delivery services may decline further.

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

The airlines each develop business plans for ACMI, charter and other operating contracts by projecting operating
costs, crew productivity and maintenance expenses. Projections contain key assumptions, including flight hours, aircraft
reliability, crewmember productivity and crewmember compensation and benefits. We may overestimate revenues,
the level of crewmember productivity, and/or underestimate the actual costs of providing services when preparing for
new business opportunities. If actual costs are higher than projected or aircraft reliability is less than expected, future
operating results may be negatively impacted.

The Company’s three airlines rely on crews that are unionized. The respective collective bargaining agreements
for ABX and CCIA were recently renegotiated and the collective bargaining agreement for ATI is scheduled for a
ratification vote in mid-March 2011. If collective bargaining agreements increase our costs and we cannot recover the
increases in costs, we may decide to terminate customer contracts or curtail planned growth. If disagreements arise,
airline operations could be interrupted and business could be adversely affected until agreements are reached with the
crewmembers.

Our airline operating agreements include on-time reliability requirements which can impact the Company's operating
results and financial condition.

The airline operating agreements with DHL and BAX/Schenker contain monetary penalties if aircraft reliability
falls below certain monthly thresholds. An airline could be found in default of an agreement if it does not maintain
minimum thresholds over an extended period of time. The airline operating agreements also contain monthly incentive
payments for reaching specific on-time reliability thresholds. As a result, our operating revenues can vary from period

to period depending on the achievement of those monthly incentives.

If ABX fails to maintain aircraft reliability above a minimum threshold in DHL's U.S. domestic network for two
consecutive calendar months or three months in a rolling twelve month period, ABX would be in default of the CMI
agreement with DHL.
In that event, DHL may elect to terminate the CMI agreement, unless ABX maintains the
minimum reliability threshold during a sixty-day cure period. If DHL terminates the CMI agreement due to an ABX
event of default, ABX would be subject to a monetary penalty payable to DHL. The penalty at March 31, 2011 would
be $15 million and will reduce to $10 million on March 31, 2012, and will remain at that amount through the initial
term of the CMI agreement.

Under provisions of the CMI and lease agreements with DHL, DHL can terminate the CMI or lease agreements subject
to early termination provisions.

DHL may terminate the CMI agreement for convenience at any time during the initial five-year term (other than
the first twelve-months thereof) on the date that it ceases operating or causing to be operated the aircraft on air routes
for which the origin and destination are within the United States, subject to providing six months notice and paying to
ABX a termination fee. This termination fee will start at $70 million on March 31, 2011and amortize to zero during
the remaining four year initial term of the CMI agreement. DHL may terminate one or more of the aircraft leases for
convenience at any time after the first 24 months of the respective terms thereof, upon providing six months notice and
paying to CAM a lump sum amount equal to six months rent. DHL may also terminate one or more aircraft leases at
any time after the first 54 months of the term of the CMI agreement, in the event that DHL desires to transfer operational
control of such aircraft, but is restricted from doing so by the terms of the collective bargaining agreement between
ABX and its pilots' union providing that members of the pilots' union have the right to follow the aircraft to another
operator, subject to providing six months notice and paying to CAM a lump sum amount equal to two months rent.

BAX/Schenker may reduce airlift requirements or contract for airlift with other providers.

CCIA and ATI have the exclusive right to supply all main deck freighter airlift in BAX/Schenker's U.S. domestic
network. However, BAX/Schenker can remove an ATI or CCIA aircraft from service at the time an aircraft or engine
on that aircraft requires a heavy maintenance event. ATI and CCIA's exclusive rights to supply airlift to BAX/Schenker
is scheduled to expire on December 31, 2011, and BAX/Schenker has the right to terminate the exclusivity period
before that date by paying a termination charge that declines ratably to zero through December 31, 2011.

AMC may not renew our contracts or may reduce the number of routes that we operate.

Our contracts with the AMC (an organization within the U.S. Military) are typically for one year and are not
required to be renewed. The AMC may terminate the contracts for convenience or for an event of default, such as
reliability. The number and frequency of AMC routes is sensitive to changes in military priorities and U.S. defense
budgets.

Our business could be negatively impacted by adverse audit findings by the U.S. government.

Our U.S. Military contracts are subject to audit by government agencies, including with respect to performance,
costs, internal controls and compliance with applicable laws and regulations. If an audit uncovers improprieties, we
may be subject to civil or criminal penalties, including termination of such contracts, forfeiture of profits, fines and
suspension from doing business with the U.S. Military.

Proposed rules from the Department of Transportation, the U.S. Federal Aviation Administration and the Transportation
Security Administration would increase the Company's costs of operations and could reduce customers' utilization of
airfreight.

In September 2010, the FAA proposed new rules for Flightcrew Member Duty and Rest Requirements (FMDRR).
If implemented, the new rules would require a pilot to have nine hours for the opportunity to rest before reporting to
flight duty and place other restrictions on the number of duty hours in particular time periods. If enacted, these rules
could have a significant impact on ATSG airlines' costs of operation. The airlines would attempt to pass such additional
costs onto their customers in the form of price increases. Customers, as a result, may seek to reduce their utilization
of aircraft in favor of less expensive transportation alternatives. The ATSG airlines are each studying the proposed rules
and evaluating the effect that the rules could have on their flight resources and costs.

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

We plan to make capital investments to modify additional Boeing 767 standard freighter aircraft for service through
2011. We are also considering the development of a Boeing 757 combi variant. The actual demand for the Boeing 767
and 757 may be less than we anticipate. The actual lease rates for new modified aircraft may be less than we projected,
or new leases may start later than we expect. Further, other airlines and lessors may be in a position to provide aircraft
to the market before our aircraft are available for service.

The Company's 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/
Schenker, including international markets. Deploying aircraft in international markets can pose additional risks,
regulatory requirements and costs.

The concentration of aircraft types and engines in the Company's airlines could adversely affect our operating and
financial results.

The combined aircraft fleet is concentrated in four aircraft types. If any of theses aircraft types encounter technical
difficulties that resulted in significant FAAAirworthiness Directives or grounding, our ability to lease the aircraft would
be adversely impacted, as would our airlines' operations. The market growth in demand for the Boeing 767 and 757
aircraft types and configurations may be less than we anticipate. Customers may develop preferences for the Airbus
A300-600 and A330 aircraft which provide capabilities similar to the Boeing 767 aircraft.

We rely on third parties to modify aircraft and provide aircraft and engine maintenance. If service providers do not
deliver the level of service expected by our business, future operating results may be negatively impacted.

We rely on certain third party service providers that have expertise or resources that we do not have. An unexpected
termination or delay involving such service providers could have a material adverse effect on our operations and financial
results. We must effectively manage such third parties to meet aircraft modification schedules and maintenance events.
A delay in an aircraft modification could adversely impact our revenues and our ability to place the aircraft in the
market.

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 aircraft loans cross default. 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 could increase, and the contractual repayment of debt may accelerate. Additionally, the Company’s
ability to modify and deploy aircraft could be limited as a result.

Our access to liquidity could be less than we need for our expected growth plans and our cost of debt could increase.

The Company's existing Credit Agreement expires in December 2012. At that time, a balloon payment of $139.1
million is due to the consortium of banks that finance the Company's term loan, plus any draws on the revolving credit
facility that may be outstanding on December 31, 2012. We are exploring alternatives which may secure longer term
debt financing before the balloon payment is due. Alternatives which we may consider include amending and extending
the current Credit Agreement beyond 2012, terminating and replacing the current Credit Agreement with a new bank
facility as well as other alternatives. A new, follow-on credit agreement, assuming one can be obtained before 2012,
may contain more restrictive covenants, dividend limitations, tighter restrictions on capital spending and higher costs
of interest than the existing Credit Agreement. As of December 31, 2010, the Company had $3.6 million of capitalized
loan origination costs and $4.6 million of unrealized losses from the hedging of interest payments that could adversely
impact future operating results if the Credit Agreement is terminated early.

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.

Significant ownership changes could limit our ability to use NOLs to offset future taxable income. 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 significant stockholders increases by more
than 50 percentage points over such stockholders’ lowest percentage ownership during the testing period (generally
three years).

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.

We have recorded significant amounts of goodwill and intangibles related to acquisitions. 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 operations of the Company’s subsidiaries are subject

transportation, security,
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.

to complex aviation,

The costs of maintaining the aircraft in compliance 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. The FAA may
issue Airworthiness Directives that could require significant inspections and major modifications to such aircraft. The
FAA may issue Airworthiness Directives that could limit the usability of certain aircraft types. The FAA is currently
considering the issuance of an airworthiness directive that may 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.

In addition, new FAA regulations require that aircraft manufacturers must establish limits on an aircraft flight cycle
as described in Item 1, under Federal Aviation Administration Regulation of this report. These regulations may increase
our maintenance costs and eventually limit the use of our aircraft.

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 pursuant to the economic authority
issued by the DOT and the safety based authority 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. The loss of such authority by an airline subsidiary could cause

a default of covenants within the Credit Agreement and would materially and adversely affect its airline operations,
effectively eliminating the airline's ability to operate air services.

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

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.

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 European Commission has
mandated the extension of the European Union Emissions Trading Scheme ("ETS") for greenhouse gas emissions to
the airline industry. Under this decision, all Company airline subsidiary flights to and from any airport in any member
state of the European Union will be covered by the ETS requirements beginning in 2012, and each year we will be
required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. The
U.S. Congress has considered the regulation of greenhouse gas emissions. Also, the U.S. 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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases portions of the air park in Wilmington, Ohio under a lease agreement with a regional port
authority, the term of which expires in May of 2019. The lease includes corporate offices, 210,000 square feet of
maintenance hangars and a 100,000 square foot component repair shop at the air park. ABX also has the non-exclusive
right to use the airport, which includes one active runway, taxi ways and ramp space.

As of December 31, 2010, the Company and its subsidiaries owned 54 aircraft, leased six aircraft under capital
leases and four aircraft under operating leases, for a total of 64 aircraft in service condition. All of the aircraft were
previously owned and operated. Once acquired, the aircraft were modified for cargo operations, except for one Boeing
767 aircraft that remains in passenger configuration. These aircraft are generally described as having medium to medium
wide-body cargo capabilities. The cargo aircraft carry gross payloads ranging from approximately 48,000 to 119,500
pounds. These aircraft are well suited for intra-continental flights and medium range inter-continental flights. Because
an airline's 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 767-200
aircraft are operated 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.

The table below shows the combined in-service fleet of aircraft.

Aircraft Type

767-200 SF (1)

767-200 ER (3)

767-300 SF (1)

DC-8-F (1)

DC-8-CF (2)

727-200 SF (1)

757-200 SF (1)

Total in-service

Number of Aircraft as of December 31, 2010
Operating
lease

Capital
lease

Owned

Total

Year of
Manufacture

Gross Payload
(Lbs.)

Still Air Range
(Nautical Miles)

1982 - 1987

67,000 - 91,000

1,800 - 4,400

1985

1989

5,000

119,500

1,800 - 4,400

1967 - 1969

96,000 - 108,800

1,800 - 4,400

1968 - 1970

80,000 - 85,000

1,800 - 4,400

1973 - 1981

52,300 - 61,000

1,200 - 2,100

1984 - 1986

48,000 - 68,000

2,700 - 4,000

In addition, as of December 31, 2010, CAM had two Boeing 767-200 aircraft and one Boeing 767-300 aircraft, not
reflected in the table above, that were undergoing modification to a standard freighter configuration. CAM also had
four Boeing 767-200 aircraft and two Boeing 767-300, not reflected in the table above, that were scheduled to undergo
modification to standard freighter configuration. At December 31, 2010, the Company had three spare airframes that
had been removed from service. The engines and rotables from these aircraft are being used to support 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. Such exceptions were granted by the lead agent for the spare airframes and the aircraft undergoing
modification.

As of December 31, 2010, ABX operated 24 Boeing 767-200 aircraft and one Boeing 767-300 aircraft (11 of the
767-200 aircraft were leased by CAM to DHL and operated by ABX); ATI operated three Boeing 767-200 aircraft, 11
DC-8 freighter aircraft and four DC-8 combi aircraft; and CCIA operated 13 Boeing 727 aircraft and two Boeing 757
aircraft. CAM's Boeing 767 passenger aircraft is scheduled to begin an Atlantic operation in April 2011. In addition
to these aircraft, CAM leased five Boeing 767-200 aircraft to other airlines.

We believe that our existing facilities, aircraft fleet and planned aircraft investments as described in Note I to the
accompanying financial statements, are appropriate for our current operations and growth plans. We may make
additional investments in aircraft and facilities if we identify favorable opportunities in the markets that we serve.
____________________
(1)
(2)

These aircraft are configured for standard cargo containers, including large standard main deck cargo doors.
These aircraft are configured as “combi” aircraft capable of carrying passenger and cargo containers on the
main flight deck.
Passenger configured aircraft.

(3)

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., in August
of 2003. The filing was initially made in mid-July of 2003 and thereafter 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 was required to determine whether ABX continues to be a U.S. citizen and is fit, willing and able to engage
in air transportation of cargo. On January 24, 2011, the DOT issued an order dismissing its notice, dated August 6,
2003, requesting public comments on the procedures to be employed in reviewing the impact of the proposed substantial
changes in ownership and operations on the citizenship of ABX. On March 4, 2011, the DOT notified ABX that, based
on its review of the previously filed and updated information, it appears that ABX continues to be a U.S citizen and
remains fit to conduct air transportation operations as a U.S. certificated air carrier.

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 was later amended to include a second former employee plaintiff, seeks damages in an unspecified
amount and 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 March 18, 2010, the Court
issued a decision in response to a motion filed by ABX and the other ABX defendants, dismissing three of the five
claims constituting the basis of Plaintiffs' complaint. Most recently, the Court issued a decision on October 7, 2010,
permitting the plaintiffs’ to amend their complaint for the purpose of reinstating one of their dismissed claims. On
October 26, 2010, ABX and the other ABX defendants filed an answer denying the allegations contained in plaintiffs’
second amended complaint.

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’sregulations. 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 violations. 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 of 2009 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 FAAmay propose additional penalties exceeding the amounts
currently reserved.

