Air Transport Services Group Annual Report 2011

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2011 Annual Report

Air Transport Services Group 2011 Annual Report

To Our Shareholders

We demonstrated the growth potential of our

new business model in 2010.

might earn from operating or servicing them
for others.

In 2011, we proved its resilience, as not even
the loss of a major customer prevented ATSG from
recording another year of good results.

Our 2011 revenues increased nine percent to

$730.1 million. Our net earnings for 2011 were
$23.2 million, or thirty-six cents per share on a fully
diluted basis. While those earnings were lower than
in 2010, they include signiﬁ cant charges related to
asset impairments, and the adoption of a new credit
agreement with our lenders. Excluding those
charges, our earnings in 2011 were higher than
they were in 2010. Meanwhile, our cash returns
from operating activities increased 21 percent in
2011, to $136.1 million.

That discipline would be difﬁ cult to maintain

if we were competing directly with the large
organizations that dominate the global air-cargo
market. Those companies compete directly for
cargo, then haul it across oceans and continents
aboard jumbo freighters.

But we serve a different, yet vital market niche:

We supply those global air cargo networks, and
many regional ones, with mid-size freighters,
either on a long-term dry lease of the aircraft
alone, or on a packaged ACMI (Aircraft, Crew,
Maintenance and Insurance) basis to help them
extend their networks outward from hubs into
broad regional markets.

Growth with good margins and measured risk
is at the center of everything we do. It is why we
choose to limit our asset risk by acquiring used
passenger aircraft and converting them into
freighters at a third the cost of new freighters.
It determines how we set and enforce the return-
rate hurdles we earn on them. And it guides
our thinking about when we can expand base
dry-lease return on our assets with a range of
margin-enhancing complementary services,
including our airline and maintenance services.

As we told you a year ago, we are ﬁ rmly
committed to the principle that our business will be
more successful, and our shareholders better
rewarded in the long run, if we insist on earning
competitive market returns on our aircraft assets
alone, separate from any incremental income we

Deployment of CAM-Owned 767 Freighters
as of March 31, 2012

18
Internal
Leases for
ACMI
Operations

21
Long-Term*
External
Leases

* approx. 5 year average unexpired term

Air Transport Services Group 2011 Annual Report

In our niche, we are by far the global market

leader. We have more medium-sized freighters in
service in other cargo networks on a dry-leased or
ACMI basis than any other source of such aircraft
in the world.

Our backbone aircraft, the medium wide-body
Boeing 767, is perhaps the most versatile freighter
aircraft available today. As Boeing deﬁ nes the
12 fastest-growing air freight routes around the
world, nine can be served by our Boeing 767-300s,
including many transatlantic, intra-Asia and
North/South America routes. That versatility
means our customers can deploy our aircraft
competitively against a wide range of objectives,
which makes them more attractive for long-term
dry-lease commitments.

That’s why we have devoted a substantial
amount of capital ― nearly $330 million over the
last three years ― toward acquiring, modifying and
deploying mid-sized freighter aircraft. As a result,
our owned ﬂ eet of 767 freighters, and its narrow-
body sibling, the Boeing 757 freighter, has nearly
doubled, from twenty-one 767s and one 757 in
service at the end of 2008 to thirty-eight 767s and
three 757s in service today. We also operate ﬁ ve
other 767s that we hold under operating leases.

Three of those 767s in our ﬂ eet today ― two
we own, and one we lease ― are the longer-range,
higher capacity 767-300ER model. By the end of
this year, we expect to have six more of them,
including ﬁ ve we have acquired as passenger
aircraft and are modifying, and one more we will
lease. We expect that these 767-300s will become
the core of our ﬂ eet over time, as hundreds of them

in passenger airline ﬂ eets today are likely to
become available as conversion candidates over
the next several years.

Our capital spending budget for 2012 of
between $180 million and $200 million includes
funds to complete the conversion of aircraft we own
today, and allocations to purchase more passenger
aircraft for conversion. That includes funds to
complete two Boeing 757s that we are converting
into combi aircraft, which have both passenger and
cargo compartments on their main deck. We expect
the U.S. Military’s Air Mobility Command (AMC) to
endorse the 757 combi later this year as its
preferred replacement for the four DC-8 combis we
alone operate for the AMC today.

One of our 767s remains in passenger mode.
We have operated it on a charter basis for a year to
obtain certiﬁ cation to provide charter service for the

Development of 767 and 757 Fleet
Aircraft In Service at Year End

Boeing 767
Boeing 757

2008 2009 2010 2011 2012 (projected)

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Air Transport Services Group 2011 Annual Report

U.S. government and other customers. We are
actively pursuing such assignments, which could
require several of our 767 aircraft and involve
special requirements that could enhance our return.

Airlines. We are exploring other options to increase
those cost savings as the year continues, while
absorbing somewhat higher pension expense tied
primarily to lower market interest rates.

Our overall ﬂ eet is smaller than a year ago
because we have retired many of the DC-8 and 727
freighters we had dedicated to a former customer.
A few of those legacy freighters will continue in
service for a time, but about 20 of them will likely
be sold or parted out this year. Many of those
aircraft were approaching the end of their useful
lives and incurring signiﬁ cant maintenance costs.
As we retire them, we will be able to concentrate
our maintenance and support service capabilities
and resources on fewer aircraft types.

As 2012 unfolds, I remain optimistic that our
results will continue to improve, despite the near-
term costs of strengthening our businesses and
matching our crews with our more modern ﬂ eet.
Deploying more aircraft at acceptable returns is the
driver of our results, and we will have the beneﬁ t of
a full year of returns from the ten freighters we
placed in service during 2011, plus incremental
beneﬁ ts from six more we will add this year, not
including the 757 combis on track for deployment in
the fall.

In general, the air cargo business is showing
promising signs of renewed growth this spring after
a relatively weak fall and winter. New business
inquiries are up, and we are preparing several
aircraft for anticipated deployment in Asia and the
Middle East.

In the meantime, we have been strengthening
our business by restructuring our airlines to reduce
overhead, and by training crews from our DC-8s
and 727s to ﬂ y our newer 767s and 757s. The net
effect has been an overall reduction of our ﬂ ight
crews this year, and a reduction of about 35 percent
of the staff of two of our airlines, Air Transport
International and Capital Cargo International

Our aircraft assets, the services we can bundle

with them, and our outstanding reputation for
service based on the talents and creativity of our
people are all unrivaled in our industry. We believe
they will remain so for years to come, and continue
to produce results that our shareholders expect
and deserve.

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

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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, 2011

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:
$371,571,600. As of March 5, 2012, 64,015,789 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 11, 2012 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 12 and in “Results of Operations” starting on page 24.

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
2011 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

Mine Safety Disclosures

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

PART III

Executive Compensation
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.
SIGNATURES

Exhibits and Financial Statement Schedules

PART IV

Page

81
81

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PART I

ITEM 1. BUSINESS

General Business Development

Air Transport Services Group, Inc. (“ATSG”), provides airline operations, aircraft leases, aircraft maintenance and
other support services primarily to the cargo transportation and package delivery industries. Through the Company's
subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, airlines and
government customers. (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.) Our customer revenues for 2011 are
summarized as follows:

ACMI Services

Aircraft leasing

External revenue (in thousands)

Subsidiaries (defined below)

$604,951
ABX, ATI,
CCIA

$67,791

CAM

Support
services

$57,391
ABX, AMES,
AMS, GFS,
LDS, LGSTX

Aircraft in-service (December 31, 2011)

Not applicable

ACMI Services: ATSG wholly 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 using Boeing 767, 757, 727 and McDonnell
Douglas DC-8 freighter aircraft typically under contracts providing for a combination of aircraft, crews, maintenance
and insurance ("ACMI") services for customers.

Aircraft leasing: ATSG's aircraft leasing subsidiary Cargo Aircraft Management, Inc. (“CAM”), services global
demand for medium range airlift capacity by offering aircraft that satisfy the market needs. Through its industry and
customer contacts, CAM anticipates capacity demand, monitors the related aircraft sale markets, and acquires passenger
aircraft based on projected into-service costs and rate of return targets. After acquisition, CAM manages the modification
of passenger aircraft into freighters and then leases cargo aircraft either internally to ATSG airlines, or externally,
typically under multi-year agreements.

Support services: ATSG offers a range of complementary solutions to shippers, freight forwarders and other
airlines that provides us with 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. ATSG’s other businesses and subsidiaries providing support services are summarized below.

• Airborne Maintenance and Engineering Services, Inc. (“AMES”), an aircraft maintenance and repair

organization;

• AMES Material Services, Inc. ("AMS"), markets and sells aircraft parts;
• LGSTX Services, Inc. (“LGSTX”), provides facility maintenance and ground equipment rentals for aircraft

support;

• LGSTX Distribution Services, Inc. ("LDS") (formerly ABX Cargo Services), operates mail sorting centers

for the U.S Postal Service ("USPS");

• Global Flight Source ("GFS"), provides aircraft dispatch and flight tracking services.

In 2010, we formed Airborne Global Solutions, Inc. ("AGS") to assist our subsidiaries in achieving their sales and
marketing plans. AGS assists each of the Company's three airlines in their marketing strategy. Additionally, through
AGS, we leverage our customer relationships on additional business opportunities, 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 support
services to meet customers' needs.

ATSG is incorporated in Delaware and its headquarters is in Wilmington, Ohio. ATSG’s common shares are publicly

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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. 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. ATSG acquired
CAM, ATI and CCIA on December 31, 2007. 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 the U.S. Military, DHL and various other customers. CCIA obtained its airline
operating certificate in 1996 and operates Boeing 727 and 757 aircraft, primarily providing air freight transportation
for DHL.

DHL Network Operations (USA), Inc. and its affiliates ("DHL"), is the Company's largest customer, totaling 36%
of the Company's consolidated revenues in 2011, while the U.S. Military comprised 12% of the Company's consolidated
revenues in 2011. During 2011, BAX/Schenker totaled 26% of the Company's consolidated revenues. However, on
July 22, 2011, BAX/Schenker announced its plans to phase out its dedicated air cargo network in North America which
was supported by the Company through 2011. Instead of a dedicated aircraft network, BAX/Schenker now utilizes
DHL and other delivery services for its air transportation delivery requirements. The Company provided limited airlift
directly to BAX/Schenker through the peak delivery season, until late December of 2011. Beginning in January 2012,
the Company contracted with DHL to supplement DHL's U.S. air network to service BAX/Schenker freight volumes
on DHL's expanded air network without the use of ATI's DC-8 aircraft and with only limited use of CCIA's Boeing
727 aircraft.

Description of Business

The Company has two reportable segments,“ACMI Services" and "CAM." Due to the similarities among the
Company's airline operations, the airline operations are aggregated into a single reportable segment, ACMI Services.
The Company’s other business operations, including aircraft maintenance and modification services, aircraft part sales,
equipment leasing and maintenance and mail handling for the USPS do not constitute reportable segments due to their
size. Financial information about our segments and geographical revenues is presented in Note N 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 it was in at the inception of the lease, as measured by airframe and engine time, until the next
scheduled maintenance event. 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 G to the accompanying consolidated financial statements.

ACMI Services

Through the Company's three airline subsidiaries, we provide airline operations to DHL, 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, landing fees, parking
fees and ground and cargo handling expenses. However, some charter agreements, including with the U.S. Military,
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.

The Company, through ABX, has had long term contracts with DHL since August 16, 2003. Beginning in August

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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 plan, 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 the management of aircraft fuel services for its U.S. network
that were previously provided by ABX.

ABX continued to provide airlift for DHL’s international 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 on March 31, 2010. Under the new agreements,
DHL committed to lease 13 Boeing 767 freighter aircraft from CAM. ABX was separately contracted to operate those
aircraft for DHL under a five year crew, maintenance and insurance agreement ("CMI agreement"). Since April 1,
2010, ABX's revenues under the CMI Agreement are reported under the ACMI Services segment and the aircraft lease
revenues are reported under the CAM segment. As of December 31, 2011, DHL was leasing 13 aircraft from CAM,
all of which ABX operates for DHL under the CMI agreement.

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 U.S. Government's 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 contracts with our customers.
DHL, like most of our ACMI customers, procures the aircraft fuel and fueling services necessary for their flights. 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.

Aircraft Maintenance and Modification Services

The Company provides aircraft maintenance and modification services to other airlines through its ABX and AMES
subsidiaries. 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
and matching them to its capabilities. AMES’ 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 capability to perform line maintenance and airframe maintenance on McDonnell Douglas DC-9, MD-80,
Boeing 767, 757, 737 and 727 aircraft. AMES also has the capability to refurbish airframe components, including
approximately 60% of the components for Boeing 767 aircraft.

DHL contracts with the Company to provide scheduled airframe maintenance for the 13 Boeing 767 aircraft that
it leases from CAM. The Company also provides scheduled maintenance for four DHL-owned aircraft operated by
ABX under the CMI agreement.

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Aircraft Parts Sales and Brokerage

AMS is an Aviation Suppliers Association 100 Certified reseller and broker of aircraft parts. AMS carries an
inventory of Boeing 767, DC-9 and DC-8 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 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 and other customers. LGSTX is also licensed to resell aircraft fuel. LGSTX arranges fueling
services for customers and can provide fuel for aircraft charter customers.

U.S. Postal Service

Since September 2004, we have provided mail sorting services under contracts with the USPS. Our subsidiary,
LDS, manages USPS mail sort centers in Indianapolis, Dallas and Memphis. Under each of these three contracts, we
are 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. LDS is also operating two load consolidation centers for the USPS in Des Moines and Memphis under
contracts that expire in June of 2012.

Flight Support

ABX is FAA-certificated to offer flight crew training to customers and rent usage of their flight simulators for
outside training programs. ABX has three flight simulators in operation. ABX’s Boeing 767 and DC-9 flight simulators
are level C certified. The level C flight simulators allow ABX to qualify flight crewmembers under FAA requirements
without performing check flights in an aircraft. The DC-8 simulator is level B certified, which allows ABX to qualify
flight crewmembers by performing a minimum number of flights in an aircraft.

The Company's GFS business provides aircraft dispatch and flight monitoring to supplemental air carriers.

Discontinued operations

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations due to continued
losses. Pursuant to its restructuring plan, 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 fuel services for its U.S. network previously provided by ABX. Since that time, the results of
the DHL hub services operations and the aircraft fuel operations are reported as discontinued operations. The results
of discontinued operations for 2011 primarily reflect pension for the former hub employees and costs related to legal
claims involving ABX's use of temporary workers in its hub services operation (See Item 3, Legal Proceedings).

Industry

The primary competitive factors in the air cargo industry are price, fuel efficiency, geographic coverage, aircraft
range, 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., Astar USA, LLC, Atlas Air Worldwide Holdings, Inc., National Air Cargo,
Evergreen International, Inc. and World Airways, Inc. The industry is capital intensive and highly competitive.

Air cargo volumes correlate closely with general economic conditions and the level of commercial activity in a
geographic area. Stronger general economic conditions and growth in a region typically increase the need for product
transportation. Historically, the cargo industry has experienced higher volumes during the fourth calendar quarter of
each year due to increased shipments during the holiday season. 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

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transportation if the delivery time allows.

The scheduled delivery industry is dominated by integrated door-to-door carriers including DHL, the USPS, FedEx
Corporation, 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 affected 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 maintenance and repair organizations ("MROs")
in other countries or geographies with a lower labor wage base, making the industry highly cost competitive.

Airline Operations

Flight Operations and Control

Each of the Company's airline operations are conducted pursuant to authority granted to them by the FAA. Airline
flight operations, including aircraft dispatching, flight tracking and crew scheduling, are planned and controlled by
personnel within each airline. The Company staffs aircraft dispatching and flight tracking 24 hours per day, 7 days per
week.

Aircraft 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 MROs, including AMES, to perform
heavy airframe maintenance on airframes and engines. Each airline owns and maintains an inventory 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 a minimum amount of
aircraft liability insurance. 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 coverage.

Employees

As of December 31, 2011, ATSG and its subsidiaries had approximately 2,010 employees, including 1,770 full-
time employees and 240 part-time employees. The Company employed approximately 595 flight crewmembers, 870
aircraft maintenance technicians and flight support personnel, 280 warehousing, sorting and logistics personnel, 70
employees for airport maintenance and logistics, 25 employees for sales and marketing and 170 employees for
administrative functions. On December 31, 2010, the Company had approximately 2,065 employees.

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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, 2011.

Airline
ABX
ATI
CCIA

Labor Agreement Unit

International Brotherhood of Teamsters
Airline Pilots Association
Airline Pilots Association

Contract
Amendable
Date
12/31/2014
5/28/2014
7/31/2013

Percentage of
the Company’s
Employees
13.7%
10.9%
4.9%

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 RLA is conducted
by the National Mediation Board, which has the sole discretion as to how long mediation can last and when it will end.
In addition to direct negotiations and mediation, the RLA includes a provision for potential arbitration of unresolved
issues and a 30-day “cooling-off” period before either party can resort to self-help, including, but not limited to, a work
stoppage.

Training

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

The FAA mandates initial and recurrent training for most flight, maintenance and engineering personnel. Mechanics
and quality control inspectors must also be licensed and qualified to perform maintenance on 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.

Intellectual Property

The Company owns a small number of U.S. patents that have a 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 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 Transportation Security
Administration (“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.

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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 a business
located thereon 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 reductions
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. Beginning in 2012, all Company airline subsidiary
flights to and from any airport in any member state of the European Union are covered by the ETS requirements, and
each year we are now 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 issued ABX a Domestic All-Cargo Air Service Certificate for air cargo transportation between all points within
the U.S., the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. The DOT has issued ATI certificate
authority to engage in scheduled interstate air transportation, which is currently limited to all-cargo operations, and
certificate authority to engage in interstate and foreign charter air transportation of persons, property and mail. CCIA
holds DOT certificate authority to engage in interstate all-cargo air transportation and DOT certificate authority to
engage in foreign charter air transportation of property and mail. 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 all current and future U.S. open-skies partner countries, which
currently consists of over 100 foreign countries. ABX also holds exemption authorities issued by DOT to conduct
scheduled all-cargo operations between the U.S. and certain foreign countries with which the U.S. does not have an

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open-skies air transportation agreement.

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 laws or DOT regulations. A corporation holding either of the above-referenced
certificates must qualify as a citizen of the United States, which, pursuant to federal law, 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. We believe we possess
all necessary DOT-issued certificates and authorities to conduct our current operations and continue to qualify as a
citizen of the United States.

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 laws 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. FAA regulations mandate that aircraft manufacturers establish limits on aircraft flight cycles before
which widespread fatigue damage might occur. The Boeing Company, has provided its recommendation to the FAA,
which is reviewing those limits. Once these limits are approved by the FAA, carriers must then incorporate them into
their maintenance programs over time. After 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 adopted a policy regarding the proper application of airport rates and charges imposed on airlines.
The policy provides greater flexibility to airport operators to impose charges that would expressly 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 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 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
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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.

Department of Defense

ABX and ATI participate in the Department of Defense ("DOD") Civil Reserve Air Fleet ("CRAF") program. Our
participation in the CRAF program allows the DOD to requisition specified aircraft for military use during a national
defense emergency. The DOD compensates us for the use of aircraft under the CRAF program. In addition, participation
in CRAF entitles our airlines to bid for military cargo charter operations.

Other Regulations

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

•

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

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

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

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

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

Security and Safety

Security

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

Safety and Inspections

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

ITEM 1A. RISK FACTORS

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

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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 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. Further, during an economic slowdown, customers generally prefer to use
ground-based delivery services instead of more expensive air delivery services. Additionally, if the price of aviation
fuel rises significantly, the demand for cargo aircraft and air delivery services may decline below expectations.

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 and Boeing 757 freighter aircraft. We are
also developing a Boeing 757 combi variant which will be capable of carrying passengers and cargo containers on the
main flight deck. The actual demand for the Boeing 767 and 757 may be less than we anticipate. The actual lease rates
for newly 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, including international markets.
Deploying aircraft in international markets can pose additional risks, regulatory requirements and costs.

Operating results and cash flows will be impacted by BAX/Schenker's decision to phase-out its air network in North
America.

Revenues from BAX/Schenker, derived primarily by providing Boeing 727 and DC-8 airlift, comprised
approximately 26% of the Company's revenues during 2011 (15% of total revenues, excluding directly reimbursable
revenues consisting primarily of jet fuel). Future operating results and cash flows will be impacted by management's
ability to replace this revenue stream through the placement of additional Boeing 767 and 757 aircraft as those aircraft
become ready for cargo service. Additionally, the airlines' future operating results will be adversely impacted by the
cost of retraining senior Boeing 727 and DC-8 flight crewmember employees for Boeing 767 and 757 aircraft operations,
if the training costs are not accompanied by corresponding incremental customer revenues.

Our costs incurred in 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 fight crews that are unionized. 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.

Our airline operating agreements may contain monthly incentive payments for reaching specific on-time reliability
thresholds. Additionally, our airline operating agreements may contain monetary penalties if aircraft reliability falls
below certain monthly thresholds. As a result, our operating revenues may vary from period to period depending on
the achievement of monthly incentives or the occurrence of penalties. Further, an airline could be found in default of
an agreement if it does not maintain minimum thresholds over an extended period of time.

If ABX fails to maintain aircraft reliability above a minimum threshold in DHL's U.S. domestic network for two

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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 60-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, 2012, and
through the remaining initial term of the CMI agreement would be $10 million.

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. The termination fee started at $70 million on March 31, 2011, and amortizes 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.

The 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 in the event we were to default for failure to
satisfy reliability requirements or for other reasons. 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 DOT, FAA and TSA could increase the Company's operating costs and reduce customer
utilization of airfreight.

In December 2011, the FAA finalized new rules for Flightcrew Member Duty and Rest Requirements (FMDRR)
for passenger airlines. If applied to cargo carriers, 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. While not currently required for the Company's cargo operations, if such rest requirements and restrictions
were imposed on our cargo operations, these rules could have a significant impact on the costs incurred by ATSG
airlines. 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 monitoring the rules and evaluating the effect that the rules could have on their flight
resources 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 FAA Airworthiness 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.

The cost of aircraft repairs and unexpected delays in the time required to complete aircraft maintenance could negatively
affect our operating results.

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Our aircraft provide ACMI services throughout the World, sometimes operating in remote regions. Our aircraft
may experience maintenance events in locations that do not have the necessary repair capabilities or are difficult to
reach. As a result, we may incur additional expenses and lose billable revenues that we would have otherwise earned.
Under the CMI agreement with DHL, AMES provides scheduled airframe maintenance for the 13 Boeing 767 aircraft
that DHL leases from CAM and we are required to provide a spare aircraft while the scheduled maintenance is completed
If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide airlift capacity
and forego revenues.

We rely on third parties to modify aircraft and provide aircraft and engine maintenance.

We rely on certain third party service providers that have expertise or resources that we do not have. Third party
service providers may seek to impose price increases that could negatively affect our competitiveness in the airline
markets. An unexpected termination or delay involving service providers could have a material adverse effect on our
operations and financial results. A delay in an aircraft modification could adversely impact our revenues and our ability
to place the aircraft in the market. We must manage third party providers to meet aircraft modification schedules and
maintenance events cost effectively to remain competitive to our customers.

The Company could violate debt covenants.

The Credit Facility contains covenants including, among other requirements, limitations on certain additional
indebtedness and guarantees of indebtedness. The Credit Facility is collateralized by certain of the Company's Boeing
767 and 757 aircraft that are not collateralized under aircraft loans. Under the terms of the Credit Facility, the Company
is required to maintain aircraft collateral coverage equal to 150% of the outstanding balance of the term loan and
revolving credit facility. The Credit Facility stipulates events of default, including unspecified events that may have
material adverse effects on the Company. The Credit Facility and aircraft loans cross default. If an event of default
occurs, the Company may be forced to repay, renegotiate or replace the Credit Facility and loans. In such an event,
the Company’s cost of borrowings could increase, and our ability to modify and deploy aircraft could be limited as a
result.

The Company's existing sources of liquidity may not be sufficient for our planned fleet expansion.

As of December 31, 2011, the Company's liquidity included $30.5 million of cash balances, $52.5 million available
under the revolving credit facility and a $50 million accordion feature through the Credit Facility, subject to lender
consent. Our fleet expansion plan for 2012 involves the acquisition and conversion of additional Boeing 767 and
Boeing 757 aircraft which we expect to finance through the Credit Facility and cash generated from operations.
Additionally, depending on market conditions, we may seek to invest in additional aircraft beyond that which is currently
planned. The existing sources of liquidity may not be sufficient to support our planned fleet expansion. We may need
additional sources of credit to complete the fleet expansion. If such additional sources of credit are not be available
when we need the funds, the fleet expansion could be delayed. Further, such sources of credit would likely result in
an increase to our borrowing costs and additional covenant requirements.

Operating results may be affected by fluctuations in interest rates.

Effective March 31, 2011, in conjunction with its decision to refinance the unsubordinated term loan, the Company
ceased hedge accounting for certain interest rates swaps which it continues to hold. In addition to these interest rate
swaps, the Company's new Credit Facility requires the Company to maintain derivative instruments for fluctuating
interest rates, for at least 50% of the outstanding balance of the new unsubordinated term loan. Accordingly, in July
2011, the Company entered into new derivative instruments. The Company did not designate the derivative instruments
as hedges. Future fluctuations in LIBOR interest rates will result in the recording of gains and losses on interest rate
derivatives that the Company holds.

The Company sponsors defined benefit pension plans and post-retirement healthcare plans for certain eligible
employees. The Company's related pension expense and funding requirements are sensitive to changes in interest rates
used to discount the estimated future benefits payments that have been earned by participants in the plans. The annual
pension expense is recalculated at the beginning of each calendar year using market interest rates at that point in time.
Future fluctuations in interest rates could result in the recording of additional expense for pension and other post-
retirement healthcare plans.

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

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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).

Operating results and cash flows will be impacted by the sales value of Boeing 727 and DC-8 aircraft, engines and
related parts.

As of December 31, 2011, the Company has approximately $12.5 million of Boeing 727 and DC-8 freighter aircraft,
engines and related parts. While the Company has begun to market the Boeing 727 and DC-8 aircraft, engines and
related parts to other airlines and parts dealers, management cannot predict when the assets will be sold. The market
value of the assets could decline before the Company is able to sell them, resulting in additional impairment charges.
Further, assets may be sold for an amount that is less than their carrying value at the time of sale, resulting in losses.

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 and record an impairment charge through earnings to reduce the
carrying value.

We have recorded significant amounts of goodwill and other intangibles assets 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
an impairment charge to reduce the carrying value of goodwill and related intangible assets. Similarly, if we were to
lose a key customer or an airline's FAA authority to operate, it could be necessary to record an impairment charge.

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 to complex aviation, 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.

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. We expect the FAA to
issue an Airworthiness Directive that will 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, we expect that most

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of the Boeing 767-200 aircraft in the Company's fleet will be effected. The cost of compliance is estimated to be $0.5
to $0.7 million per aircraft over a five to seven year period after the directive is issued.

In addition, FAA regulations require that aircraft manufacturers must establish limits on aircraft flight cycles to
address issues involving older, but still economically viable, aircraft, as described in Item 1 of this report, under "Federal
Aviation Administration." 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 Facility 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 where the Company operates, there can be no assurance that we have discovered all environmental
contamination or other matters 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. Beginning in 2012, all Company airline subsidiary flights to and from any airport in any member
state of the European Union is covered by the ETS requirements, and each year we will be required to submit emission
allowances in an amount equal to the carbon dioxide emissions from such flights. Exceedance of the airlines' emission
allowances would require the airlines to purchase additional emission allowances on the open market. The U.S. Congress
has also considered the regulation of greenhouse gas emissions. In addition, 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, 2011, the Company and its subsidiaries' in-service aircraft fleet consisted of 52 owned aircraft
and five leased aircraft, on an operating basis, for a total of 57 aircraft. The aircraft were all formerly passenger aircraft
that have been modified for standard cargo operations, except for one Boeing 767 aircraft that remains in passenger
configuration and four DC-8 combi aircraft. The 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.

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

In-service Aircraft as of December 31,
2011

Aircraft Type

Total

Owned

Operating
lease

Year of
Manufactur
e

Gross Payload
(Lbs.)

Still Air Range
(Nautical Miles)

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

3
57

3
52

-
5

1982 - 1987

67,000 - 91,000

1,800 - 4,400

1985

5,000

1988 - 1989

119,500

2,800 - 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 - 1991

48,000 - 67,800

2,700 - 4,000

In addition, as of December 31, 2011, CAM had one Boeing 767-200 aircraft and three Boeing 767-300 aircraft
that were undergoing modification to a standard freighter configuration and two Boeing 757-200 aircraft that were
undergoing modification to a combi configuration (capable of carrying passengers and cargo containers on the main
flight deck), none of which are reflected in the table above.

As of December 31, 2011, ABX operated 27 Boeing 767-200 aircraft and one Boeing 767-300 aircraft (13 of the
767-200 aircraft were leased by CAM to DHL and operated by ABX); ATI operated four Boeing 767-200 freighter
aircraft, one Boeing 767-200 passenger aircraft, two Boeing 767-300 aircraft, three DC-8 freighter aircraft and four
DC-8 combi aircraft; and CCIA operated four Boeing 727 aircraft and three Boeing 757 aircraft. In addition to these
aircraft, CAM leased eight Boeing 767-200 aircraft to other airlines.

We believe that our existing facilities, aircraft fleet and planned aircraft investments as described in Note G 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.
This is a passenger configured aircraft.

(3)

ITEM 3. LEGAL PROCEEDINGS

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.

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.

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Court issued a decision 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.

On December 2, 2011, the parties attended a settlement conference presided over by the Court and agreed to settle
this matter. The settlement calls for ABX to pay to the plaintiffs a monetary amount, which management believes to
be less than it would have cost for ABX to defend the case at trial. Once the plaintiffs have provided notice to the
putative class members of the settlement, the Court will hold a hearing to consider any objections and seek final
confirmation of the settlement.

FAA Enforcement Actions

The Company’s airline operations are subject to complex aviation and transportation laws and regulations that are
continually enforced by the DOT and FAA. The Company’s airlines receive letters of investigation (“LOIs”) from the
FAA from time to time in the ordinary course of business. The LOIs generally provide that some action of the airline
may have been contrary to the FAA’s regulations. The airlines respond to the LOIs and if the response is not satisfactory
to the FAA, it can seek to impose a civil penalty for the alleged 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 resulted in the FAA seeking monetary penalties against CCIA. CCIA attended an informal
conference with the FAA in November 2011 and agreed to pay reduced monetary penalties in satisfaction thereof.