Environmental Matters

The Ohio Environmental Protection Agency (“OEPA”)was contemplating a proceeding against DHL, in its former
capacity as the owner of Wilmington Air Park (“ILN"), and ABX, in its former 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. DHL, which had agreed to indemnify ABX for
claims arising from this matter under the terms of the Mutual Termination Agreement and Release, dated March 29,
2010, among DPWN Holdings (USA), Inc., DHL Network Operations (USA), Inc., DHL Express (USA), Inc., Air
Transport Services Group, Inc. and ABX Air, Inc., subsequently held discussions with the OEPAregarding this matter.
Thereafter, on January 5, 2011, the OEPA issued the Director's Final Findings and Orders pursuant to which DHL
Express (USA), Inc. agreed to pay $80,000 to the OEPAin full settlement of the contemplated proceeding and related
matters against DHL and ABX.

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

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.

2010 Quarter Ended:
December 31, 2010
September 30, 2010
June 30, 2010
March 31, 2010

2009 Quarter Ended:
December 31, 2009
September 30, 2009
June 30, 2009
March 31, 2009

Low

High

$
$
$
$

5.99
4.48
3.52
1.78

2.11
2.13
0.44
0.17

$
$
$
$

Low

8.10
6.50
6.03
3.49

3.50
4.06
2.49
0.84

High

On March 8, 2011, there were 1,800 stockholders of record of the Company’s common stock. The closing price of

the Company’s common stock was $8.25 on March 8, 2011.

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, 2005
and ending on December 31, 2010.

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

12/31/2005
100.00

12/31/2006
88.28

12/31/2007
53.25

12/31/2008
2.29

12/31/2009
33.63

12/31/2010
100.64

100.00

111.74

111.57

124.67

117.39

73.77

88.90

107.12

91.15

125.93

117.01

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.

Securities authorized for issuance under equity compensation plans

For the response to this Item, see Item 12.

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.

OPERATING RESULTS (1):

Continuing revenues

Operating expenses

Net interest expense

Earnings (loss) from continuing operations
before income taxes (3)

Income tax benefit (expense) (2)

Earnings (loss) from continuing operations

Discontinued earnings, net of tax (4)

Net earnings (loss)

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

Basic

Diluted

WEIGHTED AVERAGE SHARES (1):

Basic

Diluted

SELECTED CONSOLIDATED

FINANCIAL DATA (1):

Cash and cash equivalents

Deferred income tax asset (2)

Property and equipment, net

Goodwill and intangible assets (3)

Total assets

Post-retirement liabilities

Capital lease obligations (5)

Long-term debt, other than leases (5)

Deferred income tax liability

Stockholders’ equity

As of and for the Years Ended December 31

2010

2009

2008

2007

2006

(In thousands, except per share data)

667,382

823,483

941,686

573,256

548,576

585,706

751,693

18,359
63,317

(23,413)

39,904

(70)

26,432
45,358

(17,156)

28,202

6,247

963,638

34,667
(56,619)

(6,229)

(62,848)

6,858

538,025

514,014

9,510
25,721

(10,898)

14,823

4,764

6,772
27,790

57,096

84,886

5,168

39,834

34,449

(55,990)

19,587

90,054

0.64

0.62

0.45

0.44

(1.01)

0.26

0.25

1.46

1.45

62,807

64,009

62,674

63,279

62,484

58,296

58,649

58,270

58,403

46,543

83,229

116,114

59,271

63,219

12,879

658,756

99,036

900,654

119,746

6,103

296,425

39,746

302,077

31,597

636,089

99,890

74,979

671,552

100,777

35,056

690,813

210,354

1,002,773

1,101,349

1,162,967

155,720

12,918

364,509

50,044

245,982

299,964

72,282

440,204

—

190,028

88,483

502,319

—

101,715

458,638

—

679,798

224,376

73,551

125,126

—

80,392

200,003

120,210

____________________
(1)

(2)

(3)

(4)

(5)

The consolidated financial data includes the Company’s acquisition of Cargo Holdings International, Inc. as 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.
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.
Capital lease obligations reflects the assumption and extinguishment of aircraft lease obligations by DHL during 2009
totaling $45.7 million. Additionally, Long-term debt reflects the extinguishment of $46.3 million of the DHL promissory
note during 2009. (See Note H to the accompanying financial statements.)

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 and should be read in
conjunction with the “Risk Factors” in Item 1A 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 an aircraft leasing company, Cargo Aircraft Management, Inc.
(“CAM”). 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.

The Company, through ABX, has had long term contracts with DHL Network Operations (USA), Inc. and its
affiliates, which are collectively referred to as “DHL,” since August 16, 2003. DHL, an international, integrated delivery
company, is the Company's largest customer.
In March 2010, the Company and DHL executed new follow-on
agreements, effective March 31, 2010. The new agreements separate CAM's lease of freighter aircraft to DHL from
the maintenance and operation of those aircraft on behalf of DHL. DHL committed to lease 13 Boeing 767 freighter
aircraft from CAM and DHL contracted with ABX to operate those aircraft under a separate crew, maintenance and
insurance (“CMI”) agreement. The CMI agreement is no longer based on a cost-plus pricing arrangement, but instead
pricing is based on a pre-defined fee, scaled for the number of aircraft operated and the number of flight crews provided
to DHL for its U.S. network. The initial term of the CMI agreement is five years, while the term of the aircraft leases
are seven years, with early termination provisions. Until CAM completes the aircraft modification process for the 13
aircraft committed to DHL, ABX is operating its own Boeing 767 aircraft as bridging aircraft for DHL under short
term, month-to-month arrangements under economic terms similar to those under the lease agreements for the 13
aircraft. Prior to the new follow-on agreements, ABX provided flight crews, maintenance and aircraft to DHL under
an aircraft, crew, maintenance and insurance agreement (“DHL ACMI agreement”) which compensated ABX on a cost-
plus mark-up basis.

The new follow-on agreements with DHL commenced on March 31, 2010. Due to the similarities among the
Company's airline operations, including the new CMI agreement with DHL, the airline operations have been aggregated
into a single reportable segment. The segment information has been updated to retrospectively reflect the aggregation
of the former DHL segment with the ACMI Services segment.

SEGMENT ANALYSIS

The Company has two reportable segments: ACMI Services and CAM. The Company’s other business activities

do not constitute reportable segments and have been aggregated in Other Activities.

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

Revenues from Continuing Operations:

CAM
ACMI Services

Airline services
Other Reimbursable
S&R activites

Total ACMI Services
Other Activities

Total Revenues

Eliminate internal revenues

Customer Revenues

Years Ended December 31
2009

2008

2010

101,375

60,685

47,480

432,082
143,330
4,000
579,412
87,660
768,447
(101,065)
667,382

556,152
91,306
121,366
768,824
64,914
894,423
(70,940)
823,483

716,533
155,905
29,109
901,547
48,707
997,734
(56,048)
941,686

Pre-Tax Earnings from Continuing Operations:

CAM, inclusive of interest expense
ACMI Services

Airline services
S&R activites
Impairments

Total ACMI Services
Other Activities
Net unallocated interest expense

Total Pre-Tax Earnings from Continuing Operations

41,586

22,775

18,102

17,339
3,549
—
20,888
8,017
(7,174)
63,317

11,665
16,727
—
28,392
3,518
(9,327)
45,358

20,738
816
(91,241)
(69,687)
7,070
(12,104)
(56,619)

Under a severance and retention agreement ("S&R agreement"), DHL compensated and reimbursed ABX for its
management and costs associated with DHL's network restructuring starting in May 2008 and continuing through March
2010. Other Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers.
Such costs include fuel used, landing fees and certain aircraft maintenance expenses. The type of costs that are
reimbursed varies by customer operating agreement.

CAM

The Company offers aircraft leasing through its CAM subsidiary. Aircraft leases normally cover a term of five to
seven years. In a typical leasing agreement, customers pay rent and a maintenance deposit on a monthly basis. Since
December 31, 2009, CAM has completed the modification of six Boeing 767-200 aircraft into standard cargo
configuration and acquired twelve other Boeing 767-200 freighter aircraft from ABX. As of December 31, 2010, CAM
had 60 aircraft that were under lease, 44 of them to ABX, ATI and CCIA. CAM's revenues from ABX, ATI and CCIA
were $58.1 million and $49.8 million for 2010 and 2009, respectively.

CAM's revenues for 2010 grew $40.7 million to $101.4 million compared to $60.7 million in 2009. Revenues
from external customers, particularly DHL, accounted for $32.4 million of the increase. In April 2010, as part of the
follow-on agreements with DHL, CAM placed seven Boeing 767-200 aircraft under lease with DHL. These seven
aircraft were previously associated with the DHL network and were reflected in the ACMI Services segment revenues
prior to April 1, 2010. By the end of 2010, CAM leased four additional Boeing 767-200 aircraft to DHL, bringing the
total number of 767-200 aircraft leased to DHL to eleven. At this time, CAM does not expect to have all 13 Boeing
767 freighter aircraft available for lease to DHL until the second quarter of 2011. Accordingly, ABX is operating two
of its aircraft for DHL under short term, month-to-month bridging arrangements with economic terms similar to the

leases for the 13 aircraft until CAM completes the aircraft modification process in 2011 for the remaining two Boeing
767-200 aircraft committed to DHL. In addition to the eleven leases with DHL in 2010, CAM placed two Boeing
767-200 freighter aircraft under lease to a Florida based operator in February and July 2010, bringing the total number
of external aircraft leases to 16.

Pre-tax segment earnings for CAM were $41.6 million for 2010 and $22.8 million in 2009. The increase in pre-
tax earnings reflects 18 additional aircraft that CAM has placed in service since December 31, 2009, 12 of them to
external customers. CAM’s results reflected an allocation of overhead expenses and interest expense based on the
Company's external interest rates and the carrying value of CAM's operating assets. Interest expense allocated to CAM
was $9.3 million and $10.3 million in 2010 and 2009, respectively.

Outlook

We plan to continue to invest in the modification of Boeing 767 aircraft. 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. Interest in efficient, reliable Boeing 767 aircraft remains strong.

As of December 31, 2010, two of CAM's non-standard Boeing 767-200 freighter aircraft were undergoing
modification to standard freighter configuration by Israel Aerospace Industries, Ltd. (“IAI”). Currently, we plan to
modify all four of the remaining non-standard Boeing 767-200 freighter aircraft that we own into a standard freighter
configuration. The aircraft are scheduled for the modification process through September of 2011 at IAI. 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 before deciding to place an
aircraft into the modification process. If a non-standard Boeing 767-200 freighter aircraft is not placed into the
modification process, we will consider other alternatives, including the sale of the aircraft or the salvaging and parting-
out of the aircraft to support the Company’s other Boeing 767 aircraft.

In May 2010, CAM entered into a purchase agreement for three passenger-configured Boeing 767-300 extended
range aircraft, each equipped with General Electric CF6-80C2-B6 engines. On August 6, 2010, CAM entered into an
agreement with M&B Conversions Limited and IAI for the conversion by IAI of the three Boeing 767-300 series
passenger aircraft to a full freighter configuration. The agreement includes an option to convert up to seven additional
Boeing 767-300 series passenger aircraft during the 10-year term of the agreement. The Company plans to modify the
aircraft into standard freighter configuration. As of December 31, 2010, one Boeing 767-300 aircraft was undergoing
freighter modification.

In October 2010, CAM entered an agreement with Precision Conversions, LLC (“Precision”) for the design,
engineering and certification of a Boeing 757 "combi" aircraft variant. The Boeing 757 "combi" variant to be developed
by Precision will incorporate 10 full cargo pallet positions along with passenger seating for up to 58 occupants. The
Boeing 757 combi is intended to strategically position CAM to provide next-generation combi aircraft to complement
and eventually replace, the DC-8 combi aircraft that ATI operates for the U.S. Military. If the military decides not to
transition to the 757 combi in the near future, we have the option to convert Boeing 757 aircraft to standard freighter
aircraft instead. CAM is committed to convert a minimum of two Boeing 757 aircraft with Precision.

Besides the passenger aircraft that were undergoing freighter modification at December 31, 2010, CAM owned

one passenger aircraft, a Boeing 767-200 extended range aircraft, that is scheduled for operation in April 2011.

ACMI Services Segment

Through its three airline subsidiaries, the Company provides airlift to other airlines, freight forwarders and the
U.S. Military. In addition to DHL, BAX Global, Inc. (“BAX/Schenker”) and the U.S. Military are also significant
customers. CCIA and ATI each have airline operating agreements with BAX/Schenker. DHL, BAX/Schenker and the
U.S. Military account for 85% of ACMI services 2010 revenues.

At December 31, 2010, ACMI Services included 47 in-service aircraft which the Company owned or leased.
Additionally, ACMI Services included the results from operations by ABX of eleven CAM-owned freighter aircraft
for DHL under the CMI agreement by the end of 2010. In the fourth quarter of 2010, ABX began to lease and operate
two DHL-owned Boeing 767-200 aircraft under the CMI agreement. Beginning in November 2010, ABX began to
lease a Boeing 767-300 aircraft from an external lessor for a 45 month period. ABX is operating the Boeing 767-300

under an ACMI agreement with DHL for a transatlantic flight. Also in November 2010, ABX began to operate one of
its Boeing 767-200 aircraft in Asia under an agreement with Japan Airlines International Co., Ltd. and DHL. During
2010, ATI leased its third Boeing 767-200 cargo aircraft, while CCIA redeployed one of its leased Boeing 727 aircraft
that had been temporarily unassigned and scrapped a Boeing 727 airframe, permanently removing it from service.
During 2010, ABX returned one of its leased Boeing 767-200 aircraft to CAM, which then leased the aircraft to an
external customer under a seven year agreement.