ABX received an LOI from the FAA alleging that ABX failed to comply with an FAA Airworthiness Directive
involving certain of its Boeing 767-200 aircraft and proposing a monetary settlement. However, the FAA has taken no
action in this matter since December 2009.

Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of
Belgium that oversees the enforcement of environmental matters, brought an administrative action against ABX alleging
numerous violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region, which
is located near the Brussels Airport. On May 13, 2011, the BIM levied an administrative penalty on ABX in the amount
of €0.1 million (approximately $0.2 million) for numerous alleged violations of the ordinance during the period from
May 2009 through November 2009. ABX appealed this matter to the Environmental College in Brussels. However,
on October 10, 2011, the Environmental College affirmed the decision of the BIM. On or about December 7, 2011,
ABX appealed the decision to the Council of State, which appeal is currently pending.

On November 25, 2011, the BIM levied a second administrative penalty on ABX in the amount of €0.1 million
(approximately $0.2 million) for numerous alleged violations of the ordinance during the period from December 2009
through December 2010. On January 2, 2012, ABX appealed this matter to the Environmental College in Brussels
and, in the event the decision of the BIM is affirmed, will appeal the decision to the Council of State.

The ordinance in question is controversial for the reason that it was adopted by the Brussels-Capital Region and
is more restrictive than the noise limitations in effect in the Flemish Region, which is where the Brussels Airport is
located. The ordinance is the subject of several court cases currently pending in the Belgian courts and numerous
airlines have been levied fines thereunder.

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.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

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. The following

table shows the range of high and low prices per share of our common stock for the periods.

2011 Quarter Ended:
December 31, 2011
September 30, 2011
June 30, 2011
March 31, 2011

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

Low

High

$
$
$
$

3.86
4.30
6.14
7.00

5.99
4.48
3.52
1.78

$
$
$
$

Low

5.92
7.04
8.50
8.65

8.10
6.50
6.03
3.49

High

On March 5, 2012, there were 1,761 stockholders of record of the Company’s common stock. The closing price of

the Company’s common stock was $5.63 on March 5, 2012.

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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 Composite Index and the cumulative total
return of a $100 investment in the NASDAQ Transportation Index for the period beginning on December 31, 2006 and
ending on December 31, 2011.

12/31/2006

12/31/2007

12/31/2008

12/31/2009

12/31/2010

12/31/2011

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

100.00

60.32

110.26

105.13

2.60

65.65

78.60

38.10

95.19

80.38

114.00

112.10

103.33

68.11

110.81

88.11

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 Facility. Under the provisions of its promissory note due to DHL, the
Company is required to prepay the DHL note in the amount of $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 and no stock repurchases have been made or declared.

Securities authorized for issuance under equity compensation plans

For the response to this Item, see Item 12.

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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 (2)
Net interest expense and other non operating charges (5)
Earnings (loss) from continuing operations before
income taxes (2)
Income tax expense
Earnings (loss) from continuing operations
Discontinued earnings, net of tax (3)
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
Property and equipment, net (2)
Goodwill and intangible assets (2)
Total assets
Post-retirement liabilities
Capital lease obligations (4)
Long term debt and current maturities, other than leases
(4)
Deferred income tax liability
Stockholders’ equity
____________________
(1)

2011

As of and for the Years Ended December 31
2009
(In thousands, except per share data)

2008

2010

2007

$ 730,133
667,504
21,769
40,860

$ 667,382
585,706
18,359
63,317

$ 823,483
751,693
26,432
45,358

$ 941,686
963,638
34,667
(56,619)

$ 573,256
538,025
9,510
25,721

$
$

(16,995)
23,865
(673)
23,192

0.38
0.37

63,284
64,085

30,503
31,548
748,913
93,376
993,719
188,110
—

346,904
42,530
270,147

(23,413)
39,904
(70)
39,834

0.64
0.62

$
$

(17,156)
28,202
6,247
34,449

(6,229)
(62,848)
6,858
$ (55,990)

0.45
0.44

$
$

(1.01)
(1.01)

(10,898)
14,823
4,764
19,587

0.26
0.25

$
$

62,807
64,009

62,674
63,279

62,484
62,484

58,296
58,649

46,543
12,879
658,756
99,036
900,654
119,746
6,103

296,425
39,746
302,077

83,229
31,597
636,089
99,890
1,002,773
155,720
12,918

$ 116,114
74,979
671,552
100,777
1,101,349
299,964
72,282

59,271
35,056
690,813
210,354
1,162,967
190,028
88,483

364,509
50,044
245,982

440,204
—
80,392

502,319
—
200,003

(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 third quarter of 2011, the Company recorded an impairment charge of $22.1 million on aircraft, $2.8 million on
goodwill and $2.3 million on acquired intangibles. (See Notes C and E to the accompanying consolidated financial
statements.) 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.
During 2011, in conjunction with the execution of the new Credit Facility, the Company terminated its previous credit
agreement, which resulted in the write-off of $2.9 million of unamortized debt issuance costs associated with that credit
agreement and recognized $3.9 million of losses for certain interest rate swaps previously designated as cash flow hedges
of interest payments stemming from the former term loan.

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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.

BACKGROUND

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”). At December 31, 2011, the Company's in-service aircraft fleet consisted of 52 owned aircraft, one of which
is a passenger aircraft, and five leased cargo aircraft. Additionally, the Company owned four other aircraft that were
being are modified to standard freighter aircraft and two more aircraft that were being modified into combi aircraft as
of December 31, 2011. The Company has two reportable segments: ACMI Services, which primarily includes the
cargo transportation operations of its three airlines and CAM, which includes the Company's aircraft leasing business.
The Company's other business operations, which primarily provide support services to the transportation industry,
include aircraft maintenance, aircraft part sales, ground equipment leasing and mail handling services. These operations
do not constitute reportable segments due to their size.

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"), which
accounted for 36% of the Company's consolidated revenues in both 2011 and 2010 and 55% of the Company's
consolidated revenues in 2009. The Company has had long term contracts with DHL since August of 2003. Commencing
March 31, 2010, the Company and DHL executed new commercial agreements under which DHL committed to lease
13 Boeing 767 freighter aircraft from CAM and contracted with ABX to operate those aircraft under a separate crew,
maintenance and insurance (“CMI”) agreement. The CMI agreement pricing is based on pre-defined fees, 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 and the terms of the aircraft leases are seven years, with early termination provisions.
Through December 31, 2011, CAM leased all 13 Boeing 767-200 aircraft to DHL. In addition to the 13 CAM-owned
Boeing 767 aircraft, ABX also operates four DHL-owned Boeing 767 aircraft under the CMI agreement.

Prior to the CMI and DHL lease 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 follow-on agreements separate CAM's lease of freighter aircraft to DHL from the maintenance
and operation of those aircraft by ABX on behalf of DHL.

The U.S. Military comprised 12%, 14% and 10% of the Company's consolidated revenues in 2011, 2010 and 2009,
respectively. The Company's airlines contract their services 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.

A substantial portion of the Company’s revenues and cash flows have historically been derived from providing
airlift in North America to BAX Global, Inc., an affiliate of DB Schenker ("BAX/Schenker"). BAX/Schenker is a
specialized heavy weight, business to business shipper. Under their agreements with BAX/Schenker, ATI and CCIA
had the right to be the exclusive providers of main deck freighter lift for BAX/Schenker in the U.S. The Company
started 2011 with eight Boeing 727 and eight DC-8 aircraft dedicated to supporting the BAX/Schenker network in
North America. However, on July 22, 2011, BAX/Schenker announced its plans to adopt a new operating model that
phased out the dedicated air cargo network in North America supported by the Company. Instead of dedicated aircraft,
BAX/Schenker now utilizes DHL and other delivery services for its air transportation delivery requirements. To execute
the plan, on September 2, 2011, BAX/Schenker ceased air cargo operations at its air hub in Toledo, Ohio and began to
conduct air operations from the Cincinnati/Northern Kentucky airport, utilizing DHL's U.S. air hub. The Company
provided limited airlift directly to BAX/Schenker through the peak delivery season, until late December, 2011.
Beginning in January 2012, the Company contracted with DHL to supplement its U.S. air network to service BAX/
Schenker freight volumes on DHL's expanded air network without use of ATSG's DC-8 aircraft and with only limited
use of Boeing 727 aircraft.

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Triggered by BAX/Schenker's July decision, we tested the carrying value of the Company's aircraft, engines,
aircraft spare parts, goodwill and other intangibles during the third quarter of 2011. During the third quarter of 2011,
we recorded pre-tax impairment charges totaling $27.1 million to reduce the carrying values of the Company's Boeing
727 and DC-8 freighters, goodwill and customer relationship intangible assets to their individual fair values. The lower
fair value of these aircraft and BAX/Schenker's July decision to terminate its dedicated air network are the result of
prolonged recessionary conditions and trends toward higher fuel prices. Demand for Boeing 727 and DC-8 aircraft
has diminished in recent years, because these older aircraft are less fuel efficient and generally not as reliable as more
modern aircraft.

The Company's revenues from the services performed for BAX/Schenker, derived primarily by providing Boeing
727 and DC-8 airlift, were $187.0 million, $194.3 million and $160.2 million for the years ended December 31, 2011,
2010 and 2009, respectively. The Company's revenues from BAX/Schenker comprised approximately 26%, 29% and
19% of the Company's total revenues during the years ended December 31, 2011, 2010 and 2009, respectively (15%,
18% and 14% of total revenues excluding directly reimbursable revenues, respectively).

RESULTS OF OPERATIONS

Summary

The consolidated net earnings from continuing operations were $23.9 million and $39.9 million for 2011 and
2010, respectively. The pre-tax earnings from continuing operations for 2011 were $40.9 million, inclusive of asset
impairment charges and interest rate derivative losses during 2011, compared to pre-tax earnings of $63.3 million in
2010, in which no impairment charges or derivative losses were recorded. The decline in earnings from continuing
operations in 2011 as compared to 2010 resulted primarily from the recognition of asset impairment charges of $27.1
million, interest rate derivative losses of $4.9 million and the write-off of $2.9 million of unamortized debt issuance
costs related to the refinancing of the Company's debt in 2011. Adjusted pre-tax earnings from continuing operations,
a non-GAAP measure (see reconciliation table below), after removing impairment charges, net derivative losses and
charges related to debt refinancing was $75.8 million for 2011 compared to $59.8 million for 2010 after removing pre-
tax earnings related to DHL's restructuring. This improved earnings, as adjusted, over 2010, was driven primarily by
CAM, which placed five additional aircraft under external customer leases since December 31, 2010.

The Company's impairment charges stemming from BAX/Schenker's transition to a new U.S. business model are

described below:

- $22.1 million ($13.7 million after income tax benefit) to write-down Boeing 727 and DC-8 freighters, engines
and related parts to their appraised fair values. In light of BAX/Schenker's decision to phase-out its dedicated
air network in the U.S. and after evaluating business prospects for these aircraft, management has decided
to discontinue the service of Boeing 727 and DC-8 freighters sooner than previously expected.

- $2.3 million ($1.4 million after income tax benefit) to write-down customer relationship intangible assets,

reflecting the closure of BAX/Schenker's dedicated air network.

- $2.8 million ($2.8 million after income tax benefit) to write-down goodwill acquired when the Company
purchased ATI, which operated the DC-8 aircraft for BAX/Schenker. The write-down reflects the lower
forecasted cash flows in the near term as ATI re-fleets by replacing the DC-8 aircraft operated for BAX/
Schenker with more efficient Boeing 767 and 757 aircraft to be operated for other customers.

During 2011, the Company executed a new credit facility with a consortium of banks ("Credit Facility"). The new
Credit Facility refinanced the Company's previous term loan and provides liquidity to expand the Company's aircraft
fleet through April 2016. The new Credit Facility includes a term loan of $150 million and a $175 million revolving
credit facility, of which the Company has drawn $106 million, net of repayments. In conjunction with the execution
of the new Credit Facility, the Company terminated its previous credit agreement, which resulted in the write-off of
$2.9 million of unamortized debt issuance costs associated with that credit agreement and the recognition of $3.9 million
of losses for certain interest rate swaps previously designated as cash flow hedges of interest payments stemming from
the former term loan. These charges, which totaled $6.8 million before income tax effects, were recorded in March
2011.

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Customer revenues from continuing operations increased by $62.8 million to $730.1 million during 2011 compared
to 2010. Excluding directly reimbursed revenues, customer revenues increased by $45.4 million during 2011 compared
to 2010. Revenue growth during 2011 compared to 2010 reflects additional external aircraft leases by CAM, up $24.5
million, additional Boeing 767 aircraft operations being performed under the ACMI Services segment, up $12.7 million,
and increased aircraft maintenance services, up $9.9 million, which is reflected under other activities. Revenue growth
comparisons to 2010 are affected by the termination of the DHL ACMI agreement and the termination of the severance
and retention agreement ("S&R agreement") with DHL in March 2010. Under the 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. Revenues from the S&R agreement were $4.0 million in the first quarter of 2010.

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
DHL S&R activities

Total ACMI Services

Other Activities

Total Revenues

Eliminate internal revenues

Customer Revenues

Pre-Tax Earnings from Continuing Operations:

CAM, inclusive of interest expense and impairment charges
ACMI Services

Airline services
Asset impairment charges
DHL S&R activities

Total ACMI Services

Other Activities

Net unallocated interest expense

Write-off of unamortized debt issuance costs

Net loss on derivative instruments

Pre-Tax Earnings from Continuing Operations

Add Asset impairment charges
Add Net loss on derivative instruments
Add Write-off of unamortized debt issuance costs
Less DHL Severance and Retention activities

Adjusted pre-tax earnings

Years Ended December 31

2011

2010

2009

140,469

101,375

60,685

444,778
160,683
—
605,461

105,284

851,214

432,082
143,330
4,000
579,412

87,660

768,447

556,152
91,306
121,366
768,824

64,914

894,423

(121,081)

(101,065)

(70,940)

730,133

667,382

823,483

53,221

41,586

22,775

6,576
(20,383)
—
(13,807)

11,331

(2,118)

(2,886)

(4,881)

40,860
27,144
4,881
2,886
—
75,771

17,339
—
3,549
20,888

8,017

(7,174)

—

63,317
—
—
—
(3,549)
59,768

11,665
—
16,727
28,392

3,518

(9,327)

—

45,358
—
—
—
(16,727)
28,631

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 types of costs that are
reimbursed varies by customer operating agreement.

Adjusted pre-tax earnings, a non-GAAP measure, is pre-tax earnings excluding asset impairment charges, net
derivatives losses, the write-off of debt issuance costs and earnings from the S&R agreement, which ended in March
2010. Management uses adjusted pre-tax earnings, to compare the performance of core operating results between
periods. Adjusted pre-tax earnings, should not be considered in isolation or as a substitute for analysis of the Company's
results as reported under GAAP.

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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.

CAM's revenues for 2011 grew to $140.5 million compared to $101.4 million during 2010. Revenues from external
customers accounted for $24.5 million of the increased revenue for 2011. Since December 31, 2010, CAM has leased
five more Boeing 767-200 aircraft to external customers. CAM's revenues from the Company's airlines totaled $72.7
million during 2011, compared to $58.1 million for 2010.

As of December 31, 2011, CAM had 52 aircraft that were under lease, 31 of them internally to ATSG airlines.
CAM's pre-tax earnings, inclusive of an interest expense allocation and $6.8 million for aircraft impairment charges,
were $53.2 million and $41.6 million, during 2011 and 2010, respectively. CAM's pre-tax earnings, excluding the
aircraft impairment charges, increased by $18.4 million for 2011 compared to 2010. Improved earnings reflected five
more Boeing 767 freighter aircraft under lease since December 31, 2010. During 2011, CAM completed the freighter
modification of two Boeing 767-200 aircraft and leased them to a Brazilian airline under long term leases. Also during
2011, CAM leased two additional Boeing 767-200 aircraft to DHL, fulfilling its commitment from March of 2010 to
lease 13 aircraft to DHL under long term leases. CAM also leased one additional Boeing 767-200 freighter aircraft to
a Miami, Florida, based operator in 2011. During 2011, CAM completed the modification of its first two Boeing
767-300 freighter aircraft and leased the aircraft internally to its affiliate, ATI, which began to operate the aircraft for
customers under ACMI agreements.

During 2012, we plan to further invest in the modification of Boeing 767-300 and 757-200 aircraft. The fuel
efficiency, cubic capacity, payload and operating costs of the Boeing 767-300, make it a desirable freighter aircraft in
medium-range international air cargo markets and in certain transcontinental routes. Additionally, existing customers
have requested Boeing 757-200 aircraft. As these aircraft are modified, we plan to 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. Additional information about our aircraft acquisition and modifications plans can be found below under
Commitments.

ACMI Services Segment

As of December 31, 2011, ACMI Services included 49 in-service aircraft, including 31 leased internally from
CAM, five leased from external providers and 13 CAM-owned freighter aircraft which were under lease to DHL and
operated by ABX under the CMI agreement. During 2011, ABX began to lease and operate two more DHL-owned
aircraft, bringing to four the number of DHL-owned aircraft that ABX leases from DHL and operates under the CMI
agreement. During 2011, ATI leased two Boeing 767-300 aircraft from CAM and began to operate the aircraft under
ACMI agreements. Also in December 2011, CCIA began to operate a Boeing 757 aircraft under an ACMI agreement.

ACMI Services revenues were $605.5 million and $579.4 million during 2011 and 2010, respectively. Revenues
from airline services increased 3% during 2011 compared to 2010, driven by higher block hours flown for customers.
Aircraft block hours flown for customers increased 2% during the year, however, block hours for customers other than
BAX/Schenker increased 11% in 2011 compared to 2010. This increase in block hours reflects the additional Boeing
767 aircraft placed into service during 2011, as described above. Reimbursable revenues increased $17.4 million during
2011, compared to 2010. The comparison of airline services revenues and reimbursable revenues to 2010 reflects the
new commercial agreements between ABX and DHL which became effective in April 2010. Airline services revenues
for the first quarter of 2010 included compensation based on aircraft depreciation and certain maintenance expenses
under the former cost-plus DHL ACMI agreement. Beginning in April 2010, lease revenues for the DHL network
aircraft have been reflected in CAM's revenues, while compensation for certain aircraft related maintenance costs have
been reflected as reimbursable revenues. Revenues from activities under the S&R agreement declined by $4.0 million
during 2011 compared to 2010, due to the termination of the S&R agreement in March 2010.

ACMI Services incurred a pre-tax loss of $13.8 million during 2011 due to asset impairment charges of $20.4
million. The pre-tax earnings for ACMI Services, excluding asset impairment charges, were $6.6 million from airline
services for 2011 compared to $17.3 million from airline services during 2010. Operating results during 2011 were
negatively impacted by the phase-out of BAX/Schenker's North American air network, unscheduled aircraft downtime,
start-up costs for new Boeing 767 passenger operations and reductions in revenues from U.S. Military charters. As a

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result of unscheduled aircraft maintenance events, revenue flights were missed and higher operating expenses were
incurred during the aircraft downtime. Some of the downtime affected DC-8 combi aircraft and Boeing 767 freighters
operating in remote regions that were difficult to service. Revenues from the U.S. Military declined $2.6 million during
2011 compared to 2010 due to maintenance related cancellations and contractual rate reductions. The results for 2011
were impacted by start-up costs incurred by ATI in order for it to gain passenger authority and operate passenger routes
under an ACMI agreement with a tourist operator beginning in April 2011. This agreement was primarily for the
purpose of allowing ATI to build 12 months of passenger operating experience on the Boeing 767 aircraft, which is
required in order to transport passengers for the U.S. Military on such aircraft. Additionally, ATI incurred higher crew
preparation costs in 2011 to support the addition of its first two Boeing 767-300 aircraft during the year and transition
DC-8 crews to the Boeing 767 aircraft.

Revenues from DHL, BAX/Schenker and other customers included the reimbursement of certain expenses.
Excluding these reimbursable revenues, DHL, BAX/Schenker and the U.S. Military accounted for 37%, 19% and 20%,
respectively, of ACMI Services revenues during 2011. Excluding reimbursable revenues, DHL, BAX/Schenker and
the U.S. Military accounted for 39%, 22% and 21% of ACMI Services revenues for 2010.

Future earnings from ACMI Services will be impacted by the timing of aircraft modifications and aircraft utilization
levels which is affected by customer demand and our ability to maintain the aircraft at reliability levels expected by
our customers. Customer demand for our services will depend on the cost competitiveness of the airlines and market
preferences for the type of aircraft that we operate. In June of 2012, our award to fly three DC-8 combi aircraft for the
U.S. Military will expire. The U.S. Military has expressed its preference to replace the DC-8 combi aircraft that it
utilizes with a more modern aircraft type, such as the Boeing 757. We expect the U.S. Military to begin a solicitation
process for a contract to replace the DC-8 combi aircraft. We plan to bid on such a contract using our Boeing 757
combi aircraft, which will be ready for service in the second half of 2012. New customer agreements typically involve
start-up expenses, including those for route authorities, overfly rights, travel and other activities, and may impact future
operating results. Revenue-generating service may begin sometime later; however, depending on satisfaction of a
number of conditions, including international regulations and laws, contract negotiations, flight crew availability, and
arranging resources for aircraft handling.

The Company's earnings may fluctuate due to the costs of aircraft repairs and maintenance and the timing of
scheduled heavy maintenance which, under ABX’s policy are expensed as maintenance is performed. During 2012,
pension expense for continuing operations will increase by approximately $5.7 million due primarily to the effects of
lower discount rates used to actuarially calculate the Company's annual pension expense for 2012.

As noted above, during 2011 ACMI Services included the operation of Boeing 727 and DC-8 aircraft in BAX/
Schenker's North American network which was phased-out in 2011. The Company has begun to market these aircraft,
engines and related parts to other airlines and parts dealers. Operations using the Boeing 727 and DC-8 freighters will
be limited while the aircraft are marketed.

Other Activities

The Company sells aircraft parts and provides aircraft maintenance and modification services to other airlines.

The Company also operates five U.S. Postal Service (“USPS”) sorting facilities. The Company provides ground
equipment leasing and facility maintenance including fuel services. Other activities also include the management of
workers' compensation claims under an agreement with DHL and gains from the reduction in employee post-retirement
obligations.

External customer revenues from all other activities were $57.4 million and $45.9 million for 2011 and 2010,
respectively. The increase in other revenues during 2011 primarily reflects additional aircraft maintenance projects
and additional services provided to the USPS beginning in April 2011.

The pre-tax earnings from other activities were $11.3 million and $8.0 million in 2011 and 2010, respectively. The
increase of $3.3 million in pre-tax earnings for 2011 compared to 2010 reflects increased aircraft maintenance projects
completed during 2011 and additional business with the USPS, offset by higher facility expenses for the other business
segments, additional corporate expenses to support the subsidiaries and additional business development expenses to
support the Company's growth.

The Company's aircraft maintenance and repair business, Airborne Maintenance and Engineering Services, Inc.

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("AMES"), has limited hangar facilities and significant fixed costs. As a result, the Company's 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. The Company's contracts with the USPS generated $21.6 million of revenue during
2011. While these contracts expire in 2012, we expect to renew them under similar terms.

Discontinued Operations

Pre-tax losses from former hub services operations were $1.1 million for 2011 compared to $0.1 million for 2010.
During 2011, the results of discontinued operations primarily contain pension for former employees that supported sort
operations under a hub services agreement with DHL and expenses for certain legal matters associated with those
former sorting operations. During 2011, the Company recorded $0.9 million of charges related to a civil action alleging
that ABX violated immigration labor laws while managing the sort operations in Wilmington, Ohio. The matter is
described further under Item 3, Legal Proceedings, of this report. During 2012, pension expense for discontinued
operations will increase approximately $1.3 million due primarily to the effects of lower discount rates used to actuarially
calculate the Company's annual pension expense for 2012.

During 2010, the results of discontinued operations primarily contained pension expenses for former employees
that supported sort operations and medical costs in excess of initially estimated accruals for former employees under
severance benefit plans and COBRA.

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations due to continued
losses. Pursuant to its restructuring plan, 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 sort operations
for DHL. Additionally, in the third quarter of 2009, DHL assumed management of aircraft fuel services for its U.S.
network previously provided by ABX. Beginning at that time, the results of the DHL hub services operations and the
aircraft fueling operations are reported as discontinued operations. During 2010, ABX continued to provide certain
transitional services to DHL on a short term arrangement.

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Fleet Summary 2011

The Company’s aircraft fleet is summarized below as of December 31, 2011 ($'s in thousands):

ACMI
Services

CAM

Total

In-service aircraft

Aircraft owned or under capital lease

Boeing 767-200

Boeing 767-300

Boeing 757

Boeing 727

DC-8

Total

Carrying value

Operating lease

Boeing 767-200

Boeing 767-300

Total

Carrying value

Aircraft for freighter modification

Boeing 767-200

Boeing 767-300

Boeing 757

Total

Carrying value

Idle aircraft (not scheduled for revenue)

Aircraft owned or under capital lease

DC-8

Boeing 727

Total

Carrying value

Aircraft under operating lease

Boeing 727

Total

—

$ 617,373

419

$ 101,700

9,831

As of December 31, 2011, ACMI Services was leasing 31 of its 36 in-service aircraft internally from CAM. ACMI

Services operated 13 of the 21 Boeing 767-200 aircraft that CAM leases to external customers.

Aircraft fleet activity during 2011 is summarized below by fleet type:

CAM completed the freighter modification of five Boeing 767-200 aircraft and ABX returned a Boeing
767-200 aircraft to CAM. CAM leased five Boeing 767-200 aircraft to external customers under long-
term agreements, including two to DHL, bringing to 13 the total number of Boeing 767-200 aircraft leased
to DHL. CAM also leased one Boeing 767-200 aircraft internally to an airline affiliate. ABX began to
lease and operate two DHL-owned aircraft, bringing to four the number of DHL-owned aircraft that ABX
leases from DHL and operates under the CMI agreement.

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CAM completed the freighter modification of its first two Boeing 767-300 aircraft and leased them
internally to ATI, which is operating them under ACMI agreements. CAM purchased two more Boeing
767-300 passenger aircraft with the intent of modifying them into standard freighters.

CAM purchased three Boeing 757 passenger aircraft with the intent of modifying two into combi configured
aircraft and the other into a standard freighter. CAM completed the freighter modification of one Boeing
757 aircraft and it was placed into service during the fourth quarter of 2011.

We reduced the in-service number of Boeing 727 and DC-8 aircraft in response to the phase-out of BAX/
Schenker's North American network and diminished demand for these aircraft. The carrying value for all
of the Company's Boeing 727 and DC-8 freighter aircraft, engines and aircraft parts totaled $12.5 million
as of December 31, 2011. These aircraft are not collateral for the Company's Credit Facility.

Additionally, in 2012, CAM purchased two Boeing 767-300 passenger aircraft for modification into standard
freighter aircraft. We expect to complete the modification of one Boeing 767-200 aircraft during the first quarter of
2012, two Boeing 767-300 aircraft modifications in the second quarter of 2012, two Boeing 767-300 aircraft
modifications in the third quarter of 2012 and one Boeing 767-300 aircraft modification in the fourth quarter of 2012.
Management is currently negotiating with current and potential customers to place the Boeing 767 aircraft into service
as the freighter conversions are completed. Additionally, we expect to complete the conversion of two Boeing 757
passenger aircraft into combi configuration aircraft by the fourth quarter of 2012. We plan to place these combi aircraft
into service for the U.S. Military. Lead times and start-up costs may impact future operating results.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased by 7% during 2011 compared to 2010. The increase reflects an
increase in the number of flight crew members employed during 2011 to support additional aircraft block hours and
revenue growth. Additionally, labor expenses for customer aircraft maintenance projects increased during 2011,
coinciding with the increase in aircraft maintenance revenues. During 2012, pension expense for continuing operations
will increase approximately $5.7 million due primarily to the affects of lower discount rates used to actuarially calculate
the Company's annual pension expense.

Fuel expense increased by $16.2 million during 2011 compared to 2010. The increase reflects the higher cost of
aviation fuel which increased 38% during 2011 compared to 2010. The cost of fuel is generally reimbursed to our
airlines under the operating agreements with their customers and are reflected as revenues. In conjunction with BAX/
Schenker's phase-out of its dedicated North American air network in the 2011, the Company is no longer incurring fuel
expenses or recording a related reimbursable revenue for the BAX/Schenker network.

Depreciation and amortization expense increased $3.5 million during 2011 compared to 2010. Depreciation expense
increased during the year primarily due to the deployment of seven owned Boeing 767 aircraft since the beginning of
2011.

Maintenance, materials and repairs expense increased by $7.8 million during 2011 compared to 2010. The increase
in maintenance expense was primarily a result of increased flight hours on the Company's Boeing 767-200 aircraft
engines. The Company maintains the General Electric CF6 engines for its Boeing 767-200 aircraft through "power by
the hour" agreements ("PBH agreements") with a major service provider. The Company incurs a fee under the PBH
agreements for each flight hour operated. The Company has also arranged for CAM's external leasing customers to
participate under its PBH arrangements. Engine maintenance expense increased due to the increase in hours flown by
aircraft operated by the Company and an increase in hours flown by aircraft leased by CAM to external customers.
During 2011 and 2010, the Company expensed 14 scheduled airframe heavy maintenance events. We experienced an
increase in costs for parts during 2011 due to declining supply of used Boeing 767 parts. During 2012, we expect that
aircraft maintenance expenses will increase due to an increase in the cost of parts for Boeing 767 aircraft and rate
increases under certain maintenance agreements.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $1.2 million during 2011
compared to 2010. The decrease during 2011 reflects reduced flying for BAX/Schenker and a milder winter in North
America compared to 2010.

Travel expense increased by $5.6 million during 2011 compared to 2010. The increase is a result of additional

flying operations, particularly in the European and Asia-Pacific regions.

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Rent expense increased by $9.9 million during 2011 compared to 2010. The increase primarily reflects five
additional Boeing 767 freighter aircraft that we have added to the Company's fleet since the fourth quarter of 2010 and
an increase in the rental rates for the Company's facilities in Wilmington, Ohio in conjunction with a new lease agreement
executed with a regional port authority in May 2010. Four of the five aircraft leased by the Company are owned by
DHL and operated by ABX under the CMI agreement.

Insurance expenses increased by $0.1 million during 2011 compared to 2010 due to the addition of Boeing 767

aircraft during the year.