ACMI Services revenues were $579.4 million during 2010, declining $189.4 million compared to 2009. Revenues
generated from DHL's U.S. network declined $250.3 million compared to 2009, when those revenues included the
reimbursement of employee severance and retention benefits and aircraft depreciation expense, as well as compensation
from DHL for a larger U.S. air network. Beginning April 1, 2010, certain aircraft that ABX had been operating for
DHL under the former DHL ACMI agreement were instead leased to DHL through CAM as part of the new follow-on
agreements and the lease revenues began being reflected in CAM's revenues. Under a severance and retention agreement
(“S&R agreement”) which was terminated and settled on March 31, 2010, DHL was obligated to reimburse ABX for
the cost of employee severance, retention, productivity bonuses and vacation benefits paid in accordance with the
agreement. Revenues from the S&R agreement declined $117.4 million in 2010 compared to 2009. The reduction in
revenues includes a reduction in the reimbursement of severance and retention benefits since 2009, when ABX
experienced significant employee terminations. The decline in revenues from the S&R agreement was partially offset
by increased block hours flown for customers in Europe, Asia Pacific and the Caribbean. Block hours increased 14%
to 92,508 hours during 2010 compared to 2009.

The pre-tax earnings for ACMI Services were $20.9 million for 2010, compared to pre-tax earnings of $28.4 million
during 2009. Pre-tax earnings included $3.5 million and $16.7 million for 2010 and 2009, respectively, for administering
the wind-down of the DHL operations under the S&R agreement which was terminated on March 31, 2010. ACMI
Services pre-tax earnings from airline services increased 49% to $17.3 million for 2010 compared to $11.7 million for
2009. Higher pre-tax earnings in 2010 from airline services reflect increased block hours and improved profits from
European and transatlantic operations. In early 2010, we restructured ABX's scheduled service for TNT Airways SA
as a conventional ACMI agreement, which contributed positively to the segment's earnings during 2010. Also, in
November 2010, we added an additional transatlantic flight with DHL under a separate ACMI agreement. These
improvements were partially offset by increased crew training costs, lower performance incentive revenues and higher
aircraft maintenance expenses among the ATSG airlines during 2010. Maintenance expense not specifically reimbursed
under contractual provisions increased by approximately $11.7 million during 2010 compared to 2009. Non-reimbursed
maintenance expenses increased due to premature engine and component failures as well as extra planned maintenance
tasks with the intent of improving aircraft performance for future periods. The costs of training flight crews increased
in 2010 as the airlines added aircraft and made preparations to add additional aircraft in 2011.

Outlook

CCIA and ATI have the exclusive right to supply all main deck freighter airlift in BAX/Schenker's U.S. domestic
network through December 31, 2011. The Company and BAX/Schenker have already begun discussions regarding
the renewal or follow-on agreements for services.

ABX began to lease and operate a third and fourth DHL-owned Boeing 767-200 aircraft beginning in the first
quarter of 2011. Each DHL-owned aircraft will generate a pre-negotiated monthly service fee. ACMI Services results
included revenues of $12.1 million from bridging aircraft that ABX temporarily supplied to DHL during 2010. These
bridging revenues are expected to decline as DHL deploys the remaining two aircraft that it is committed to lease from
CAM.

Through CAM, we continue to make investments in Boeing 767 and 757 aircraft. As these aircraft are modified,
we will place them into service under dry leasing arrangements to external customers or ACMI operations using our
airlines, depending on which alternative provides the best long term return and considering other factors, including
geographical placement and customer diversification. Future earnings from ACMI Services will also be impacted by
utilization levels which are driven by customer demand and our ability to maintain the aircraft at reliability levels
expected by our customers. Customer preferences for ACMI agreements with our airlines will depend on the cost
competitiveness of the airlines. 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
22

regulations and laws, contract negotiations, flight crew availability, and arranging resources for aircraft handling.
Additional external aircraft leases by CAM to other airlines may adversely impact the ACMI Services operating results
by reducing utilization levels for our aircraft. Additionally, our earnings will fluctuate due to the timing of scheduled
heavy maintenance which, under ABX’s policy are expensed as maintenance is performed.

Fleet Summary

The Company’s aircraft fleet is summarized below as of December 31, 2010 ($'s in thousands):

ACMI
Services

CAM

Total

In-service aircraft

Aircraft owned or under capital lease

Boeing 767-200

Boeing 757

Boeing 727

DC-8

Total
Carrying value

Operating lease

Boeing 767-200

Boeing 767-300

Boeing 727

Total

Carrying value

Aircraft in freighter modification or awaiting modification

Boeing 767-200

Boeing 767-300

Total

Carrying value

Idle aircraft (not scheduled for revenue)

Aircraft owned or under capital lease

DC-8

Carrying value

Operating lease

—

60
$ 552,919

1,932

54,385

604

During 2010, we completed the modification of six Boeing 767-200 aircraft into standard freighter configuration;
we acquired three Boeing 767-300 passenger aircraft that we plan to modify into standard freighter aircraft; we began
to lease two Boeing 767-200 aircraft from DHL; we began to lease a Boeing 767-300 aircraft; we redeployed a Boeing
727 aircraft that had been unassigned at the beginning of the year and we scrapped a Boeing 727 airframe. During
2010, we transferred 20 Boeing 767-200 aircraft to CAM from ABX. Of these 20 aircraft, two are in modification,
four are awaiting modification, seven were leased to external customers, and seven were leased internally as of December
31, 2010.

As of December 31, 2010, ACMI Services was leasing 41 of its 47 in-service aircraft internally from CAM. ACMI
Services operated 11 of the 16 aircraft that CAM leases to external customers. ACMI Services had idle airframes with
a carrying value of $0.6 million for which the engines and rotables were being used to support other aircraft in the
Company’s fleets. The spare airframes can be reactivated, as needed.

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 provides equipment leasing and facility maintenance, as well as specialized services for aircraft fuel
management and freight logistics. Other activities also include the management of workers' compensation claims under
an agreement with DHL and gains from the reduction to employee post-retirement obligations. Prior to April 1, 2010,
other activities included an allocation of ABX's overhead expenses that could not be charged to DHL under the former
cost-plus agreements. In September and October of 2010, the USPS renewed the Company's operating agreements for
each of the three sorting facilities. The renewed agreements were extended through September and October 2012 at
substantially the same terms.

External customer revenues from all other activities increased $1.6 million, to $45.9 million in 2010 compared to
2009. The pre-tax earnings from all other activities were $8.0 million and $3.5 million for 2010 and 2009, respectively.
The increase in pre-tax earnings of $4.5 million for 2010 reflects $3.8 million from the reduction to employee post-
retirement obligations, services fees for managing workers compensation claims for DHL, increased revenues from
aircraft modification services and improved productivity at the USPS sort centers we manage. These increases to pre-
tax earnings for 2010 were partially offset by lower gains from sales of spare aircraft and engines in 2010 compared
to 2009.

Outlook

Under the follow-on agreements reached with DHL, our Airborne Maintenance and Engineering Services, Inc.
(“AMES”) subsidiary continues to provide maintenance services for the Boeing 767 aircraft that operate in the DHL
network. Since the AMES subsidiary was formed in 2009 from ABX's maintenance and engineering organization, it
continues to add to its customer base and invest in new capabilities. AMES has limited hangar facilities and significant
fixed costs. As a result, our operating results in future quarters may be impacted by the amount and timing of the
completion of aircraft maintenance and engineering projects for AMES's customers.

Discontinued Operations

Discontinued operations include the results of the hub services and the fuel management previously provided to
DHL. In July 2009, sort operations in Wilmington ceased and the sorting and hub operations were transferred to the
Cincinnati/Northern Kentucky International Airport ("CVG"). 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.
At that time, ABX ceased providing aircraft fuel and related services for its aircraft that remained in the DHL network.
During 2010, ABX continued to provide certain transitional services to DHL on a short term arrangement. Revenues
from the hub services were $0.2 million and $143.0 million in 2010 and 2009, respectively. Pre-tax losses from the
hub services were $0.1 million for 2010 compared to pre-tax earnings of $9.2 million for 2009. Pre-tax earnings from
hub services included $2.6 million in 2009 from the S&R agreement to manage the wind-down of DHL’sU.S. domestic
operations. The cost of discontinued operations for 2010 included pension expenses for former employees that supported
the sort operations and medical costs in excess of initially estimated accruals for former employees under severance
benefit plans and COBRA.

RESULTS OF OPERATIONS

2010 compared to 2009

Summary

Customer revenues from continued operations decreased $156.1 million in 2010 compared to 2009, due primarily
to the completion of the S&R agreement. Revenues from the S&R agreement, which was terminated on March 31,
2010, declined $117.4 million in 2010 compared to 2009. Additionally, revenues declined compared to 2009 when
ABX was compensated by DHL for a larger U.S. network capacity.

Consolidated net earnings from continuing operations increased $11.7 million to $39.9 million for 2010 compared
to 2009. Improved earnings were driven by CAM. Pre-tax earnings from continuing operations increased $18.0 million
to $63.3 million for 2010 compared to 2009, led by improved pre-tax earnings for CAM. CAM's pre-tax earnings,

inclusive of interest expense, increased by $18.8 million during 2010 compared to 2009, reflecting the lease of thirteen
additional Boeing 767 aircraft to external lessees since December 2009, including eleven aircraft leases initiated with
DHL since March 2010. Pre-tax earnings related to the S&R agreement with DHL declined $13.2 million in 2010
compared to 2009, reflecting the completion of DHL's U.S. restructuring at ABX. ACMI Services' segment earnings
from airline services increased $5.7 million in 2010 compared to 2009, led by new European and transatlantic contracts.
In early 2010, we restructured the scheduled service for TNT Airways S.A. as a conventional ACMI agreement and,
in November 2010, added another transatlantic flight for DHL. The increase in pre-tax earnings from continuing
operations included $4.5 million from reductions in employee post-retirement obligations and the pre-tax earnings of
our other business operations. Additionally, unallocated interest expense, net of interest income declined $2.2 million
due to more capitalized interest for additional aircraft modifications, lower outstanding debt levels and lower interest
rates.

Operating Expenses

Salaries, wages and benefits expense decreased $203.3 million, or 53% during 2010, compared to 2009. The
decrease is due primarily to the DHL restructuring, which occurred throughout 2009. The Company's expense for
severance and retention compensation declined $104.2 million in 2010 compared to 2009. Additionally,benefits expense
declined $90.6 million from 2009 when it included $41.5 million for severance and retention benefits for terminated
employees and $26.3 million of expense adjustments for pension benefits as a result of employee terminations and plan
amendments. Headcount, excluding employees associated with the discontinued operations, declined 20% as of
December 31, 2010 compared to March 31, 2009.

Fuel expense increased $24.5 million during 2010, compared to 2009. The increase reflects the higher cost of
aviation fuel which increased significantly compared to 2009. The average price of a gallon of aviation fuel increased
29% in 2010 compared to 2009. The cost of fuel is generally reimbursed to our airlines under our operating agreements
and reflected as revenues.

Maintenance, materials and repairs increased $12.5 million during 2010 compared to 2009. The increase in
maintenance expense included $6.5 million for scheduled airframe heavy maintenance (referred to as a C-check) on
DHL-owned aircraft which was reimbursed by DHL. The increase in maintenance expenses for 2010 also included
additional C-check expense for aircraft operated by ABX, whose policy is to expense C-checks as incurred. Additionally,
2010 aircraft maintenance expense increased due to procedures by CCIA with the intent of improving the recent on-
time reliability level of the Boeing 727 and Boeing 757 aircraft. The increase in maintenance expenses also reflects
the increased cost to support the growth in block hours flown since 2009 and the higher maintenance cost for Boeing
727 aircraft operating in the BAX/Schenker network. CCIA's Boeing 727 aircraft scheduled in the BAX/Schenker
network have been assigned to operate on a greater number of multi-stop routes compared to 2009, which negatively
impacted reliability and increased the costs of operating those aircraft.

Depreciation and amortization expense increased $3.6 million during 2010, compared to 2009. Depreciation

expense increased due to the deployment of six modified aircraft since the end of 2009.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased $5.5 million in 2010, compared
to 2009. The decrease is a result of DHL's removal of aircraft from service in conjunction with its U.S. restructuring
plan during the first quarter of 2009.

Travel expense increased $0.9 million during 2010 compared to 2009. The increase is a result of additional crew

training and increased international flying, particularly in the Europe and Asia-Pacific regions.

Rent expense increased $4.4 million during 2010 compared to 2009. The increase reflects a change in the allocation
of expense for the Wilmington, Ohio facility due to the closure of the freight sorting operations there in July 2009, and
an increase in the rental rates for the Wilmington facility in conjunction with a new lease agreement executed with a
regional port authority in May 2010.

Insurance decreased $1.7 million during 2010 compared to 2009. The decline in insurance expense primarily
reflects the transition to a Company-insured employee medical coverage plan from a third party insurance plan for
certain employee groups. Company insured medical expenses are recorded in salaries, wages and benefits.

million during 2010 compared to 2009 due to a lower volume of parts sales and a lower level of external professional
fees incurred since 2009 to support the wind-down of DHL's domestic operations. The declines in the cost of parts
sold and professional fees incurred during 2010 were offset by declines in gains from the sale and disposal of spare
equipment compared to 2009.

Interest expense decreased $8.2 million during 2010 compared to 2009. The decline in interest expense reflects
the reduction in the Company’s debt since December 2009 and lower interest rates. Interest rates on the Company’s
variable interest, unsubordinated term loan decreased from 2.9% in the fourth quarter of 2009 to 2.6% for the fourth
quarter of 2010, while interest bearing debt decreased $74.9 million since December 31, 2009.

Interest income declined $0.1million during 2010, compared to 2009 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 37% for 2010 and 38% for 2009. The Company recorded
deferred tax benefits of $0.4 million and $0.7 million in 2010 and 2009, respectively, related to the recognition of
previously unrecognized tax positions that either expired or were settled. The effective tax rate declined for 2010 due
to the proportionately lower level of non-deductible tax expenses in 2010 compared to 2009.

As of December 31, 2010, the Company had operating loss carryforwards for U.S. federal income tax purposes
of approximately $29.2 million, which will begin to expire in 2025. 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 until 2013 or later.
The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes
before then.

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. The decline reflects lower revenues from the
DHL agreements by approximately $76.4 million for 2009. Additionally, the decline is a result of lower fuel prices for
those ACMI, block space and charter agreements that include fuel in their contractual price. 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 placed in service during 2009 and 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's 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.

ABX experienced losses from its transatlantic scheduled service, resulting in a combined reduction of pre-tax
earnings of $6.6 million among our airline service contracts with customers other than DHL.

CAM's 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.

The Company's aircraft fleet is summarized below as of December 31, 2009 ($ in thousands).

In-service aircraft

Aircraft owned or under capital lease

ACMI
Services

CAM

Total

Boeing 767-200

Boeing 757

Boeing 727

DC-8
Total

Carrying value

Operating lease

Boeing 767-200

Total

Aircraft in freighter modification

Boeing 767-200

Carrying value

Idle aircraft (not scheduled for revenue)

Aircraft owned or under capital lease

DC-8

Boeing 727

Carrying value

Operating lease

15
58

—

—
4

—

15
62

538,251

50,472

1,631

As of December 31, 2009, ACMI Services was leasing 36 of its 58 in-service aircraft internally from CAM. As
of December 31, 2009, CAM had four Boeing 767-200 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.

ACMI Services

Revenues from ACMI Services declined $132.7 million in 2009 compared to 2008. The results for ACMI Services
in 2009 and 2008 were significantly impacted by DHL's restructuring plans. In 2008, DHL began to restructure its
U.S. operations due to continued losses. 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.
During 2009, DHL discontinued the use of ABX's McDonnell Douglas DC-9 aircraft and five of ABX's Pratt & Whitney
powered Boeing 767 aircraft.

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 DHLACMI 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 included amounts to replace these incremental
revenues.

In 2008, ABX and DHL executed the S&R agreement to facilitate the restructuring and wind-down of DHL's U.S.
operations. The S&R agreement specified employee severance, retention and other benefits that DHL reimbursed to
ABX for payment to its employees that were affected by DHL's U.S. restructuring plan. Through December 31, 2009,
ABX terminated approximately 8,700 employee positions during the implementation by DHL of its U.S. restructuring
plan beginning in mid-2008. Employees received severance, retention and other benefits under the S&R agreement.
In accordance with the agreement, DHL was obligated to reimburse ABX for the cost of non-pilot employee severance,
retention, productivity bonuses and vacation benefits paid. The S&R agreement 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.

Pre-tax earnings from continuing operations in 2009 included $16.7 million for administering the wind-down of
DHL's operations under the S&R agreement 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 agreement for pilot severance and benefits.
To settle the S&R agreement funding, ABX amended its pilot pension plans in December 2009, to effectively increase
the benefits of those crewmembers with higher seniority. 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 furloughed
crewmembers for severance benefits. As a result, pre-tax earnings for 2009 included $12.2 million for settling the S&R
agreement funding with the crewmembers. Including the additional pension contribution of $37.8 million made by the
Company, the settlement of the S&R agreement funding resulted in a net cash outflow of approximately $6.4 million
after all payments were completed. Our pre-tax earnings from the S&R agreement 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 agreement related to reimbursed employee
vacation.

Our 2009 results for ACMI Services include losses from 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 crewmembers 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. Pre-tax earnings in 2009 were also negatively impacted by the timing of scheduled
aircraft 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.

Aircraft block hours flown for the ACMI Services segment declined 43% to 80,955 hours in 2009 compared to

142,096 hours in 2008, due to the removal of aircraft from the DHL ACMI agreement starting in June 2008.

In 2008, the Company recognized an impairment charge of $73.2 million to reduce the combined ATI and CCIA
goodwill to $55.4 million. Projected cash flows for the airlines were expected to decline beginning in 2009 due to the
deep economic recession. The global economic recession affected U.S. customers, including BAX/Schenker. ATI and
CCIA each reduced their planned flying for BAX/Schenker for 2009. 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/Schenker's U.S. network in 2008. As of December 31, 2008, 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. 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.

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 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. 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 reflected 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,
BAX/Schenker, to decline. Additionally, ATI experienced reductions in flying for the U.S. Military.

CAM

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

Other Activities

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 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.

Discontinued Operations

Revenues from the hub services were $143.0 million and $336.1 million for 2009 and 2008, respectively. Pre-tax
earnings from 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 agreement 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.

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 the
number of 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 767-200 standard freighter aircraft that the Company has had 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

Boeing 767 freighter aircraft into service since mid 2008.

Other operating expenses include professional fees, navigational services, employee training, utilities, the cost of
parts sold to 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.

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 38% of pre-tax earnings after adjusting for $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 FASB ASC Topic 740-10, Income Taxes. The effective
settlement of this item resulted in a deferred tax benefit of $0.7 million.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

During 2010, the Company’s debt obligations declined $74.9 million to $302.5 million as of December 31, 2010.
The decline included principal payments of $70.2 million paid by the Company. Additionally, $4.7 million of principal
balance for the DHL promissory note was extinguished, pursuant to the CMI Agreement with DHL. During 2010, the
Company’s combined liability for the underfunded status of pension plans declined by $36.0 million. This improvement
reflects cash contributions made by the Company into the pension master trusts and improved investment returns during
2010.

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 was paid in 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 payments of four Boeing 767-200 aircraft. Additionally, during 2009, the Company's combined
liability for the underfunded status of the pension plans declined by $147.6 million due to 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 $112.3 million, $103.0 million and $161.7 million for 2010,
2009 and 2008, respectively. Improved operating cash flows in 2010 compared to 2009 reflect improved profitability
of the Company's operations and the collection of accounts receivable from DHL in excess of payments to employees
for severance and retention benefits. Operating cash flows declined from 2008 when ABX's operations included the
Hub Services agreement, aircraft fueling and a larger air network for DHL. Cash outlays included pension contributions
of $36.6 million, $83.2 million and $39.6 million in 2010, 2009 and 2008, respectively. During 2009, we contributed
$37.8 million to crewmember pension plans in conjunction with settling the S&R agreement.

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 generated from discontinued operations was $7.7 million in 2010, reflecting the reimbursement payments received
from DHLfor severance and employee benefits which we had paid to employees. 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 of those costs 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 and Equipment Proceeds

Cash payments for capital expenditures were $110.7 million in 2010 compared to $101.2 million and $111.9 million
in 2009 and 2008, respectively. Our capital spending is primarily for acquiring and modifying Boeing 767 aircraft into
standard freighter configuration. Our capital expenditures included $74.8 million and $69.6 million for the acquisition
and modification of aircraft in 2010 and 2009, respectively. During 2010, we purchased three Boeing 767-300 aircraft
and in 2009 we purchased one Boeing 767-200 aircraft. During 2010, we completed six cargo modifications compared
to five and six completed cargo modifications in 2009 and 2008, respectively. Our capital expenditures for 2010, 2009
and 2008 included the cargo modification costs for nine, ten and nine aircraft, respectively. Our capital expenditures
for 2010 included $29.9 million for required heavy maintenance and $6.0 million for other equipment. Our capital
expenditures for 2009 included $25.6 million for required heavy maintenance and $6.0 million for other equipment
costs.

Proceeds from the disposal of equipment in 2010 included $29.7 million from DHL to complete the sale of the
aircraft ABX previously put to DHL under provisions of the DHL ACMI agreement. Proceeds from the disposal of
equipment in 2008 included $30.3 million from insurance proceeds for an aircraft that 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 $70.2 million, $43.1 million and $79.8 million in 2010, 2009 and 2008,
respectively. During 2010, debt payments included $18.5 million to pay down the outstanding revolving credit facility
and $15.0 million to DHL toward the balance of the promissory note. During 2010 and 2009, the Company did not
draw on the revolving credit facility. 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’sunsubordinated
term loan. This intercompany loan is eliminated upon consolidation. During 2008, debt origination costs were $1.5
million.

Outlook

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

as of December 31, 2010.

Contractual Obligations
Long-term debt, including interest payments

Total
$ 340,078

Payments Due By Period

Less Than
1 Year

44,665

2-3
Years
$ 191,928

4-5
Years
29,094

After 5
Years

74,391

Capital lease obligations

Operating leases

Unconditional purchase obligations

Employee severance and retention benefits

6,323

84,486

25,793

506

6,323

18,809

25,793

506

—

35,315

19,713

10,649

—

Total contractual cash obligations

$ 457,186

96,096

$ 227,243

48,807

85,040

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

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 $4.0 million scheduled to be paid in 2011.
We are considering additional pension contributions which would result in total contributions of $15 million to $20
million for 2011. We will periodically evaluate whether to make the additional contributions.

Unconditional purchase obligations of $25.8 million as of December 31, 2010 reflect the estimated remaining
cost to complete the modification of the two Boeing 767-200 aircraft and one Boeing 767-300 aircraft that were
undergoing freighter conversion at year end 2010. If CAM were to cancel the conversion programs as of December 31,
2010, it would owe the vendor, IAI, in addition to payments for aircraft currently undergoing modification,
approximately $10.3 million associated with additional conversion part kits which have been ordered.

We estimate that total capital expenditures for 2011 could total $170 million to $200 million and would include
the completion of modifications for six Boeing 767-200 aircraft, three Boeing 767-300 aircraft and two or three Boeing
757 aircraft. Actual capital spending for any future period will be impacted by the number of aircraft we decide to
modify and the progress in the aircraft modification process. We expect to finance the aircraft purchases and
modifications from current cash balances, future operating cash flow and existing credit facilities.

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.

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 financial
institutions. 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. If
an event of default occurs, the Company may be forced to repay, renegotiate or replace the Credit Agreement. As of
December 31, 2010, the Company had $3.6 million of capitalized loan origination costs and $4.6 million of unrealized
losses from the hedging of interest payments that could adversely impact future operating results if the Credit Agreement
is terminated early. The Company is in compliance with all financial covenants specified in the Credit Agreement.

The Company's existing Credit Agreement expires on December 31, 2012. At that time a balloon payment of
$139.1 million is due to the consortium of banks that finance the Company's term loan, plus any draws on the revolving
credit facility that may be outstanding on December 31, 2012. We are exploring alternatives which may secure longer
term debt financing before the balloon payment is due. Alternatives which we may consider include amending and
extending the current Credit Agreement beyond 2012, terminating and replacing the current Credit Agreement with a
new bank facility, as well as other alternatives. Anew follow-on credit agreement, assuming one can be obtained before
December 31, 2012, may contain more restrictive covenants, dividend limitations, tighter restrictions on capital spending
and higher costs of interest than the existing Credit Agreement.

Liquidity

At December 31, 2010, the Company had approximately $46.5 million of cash balances. The Company had $59.8
million of unused credit facility, net of outstanding letters of credit of $15.2 million, through a syndicated Credit
Agreement that expires in December 2012. As specified under terms of ABX's CMI agreement with DHL, the $26.4
million balance at December 31, 2010 of the unsecured note payable to DHL will be extinguished ratably without
payment
through March 31, 2015. We believe that the Company's current cash balances and forecasted cash flows
provided from its operating agreements, combined with its credit facility, will be sufficient to fund operations, scheduled
debt payments, required pension funding and planned capital expenditures for at least the next 12 months.

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 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, 2010 and 2009, we were 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, 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

revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer
agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from
charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been
completed. Revenue for the sale of aircraft parts are recognized when the parts 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. Aircraft lease revenues are
recognized as operating lease revenue on a straight-line basis over the term of the applicable lease agreements.

The Company's revenues for 2009 and the first quarter of 2010 included reimbursement for expenses incurred
under the former DHL ACMI agreement, the incremental mark-up revenues set by amendments to the DHL ACMI
agreement, and reimbursement for employee severance, retention, vacation and other benefit costs incurred during the
period. Revenues from the former DHL ACMI agreement were generally determined based on expenses incurred
during a period plus mark-ups and were recognized when the related services were performed. ABX and DHL amended
the DHL ACMI agreement to set mark-ups to specific quarterly amounts for 2009 and the first quarter of 2010. In
2008, ABX and DHL executed a severance and retention agreement (“S&R agreement”) which specified employee
severance, retention and other benefits that DHL reimbursed to ABX for payment to its employees that were affected
in conjunction with DHL's U.S. restructuring plan. DHL was obligated to reimburse ABX for the cost of employee
severance, retention, productivity bonuses and vacation benefits paid in accordance with the agreement.

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 and CAM separately using a market approach and an income approach utilizing
discounted cash flows applied to a market-derived rate of return. The market approach utilizes market multiples from
comparable publicly traded companies. The market multiples include revenues, EBIT (earnings before interest and
taxes), EBITDA(earnings before interest, taxes, depreciation and amortization) and EBITDAR (earnings before interest,
taxes, depreciation, amortization and rents). 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 our expected market rate of
return, and in the development of our market approach from comparable publicly traded companies. Based on our
analysis, as of December 31, 2010, CAM and ATI’s fair values each exceeded their carrying values by more than 25%.

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 their expected modification completion dates. We anticipate, as of December 31, 2010, that CAM will
successfully modify eight more Boeing 767 aircraft into standard freighter configuration over the next year and deploy

them under long-term lease agreements. We expect that ATI will continue to operate for BAX/Schenker 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 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 2025. Based upon projections of taxable income, we determined that it
was more likely than not that 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.

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. In 2009, we amended each defined benefit plan to freeze the accrual of additional benefits
and we 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 and expected long-term investment returns on plan assets. 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 6.75%. 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, 2010 was 48% equities, 49% fixed income,
2% real estate and 1% cash. The pension trust includes $37.7 million of investments (6% of the plans' 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 assumptions 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 7.0% to 6.75% after analyzing expected returns on investment vehicles and considering
our long term asset allocation expectations. If we were to lower our long-term rate of return assumption by a hypothetical
100 basis points, expense in 2010 would be increased by approximately $5.8 million. We use a market value of assets
as of the measurement date for determining pension expense.

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 J 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, 2010,
based on the method described above, were 5.35% to 5.55%. If we were to lower our discount rates by a hypothetical
50 basis points, pension expense in 2010 would be increased by approximately $3.4 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):

Effect of change

December 31, 2010

2010
Pension
expense

5,782

3,391

9,173

Funded
status

—
(52,148)
(52,148)

Accumulated
other
comprehensive
income (pre-tax)
—
$

52,148

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

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 July 2010, the FASB issued an Accounting Standards Update No. 2010-20, Receivables, Disclosure about the
Credit Quality of Financing Receivables and Allowances for Credit Losses. The new guidance will require additional
disclosures about the nature of credit risk in a company's portfolio of financing receivables, how risk is analyzed and
assessed in arriving at the allowance for credit losses and the reasons for changes in the allowance for credit losses.
The new guidance will be effective in fiscal years beginning on or after December 15, 2010 and is not expected to have
a material impact on the Company's financial statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company faces financial exposure to changes in interest rates. As of December 31, 2010, we have $124.5
million of fixed interest rate debt and $178.0 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 $1.1 million for the year ended December 31, 2010.