Other operating expenses include professional fees, navigational services, employee training, utilities, and the cost
of parts sold to customers. Other operating expenses increased by $0.8 million during 2011 compared to 2010, primarily
due to additional aircraft operations during 2011.

Interest expense decreased by $4.5 million during 2011 compared to 2010. The decline in interest expense reflects
the reduction in the level of the Company’s debt during the first four months of 2011, lower interest rates and an increase
in capitalized interest for the aircraft undergoing freighter modification. Interest rates on the Company’s variable
interest, unsubordinated term loan decreased from an average of approximately 2.9% in 2010 to approximately 2.4%
in 2011. We expect interest expense to increase during 2012 due to a higher level of debt which is being used to expand
the Company's aircraft fleet.

During 2011, the Company recorded a pre-tax net loss on derivatives of $4.9 million, reflecting the impact of lower
market interest rates at December 31, 2011 on the interest rate swaps held by the Company. During, 2011, in conjunction
with the new Credit Facility, the Company terminated its hedge accounting of interest rate swaps related to the former
term loan, which resulted in the recognition of $3.9 million of losses which had previously been reflected in other
comprehensive income. Additionally, the new Credit Facility requires the Company to maintain interest rate derivative
instruments for at least 50% of the outstanding balance of the new subordinated term loan. As a result, the Company
entered into a new interest rate swap in July of 2011. The Company did not designate the recent interest rate swap as
a hedge for accounting purposes. Accordingly, the effect of lower interest rates since the purchase of the interest rate
swap resulted in a net unrealized loss for 2011. Future fluctuations in interest rates will result in the recording of gains
and losses on interest rate derivatives that the Company holds.

During 2011, the Company wrote off $2.9 million of unamortized debt issuance costs associated with the former

credit agreement.

The effective tax rate from continuing operations for the year ended December 31, 2011 was 41.6% compared to
37.0% for 2010. The effective tax rate from continuing operations in 2011 was affected by impairment charges that
are not deductible for federal income tax purposes. The Company's effective tax rate from continuing operations was
approximately 39% for the year ended December 31, 2011 after adjusting for $2.8 million of non-deductible impairment
charges. The effective tax rate increased for 2011 due to proportionality higher level of non-deductible tax expenses
in 2011 compared to 2010. The effective tax rate for 2010 was lower due to the recognition of a deferred tax benefit
of $0.4 million in the third quarter of 2010. The deferred tax benefit in 2010 related to a previously unrecognized tax
position under the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic
740-10 Income Taxes. The statute of limitations for this item expired, resulting in the recording of the deferred tax
benefit.

We estimate that the Company's effective tax rate for 2012 will be approximately 38%. As of December 31, 2011,
the Company had operating loss carryforwards for U.S. federal income tax purposes of approximately $97.9 million,
which will begin to expire in 2024 if not utilized before then. 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 through 2014 or later.
The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes
before then.

2010 compared to 2009

Summary

Customer revenues from continued operations decreased $156.1 million in 2010 compared to 2009, due primarily
to the termination 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

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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.

CAM

During 2010, CAM completed the modification of six Boeing 767-200 aircraft into a 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
CMI agreement and aircraft lease 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. ABX was 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 completed the aircraft modification process in 2011 for the remaining two Boeing 767-200
aircraft committed to DHL. In addition to the 11 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 in 2010.

Pre-tax segment earnings for CAM were $41.6 million for 2010 and $22.8 million in 2009. The increase in pre-
tax earnings reflected 18 additional aircraft that CAM had 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.

ACMI Services Segment

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. DHL,
BAX/Schenker and the U.S. Military accounted for 85% of ACMI Services 2010 revenues. Revenues generated from

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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 the 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 included 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.

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Fleet Summary 2010

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

—

$ 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 for modification 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 were in modification, four
were 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.

Other Activities

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 of 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-

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tax earnings for 2010 were partially offset by lower gains from sales of spare aircraft and engines in 2010 compared
to 2009.

Discontinued Operations

Discontinued operations include the results of the hub services and the fuel management previously provided to
DHL through the third quarter of 2009. During 2010, ABX continued to provide certain limited 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’s U.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.

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 the operating agreements
with their customers 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 a campaign by CCIA to improve the on-time reliability level of
their 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 were assigned
to operate on a greater number of multi-stop routes compared to 2009, which negatively impacted reliability and
increased the cost 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 included the cost of deicing chemicals, decreased $5.5 million in 2010, compared
to 2009. The decrease was 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 was 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 reflected 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
reflected 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.

Other operating expenses include professional fees, navigational services, employee training, utilities, the cost of

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parts sold to customers and gains and losses from the disposition of aircraft. Other operating expenses decreased $1.5
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 reflected
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 had decreased by $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 from 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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $136.1 million, $112.3 million and $103.0 million in 2011,
2010 and 2009, respectively. Increased cash flows in 2011 compared to 2010 reflect improved operating results
excluding the non-cash impairment charges of $27.1 million during 2011 and lower pension contributions. The increased
operating results for 2011 were driven by additional aircraft leases to external customers who prepay rent at the beginning
of each month. Cash outlays included pension contributions of $18.0 million, $36.6 million and $83.2 million in 2011,
2010 and 2009, respectively. During 2009, we contributed $37.8 million to crewmember pension plans in conjunction
with the S&R agreement. During 2010, cash flows included the receipt from DHL of amounts in reimbursement for
severance payments made to employees and costs incurred arising from the termination of ABX's former contracts with
DHL.

Capital spending levels were primarily the result of aircraft modification costs for Boeing 767 aircraft. Cash
payments for capital expenditures were $213.1 million, $110.7 million and $101.2 million in 2011, 2010 and 2009,
respectively. Capital expenditures in the 2011, 2010 and 2009 included cargo modification costs related to twelve, nine
and ten aircraft, respectively. Capital expenditures in 2011 included $184.3 million for the acquisition and modification
of aircraft, $21.9 million for required heavy maintenance and $6.9 million for other equipment costs. Our capital
expenditures in 2010 included $74.8 million for the acquisition and modification of aircraft, $29.9 million for required
heavy maintenance and $6.0 million for other equipment costs. Our capital expenditures in 2009 included $69.6 million
for the acquisition and modification of aircraft, $25.6 million for required heavy maintenance and $6.0 million for other
equipment costs.

Net cash provided by financing activities was $48.0 million in 2011, while $70.2 million and $43.1 million of net
cash was used for financing activities in 2010 and 2009, respectively. During May of 2011, we executed the new Credit
Facility to refinance our former term loan of $172.4 million. The Company drew $150 million under the new term
loan in May and has drawn $115 million from a revolving credit agreement since the inception of the new Credit Facility
to finance our fleet expansion. We made debt principal payments of $214.4 million, including the payoff of the former
term loan of $172.4 million during 2011. During the second quarter of 2011, we completely paid off an aircraft loan
at par value prior to maturity, remitting $13.8 million for the outstanding principal. Additionally, $6.2 million of the
principal balance of the DHL promissory note was extinguished during 2011, pursuant to the CMI agreement with
DHL.

Commitments

Through CAM, the Company continues 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.

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In August 2010, the Company entered into an agreement with M&B Conversions Limited and Israel Aerospace
Industries Ltd., "IAI," for the conversion by IAI of up to ten Boeing 767-300 series passenger aircraft to a standard
freighter configuration during the 10-year term of the agreement. As of December 31, 2011, two such aircraft have
completed the modification process and three Boeing 767-300 aircraft were undergoing modification to a standard
freighter configuration. If the Company were to cancel the conversion program as of December 31, 2011, it would
owe IAI approximately $12 million associated with additional conversion part kits which have been ordered. In February
2012, the Company purchased two more Boeing 767-300 passenger aircraft with the intent to modify these aircraft into
standard freighters.

In October 2010, the Company entered into 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 seating for up to 58 passengers. During
2011, the Company purchased two Boeing passenger 757 aircraft for combi conversion with Precision and another
Boeing 757 passenger aircraft for the standard freighter modification process with Precision. As of December 31, 2011,
one Boeing 757 has completed the modification process for standard freighter configuration while the other two Boeing
757 are in the combi conversion process. If the Company were to cancel the conversion program as of December 31,
2011, it would owe Precision approximately $8 million associated with engineering efforts and conversion part kits
which have been ordered.

Outlook

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

as of December 31, 2011.

Contractual Obligations
Long term debt, including interest payments

Operating leases

Aircraft modification obligations

Total contractual cash obligations

Payments Due By Period

Total

Less Than
1 Year

2-3
Years

4-5
Years

After 5
Years

$ 395,857

27,759

66,080

$ 263,147

38,871

76,133

59,477

21,424

59,477

36,765

10,597

—

7,347

—

$ 531,467

108,660

$ 102,845

$ 273,744

46,218

The long term debt bears interest at 2.30% 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 $26.2 million expected to be paid in 2012.

We estimate that total capital expenditures for 2012 could total $180 million to $200 million primarily for aircraft
acquisitions and related modification costs involving Boeing 767-300 and Boeing 757 aircraft. Actual capital spending
for any future period will be impacted by 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 the Credit Facility.

Liquidity

On May 9, 2011, the Company executed a new credit facility with a consortium of banks ("Credit Facility") to
refinance a term loan of $172.4 million. The new Credit Facility includes a fully drawn term loan of $150 million and
a $175 million revolving credit facility, of which the Company has drawn $106 million, net of repayments. The Credit
Facility has an additional accordion feature of $50 million which the Company may draw subject to the lenders' consent.
If the Company exercises the accordion feature, the same terms and conditions of the Credit Facility would apply,
additional collateral would need to be posted to maintain the 150% collateral coverage requirement and the additional
debt may result in higher interest rates. Under the Credit Facility, interest rates are adjusted quarterly based on the
prevailing LIBOR or prime rates and a ratio of the Company's outstanding debt level to earnings before interest, taxes,
depreciation and amortization expenses ("EBITDA"). At the Company's current debt-to-EBITDA ratio, the
unsubordinated term loan and revolving loan bear a variable interest rate of 2.58% and 2.30%, respectively. Repayments
of the term loan are scheduled to begin in June 2012 and the Company expects to make further draws on the revolving

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loan to fund its fleet expansion plans. In conjunction with the execution of the new Credit Facility, the Company
terminated its previous credit agreement.

At December 31, 2011, the Company had approximately $30.5 million of cash balances and $52.5 million available
under the revolving credit facility, net of outstanding letters of credit which totaled $16.5 million. The Company also
expects to have available the $50 million accordion feature noted above. As specified under terms of ABX's CMI
agreement with DHL, the $20.2 million balance at December 31, 2011 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, 2011 and 2010, 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 usual 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 disclosures 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

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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 costs are incurred. Revenues from
charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been
completed. Revenues from 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 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 the first quarter of 2010. In 2008, ABX and
DHL executed the S&R agreement which specified employee severance, retention and other benefits that DHL
reimbursed to ABX for payments made 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 rent). 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 include projections for the number of aircraft in
service, capital expenditures, long term growth rates, operating cash flows and market-derived discount rates.

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

We have used the assistance of an independent business valuation firm in estimating an expected market rate of
return, and in the development of a market approach for ATI and CAM using multiples of EBITDAR, EBITDA, EBIT
and revenues from comparable publicly traded companies. Based on our analysis, as of December 31, 2011, CAM's
fair value exceeded its carrying value by more than 25% and ATI's fair value exceeded its carrying value by12%.

The Company's key assumptions used for goodwill testing include uncertainties. Those uncertainties include the
level of demand for cargo aircraft by shippers, the U.S. Military and freight forwarders and CAM's ability to lease
aircraft near expected modification completion dates. We anticipate that CAM will successfully modify six Boeing

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767 aircraft and one Boeing 757 aircraft into freighter configured aircraft over the next year and place them under long
term lease agreements. We anticipate that CAM will successfully modify two Boeing 757 aircraft into combi
configuration and that ATI will deploy them. We expect that ATI will add two more Boeing 767 aircraft into service
during 2012. We expect that ATI will continue to operate combi aircraft for the U.S. Military. The demand for customer
airlift is projected based on input 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. Key customers, including the U.S. Military, may decide that they do not need as many aircraft
as projected, or they may find alternative airlift.

The Company's finite lived intangible asset is for customer relationships acquired with ATI. This asset is amortized
over the estimated useful economic life and reviewed for impairment whenever events or changes in circumstances
indicate that carrying amounts may not be recoverable. The fair value of the 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, and 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.

Long-lived assets

Aircraft and other long-lived assets are tested for impairment whenever events or changes in circumstances indicate
the carrying value of the assets may not be recoverable. Factors which may cause an impairment include termination
of aircraft from a customer's network, extended operating cash flow losses from the assets and management's decisions
regarding the future use of assets. To conduct impairment testing, the Company groups assets and liabilities at the
lowest level for which identifiable cash are largely independent of cash flows of other assets and liabilities. For assets
that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with an
asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to 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.

Depreciation

Depreciation of property and equipment is provided on a straight-line basis over the lesser of an 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 related 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.

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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 2024. 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, 2011 was 46% equities, 50% fixed income, 2% real
estate and 2% cash. The pension trust includes $40.3 million of investments (7% of the plans' assets) whose fair values
have been estimated in the absence of readily determinable fair values. Such investments include private equity, hedge
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. Our expected long term rate
of return remained at 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 2011 would be increased by approximately $5.9 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 H to the accompanying consolidated financial statements), but also
affects the succeeding year’s pension and post-retirement healthcare costs. The discount rates selected for December 31,

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2011, based on the method described above, were 4.65% to 5.10%. If we were to lower our discount rates by a
hypothetical 50 basis points, pension expense in 2011 would be increased by approximately $5.0 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, pension

obligation and accumulated other comprehensive income (in thousands):

Change in assumption
100 basis point decrease in rate of return

50 basis point decrease in discount rate

Aggregate effect of all the above changes

Discontinued Operations

Effect of change

December 31, 2011

2011
Pension
expense

Pension
obligation

Accumulated
other
comprehensive
income (pre-tax)

5,909

5,012

10,921

—
(58,839)
(58,839)

—

58,839

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.

NEW ACCOUNTING PRONOUNCEMENTS

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive
Income”. In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update
(“ASU”) 2011-12, “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the
Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards
Update No. 2011-05”. ASU 2011-05 eliminates the option to present the components of other comprehensive income
as part of the statement of changes in stockholders’ equity and requires comprehensive income to be presented in a
single continuous statement of income and comprehensive income or separately in a consecutive financial statement
to accompany the statement of income. In addition, items of other comprehensive income that are reclassified to profit
or loss are required to be presented separately on the face of the financial statements. This guidance is intended to
increase the prominence of other comprehensive income in financial statements. ASU 2011-12 defers the changes in
ASU 2011-05 that pertain to how, when and where reclassification adjustments are presented. Both ASU’s are effective
for annual reporting periods beginning after December 15, 2011. The Company’s adoption of these standards is not
expected to have a material impact on the consolidated financial statements.

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than not that the fair value of a reporting unit is less than its carrying amount. Additionally this standard improves the
examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount
should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill
impairment test. The new guidance is not expected to have a material impact on the consolidated financial statements.

In December 2011, the FASB issued Accounting Standards Update No. 2011-11, “Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities,” (“ASU 2011-11”). ASU 2011-11 enhances disclosures regarding
financial instruments and derivative instruments. Entities are required to provide both net information and gross
information for these assets and liabilities. This new guidance is to be applied retrospectively beginning in 2013. The
Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote
disclosures.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk for changes in interest rates and changes in the price of jet fuel. The risk
associated with jet fuel, however, is largely mitigated by reimbursement through the agreements with our customers.