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, 2010, a 20% increase in interest rates would
have decreased the fair value of our fixed interest rate debt by approximately $4.3 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 $108.0 million as of
December 31, 2010. See Note L 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, 2010, ABX's defined benefit pension plans had total investment assets of $588.5 million under
investment management. See Note J 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 ABX's CMI agreement with DHL, ATI's and CCIA's
operating agreements with BAX/Schenker and charter agreements with other customers.

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
40

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, 2010 and 2009, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. 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, 2010 and 2009, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2010, 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, presents fairly, in all material respects, the information
set forth therein.

As discussed in Note B to the consolidated financial statements, the Company's three principal customers account
for a substantial portion of the Company's revenue. The Company's financial security is dependent on its relationship
with these customers.

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, 2010, 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 8, 2011 expressed an unqualified opinion on the Company's internal control
over financial reporting.

DELOITTE & TOUCHE LLP

Dayton, Ohio
March 8, 2011

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

ASSETS
CURRENT ASSETS:

Cash and cash equivalents

Accounts receivable, net of allowance of $1,090 in 2010 and $1,288 in 2009

Inventory

Prepaid supplies and other

Deferred income taxes

Aircraft and engines held for sale

TOTAL CURRENT ASSETS

Property and equipment, net
Other assets

Intangibles

Goodwill

TOTAL ASSETS

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 I)
STOCKHOLDERS’ EQUITY:

Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior
Participating Preferred Stock

Common stock, par value $0.01 per share; 75,000,000 shares authorized; 63,652,228
and 63,416,564 shares issued and outstanding in 2010 and 2009, respectively

Additional paid-in capital

Accumulated deficit

Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

See notes to consolidated financial statements.
41

December 31

2010

2009

46,543

83,229

40,876

7,205

10,132

12,879

—

117,635

658,756
25,227

9,259

87,708

5,226

7,093

31,597

30,634

245,487

636,089
21,307

10,113

89,777
$ 900,654

89,777
$1,002,773

40,558

38,174

23,639

506

12,144

36,591

10,794

124,232

265,937

116,614

52,048

39,746

44,077

18,959

16,429

51,737

15,340

184,716

325,690

152,297

44,044

50,044

—

637

—

634

518,925
(171,251)
(46,234)
302,077
$ 900,654

502,822
(211,085)
(46,389)
245,982
$1,002,773

AIR TRANSPORT SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

Years Ended December 31

2010

667,382

2009
823,483

2008
941,686

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

BASIC EARNINGS (LOSS) PER SHARE

Continuing operations

Discontinued operations
TOTAL NET EARNINGS (LOSS) PER SHARE - Basic

DILUTED EARNINGS (LOSS) PER SHARE

Continuing operations

Discontinued operations

TOTAL NET EARNINGS (LOSS) PER SHARE - Diluted

WEIGHTED AVERAGE SHARES

Basic
Diluted

See notes to consolidated financial statements.

176,988

133,776

87,594

79,143

23,782

22,709

15,339

9,171
—

—

37,204

585,706
(18,675)
316
63,317

(23,413)
39,904

(70)
39,834

0.64
(0.01)
0.63

0.62

—

0.62

380,276

109,242

83,964

66,621

29,236

21,761

10,926

10,918
—

—

38,749

751,693
(26,881)
449
45,358

(17,156)
28,202

400,644

176,722

93,752

87,344

34,526

29,407

8,947

10,454
73,178

18,063

30,601

963,638
(37,002)
2,335
(56,619)

(6,229)
(62,848)

6,247

34,449

6,858
(55,990)

0.45

0.10
0.55

0.44

0.10

0.54

(1.01)
0.11
(0.90)

62,807
64,009

62,674
63,279

62,484
62,484

AIR TRANSPORT SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

Years Ended December 31
2009

2010

2008

OPERATING ACTIVITIES:

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

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

Changes in assets and liabilities:

Accounts receivable
Inventory and prepaid supplies
Accounts payable
Unearned revenue
Accrued expenses, salaries, wages, benefits and other liabilities
Pension and post-retirement liabilities
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES

INVESTING ACTIVITIES:

Capital expenditures
Proceeds from the disposal of property and equipment
Proceeds from the redemptions of marketable securities
Acquisition payments

NET CASH USED IN INVESTING ACTIVITIES

FINANCING ACTIVITIES:

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

NET CASH USED IN FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
SUPPLEMENTAL CASH FLOW INFORMATION:

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

SUPPLEMENTAL NON-CASH INFORMATION:

Debt extinguished
Accrued capital expenditures

39,904
(70)

$ 28,202
6,247

$ (62,848)
6,858

—
87,594
(1,990)
20,820
1,720
(4,650)
(22)

41,529
(6,253)
2,729
6,789
(44,648)
(32,789)
1,600
112,263

—
84,587
25,268
19,743
1,316
—
(1,896)

4,436
8,241
1,871
(10,655)
(36,373)
(32,190)
4,187
102,984

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)
161,651

(110,681)
31,981
—
—
(78,700)

(101,227)
8,406
26
—
(92,795)

(111,877)
41,125
49,610
(3,840)
(24,982)

(70,249)
—
—
(70,249)
(36,686)
83,229
46,543

(43,074)
—
—
(43,074)
(32,885)
116,114
$ 83,229

(116,816)
38,500
(1,510)
(79,826)
56,843
59,271
$ 116,114

16,656
523

$ 24,093
3,118
$

$ 34,278
228
$

4,650
1,404

$ 91,985
1,749
$

—
2,064

$
$

See notes to consolidated financial statements.
43

AIR TRANSPORT SERVICES GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)

BALANCE AT JANUARY 1, 2008

Issuance of common shares
Stock-based compensation plans

Grant of restricted stock
Issuance of common shares
Forfeited restricted stock
Amortization of stock awards and
restricted stock
Comprehensive loss

Net loss
Other comprehensive loss, net of tax
Total comprehensive income

BALANCE AT DECEMBER 31, 2008
Stock-based compensation plans

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

BALANCE AT DECEMBER 31, 2009
Stock-based compensation plans

Grant of restricted stock
Withholdings of common shares, net
of issuances
Forfeited restricted stock
Tax benefit from common stock
compensation
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

Common Stock

Number
62,650,278

Amount
626
$

Additional
Paid-in
Capital
$ 458,091

Accumulated
Deficit
(189,544)

Accumulated
Other
Comprehensive
Income (Loss)

(69,170)

636,100
1,034
(40,100)

6
—
—

(6)
(138)
—

2,208

(55,990)

(65,691)

63,247,312

632

$ 460,155

(245,534)

(134,861)

200,000
19,952
(50,700)

2
1
(1)

(2)
(83)
1

1,316
41,435

34,449

88,472

63,416,564

634

$ 502,822

(211,085)

(46,389)

367,200

(95,736)
(35,800)

(1)
—

(4)

(958)
—

498

1,720
14,847

39,834

155

BALANCE AT DECEMBER 31, 2010

63,652,228

637

$ 518,925

(171,251)

(46,234)

Total
$ 200,003
—

—
(138)
—

2,208

(55,990)
(65,691)
$ (121,681)
$ 80,392

—
(82)

1,316
41,435

34,449

88,472
$ 122,921
$ 245,982

—

(959)
—

498

1,720
14,847

39,834

155
$ 39,989
$ 302,077

See notes to consolidated financial statements.

AIR TRANSPORT SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

Air Transport Services Group, Inc. is a holding company whose principal subsidiaries include an aircraft leasing
company, Cargo Aircraft Management, Inc. (“CAM”), and three independently certificated airlines, ABX Air, Inc.
(“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”) and Air Transport International, LLC (“ATI”). CAM
leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees.

Since August 16, 2003, the Company, through ABX, has had long term contracts with affiliates of DHL Worldwide
Express, B.V., which are collectively referred to as “DHL.” DHL, an international, integrated delivery company, is the
Company's largest customer. In March 2010, the Company and DHL executed new follow-on agreements, effective
March 31, 2010. Under the new agreements, DHL committed to lease 13 Boeing 767 freighter aircraft from CAM and
ABX has been contracted to operate those aircraft for DHL under a separate crew, maintenance and insurance agreement
(the "CMI agreement"). Prior to the new follow-on agreements, ABX provided aircraft, flight crews and maintenance
to DHL under a cost-plus aircraft, crew, maintenance and insurance agreement (“the DHL ACMI agreement”).

Through its airline subsidiaries, the Company provides aircraft, flight crews and airline operations to its customers.
CCIA and ATI each have contracts to provide airlift to BAX Global, Inc. (“BAX/Schenker”), the Company's second
largest customer. BAX/Schenker 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 sells aircraft parts, provides aircraft
and equipment maintenance services, operates three mail sorting facilities for the U.S. Postal Service (“USPS”), and
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, post-retirement obligations, income taxes, contingencies and litigation. Changes in estimates and
assumptions may have a material impact on the consolidated financial statements.

Subsequent Events

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.

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

Intercompany balances and transactions have been eliminated.

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 $6.5
million and $7.2 million for 2010 and 2009, 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.

Goodwill and Intangible Assets

The Company assesses, during the fourth quarter of each year, the carrying value of goodwill and indefinite-lived
intangible assets. 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.

Property and Equipment

Property and equipment are stated at cost, net of any impairment recorded. 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

Support equipment
Vehicles and other equipment

3 to 20 years

5 to 10 years

3 to 8 years

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 aircraft capacity exists 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 767-200 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 and aircraft type. 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 Boeing 767-200 airframe maintenance
and CF-6 engine maintenance 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 $1.5 million for 2010, $1.8 million for 2009 and $3.1 million
for 2008.

Discontinued Operations

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. The Company reclassifies amounts
presented in prior years that relate to discontinued business components to reflect the activities as discontinued
operations.

Exit Activities

Liabilities for contract termination costs associated with exit activities are recognized in the period incurred and
measured initially at fair value. 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. Pension obligations are accounted
for in accordance with Financial Accounting Standards Board Accounting Standards Codification (“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, general
liability and employee healthcare. The Company maintains excess claim coverage with common 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 $39.2 million and $41.3 million at December 31, 2010 and 2009, 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.

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 generated from airline service agreements are typically recognized based on hours flown or the amount
of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive
payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to
revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer
agreements, including consumption of aircraft fuel, are generally recognized as the cost is incurred. Revenues from
charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been
completed. Revenue for the sale of aircraft parts is recognized when the parts 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. Aircraft lease revenues are
recognized as operating lease revenue on a straight-line basis over the term of the applicable lease agreements.

Revenues from the former DHL ACMI agreement were generally determined based on expenses incurred during
a period plus mark-ups and were recognized when the related services were performed. ABX and DHL amended the
ACMI agreement to set mark-ups to specific quarterly amounts for 2009 and the first quarter of 2010. In 2008, ABX
and DHL executed a severance and retention agreement (“S&R agreement”) which specified employee severance,
retention and other benefits that DHL reimbursed to ABX for payment to its employees that were affected in conjunction
with DHL's U.S. restructuring plan. DHL was obligated to reimburse ABX for the cost of employee severance, retention,
productivity bonuses and vacation benefits paid in accordance with the agreement. The Company's revenues for 2009
and the first quarter of 2010 included reimbursement for expenses incurred under the DHL ACMI agreement, the
incremental mark-up revenues set by the DHL ACMI amendments and reimbursement for employee severance,
retention, vacation and other benefit costs incurred during the period.

New Accounting Pronouncements

NOTE B—SIGNIFICANT CUSTOMERS

DHL

The Company, through ABX, has had long term cost-plus contracts with DHL since August 16, 2003. In addition
to the DHL ACMI agreement, ABX provided staff to conduct package sorting, as well as airport, facilities and equipment
maintenance services for DHL under the hub services agreement (the "Hub Services" agreement). In 2008, DHL began
to restructure its U.S. operations due to continued losses. DHL’srestructuring significantly impacted ABX’soperations.
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 continued 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.

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 while ABX operates those aircraft for DHL under a separate CMI agreement. The CMI agreement is not
based on a cost-plus pricing arrangement, but instead pricing is based on a pre-defined fee, scaled for the number of
aircraft operated and the number of crews provided to DHL for its U.S. network. The initial term of the CMI agreement
is five years, while the term of the aircraft leases are seven years. Under the CMI agreement, ABX contracted 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 for at least the first three years of the CMI agreement.

As of December 31, 2010, CAM had leased 11 of the 13 Boeing 767-200 freighter aircraft to DHL. Until CAM
completes the aircraft modification process for the remaining two aircraft committed to DHL, ABX will provide bridging
aircraft to DHL under short term, month-to-month arrangements with economic terms similar to the leases for the 13
aircraft. CAM is projected to provide the twelfth and thirteenth Boeing 767-200 aircraft to DHL in the second quarter
of 2011.

In conjunction with the CMI agreement, ABX leased two Boeing 767-200 aircraft from DHL as of December 31,
2010. The duration of the aircraft leases corresponds to the duration of the CMI agreement. Under the terms of the
CMI agreement, DHL reimburses the lease expense to ABX.

The S&R agreement with DHL was terminated effective March 31, 2010. In conjunction with the termination of
the ACMI agreement and the S&R agreement, ABX and DHL entered into a termination agreement which addressed
several open issues between the parties. Under the termination agreement, in May 2010, DHL paid ABX the aircraft
carrying value of $29.7 million to complete the sale of aircraft that ABX previously put to DHL under provisions of
the ACMI agreement. DHL reimbursed ABX for $11.2 million of accrued vacation payments which is in addition to
$3.2 million previously reimbursed by DHL. As previously agreed, ABX paid DHL $15.0 million toward the balance
of the promissory note with DHL during May 2010. Beginning April 1, 2010 and extending through the term of the
DHL CMI agreement, the balance of the note with DHL is extinguished ratably without payment.

Continuing revenues from leases and contracted services for DHL were approximately 36%, 55% and 53% of the
Company's consolidated revenues from continuing operations for the years ended December 31, 2010, 2009 and 2008,
respectively. The Company’s balance sheets include accounts receivables and other long-term receivables with DHL
of $19.0 million and $62.7 million as of December 31, 2010 and 2009, respectively.

BAX/Schenker

A substantial portion of the Company’s revenues, cash flows and liquidity are also dependent on BAX/Schenker.
Revenues from services performed for BAX/Schenker were approximately 29%, 19% and 24% of the Company’s total
revenues from continuing operations for the years ended December 31, 2010, 2009 and 2008, respectively. Under their
agreements with BAX/Schenker, ATI and CCIA have the right to be the exclusive providers of main deck freighter lift
in the BAX/Schenker U.S. network through December 31, 2011. The Company’s balance sheets include accounts
receivables with BAX/Schenker of $5.5 million and $5.1 million as of December 31, 2010 and 2009, respectively.

U.S. Military

A substantial portion of the Company's revenues are also derived from the U.S. military. The U.S. Military awards
flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues
from services performed for the U.S. Military were approximately 14%, 10% and 11% of the Company's total revenues
from continuing operations for the years ended December 31, 2010, 2009 and 2008, respectively. The Company's
balance sheets included accounts receivables with the U.S. Military of $8.4 million and $3.1 million as of December 31,
2010 and 2009, respectively.

NOTE C—WIND-DOWN COSTS

As a result of DHL’sU.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 ACMI Services
segment and discontinued operations. The wind-down expenses incurred for the years ended December 31, 2010 and
2009 are summarized below (in thousands):

Accrued costs at December 31, 2008

Costs incurred
Costs paid

Accrued costs at December 31, 2009

Costs incurred
Costs paid

Accrued costs at December 31, 2010

Severance
Benefits

Retention
Benefits

28,920
81,658
(91,802)
18,776
(99)
(18,591)
86

38,926
28,687
(67,430)
183
240
(3)
420

Total

67,846
110,345
(159,232)
18,959
141
(18,594)
506

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 agreement. Wind-down costs in 2011 are not expected to
be significant.

NOTE D—DISCONTINUED OPERATIONS

In July 2009, DHL ceased the aircraft hub and freight sorting operations in Wilmington, Ohio and transferred those
operations to the Cincinnati/Northern Kentucky International Airport ("CVG") and, in August 2009, the Hub Services
agreement between ABX and DHL expired. 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 and freight sorting operations to CVG in July 2009, DHL assumed management of the fueling services
for its network that had previously been provided by ABX. ABX ceased providing aircraft fuel and related services for
its aircraft that remain in the DHL network. ABX’s aircraft hub, freight sorting and aircraft fueling operations, which
previously had been reported in the DHL segment, are reported as discontinued operations for all periods presented.

ABX sponsors defined benefit plans for retirees that include the former employees of the hub operations.
Additionally, ABX is self insured for medical coverage and workers’ compensation. The Company may incur expenses
and cash outlays 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):

Assets

Receivable due from DHL
Other current assets

Total Assets
Liabilities

Accounts payable
Employee compensation and benefits
Post-retirement

Total Liabilities

December 31

2010

2009

—
5,015
5,015

—
39,980
23,336
63,316

21,587
—
21,587

3
48,280
25,420
73,703

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

Revenue
Pre-tax earnings

December 31

2009

2008

$
$

171,545
9,233

$
$

669,060
10,790

NOTE E—GOODWILL AND OTHER INTANGIBLE ASSETS

The Company acquired CAM, ATI and CCIA through the acquisition of Cargo Holdings International, Inc. (“CHI”)
on December 31, 2007 and recorded goodwill and customer relationship intangible assets as a result of the acquisition.
In conjunction with the Company’s annual evaluation, goodwill and customer relationship intangible assets were tested
as of December 31, 2010 and December 31, 2009 and found not to be impaired. Testing as of December 31, 2008,
indicated that the goodwill and customer relationship intangible assets were impaired. 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, as of December 31, 2008. 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 to the economic recession at that time.

Changes in the carrying amount of goodwill for the years ended December 31, 2010 and 2009, by reportable

segment, are as follows (in thousands):

Balance as of December 31, 2008

Balance as of December 31, 2009

Balance as of December 31, 2010

ACMI
Services

CAM

Total

55,382

34,395

89,777

Information regarding our other intangible assets as of December 31, 2010 and 2009 is as follows (in thousands):

Customer Relationships

Airline Certificates
Total

December 31

2010

Net Book
Value

2009

Net Book
Value

5,259

4,000

9,259

6,113

4,000

10,113

The customer relationship intangible amortizes over sixteen more years while the airline certificates have indefinite
lives and therefore are not amortized. At December 31, 2010, the cost and accumulated amortization of the customer
relationships was $7.0 million and $1.7 million, respectively. During 2010 and 2009, the company recorded amortization
expense of $0.8 million and $0.9 million, respectively. 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 F—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 (in thousands):

As of December 31, 2010

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Total Liabilities

As of December 31, 2009

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Total Liabilities

—

20,411

(4,563)
(4,563)

—

20,411

(4,563)
(4,563)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

—

63,831

(3,715)
(3,715)

—

63,831

(3,715)
(3,715)

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

As a result of lower 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 $8.6 million more than the
carrying value, which was $302.5 million at December 31, 2010. The non-financial assets, including goodwill and
intangible assets, are measured at fair value on a non-recurring basis.

NOTE G—PROPERTY AND EQUIPMENT

At December 31, 2010, the Company’s subsidiaries owned or leased under capital leases 60 aircraft in serviceable
condition, consisting of 16 Boeing 767-200 aircraft leased to external customers, two Boeing 757, 12 Boeing 727, 15
McDonnell Douglas DC-8 and 15 Boeing 767-200 aircraft operated by the Company's airlines. As of December 31,
2010, the Company had two Boeing 767-200 aircraft and one Boeing 767-300 aircraft undergoing modification to
standard freighter configuration. Additionally, at December 31, 2010, the Company had four other Boeing 767-200
and two Boeing 767-300 aircraft which were scheduled to enter into the freighter modification process in 2011. The
combined carrying value of aircraft in modification or scheduled to undergo modification was $54.4 million at December
31, 2010. Property and equipment, to be held and used, consisted of the following (in thousands):

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

Accumulated depreciation
Property and equipment, net

December 31,
2010

December 31,
2009

928,784
50,424
1,604
714
981,526
(322,770)
658,756

842,235
51,903
1,883
1,255
897,276
(261,187)
636,089

Aircraft and flight equipment includes $22.2 million of property held under capital leases as of December 31, 2010
and $25.0 million as of December 31, 2009. Accumulated depreciation and amortization includes $10.8 million as of
December 31, 2010 and $9.2 million as of December 31, 2009 for property held under capital leases. CAM owned
aircraft with a carrying value of $263.2 million and $61.0 million that were under leases to external customers as of
December 31, 2010 and December 31, 2009, respectively.

At December 31, 2010, ACMI Services had three DC-8 airframes whose engines and rotables were being used for
other aircraft in the Company's fleets. The spare airframes can be reactivated as needed. The combined carrying value
of the idle DC-8 aircraft was $0.6 million at December 31, 2010.

Minimum future lease payments for aircraft and equipment leased to external customers as of December 31, 2010
is scheduled to be $55.0 million, $53.1 million, $40.8 million, $40.8 million, $40.8 million for each of the next five
years ending December 31, 2015.

Aircraft and Engines Held For Sale

The DHL ACMI agreement granted ABX certain rights to put to DHL any aircraft that was removed from service
prior to the expiration of the ACMI. In May 2010, DHL paid the Company $29.7 million for the carrying value of the
five Boeing 767 non-standard freighter aircraft and the 26 DC-9 aircraft previously put to DHL. In conjunction with
the termination of the DHL ACMI agreement, effective March 31, 2010, ABX no longer has the right to put aircraft to
DHL.

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

of operations.

NOTE H—DEBT OBLIGATIONS

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

Unsubordinated term loan

Revolving credit facility

Aircraft loans

Capital lease obligations-Boeing 727

Promissory note due to DHL, unsecured

Other capital leases

Total long-term obligations

Less: current portion

Total long-term obligations, net

December 31

2010

2009

178,000

200,250

—

92,075

5,910

26,350

193

302,528
(36,591)
265,937

18,500

99,759

12,421

46,000

497

377,427
(51,737)
325,690

The Company has a credit agreement with a consortium of lenders that provides for a $75.0 million revolving
credit facility and an unsubordinated term loan through December 2012 (“Credit Agreement”). 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, taxes, depreciation and amortization
expenses, outstanding debt level and prevailing LIBOR or prime rates. At December 31, 2010, the unsubordinated
term loan bears a variable interest rate of LIBOR (90-day) plus 2.25% (2.56% at December 31, 2010). The Credit
Agreement provides for the issuance of letters of credit on the Company’s behalf. As of December 31, 2010, the unused
revolving credit facility totaled $59.8 million, net of outstanding letters of credit of $15.2 million.

The aircraft loans are collateralized by seven aircraft, and amortize monthly with a balloon payment of
approximately 20% with maturities between 2016 and early 2018. Interest rates range from 6.74% to 7.36% per annum
payable monthly. Capital lease obligations for six Boeing 727 aircraft carry a fixed implicit rate of 6.50% and expire
in 2011.

The scheduled annual principal payments on long-term debt as of December 31, 2010 for the next five years are

as follows (in thousands):

2011

2012

2013

2014

2015

2016 and beyond

Principal
Payments

36,591

164,582

9,468

10,151

10,883

70,853

302,528

The promissory note due to DHL becomes due in August 2028 as a balloon payment, unless it is extinguished
sooner under the terms of the DHL CMI agreement. Beginning April 1, 2010 and extending through the term of the
DHL CMI agreement, the balance of the note is amortized ratably without payment, in exchange for services provided
and thus is expected to be completely amortized by April 2015. The promissory note bears interest at a rate of 5% per
annum, and DHL reimburses ABX the interest expense from the note through the term of the DHL CMI agreement.

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’sassertion. 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 in 2009
due to the extinguishment. In 2010, the Company adjusted the income tax effect of the debt extinguishment to reflect
the original issue discount associated with the extinguished amount of the promissory note. As a result, the Company
reduced the deferred tax liability and increased paid-in-capital by $14.8 million during 2010.

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 granted DHL a credit of $2.5 million as prepaid rent toward each of the four lease
option aircraft. ABX also agreed that, upon DHL’s request, it would continue operating the five Boeing 767 aircraft
under the DHL ACMI agreement.

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 in 2009. 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 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. 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 its stockholders. The same prepayment stipulation applies to stock repurchases.

NOTE I—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 a regional port authority, the term of
which expires in May of 2019.

Lease commitments under long-term capital and operating leases at December 31, 2010, are as follows (in

thousands):

2011

2012

2013

2014

2015

2016 and beyond

Total minimum lease payments

Less: interest

Principal obligations

Commitments

Capital
Leases

Operating
Leases

6,323

—

6,323
(220)
6,103

18,809

18,065

17,250

13,861

5,852

10,649

84,486

In September 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. Through December 31, 2010, eight
such aircraft have completed the modification process. As of December 31, 2010, two additional Boeing 767-200
aircraft were undergoing modification to standard freighter configuration.
If CAM were to cancel the conversion
program as of December 31, 2010, it would owe IAI, in addition to payments for aircraft currently undergoing
modification, approximately $8.0 million associated with additional conversion part kits which have been ordered.

In the third quarter of 2010, CAM purchased three passenger-configured Boeing 767-300 ER aircraft, each equipped
with General Electric CF6-80C2-B6 engines. In August 2010, CAM entered into an agreement with M&B Conversions
Limited and IAI for the conversion by IAI of the three Boeing 767-300 series passenger aircraft to a full freighter
configuration. The agreement includes an option to convert up to seven additional Boeing 767-300 series passenger
aircraft during the 10-year term of the agreement. The Company plans to modify the aircraft into standard freighter
configurations. As of December 31, 2010, one Boeing 767-300 was undergoing the modification to standard freighter
configuration. If CAM were to cancel the conversion program as of December 31, 2010, it would owe IAI approximately
$2.3 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 was required to

determine whether ABX continues to be a U.S. citizen and is fit, willing and able to engage in air transportation of
cargo. On January 24, 2011, the DOT issued an order dismissing its notice, dated August 6, 2003, requesting public
comments on the procedures to be employed in reviewing the impact of the proposed substantial changes in ownership
and operations on the citizenship of ABX. On March 4, 2011, the DOT notified ABX that, based on its review of the
previously filed and updated information, it appears that ABX continues to be a U.S citizen and remains fit to conduct
air transportation operations as a U.S. certificated air carrier.

Civil Action Alleging Violations of Immigration Laws

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’sregulations. If the airline's response to the LOI 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 FAAissued LOIs to CCIA arising from a focused inspection of that airline’s operations during the fourth quarter
of 2009 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 FAAAirworthiness 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.

Employees Under Collective Bargaining Agreements

As of December 31, 2010, the flight crewmembers of ABX, ATI and CCIA were represented by labor unions listed

below:

Airline
ABX

ATI

CCIA

Labor Agreement Unit

International Brotherhood of Teamsters

Airline Pilots Association

Percentage of
the
Company’s
Employees

12.4%

10.1%

6.4%

NOTE J—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.

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 and expected long-term investment returns on plan assets. 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.

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

Accumulated benefit obligation
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
Obligation as of December 31

Change in plan assets

Fair value as of January 1
Actual (loss) gain on plan assets
Plan transfers
Employer contributions
Benefits paid
Fair value as of December 31

Funded status

Recorded liabilities—net underfunded

Pension Plans

Post-retirement
Healthcare Plans

2010

694,548

629,236
2,286
36,678
—
—
—
2,204
(20,833)
44,977
694,548

509,656
60,892
2,204
36,575
(20,833)
588,494

2009

629,236

633,793
12,870
37,699
(78,067)
1,550
19,189
1,673
(17,571)
18,100
629,236

366,583
75,796
1,674
83,174
(17,571)
509,656

2010

10,135

33,142
341
800
—
—
(24,648)
—
(1,278)
1,778
10,135

—
—
—
1,278
(1,278)
—

2009

33,142

30,120
649
1,767
—
—
—
—
(1,515)
2,121
33,142

—
—
—
1,515
(1,515)
—

(106,054)

(119,580)

(10,135)

(33,142)

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.
In 2010, the Company modified the post-retirement health plans for ABX
employees. Benefits for covered individuals now terminates upon reaching age 65 under the modified post-retirement
healthcare plans.