On May 9, 2011, the Company executed a new credit facility with a consortium of banks ("Credit Facility"). The
new Credit Facility includes a term loan of $150 million. Under the Credit Facility, interest rates will be adjusted
quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"),
its outstanding debt level and prevailing LIBOR or prime rates (see Note F to the consolidated financial statements).
The Company's new Credit Facility requires the Company to maintain derivative instruments for fluctuating interest
rates, for at least fifty percent of the outstanding balance of the new unsubordinated term loan. Accordingly, in July
2011, the Company entered into a new interest rate swap instrument. Additionally, the Company continues to hold
certain interest rate swaps that were required for the former term loan. As a result, future fluctuations in LIBOR interest
rates will result in the recording of unrealized gains and losses on interest rate derivatives held by the Company. The
notional values were $169.5 million as of December 31, 2011. See Note J in the accompanying consolidated financial
statements for discussion of our accounting treatment for these hedging transactions.

As of December 31, 2011, the Company has $90.9 million of fixed interest rate debt and $256.0 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 $0.8 million for the year ended December 31,
2011.

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, 2011, a 20% increase in interest rates would
have decreased the fair value of our fixed interest rate debt by approximately $2.2 million.

The Company is 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. The Company is exposed to counterparty risk, which is the loss we could incur if a counterparty to a
derivative contract defaulted.

At December 31, 2011, ABX's defined benefit pension plans had total investment assets of $594.7 million under
investment management. See Note H in the accompanying consolidated financial statements for further discussion of
these assets.

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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

Table of Contents

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, 2011 and 2010, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2011. 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, 2011 and 2010, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2011, 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 ongoing
relationship with its principal customers existing as of December 31, 2011.

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, 2011, 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 5, 2012 expressed an unqualified opinion on the Company's internal control
over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio
March 5, 2012

Table of Contents

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 $434 in 2011 and $1,090 in 2010
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 expenses
Current portion of debt obligations
Unearned revenue
TOTAL CURRENT LIABILITIES

Long term debt obligations
Post-retirement liabilities
Other liabilities
Deferred income taxes

TOTAL LIABILITIES

Commitments and contingencies (Note G)
STOCKHOLDERS’ EQUITY:

December 31,

2011

2010

30,503
42,278
8,906
9,785
31,548
9,831
132,851
748,913
18,579
6,396
86,980
993,719

48,360
23,226
10,291
13,223
12,487
107,587
333,681
185,562
54,212
42,530
723,572

46,543
40,876
7,205
10,132
12,879
—
117,635
658,756
25,227
9,259
89,777
$ 900,654

40,558
24,145
12,144
36,591
10,794
124,232
265,937
116,614
52,048
39,746
598,577

Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior
Participating Preferred Stock
Common stock, par value $0.01 per share; 75,000,000 shares authorized;
64,015,789 and 63,652,228 shares issued and outstanding in 2011 and 2010,
respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

—

640
520,613
(148,059)
(103,047)
270,147
993,719

637
518,925
(171,251)
(46,234)
302,077
$ 900,654

See notes to consolidated financial statements.

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

REVENUES
OPERATING EXPENSES

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

OPERATING INCOME
OTHER INCOME (EXPENSE)

Interest income
Interest expense
Write-off of unamortized debt issuance costs
Net loss on derivative instruments

EARNINGS FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES
INCOME TAX EXPENSE
EARNINGS FROM CONTINUING OPERATIONS

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

BASIC EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL BASIC EARNINGS PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL DILUTED EARNINGS PER SHARE

WEIGHTED AVERAGE SHARES

Basic
Diluted

Years Ended December 31
2010

2009

2011

730,133

667,382

823,483

188,884
150,003
91,063
86,929
22,630
28,335
25,201
9,309
2,797
2,282
22,065
38,006
667,504
62,629

179
(14,181)
(2,886)
(4,881)
(21,769)

40,860
(16,995)

23,865

(673)
23,192

0.38
(0.01)
0.37

0.37
(0.01)
0.36

176,988
133,776
87,594
79,143
23,782
22,709
15,339
9,171
—
—
—
37,204
585,706
81,676

316
(18,675)
—
—
(18,359)

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
71,790

449
(26,881)
—
—
(26,432)

45,358
(17,156)

28,202

6,247
34,449

0.45
0.10
0.55

0.44
0.10
0.54

63,284
64,085

62,807
64,009

62,674
63,279

See notes to consolidated financial statements.

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

OPERATING ACTIVITIES:

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

Impairment of aircraft
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
Write-off of unamortized debt issuance costs
Net loss on derivative instruments

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 property and equipment
Proceeds from the redemption of interest-bearing investments
Proceeds from the redemption of marketable securities
NET CASH (USED IN) INVESTING ACTIVITIES

FINANCING ACTIVITIES:

Principal payments on long term obligations
Proceeds from borrowings
Financing fees

NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES

NET (DECREASE) IN CASH AND CASH EQUIVALENTS

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

SUPPLEMENTAL CASH FLOW INFORMATION:

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

SUPPLEMENTAL NON-CASH INFORMATION:

Debt extinguished
Accrued capital expenditures

Years Ended December 31
2010

2009

2011

23,865
(673)

39,904
(70)

28,202
6,247

22,065
5,079
91,063
(2,641)
17,126
2,877
(6,200)
2,886
4,881

1,980
(13)
(1,715)
9,337
(8,209)
(23,159)
(2,443)
136,106

(213,083)
11,147
1,750
—
(200,186)

(214,424)
265,000
(2,536)
48,040

(16,040)
46,543
30,503

12,985
2,448

6,200
10,921

$
$

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

41,529
(6,253)
2,729
6,789
(44,648)
(32,789)
1,578
112,263

(110,681)
31,981
—
—
(78,700)

(70,249)
—
—
(70,249)

(36,686)
83,229
46,543

16,656
523

4,650
1,404

$
$

—
—
84,587
25,268
19,743
1,316
—
—
—

4,436
8,241
1,871
(10,655)
(36,373)
(32,190)
2,291
102,984

(101,227)
8,406
—
26
(92,795)

(43,074)
—
—
(43,074)

(32,885)
116,114
83,229

24,093
3,118

91,985
1,749

$
$

See notes to consolidated financial statements.

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

BALANCE AT JANUARY 1, 2009
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

BALANCE AT DECEMBER 31, 2010
Stock-based compensation plans

Grant of restricted stock
Issuance of common shares, net of
withholdings
Forfeited restricted stock
Amortization of stock awards and
restricted stock

Comprehensive income

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

Common Stock

Number
63,247,312

Amount
632
$

Additional
Paid-in
Capital
$ 460,155

Accumulated
Deficit
(245,534)

Accumulated
Other
Comprehensive
Income (Loss)

(134,861)

Total
$ 80,392

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

63,652,228

637

$ 518,925

(171,251)

(46,234)

313,300

161,161
(110,900)

1
(1)

(3)

(1,187)
1

2,877

23,192

(56,813)

—
(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

—

(1,186)
—

2,877

23,192
(56,813)
$ (33,621)
$ 270,147

BALANCE AT DECEMBER 31, 2011

64,015,789

640

$ 520,613

(148,059)

(103,047)

See notes to consolidated financial statements.

Table of Contents

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

INDEX TO THE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -

Summary of Financial Statement Preparation

NOTE I -

Income Taxes

NOTE B -
NOTE C -
NOTE D -
NOTE E -
NOTE F -
NOTE G -
NOTE H -

and Significant Accounting Policies
Significant Customers
Goodwill and Other Intangibles
Fair Value Measurements
Property and Equipment
Debt Obligations
Commitments and Contingencies
Pension and Other Post-Retirement Benefit

Plans

NOTE J -
NOTE K -
NOTE L -
NOTE M -
NOTE N -
NOTE O -
NOTE P -

Derivative Instruments
Other Comprehensive Income
Stock-Based Compensation
Earnings Per Share
Segment Information
Discontinued Operations
Quarterly Results (unaudited)

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 and three independently certificated airlines. The three airlines, ABX Air, Inc. (“ABX”), Capital Cargo
International Airlines, Inc. (“CCIA”) and Air Transport International, LLC (“ATI”), each have the authority, through
their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates,
to transport cargo worldwide. The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases
aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees.

Through its airline subsidiaries, the Company provides aircraft and airline operations to its customers, typically
under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI") services. Since
August of 2003, the Company, through ABX, has had long term contracts with DHL Network Operations (USA), Inc.
and its affiliates, which are collectively referred to herein as “DHL.” DHL, an international integrated delivery company,
is the Company's largest customer. The Company's airlines serve a base of concentrated customers, including the U.S.
Military, who have a diverse line of international cargo traffic. Additionally, ATI 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, and operates mail sorting facilities for the U.S. Postal Service (“USPS”).

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.

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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.

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note B), other airlines, the
USPS and freight forwarders. The Company performs a quarterly evaluation of the accounts receivable and the
allowance for uncollectible accounts by reviewing specific customers recent payment history, growth prospects,
financial condition and other factors that may impact a customer's ability to pay. The Company establishes an allowance
for uncollectible accounts for probable losses due to a customer's potential inability or unwillingness to make contractual
payments. Account balances are written off against the allowance when the Company ceases collection efforts.

Inventory

The Company’s inventory is comprised primarily of expendable aircraft parts and supplies used for aircraft
maintenance. Inventory is generally charged to expense when issued for use on a Company aircraft. The Company
values aircraft parts and supply 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 $6.3
million and $6.5 million for 2011 and 2010, respectively. Events or conditions that may impact the expected life,
usability or net realizable value of inventory include additional aircraft maintenance directives from the FAA, changes
in DOT 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 whenever events or changes in
circumstance indicate an impairment may have occurred. Finite-lived intangible assets are amortized over their
estimated useful economic lives and are periodically reviewed for impairment (see Note C).

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.

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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 summarized as follows:

Boeing 727 and DC-8 aircraft and flight equipment

Boeing 767 and 757 aircraft and flight equipment

Support equipment
Vehicles and other equipment

1 year

10 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.

Aircraft and other long-lived assets are tested for impairment when circumstances indicate the carrying value of
the assets may not be recoverable (see Note E). To conduct impairment testing, the Company groups assets and liabilities
at the lowest level for which identifiable cash are largely independent of cash flows of other assets and liabilities. For
assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated
with the asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets
down to 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 Company’s accounting policy for major airframe and engine maintenance varies by subsidiary and aircraft
type. The costs for ABX's Boeing 767-200 airframe maintenance, which is the majority of the Company's aircraft fleet,
are expensed as they are incurred. The costs of major airframe maintenance for the Company's other aircraft are
capitalized and amortized over the useful life of the overhaul. The Company's General Electric CF6 engines that power
the Boeing 767-200 aircraft are maintained under “power by the hour” agreements with an engine maintenance provider.
Under the power by the hour agreements, the engines are maintained by the service provider 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 and the costs
of those engine overhauls are capitalized and amortized over the useful life of the overhaul.

Under certain leases, the Company is required to make periodic payments to the lessor for future maintenance
events such as engine overhauls and major airframe maintenance. These payments are recorded as deposits until drawn
for qualifying maintenance costs. The maintenance costs are expensed or capitalized in accordance with the accounting
policy for major airframe and engine maintenance. The Company evaluates at the balance sheet date, whether it is
probable that an amount on deposit will be returned by the lessor to reimburse the costs of the maintenance activities.
When an amount on deposit is less than probable of being returned, it is recognized as additional maintenance expense.

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 $2.2 million, $1.5 million and $1.8 million for the years
ended December 31, 2011, 2010 and 2009, respectively.

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

The Company's results of discontinued operations consists primarily of pension expenses and other benefits for

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former employees previously associated with the Company's freight sorting and aircraft fueling services provided to
DHL. ABX is self insured for medical coverage and workers’ compensation, and may incur expenses and cash outlays
in the future related to pension obligations, reserves for medical expenses and wage loss for former employees.

Exit Activities

The Company accounts for the costs associated with exit activities in accordance with FASB ASC Topic 420-10
Exit or Disposal Cost Obligations. One-time, involuntary employee termination benefits are generally expensed when
the Company communicates the benefit arrangement to the employee 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.

Self-Insurance

The Company is self-insured for certain workers’ compensation, employee healthcare, automobile, aircraft, and
general liability claims. 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 $31.2 million and $39.2 million at December 31, 2011 and December 31, 2010,
respectively, for self-insured 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 includes net earnings and other comprehensive income or loss. Other comprehensive
income or loss results from changes in the Company’s pension liability 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

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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 costs are incurred. Revenues from
charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been
completed. Revenues from 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 revenues on a straight-line basis over the term of the applicable lease agreements.

Revenues from the former DHL ACMI agreement with DHL, which ended on March 31, 2010, 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 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 payments made 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 the first quarter of 2010 included reimbursement for expenses incurred
under the DHL ACMI agreement, the incremental mark-up revenues set by the amendments thereto, and reimbursement
for employee severance, retention and vacation benefits.

New Accounting Pronouncements

In September 2011, the FASB issued ASU 2011-08, “Intangibles- Goodwill and Other (Topic 350): Testing Goodwill
for Impairment”. This standard is effective for annual goodwill impairment tests performed for fiscal years beginning
after December 15, 2011, with early adoption permitted. This standard provides for an optional qualitative assessment
for the annual testing of goodwill impairment that may allow companies to conclude that performing a detailed
calculation of the fair value of a reporting unit is unnecessary. This standard expands upon the examples of events and
circumstances that an entity should consider between annual impairment tests in determining whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount. Additionally this standard improves the
examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount
should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill
impairment test. The new guidance is not expected to have a material impact on the consolidated financial statements.

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NOTE B—SIGNIFICANT CUSTOMERS

DHL

The Company, through ABX, has had contracts with DHL since August of 2003. Effective March 31, 2010, the
Company and DHL terminated the former DHL ACMI agreement and executed new follow-on agreements Under the
new agreements, DHL leases 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 pre-defined fees, scaled for the number of aircraft operated and the number of crews provided to
DHL for its U.S. network. In addition to the 13 CAM-owned Boeing 767 aircraft, ABX also operates four DHL-owned
Boeing 767 aircraft under the CMI agreement. 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. AMES also provides scheduled
maintenance for the four DHL-owned aircraft operated by ABX under the CMI agreement.

Continuing revenues from leases and contracted services for DHL were approximately 36%, 36% and 55% of the
Company's consolidated revenues from continuing operations for the years ended December 31, 2011, 2010 and 2009,
respectively. The Company’s balance sheets include accounts receivable and other long term receivables with DHL of
$9.8 million and $19.0 million as of December 31, 2011 and 2010, respectively.

BAX/Schenker

A significant portion of the Company’s revenues, and cash flows have historically been derived from providing
airlift to BAX Global, Inc.'s network in North America ("BAX/Schenker"). CCIA and ATI each had contracts to provide
airlift to BAX/Schenker. BAX/Schenker provided freight transportation and supply chain management services,
specializing in the heavy freight market for business-to-business shipping. Revenues from the services performed for
BAX/Schenker were approximately 26%, 29% and 19% of the Company’s total revenues from continuing operations
for the years ended December 31, 2011, 2010 and 2009, respectively. (Excluding directly reimbursable revenues, the
revenues from the services performed for BAX/Schenker were approximately 15%, 18% and 14% of the Company's
revenues for the years ended December 31, 2011, 2010 and 2009, respectively.)