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, 2010, 2009 and 2008 are as follows (in thousands):

Service cost

Interest cost

Pension Plans

2010

2,286

36,678

2009
12,870

37,699

Expected return on plan assets

(35,600)

(29,569)

Curtailment (gain) loss

Special termination benefits

Net amortization and deferral

—
—

2,069

25,048
1,550

27,434

2008
33,310

38,515
(36,367)
6,887
1,072

6,902

Net periodic benefit cost

5,433

75,032

50,319

Post-Retirement
Healthcare Plans

2010

2009

2008

341

800

—

—
—
(3,803)
(2,662)

650

1,767

—

—
—

—

1,868

2,053

—
(911)
—

2,417

3,082

The net periodic expense includes a net curtailment charge of $25.0 million 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.

Unrecognized Net Periodic Benefit Expense

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, 2010 are as follows (in thousands):

Pension Plans

2010

2009

Unrecognized prior service cost

—

Unrecognized net actuarial loss

76,490

58,873

Post-Retirement
Healthcare Plans

2010
$ (20,481)
3,783

2009
$ —

2,369

Accumulated other comprehensive
loss (gain)

$ 76,490

$ 58,873

$ (16,698)

$ 2,369

The following table sets forth the amounts of unrecognized net actuarial gain and loss recorded in accumulated
other comprehensive income that is expected to be recognized as components of net periodic benefit expense during
2011 (in thousands):

Amortization of actuarial loss

Prior Service Cost

Post-
Retirement
Healthcare
Plans

Pension
Plans

2,700

—

529
(5,552)

Assumptions

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

Discount rate (for qualified and non-qualified plans)

Expected return on plan assets

Rate of compensation increase (pilots)

Rate of compensation increase (non-pilots)

Pension Plans

2010
5.35% - 5.55%

2009
5.85% - 6.00%

2008
5.85% - 6.20%

6.75%

not applicable

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 4.15% for both pilots and non-pilots
at December 31, 2010. The discount rates used for pension plans were 5.85% for pilots and 6.00% for non-pilots at
December 31, 2009 and 6.20% for pilots and 5.85% for non-pilots at December 31, 2008. Post-retirement healthcare
plan obligations have not been funded. The healthcare cost trend rate used in measuring post-retirement healthcare
benefit costs was 8.0% for 2011, decreasing each year until it reaches a 4.5% annual growth rate in 2027. The effects
of a 1% increase and decrease in the healthcare cost trend rate on 2010 cost and the accumulated post-retirement benefit
obligation at December 31, 2010, are shown below (in thousands):

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

1% Increase
74
$
—
$

1% Decrease
$
$

(62)
—

Plan Assets

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

Asset category
Cash
Equity securities
Fixed income securities
Real estate

Composition of Plan Assets
as of December 31
2010

2009

1%
48%
49%
2%
100%

8%
48%
42%
2%
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 2010, ABX made contributions to its defined benefit pension plans of $36.6 million. ABX estimates that its
minimum contributions in 2011 will be approximately $2.5 million for its defined benefit pension plans and $1.5 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):

2011

2012

2013

2014

2015

Years 2016 to 2020

Fair Value Measurements

Pension
Benefits

Post-retirement
Healthcare
Benefits

23,097

24,660

26,430

30,918

31,000

191,684

1,539

1,306

1,165

1,048

959

3,685

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.

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 U.S. 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.

The pension plan assets measured at fair value on a recurring basis were as follows (in thousands):

As of December 31, 2010

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Plan assets

Temporary cash investments

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Real estate

Hedge funds and private equity

656

—

49,368

156,501

31,769

—

20,769

—

121,100

170,607

—

12,214

25,510

656

20,769

49,368

277,601

202,376

12,214

25,510

Total plan assets

238,294

312,476

37,724

588,494

As of December 31, 2009

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Plan assets

Temporary cash investments

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Real estate

Hedge funds and private equity

—

42,257

94,713

6,750

—

46,690

—

157,777

127,150

—

11,160

23,109

46,690

42,257

252,490

133,900

11,160

23,109

Total plan assets

143,770

331,617

34,269

509,656

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

Realized gains (losses)

Unrealized gains

Purchases & settlements

December 31, 2010

Hedge Funds &
Private Equity
20,349
$

Real Estate
Investments

Total

21,315

—

2,199

561

—
(10,155)
—

23,109

11,160

—

1,504

897

—

1,054

—

41,664

—
(7,956)
561

34,269

—

2,558

897

25,510

12,214

37,724

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, 2010 and 2009 is summarized as follows (in thousands):

Accumulated benefit obligation

Change in benefit obligation

Obligation as of January 1

Service cost

Interest cost

Benefits paid

Actuarial (gain) loss

Obligation as of December 31

Change in plan assets

Fair value as of January 1

Employer contributions

Benefits paid

Fair value as of December 31

Funded status

Recorded liabilities—net underfunded
Accumulated other comprehensive income

Post-retirement
Sick Leave

2010

2009

3,556

3,002

228

151
(35)
210

3,556

—

35
(35)
—

(3,556)
426

3,002

2,643

209

159

—
(9)
3,002

—

(3,002)
572

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

Discount rate

Rate of compensation increase

Post-Retirement Plan

2010

2009

2008

4.64%

4.00%

5.32%

4.00%

6.40%

4.00%

Expected benefit payments for the next five years (in thousands) are $429 for 2011, $361 for 2012, $372 for 2013,

$284 for 2014 and $315 for 2015. Benefit payments for 2016 to 2020 are expected to be $1.3 million in aggregate.

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 were discontinued in 2000 for all non-pilot participants and in 2009
for all pilot participants. Expenses for defined contribution retirement plans were as follows (in thousands):

Years Ended December 31
2009

2008

2010

Capital accumulation plans
Profit sharing plans
Total expense

4,527
110
4,637

5,299
547
5,846

6,484
1,062
7,546

NOTE K—INCOME TAXES

At December 31, 2010, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $29.2 million, which begin to expire in 2025. The deferred tax asset balance
includes $0.8 million net of a $0.4 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 DHL's 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, 2010 and 2009 are

as follows (in thousands):

Deferred tax assets:

December 31

2010

2009

Net operating loss carryforward and federal credits

13,482

Post-retirement employee benefits

Employee benefits other than post-retirement
Other

Deferred tax assets

Deferred tax liabilities:

Accelerated depreciation and impairment charges

Partnership items

Debt reacquisition

State taxes

Valuation allowance against deferred tax assets

Deferred tax liabilities

Net deferred tax asset (liability)

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

40,454

18,480
14,231

86,647

(93,999)
(17,552)
—
(1,734)
(229)
(113,514)
(26,867)

31,789

40,682

22,128
12,426

107,025

(94,382)
(12,274)
(16,196)
(2,009)
(611)
(125,472)
(18,447)

Current taxes:

Federal

State

Deferred taxes:

Federal

State

Total deferred tax expense
Total income tax expense from continuing operations

Income tax expense from discontinued operations

Income tax provison for debt extinguishment

Years Ended December 31

2010

2009

2008

1,275

1,278

—

399

20,452

408

20,860

23,413
(40)
(14,847)

16,624

133

16,757

17,156

2,986

23,612

—

371

4,897

961

5,858

6,229

3,931

—

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

Effective income tax rate

Years Ended December 31

2010

2009

2008

35.0 %

1.7 %

— %

0.9 %

(0.6)%

37.0 %

35.0%

0.8%

—%

1.7%

0.3%

37.8%

(35.0)%

1.5 %

45.2 %

1.4 %

(2.1)%

11.0 %

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
Effective income tax rate

Years Ended December 31
2009

2010

2008

(35.0)%
(1.3)%
— %
— %
(36.3)%

35.0 %
1.2 %
(3.8)%
— %
32.4 %

35.0 %
1.3 %
0.2 %
(0.1)%
36.4 %

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 audit 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. The Company recognizes the impact of an uncertain income tax position in the financial
statements if that position is more likely than not of being sustained on audit, based on the technical merits of the
position. During 2010, the statute of limitations expired on the remaining uncertain position items, accordingly, the
Company reversed the remaining uncertain positions liability of $2.2 million, reduced tax expense by $0.4 million and
restored the deferred tax asset by $1.7 million. Accrued interest and penalties on tax positions are recorded as a
component of interest expense. Interest and penalties expense was immaterial for 2010, 2009 and 2008. Changes in
unrecognized tax benefits are as follows (in thousands):

As of January 1
Additions for tax positions of prior years
Acquisition of CHI
Reductions for tax positions of prior years
Expiration of uncertain tax positions
As of December 31

2010

2009

2008

4,287
—
—

(4,287)
—

5,496
—
—
(1,209)

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

4,287

5,496

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 2007 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 that were previously recorded. 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.
In 2010, the IRS concluded its examination of the 2008 federal return and issued a "no change" report in early 2011.

The consolidated federal tax returns for the years 2003 through 2007 for ABX and the years 2001 through 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 with the exception of the recently examined 2008 Federal return. State
and local returns filed for 2004 though 2009 are generally also open to examination by their respective jurisdictions.

NOTE L—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.

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, 2010 (in thousands):

December 31

2010

2009

Expiration Date
December 31, 2012

December 31, 2012

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

Notional
Amount

Market
Value
(Liability)

3.105%

68,000

3.105%

40,000

(2,893)
(1,670)

76,500

45,000

(2,336)
(1,379)

At December 31, 2010, accumulated other comprehensive loss included unrecognized losses of $2.7 million, net
of tax, for derivative instruments. If it becomes probable that a hedged forecasted transaction will not occur near the
time originally expected, the related unrecognized loss will be reclassified to earnings.

NOTE M—OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes the following transactions for the years ended December 31, 2010, 2009 and 2008

(in thousands):

2010

Actuarial loss for retiree liabilities

Post-retirement liabilities negative prior service cost

Unrealized loss on derivative instruments
Reclassifications to net income:

Hedging gain realized

Pension actuarial loss

Post-retirement actuarial loss

Post-retirement negative prior service cost

Other comprehensive income
2009

Actuarial gain for retiree liabilities

Unrealized gain on derivative instruments
Reclassifications to net income:

Hedging gain realized

Pension actuarial loss

Post-retirement actuarial gain

Pension prior service cost

Other comprehensive income
2008

Actuarial loss for retiree 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

Other comprehensive loss

Before Tax

Income Tax
(Expense)
or Benefit

Net of
Tax

(21,674)
24,648
(848)

7,868
(8,947)
308

(13,806)
15,701
(540)

(106)
2,068

321
(4,168)
241

112,054

1,742

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

138,950

(108,629)
22
(5,457)

(122)
1,914

4,294

4,988
(102,990)

38
(751)
(116)
1,514
(86)

(40,715)
(632)

41
(9,238)
786
(720)
(50,478)

39,434
(8)
1,981

45
(721)
(1,561)
(1,871)
37,299

(68)
1,317

205
(2,654)
155

71,339

1,110

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

88,472

(69,195)
14
(3,476)

(77)
1,193

2,733

3,117
(65,691)

NOTE N—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 based on the Company's average return on equity or investment capital,
depending on the form of award, 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

2010

2009

2008

Outstanding at beginning of period

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

Weighted
average
grant-date
fair value
3.07
$

4.37

3.35

3.77

3.12

3.55

3.33

Number of
Awards
1,505,550

804,400

(425,139)

(298,911)

(71,600)

1,514,300

659,467

Weighted
average
grant-date
fair value
4.24
$

0.93

6.33

7.10

3.41

3.07

4.18

Number of
Awards
1,667,100

295,200
(196,774)
(158,576)
(101,400)
1,505,550

283,939

Weighted
average
grant-date
fair value
7.64
$

2.95

6.03

9.91

3.23

4.24

5.62

Number
of Awards
748,700

1,353,800
(293,050)
(62,150)
(80,200)
1,667,100

222,173

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 $4.00, $0.93 and $2.95 for 2010, 2009 and 2008, 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 $5.60 and $2.96 for 2010 and 2008, 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 2010 and 2008 using daily stock prices and using the following variables:

Risk-free interest rate

Volatility

2010

2008

1.74%

125.3%

1.71%

41.5%

For the years ended December 31, 2010, 2009 and 2008, the Company recorded expense of $1.7 million, $1.3
million and $2.2 million, respectively, for stock incentive awards. At December 31, 2010, there was $2.3 million of
unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average
period of 2.0 years. None of the awards were convertible, and none of the outstanding shares of restricted stock had
vested as of December 31, 2010. These awards could result in a maximum number of 1,826,200 additional outstanding
shares of the Company’s common stock depending on service, performance and market results through December 31,
2012.

NOTE O—EARNINGS PER SHARE

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

amounts):

December 31

2010

2009

Earnings (loss) from continuing operations

39,904

28,202

Weighted-average shares outstanding for basic earnings per share

62,807

62,674

Common equivalent shares:

Effect of stock-based compensation awards

Weighted-average shares outstanding assuming dilution

Basic earnings (loss) per share from continuing operations

Diluted earnings (loss) per share from continuing operations

1,202

64,009

605

63,279

0.64

0.62

0.45

0.44

2008
(62,848)
62,484

—

62,484
(1.01)
(1.01)

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 564,100 shares, 630,300 shares and 616,800 shares of restricted stock for 2010, 2009 and 2008,
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 2010 and 2009 and 7,529,000 shares for 2008.

NOTE P—SEGMENT INFORMATION

The Company operates in two reportable segments, as described below. 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 ACMI Services segment consists of the Company's airline operations including the CMI, ACMI
and charter service agreements that the Company provides to customers. The Company's other activities, which include
contracts with the USPS, the sale of aircraft parts and maintenance services, management services for workers
compensation, logistics services and fuel management, do not constitute reportable segments and are combined in “All
other” with inter-segment profit eliminations. Inter-segment revenues are valued at arms-length, market rates. Cash,
cash equivalents and deferred tax assets are reflected in Assets - All other below. Effective March 31, 2010, the Company
and DHL terminated the DHL ACMI agreement and executed new follow-on agreements. Due to the similarities among
the Company's airline operations, including the new airline service agreement with DHL, the airline operations have
been aggregated into a single reportable segment. The segment information has been updated to retrospectively reflect
the aggregation of the formerly reported DHL segment with the ACMI Services segment. The Company's segment
information for continuing operations is presented below (in thousands):

Total revenues:

CAM

ACMI Services

All other

Eliminate Inter-segment revenues

Total

Customer revenues:

CAM

ACMI Services

All other

Total

Depreciation and amortization expense:

CAM

ACMI Services

All other

Total

Segment earnings (loss):

CAM

ACMI Services

All other

Net unallocated interest expense

Total from continuing operations

Assets:

CAM

ACMI Services

Discontinued operations

All other

Total

Year Ended December 31

2010

2009

2008

47,480

901,547

48,707
(56,048)
941,686

2,729

900,286

38,671

941,686

15,687

77,250

815

93,752

18,102
(69,687)
7,070
(12,104)
(56,619)

101,375

60,685

579,412

87,660
(101,065)
667,382

43,294

578,198

45,890

667,382

40,215

47,176

203

87,594

41,586

20,888

8,017
(7,174)
63,317

768,824

64,914
(70,940)
823,483

10,926

768,225

44,332

823,483

22,869

60,047

1,048

83,964

22,775

28,392

3,518
(9,327)
45,358

December 31

2010

2009

600,245

198,024

5,015

97,370

351,172

482,976

21,587

147,038

900,654

1,002,773

During 2010, the Company had capital expenditures of $37.4 million and $72.4 million for the ACMI Services 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 $0.3 million,
$0.4 million and $2.3 million is included in All other pre-tax earnings for 2010, 2009 and 2008, respectively. Interest
expense of $1.9 million for 2010, $5.5 million for 2009 and $7.9 million for 2008 is reimbursed through the commercial
agreements with DHL and included in the ACMI Services segment earnings above. CAM's interest expense was $9.3
million, $10.3 million and $12.4 million for the years ending December 31, 2010, 2009 and 2008.

Entity-Wide Disclosures

The Company’s international revenues were approximately $234.5 million, $165.4 million and $177.5 million for
2010, 2009 and 2008, respectively, derived primarily from international flights departing from or arriving in foreign
countries. All revenues for the DHL CMI agreement are attributed to U.S. operations.

NOTE Q—QUARTERLY RESULTS (Unaudited)

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

2010
Revenues from continuing operations

Net earnings from continuing operations

Net earnings (loss) from discontinued operations
Weighted average shares:

Basic
Diluted

Earnings per share from continuing operations

Basic

Diluted

2009
Revenues from continuing operations

Net earnings from continuing operations
Net earnings from discontinued operations

Weighted average shares:

Basic

Diluted

Earnings per share from continuing operations

Basic

Diluted

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

160,944

160,111

167,726

$ 178,601

6,750

405

62,792
63,605

0.11

211,776

8,197

2,900

62,638

62,800

9,915
(233)

11,388
(230)

11,851
(12)

62,811
64,421

0.16

0.15

186,995

6,838

1,269

62,685

63,011

62,811
64,202

62,814
63,809

0.18

0.19

174,202

$ 250,510

2,855

882

62,685

63,731

10,312

1,196

62,686

63,573

0.13

0.11

0.05

0.16

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, 2010, 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 2010
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, 2010. 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, 2010, 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 8, 2011

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, 2010, 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, 2010, 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, 2010 of the Company and our report dated March 8, 2011 expressed an unqualified opinion on those financial
statements and financial statement schedule and included an explanatory paragraph regarding the Company's three
principal customers.

DELOITTE & TOUCHE LLP

Dayton, Ohio
March 8, 2011

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 2011 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
Joseph C. Hete

Age
56

Richard F. Corrado

Quint O. Turner

W. Joseph Payne

Information
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 ABXAir, 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, Inc. from 1991 to 1997 and Vice President,
Administration of ABX Air, Inc. from 1986 to 1991. Mr. Hete joined
ABX Air, Inc. in 1980.

Chief Commercial Officer, Air Transport Services Group, Inc., and
President of Cargo Aircraft Management, Inc. since April 2010.
President of Airborne Global Solutions, Inc. since July 2010.

Before joining ATSG, Mr. Corrado was President of Transform
Consulting Group from July 2006 through March 2010 and Chief
Operating Officer of AFMS Logistics Management from February
2008 through March 2010. He was Executive Vice President of Air
Services and Business Development for DHL Express from September
2003 through June of 2006; and Senior Vice President of Marketing
from August 2000 through August 2003.

Chief Financial Officer, Air Transport Services Group, Inc., since
February 2008 and Chief Financial Officer, ABX Air, Inc. since
December 2004.

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.

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.

John W. Graber

President, ABX Air, Inc., since February 2008.

James L. Hobson

Dennis A. Manibusan

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 ATAAirlines, Inc. from 1993 to 2006.
(ATA Airlines, Inc. filed for bankruptcy in April 2008.)

President of Air Transport International, LLC since May 1998.

Mr Hobson retired from the U.S. Air Force in August 1997 as a Major
General with 32 years service and 6,500 flying hours.
President of Capital Cargo International Airlines, Inc., since February
2010.

Before joining CCIA, Mr. Manibusan held the positions Vice President
of Maintenance & Engineering at Hawaiian Airlines from October
2008 to November 2009 and Sr. Vice President of Maintenance &
Engineering at ABX Air from May 1993 to October 2008. Mr.
Manibusan is a Retired Lieutenant Colonel from the U.S. Air Force.

Brady T. Templeton

President, Airborne Maintenance & Engineering Services, Inc., since
May 2009.

Mr. Templeton served as Vice President, Ground Operations, of ABX
Air, Inc. from May 2006 until May 2009. Mr. Templeton held the
position of Senior Director, Ground Operations of ABX Air, Inc. from
May 2005 until May 2006. Mr. Templeton served as Senior Director,
Planning and Technical Services of ABX Air, Inc. from January 2005
to May 2005. Mr. Templeton served as Senior Director, Line
Maintenance of ABX Air, Inc. from February 1999 until January 2005.
Mr. Templeton joined ABX Air, Inc. in 1992.

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 2011 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 2011 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 2011 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 2011 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.

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

Description
Accounts receivable reserve:

Year ended:

December 31, 2010
December 31, 2009
December 31, 2008

Balance at
beginning
of period

Additions
charged to
cost and
expenses

Deductions

Balance at end
of period

1,288,043
469,112
363,144

573,858
877,220
545,894

771,859
58,289
439,926

1,090,042
1,288,043
469,112

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
Plan of acquisition, reorganization, arrangement, liquidation or succession.

2.1

2.2

2.3

2.4

2.5

3.1

3.2

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

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)

Articles of Incorporation

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)

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.15a

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

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)

Form of Amendment to Retention Bonus Agreement. (15)

Director compensation fee summary. (30)

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)

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

10.49

10.50

10.51

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
Significant Shareholders who are signatories thereto and Wells Fargo Bank, National
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)

First Amendment to Credit Agreement. (20)

First Amendment to Escrow Agreement, among ABX Holdings, Inc. and the Significant
Shareholders. (21)

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 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 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)

10.52

10.53

10.54

10.55

10.56

10.57

10.58

10.59

10.60

10.61

10.62

10.63

10.64

10.65

10.66

10.67

10.68

10.69

10.70

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)

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. (31)

Air Transportation Services Agreement between DHL Network Operations (USA), Inc. and ABX
Air, Inc, dated March 29, 2010. (32)

Mutual Termination Agreement and Release, made among DPWN Holdings (USA), Inc., DHL
Network Operations (USA), Inc., DHL Express (USA), Inc., Air Transport Services Group, Inc.,
and ABX Air, Inc., dated March 29, 2010. (32)

Second Amendment to Lease Assumption and Option Agreement and Exercise of Lease Option,
between DHL Network Operations (USA), Inc. and ABX Air, Inc., dated March 29, 2010. (32)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc.
2005 Amended and Restated Long-Term Incentive Plan. (33)

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2005 Amended and Restated Long-Term Incentive Plan. (33)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005
Amended and Restated Long-Term Incentive Plan. (33)

Aircraft Sale Agreements relating to three used Boeing 767-338ER aircraft between Cargo Aircraft
Management, Inc. and Qantas Airways Limited. (34)

Lease Agreement (Wilmington Airpark) between Clinton County Port Authority and Air Transport
Services Group, Inc., dated June 2, 2010. (35)

Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified July 30,
2010. (35)

Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B
Conversions Limited and Israel Aerospace Industries Ltd. (36)

10.71

14.1

21.1

23.1

31.1

31.2

32.1

32.2

Letter Agreement, dated October 15, 2010, between Precision Conversions, LLC and Cargo
Aircraft Management, Inc., filed herewith. Those portions of the Agreement marked with an [*]
have been omitted pursuant to a request for confidential treatment, and have been filed separately
with the SEC.

Code of Ethics

Code of Ethics—CEO and CFO. (6)

List of Significant Subsidiaries

List of Significant Subsidiaries of Air Transport Services Group, Inc., filed within.

Consent of experts and counsel

Consent of independent registered public accounting firm, filed herewith.

Certifications

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.

____________________
(1)

(2)

(3)

(4)

(5)

(6)
(7)
(8)

(9)

(10)
(11)
(12)
(13)

(14)

(15)

(16)

(17)

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.
The Company’s Code of Ethics can be accessed from the Company’s Internet website at www.atsginc.com.
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.
Incorporated by reference to the Company’s 8-K filed on July 12, 2005.
Incorporated by reference to the Company’s 8-K filed on August 9, 2005.
Incorporated by reference to the Company’s 8-K filed on October 4, 2005.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 16, 2006 with the
Securities and Exchange Commission.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 9, 2006.
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.
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.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 14, 2007.

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

(27)

(28)

(29)

(30)

(31)

(32)

(33)

(34)

(35)

(36)

Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on November 14, 2007.
Incorporated by reference to the Company’s 8-K/A, submitted for filing with the Securities and Exchange
Commission on March 14, 2008.
Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange
Commission on January 25, 2008.
Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange
Commission on March 21, 2008.
Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange
Commission on August 13, 2008.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on November 14, 2008.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 23, 2009 with the
Securities and Exchange Commission.
Incorporated by reference to the Company’s 8-K, submitted for filing with the Securities and Exchange
Commission on February 5, 2009.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on May 11, 2009.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 10, 2009.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on November 12, 2009.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 17, 2008 with the
Securities and Exchange Commission.
Incorporated by reference to the Company's Proxy Statement for the 2010 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 31, 2010 with the Securities and Exchange Commission.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 31, 2010 with the
Securities and Exchange Commission.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 10, 2010. Those portions of the Agreement marked with an [*] have been
omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 10, 2010.
Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 21, 2010. Those portions of the Agreement marked with an [*] have been omitted
pursuant to a request for confidential treatment and have been filed separately with the SEC.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 4, 2010.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 3, 2010. Those portions of the Agreement marked with an [*] have been
omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.

Exhibits can be viewed by accessing Air Transport Services Group, Inc. Form 10-K at www.atsginc.com or www.sec.gov.

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

President and Chief Executive Officer

Title

Date
March 8, 2011

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

/S/ JAMES H. CAREY
James H. Carey

/S/ JAMES E. BUSHMAN
James E. Bushman

/S/ JEFFREY A. DOMINICK
Jeffrey A. Dominick

/S/ JOHN D. GEARY
John D. Geary

/S/ JOSEPH C. HETE
Joseph C. Hete

/S/ RANDY D. RADEMACHER
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 and Chairman of the Board

Title

Director

Date

March 8, 2011

Director, President and Chief Executive Officer

March 8, 2011

Director

March 8, 2011

Chief Financial Officer

March 8, 2011

Air Transport Services Group 2010 Annual Report

To Our Shareholders

The restructuring of your company
in 2008 and 2009 paid off strongly in
2010, as a transformed ATSG gained
the attention and respect of both the air
cargo and investor markets.

the years to come.

Pre-tax Earnings
from continuing operations (in millions)

$63.3

$45.4

$27.8

$25.7

($56.6)

$23.6

$22.2

2004

2005

2006

2007

2008

2009

2010

The strategy that has spurred our exceptional

Solving the Puzzle

Our process of analysis and strategic
appraisal led to a fundamental truth: Our
business would be more successful if we
made it a priority to earn competitive market

returns on our aircraft assets alone,
separate from any incremental
income we might earn from
operating those aircraft

for others.

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Investor Information

Stock Information
NASDAQ: ATSG
Company documents
electronically
filed with the SEC
also may be found at
www.atsginc.com.

Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio

Registrar and Transfer Agent
Computershare Investor Services
(877) 581-5548 or (781) 575-2879
www.computershare.com/investor

By mail:
P.O. Box 43078
Providence, RI
02940-3078

By courier:
250 Royall Street
Canton, MA 02021

Investor Relations
Telephone inquiries may be
directed to (937) 434-2700.

Board of Directors

James H. Carey
Executive Vice President (Retired) of the Chase
Manhattan Bank. Mr. Carey has been the
Chairman of the Board of the Company since
May 2004, and has been a Director since August
2003. He also is a member of the Compensation
Committee, the Nominating and Governance
Committee, and the Executive Committee.

James E. Bushman
Chairman of Cast-Fab Technologies, Inc., and
Chairman of Security Systems Equipment Corporation.
Mr. Bushman has been a Director of the Company
since May 2004. He is the Chairman of both the
Compensation Committee and the Executive
Committee and a member of the Audit Committee.

Joseph C. Hete
President and Chief Executive
Officer of Air Transport Services
Group, Inc. and Chief Executive
Officer of ABX Air, Inc. He is a member
of the Executive Committee and has
been with the company since 1980.

INSIDE

INSIDE BACK COVER

Air Transport Services Group, Inc.
145 Hunter Drive
Wilmington, Ohio 45177
www.atsginc.com

Piecing it all together:
Bundled solutions
for the global marketplace

2010 Annual Report

OUTSIDE BACK COVER

OUTSIDE FRONT COVER