On July 22, 2011, BAX/Schenker announced its plan to adopt a new operating model that phased-out the dedicated
air cargo network in North America supported by the Company. To execute that plan, on September 2, 2011, BAX/
Schenker ceased air cargo operations at its air hub in Toledo, Ohio and began to conduct air operations from the
Cincinnati/Northern Kentucky airport, utilizing DHL's U.S. air hub. The Company provided limited airlift directly to
BAX/Schenker through the peak delivery season, until late December, 2011. Beginning in January 2012, the Company
contracted with DHL to supplement its U.S. air network to service BAX/Schenker freight volumes on DHL's expanded
air network without the use of ATI's DC-8 aircraft and with only limited use of CCIA's Boeing 727 aircraft.

Beginning in August 2011, the Company began to incur wind-down costs related to the phase-out of the BAX/
Schenker air network in North America. During the second half of 2011, the Company's wind-down costs included
employee severance benefits, airport lease termination payments, aircraft and equipment repositioning and other
expenses. These expenses were approximately $1.4 million.

The Company’s balance sheets include accounts receivable with BAX/Schenker of $5.5 million as of December 31,

2011 and 2010.

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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 12%, 14% and 10% of the Company's total revenues from
continuing operations for the years ended December 31, 2011, 2010 and 2009, respectively. The Company's balance
sheets included accounts receivable with the U.S. Military of $5.2 million and $8.4 million as of December 31, 2011
and 2010, respectively.

NOTE C—GOODWILL AND OTHER INTANGIBLES

The Company has two reporting units, ATI (a component of ACMI Services) and CAM, that have goodwill. In
conjunction with the phase-out of BAX/Schenker's dedicated airlift in North America (see Note B), which relied on
operations provided by the Company, the Company tested the carrying values of goodwill and related intangible assets
as of July 31, 2011. The Company recognized an impairment charge to reduce the value of the recorded goodwill and
customer relationship intangible associated with ATI to $52.6 million and $2.5 million, respectively. The Company
determined the fair values of ATI and CAM separately using industry market multiples and discounted cash flows
utilizing a market-derived rate of return (level 3 fair value inputs). BAX/Schenker's decision to discontinue a dedicated
U.S. air network using ATI's DC-8 aircraft was precipitated by prolonged recessionary conditions and trends toward
higher fuel prices. ATI's goodwill and related intangible assets were not impaired further because of expected future
net cash flows from its growing fleet of Boeing 767 aircraft and combi aircraft services which it provides to the U.S.
Military. In conjunction with the Company' annual evaluation, goodwill and customer relationships were tested as of
December 31, 2011 and found not to be impaired.

Changes in the carrying amount of goodwill during the year ended December 31, 2011, by reportable segment,

are as follows (in thousands):

Carrying value as of December 31, 2009

Carrying value as of December 31, 2010

Impairment

Carrying value as of December 31, 2011

ACMI Services

CAM

Total

55,382

55,382
(2,797)
52,585

34,395

—

34,395

89,777

89,777
(2,797)
86,980

Changes in the carrying amount of intangible assets during the year ended December 31, 2011 are as follows (in

thousands):

Carrying value as of December 31, 2010

Amortization

Impairment

Carrying value as of December 31, 2011

Customer

Airline

Relationships

Certificates

5,259
(581)
(2,282)
2,396

4,000

—

4,000

The customer relationship intangible amortizes over 10 more years while the airline certificates have indefinite
lives and therefore are not amortized. The Company recorded amortization expense of $0.6 million, $0.8 million and
$0.9 million for the years ending December 31, 2011, 2010 and 2009, respectively, for the customer relationships
intangible asset.

NOTE D—FAIR VALUE MEASUREMENTS

The Company’s money market funds and interest rate swaps 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
money market funds and interest rate swaps are based on observable inputs (Level 2) from comparable market

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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, 2011

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, 2010

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Total Liabilities

10,002

—

11,541

(5,024)
(5,024)

—

21,543

(5,024)
(5,024)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

—

20,411

(4,563)
(4,563)

—

20,411

(4,563)
(4,563)

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 $5.9 million more than the
carrying value, which was $346.9 million at December 31, 2011. The non-financial assets, including goodwill, intangible
assets and property and equipment are measured at fair value on a non-recurring basis.

NOTE E—PROPERTY AND EQUIPMENT

At December 31, 2011, the Company’s subsidiaries owned 52 aircraft in serviceable condition consisting of 21
Boeing 767-200 freighter aircraft leased to external customers, 30 freighter aircraft operated by the Company's airlines
and one Boeing 767 passenger aircraft. These 30 freighter aircraft operated by the Company's airlines consisted of 14
Boeing 767-200, two Boeing 767-300, three Boeing 757, four Boeing 727, three McDonnell Douglas DC-8 freighters
and four McDonnell Douglas DC-8 combi aircraft. The Company's subsidiaries also leased four Boeing 767-200
aircraft and one Boeing 767-300 aircraft, as of December 31, 2011. Additionally, as of December 31, 2011, the Company
had one Boeing 767-200 aircraft, three Boeing 767-300 aircraft and two Boeing 757 aircraft undergoing modification
to standard freighter configuration. The combined carrying value of aircraft in modification was $101.7 million at
December 31, 2011.

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,
2011
1,012,000
51,297
1,589
714
1,065,600
(316,687)
748,913

December 31,
2010

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

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There were no aircraft or flight equipment held under capital leases as of December 31, 2011, compared to $22.2
million as of December 31, 2010. Accumulated depreciation and amortization included $10.8 million as of
December 31, 2010, for property held under capital leases. Rent and lease expense for five aircraft and facilities under
operating lease agreements totaled $21.2 million for 2011.

Stagnant economic growth and higher fuel prices precipitated BAX/Schenker's decision to phase-out its North
American air network (see note B) and diminished the demand for the Company's Boeing 727 and DC-8 freighter
aircraft. These aircraft are less fuel efficient and generally require higher maintenance costs to maintain acceptable
levels of reliability compared to more modern aircraft. As a result of these conditions and BAX/Schenker's decision
in July 2011 to phase-out its North American air network, the Company decided to retire the Boeing 727 and DC-8
freighter fleets. The Company has begun to market the aircraft engines, parts and airframes to other operators and
aircraft parts dealers. During the third quarter of 2011, the Company recorded a pre-tax impairment charge totaling
$22.1 million to reduce the carrying values of its Boeing 727 and DC-8 freighters, engines and related parts to their
estimated fair value. The Company determined the fair values of these aircraft with the assistance of an independent
appraiser using comparable market sales (level 2 fair value inputs). The carrying value of the Boeing 727 and DC-8
freighter aircraft available for sale totaled $9.8 million as of December 31, 2011. Additionally, as of December 31,
2011, the carrying value of the Boeing 727 and DC-8 freighter aircraft to be held and used during 2012 totaled $2.7
million.

Cash flows generated from the removal of aircraft from the Company's in-service fleet and sales of other property
and equipment totaled $11.1 million and $32.0 million for the years ended December 31, 2011 and 2010, respectively.
During the fourth quarter of 2011, the Company received $10.7 million from BAX/Schenker for the reimbursement of
capitalized maintenance costs for aircraft removed from service. In May 2010, DHL paid the Company $29.7 million
for the carrying value of the five Boeing 767 non-standard freighter aircraft and 26 DC-9 aircraft previously put to
DHL under the terms of the DHL ACMI agreement. Gains or losses from the sale of aircraft and spare engines are
recorded in other operating expenses on the statement of operations.

CAM owned aircraft with a carrying value of $316.4 million and $263.2 million that were under leases to external
customers as of December 31, 2011 and December 31, 2010, respectively. Minimum future lease payments for aircraft
and equipment leased to external customers as of December 31, 2011 is scheduled to be $68.3 million, $55.7 million,
$55.7 million, $55.7 million and $47.8 million for each of the next five years ending December 31, 2016.

NOTE F—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,

2011

2010

150,000

178,000

106,000

70,754

—

20,150

—

346,904
(13,223)
333,681

—

92,075

5,910

26,350

193

302,528
(36,591)
265,937

In May 2011, the Company executed a new, syndicated credit facility with a larger borrowing capacity and
repayment terms through April 2016 ("Credit Facility"). The new Credit Facility, with a consortium of banks, includes
a term loan of $150 million and a $175 million revolving credit loan, of which the Company has drawn $106 million,
net of repayments. The former term loan, having a balance of $172.4 million, was completely paid-off on May 9, 2011,
using the proceeds of the new term loan and revolving loan. Under the terms of the Credit Facility, interest rates are

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adjusted quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses
("EBITDA"), its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-
EBITDA ratio, the LIBOR based financing for the unsubordinated term loan and revolving credit facility bear a variable
interest rate of 2.58% and 2.30%, respectively. During the next twelve months, the Company expects to make further
draws on the revolving credit loan to fund its fleet expansion plans. The Credit Facility also has an accordion feature
of $50 million which the Company may draw subject to the lenders' consent. Repayments of the term loan are scheduled
to begin in June 2012. The Credit Facility provides for the issuance of letters of credit on the Company's behalf. As
of December 31, 2011, the unused revolving credit facility totaled $52.5 million, net of draws of $106.0 million and
outstanding letters of credit of $16.5 million.

In conjunction with the execution of the Credit Facility, the Company terminated its previous credit agreement,
which resulted in the write-off of unamortized debt issuance costs associated with that credit agreement and losses for
certain interest rate swaps which had previously been designated as cash flow hedges of interest payments required by
the former debt. These charges, which totaled $6.8 million before income taxes, were recorded in March 2011.

The aircraft loans are collateralized by six 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. In May, the Company completely paid-off an aircraft loan at par value prior to maturity, remitting $13.8
million for the outstanding principal.

The scheduled annual principal payments on long term debt, as of December 31, 2011, for the next five years are

as follows (in thousands):

2012

2013

2014

2015

2016

2017 and beyond

Principal
Payments

13,223

21,265

23,722

24,344

226,115

38,235

346,904

The promissory note payable to DHL becomes due in August 2028 as a balloon payment, unless it is extinguished
sooner under the terms of the CMI agreement. Beginning April 1, 2010 and extending through the term of the CMI
agreement, the balance of the note is amortized ratably without cash 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 CMI agreement.

In March 2009, the Company and DHL agreed to amend the promissory note. 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 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 June 2009, ABX executed a Lease Assumption and Option Agreement with DHL. In conjunction with the Lease
Assumption and Option Agreement, DHL assumed financial responsibility for the capital leases associated with five
Boeing 767 aircraft that ABX was operating on behalf of DHL. During 2009, the lease agreements for the five Boeing
767 capital lease aircraft were settled and terminated with the lessor. 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. 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 certain lease payments and expenses of $3.9 million,
and the tax effect of $6.8 million as well as the extinguishment of the debt.

In 2010, the Company adjusted the income tax effect of the debt extinguishment for the promissory note with DHL

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to reflect the original issue discount associated with the extinguished amount. As a result, the Company reduced the
deferred tax liability and increased paid-in-capital by $14.8 million during 2010.

The Credit Facility is collateralized by certain of the Company's Boeing 767 and 757 aircraft that are not
collateralized under aircraft loans. Under the terms of the Credit Facility, the Company is required to maintain collateral
coverage equal to 150% of the outstanding balance of the term loan and total revolving credit facility. The Credit Facility
contains covenants including, among other things, limitations on certain additional indebtedness, guarantees of
indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Credit Facility 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 Facility. The Company is currently
in compliance with the financial covenants specified in the Credit Facility. The Credit Facility limits the amount of
dividends the Company can pay and the amount of common stock it can repurchase to $50.0 million during any calendar
year. Under the provisions of its promissory note due to DHL, the Company is required to prepay the DHL note in the
amount of $0.20 for each dollar of dividend distributed to its stockholders. The same prepayment stipulation applies
to stock repurchases.

NOTE G—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.

As of December 31, 2011, the Company no longer has any lease commitments under capital leases. Lease

commitments under operating leases at December 31, 2011, are as follows (in thousands):

2012

2013

2014

2015

2016

2017 and beyond

Total minimum lease payments

Commitments

Operating
Leases

21,424

19,873

16,892

7,016

3,581

7,347

76,133

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2011, it would owe Precision approximately $8 million associated with engineering efforts and 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 reasonable 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.

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.

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. Thereafter, on October 7, 2010, the
Court issued a decision 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.

FAA Enforcement Actions

The Company’s airline operations are subject to complex aviation and transportation laws and regulations that are
continually enforced by the DOT and FAA. The Company’s airlines receive letters of investigation (“LOIs”) from the
FAA from time to time in the ordinary course of business. The LOIs generally provide that some action of the airline
may have been contrary to the FAA’s regulations. The airline responds 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.

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. However, the FAA has taken no action in this
matter since December 2009.

Brussels Noise Ordinance

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is located near the Brussels Airport. On May 13, 2011, the BIM levied an administrative penalty on ABX in the amount
of €0.1 million (approximately $0.2 million) for numerous alleged violations of the ordinance during the period from
May 2009 through November 2009. ABX appealed this matter to the Environmental College in Brussels. However,
on October 10, 2011, the Environmental College affirmed the decision of the BIM. On or about December 7, 2011,
ABX appealed the decision to the Council of State, which appeal is currently pending.

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. The Company costs for legal defense are expensed as
incurred.

Employees Under Collective Bargaining Agreements

As of December 31, 2011, the flight crewmember employees of ABX, ATI and CCIA were represented by the labor

unions listed below:

Airline
ABX

ATI

CCIA

Labor Agreement Unit

International Brotherhood of Teamsters

Airline Pilots Association

Percentage of
the
Company’s
Employees

13.7%

10.9%

4.9%

NOTE H—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.
Employees are no longer accruing benefits under any of the defined benefit pension plans. 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. Actual results and future changes in these
assumptions could result in future costs significantly higher than those recorded in our results of operations.

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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. The accumulated benefit
obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.

Funded Status (in thousands):

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 gain on plan assets
Plan transfers
Employer contributions
Benefits paid
Fair value as of December 31

Funded status

Recorded liabilities—net underfunded

Components of Net Periodic Benefit Cost

Pension Plans

Post-retirement
Healthcare Plans

2011

772,612

694,548
—
37,163
—
—
—
871
(23,501)
63,531
772,612

588,494
10,842
871
17,991
(23,501)
594,697

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

2011

9,275

10,135
247
389
—
—
—
—
(1,304)
(192)
9,275

—
—
—
1,304
(1,304)
—

2010

10,135

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

—
—
—
1,278
(1,278)
—

(177,915)

(106,054)

(9,275)

(10,135)

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

years ended December 31, 2011, 2010 and 2009, are as follows (in thousands):

Pension Plans

Post-Retirement
Healthcare Plans

2011

2010

2009

2011

2010

2009

Service cost

Interest cost

Expected return on plan assets

Curtailment loss

Special termination benefits

Net amortization and deferral

—

2,286

12,870

37,163

36,678

(39,027)

(35,600)

—

2,700

2,069

37,699
(29,569)
25,048

1,550

27,434

Net periodic benefit cost

836

5,433

75,032

247

389

—

—
(5,023)
(4,387)

341

800

—

—
(3,803)
(2,662)

650

1,767

—

2,417

The net periodic expense includes a net curtailment charge of $25.0 million for 2009 to recognize prior service
costs of employees terminated in conjunction with the DHL restructuring, as prescribed by FASB ASC Topic 715-30.
During 2009, the Company amended each defined benefit pension plan to freeze the accrual of additional benefits and
63

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notified 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.

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, 2011, are as follows (in thousands):

Unrecognized prior service cost

Unrecognized net actuarial loss

Pension Plans

2011

2010

—

165,505

76,490

Post-Retirement
Healthcare Plans

2011
$ (14,929)
3,061

2010
$ (20,481)
3,783

Accumulated other comprehensive loss (gain)

$ 165,505

$ 76,490

$ (11,868)

$ (16,698)

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
2012 (in thousands):

Amortization of actuarial loss

Prior Service Cost

Post-
Retirement
Healthcare
Plans

Pension
Plans

$ 10,681

—

433
(5,552)

Assumptions

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

Discount rate

Expected return on plan assets

Rate of compensation increase (pilots)
Rate of compensation increase (non-pilots)

Pension Plans

2011

2010

2009

4.65% - 5.10%

5.35% - 5.55%

5.85% - 6.00%

6.75%

not applicable
not applicable

7.00%

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 4.60% for pilots and 4.05% for non-
pilots at December 31, 2011. The discount rate used to determine post-retirement healthcare obligations for both pilots
and non-pilots was 4.15% at December 31, 2010 and 5.85% at December 31, 2009, respectively. Post-retirement
healthcare plan obligations have not been funded. The Company's retiree healthcare contributions have been fixed for
each participant, accordingly healthcare cost trend rates do not effect the post-retirement healthcare obligations.

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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
2011

2010

2%
46%
50%
2%
100%

1%
48%
49%
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 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 2011 and 2010, ABX made contributions to its defined benefit pension plans of $18.0 million and $36.6 million,
respectively. The Company estimates that its contributions in 2012 will be approximately $25.0 million for its defined
benefit pension plans and $1.2 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):

2012

2013

2014

2015

2016

Years 2017 to 2021

Fair Value Measurements

Pension
Benefits

Post-retirement
Healthcare
Benefits

25,837

27,354

31,518

31,452

33,914

204,455

1,241

1,113

1,028

964

904

4,372

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 Northern Trust Company. 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

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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 tradeable 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, 2011

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

—

49,169

73,910

17,009

—

17,495

197

125,027

271,560

—

14,557

25,759

17,495

49,366

198,937

288,569

14,557

25,759

Total plan assets

140,102

414,279

40,316

594,697

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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

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, 2010

Unrealized gains

Purchases & settlements

December 31, 2010

Unrealized gains

Purchases & settlements

December 31, 2011

Hedge Funds &
Private Equity

Real Estate
Investments

Total

23,109

11,160

1,504

897

1,054

—

25,510

12,214

713
(464)
25,759

2,343

—

14,557

34,269

2,558

897

37,724

3,056
(464)
40,316

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Crew Sick Leave Post-retirement Benefit

ATI provided a sick leave benefit for ATI crewmembers that accumulated through participant retirement dates.
During 2011, the plan was terminated and completely settled. The status of the plan as of December 31, 2011 and 2010
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

2011

2010

—

3,556

297

155
(3,802)
(206)
—

—

3,802
(3,802)
—

—

3,556

3,002

228

151
(35)
210

3,556

—

35
(35)
—

(3,556)
426

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

Discount rate

Rate of compensation increase

Defined Contribution Plans

Post-Retirement Plan

2010

4.64%

4.00%

2009

5.32%

4.00%

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary
employee salary deferrals and by employer contributions. ABX had also sponsored a defined contribution profit sharing
plan, which was 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
2010

2009

2011

Capital accumulation plans
Profit sharing plans
Total expense

4,938
—
4,938

4,527
110
4,637

5,299
547
5,846

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NOTE I—INCOME TAXES

At December 31, 2011, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $97.9 million, which begin to expire in 2024 if not utilized before then. The
deferred tax asset balance includes $0.8 million net of a $0.2 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, 2011 and 2010 are

as follows (in thousands):

December 31

2011

2010

Deferred tax assets:

Net operating loss carryforward and federal credits

35,814

Capital and operating leases
Post-retirement employee benefits

Employee benefits other than post-retirement

Other

Deferred tax assets

Deferred tax liabilities:

Accelerated depreciation and impairment charges

Partnership items

State taxes

Valuation allowance against deferred tax assets

Deferred tax liabilities

Net deferred tax (liability)

763
65,695

17,324

13,017

132,613

(130,180)
(12,384)
(802)
(229)
(143,595)
(10,982)

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

13,482

—
40,454

18,480

14,231

86,647

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

Years Ended December 31

2011

2010

2009

(950)
426

1,275

1,278

15,968

1,551

17,519

16,995
(393)
—

20,452

408

20,860

23,413
(40)
(14,847)

—

399

16,624

133

16,757

17,156

2,986

23,612

Current taxes:

Federal

State

Deferred taxes:

Federal

State

Total deferred tax expense
Total income tax expense from continuing operations

Income tax expense (benefit) from discontinued operations

Income tax expense (benefit) for debt extinguishment

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

rates to effective income tax rates 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

2011

2010

2009

35.0 %

3.1 %

2.4 %

1.7 %

(0.6)%

41.6 %

35.0 %

1.7 %

— %

0.9 %

(0.6)%

37.0 %

35.0%

0.8%

—%

1.7%

0.3%

37.8%

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

rates to effective income tax rates is as follows:

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

Years Ended December 31
2010

2011

2009

(35.0)%
(1.8)%
— %
(36.8)%

(35.0)%
(1.3)%
— %
(36.3)%

35.0 %
1.2 %
(3.8)%
32.4 %

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 2011, 2010 and 2009. Changes in
unrecognized tax benefits are as follows (in thousands):

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

2011

2010

2009

—
—
—
—

4,287

(4,287)
—

5,496
(1,209)

4,287

Prior to 2008, the Company and its acquired subsidiary, Cargo Holdings International, ("CHI") filed separate
consolidated tax returns. During 2009, the IRS concluded its examination of the consolidated returns for CHI for 2004
through 2007. This examination resulted in no significant changes. Accordingly, in 2009, the Company reversed $1.2
million of unrecognized tax benefits related to the CHI acquisition.

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.

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In 2010, the IRS concluded its examination of the 2008 federal return for the Company and issued a "no change" report
in early 2011. State and local returns filed for 2005 though 2010 are generally also open to examination by their
respective jurisdictions.

NOTE J—DERIVATIVE INSTRUMENTS

In conjunction with the unsubordinated term loan under the former credit agreement, the Company entered into
interest rate swaps in January 2008 to reduce the effects of fluctuating LIBOR-based interest rates on forecasted interest
payments stemming from the scheduled repayment of the debt. Under the interest rate swap agreements, the Company
pays a fixed rate of 3.105% and receives a floating rate that resets quarterly based on LIBOR. The notional value of
the interest rate swaps step downward through December 31, 2012. In accordance with FASB ASC Topic 815-30
Derivatives and Hedging, the Company accounted for the interest rate swaps as hedges of the forecasted cash flows.
Accordingly, losses caused by lower floating interest rates had been recorded to accumulated other comprehensive
income for the effective portion. Effective March 31, 2011, in conjunction with its decision to refinance the
unsubordinated term loan, the Company ceased hedge accounting after determining that the forecasted interest payments
will not occur near the time originally expected. As a result, the Company recorded a pre-tax charge of $3.9 million
in the first quarter of 2011 based on the fair market value of the derivatives on March 31, 2011, to recognize the losses
previously recorded in accumulated other comprehensive income.

In addition to the interest rate swaps noted above, the Company's new Credit Facility requires the Company to
maintain derivative instruments for protection from fluctuating interest rates, for at least fifty percent of the outstanding
balance of the new subordinated term loan. As a result, the Company entered into a new interest rate swap in July of
2011 having an initial notional value of $75.0 million and a forward start date of December 31, 2011. Under this swap,
the Company will pay a fixed rate of 2.02% and receive a floating rate that resets quarterly based on LIBOR. The
Company did not designate the recent interest rate swap as a hedge for accounting purposes. The effects of future
fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains
and losses into the statement of operations.

For the year ended December 31, 2011, the Company recorded an unrealized loss on derivatives of $4.9 million
to reflect the interest rate swaps at market value. 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 (in thousands):

Expiration Date
December 31, 2012

December 31, 2012

May 9, 2016

December 31, 2011

December 31, 2010

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

3.105%

59,500

3.105%

2.020%

35,000

75,000

(1,394)
(820)
(2,810)

Notional
Amount

68,000

40,000

—

Market
Value
(Liability)

(2,893)
(1,670)
—

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NOTE K—OTHER COMPREHENSIVE INCOME

Comprehensive income includes the following transactions for the years ended December 31, 2011, 2010 and 2009

(in thousands):

Before Tax

Income Tax
(Expense)
or Benefit

Net of
Tax

2011

Actuarial loss for retiree liabilities

Unrealized gain on derivative instruments
Reclassifications to net income:

Hedging gain realized

Unrealized loss on derivative instruments

Pension actuarial loss

Post-retirement actuarial loss

Post-retirement negative prior service cost

Other comprehensive loss
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

(91,523)
631

33,635
(229)

(223)
3,932

2,700

211
(5,552)
(89,824)

(21,674)
24,648
(848)

(106)
2,068

321
(4,168)
241

112,054

1,742

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

61
(1,427)
(992)
(77)
2,040
33,011

7,868
(8,947)
308

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

(40,715)
(632)

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

138,950

(57,888)
402

(162)
2,505

1,708

134
(3,512)
(56,813)

(13,806)
15,701
(540)

(68)
1,317

205
(2,654)
155

71,339

1,110

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

88,472

NOTE L—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 typically 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

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into a number of shares of Company stock based on the Company's average return on invested 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

2011

2010

2009

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Outstanding at beginning of period

1,514,300

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

555,237

(443,300)

—

(168,200)

1,458,037

390,037

3.55

8.72

2.45

—

4.22

5.77

4.45

1,505,550

804,400
(425,139)
(298,911)
(71,600)
1,514,300

659,467

3.07

4.37

3.35

3.77

3.12

3.55

3.33

1,667,100

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

283,939

4.24

0.93

6.33

7.10

3.41

3.07

4.18

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 $8.25, $4.00 and $0.93 for 2011, 2010 and 2009, respectively, the fair value
of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted
was $11.17 and $5.60 for 2011 and 2010, 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 2011 and 2010 using daily stock prices and using the following variables"

Risk-free interest rate

Volatility

2011

1.3%

125.0%

2010

1.7%

125.3%

For the years ended December 31, 2011, 2010 and 2009, the Company recorded expense of $2.9 million, $1.7
million and $1.3 million, respectively, for stock incentive awards. At December 31, 2011, there was $3.3 million of
unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average
period of 1.5 years. None of the awards were convertible, and none of the outstanding shares of restricted stock had
vested as of December 31, 2011. These awards could result in a maximum number of 1,699,687 additional outstanding
shares of the Company’s common stock depending on service, performance and market results through December 31,
2013.

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NOTE M—EARNINGS PER SHARE

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

2011

December 31
2010

2009

Earnings from continuing operations

Weighted-average shares outstanding for basic earnings per share

23,865

39,904

63,284

62,807

Common equivalent shares:

Effect of stock-based compensation awards

Weighted-average shares outstanding assuming dilution

Basic earnings per share from continuing operations

Diluted earnings per share from continuing operations

801

64,085

0.38

0.37

1,202

64,009

0.64

0.62

28,202

62,674

605

63,279

0.45

0.44

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 584,700 shares, 564,100 shares and 630,300 shares of restricted stock for 2011, 2010 and 2009,
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, was 176,000 at December 31, 2011 and immaterial at
December 31, 2010 and 2009.

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NOTE N—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. The ACMI
Services segment consists of the Company's airline operations including the CMI agreement with DHL, as well as
ACMI and charter service agreements that the Company provides to other customers. Due to the similarities among
the Company's airline operations, the airline operations are aggregated into a single reportable segment, ACMI Services.
The Company's other activities, which include contracts with the USPS, the sale of aircraft parts and maintenance
services, management services for workers' compensation and logistics services, 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. The
Company's segment information from 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
Impairment charges:

CAM - aircraft impairment

ACMI Services - aircraft impairment

ACMI Services - customer relationship impairment

ACMI Services - goodwill impairment

Total

Segment earnings (loss):

CAM

ACMI Services

All other

Net unallocated interest expense

Write-off of unamortized debt issuance costs

Net loss on derivative instruments

Pre-tax earnings from continuing operations

Year Ended December 31

2011

2010

2009

140,469

101,375

605,461

105,284

579,412

87,660

(121,081)

(101,065)

60,685

768,824

64,914

(70,940)

730,133

667,382

823,483

67,791

43,294

604,951

57,391

578,198

45,890

730,133

667,382

54,897

40,215

36,136

47,176

203

91,063

87,594

6,761

15,304

2,282

2,797

27,144

—

53,221

41,586

(13,807)

11,331

(2,118)

(2,886)

(4,881)

20,888

8,017

(7,174)

—

10,926

768,225

44,332

823,483

22,869

60,047

1,048

83,964

—

22,775

28,392

3,518

(9,327)

—

40,860

63,317

45,358

Table of Contents

The Company's assets are presented below by segment (in thousands):

Assets:

CAM

ACMI Services

Discontinued operations

All other

Total

December 31,

2011

2010

2009

760,588

600,245

137,640

—

95,491

198,024

5,015

97,370

351,172

482,976

21,587

147,038

993,719

900,654

1,002,773

Interest expense of $1.2 million, $1.9 million and $5.5 million for 2011, 2010 and 2009, respectively, was reimbursed
through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest
expense allocated to CAM was $10.7 million, $9.3 million and $10.3 million for the years ending December 31, 2011,
2010 and 2009, respectively.

During 2011, the Company had capital expenditures of $26.5 million and $194.9 million for the ACMI Services
and CAM segments, respectively. The ACMI Services segment includes impairment charges of $2.8 million on the
goodwill, $2.3 million on its acquired intangibles and $15.3 million on its aircraft recorded in the third quarter of 2011.
The CAM segment includes an impairment charge of $6.8 million on its aircraft recorded in the third quarter of 2011.

Entity-Wide Disclosures

The Company's international revenues were approximately $291.3 million, $234.5 million and $165.4 million for
2011, 2010 and 2009, respectively, derived primarily from international flights departing from or arriving in foreign
countries. All revenues from the CMI agreement with DHL are attributed to U.S. operations.

The Company's external customers revenues from other activities for the years ended December 31, 2011, 2010

and 2009 are presented below (in thousands):

Aircraft maintenance and part sales

Mail handling services

Facility and ground equipment maintenance

Other

Total customer revenues

NOTE O—DISCONTINUED OPERATIONS

December 31,

2011

2010

2009

25,845

15,963

21,613

8,465

1,468

19,386

8,868

1,673

17,809

18,502

4,993

3,028

57,391

45,890

44,332

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations due to continued
losses. Pursuant to its restructuring plan, 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 any remaining sort
operations for DHL and the related hub service agreement with DHL expired. Additionally, in the third quarter of 2009,
DHL assumed management of aircraft fuel services for its U.S. network previously provided by ABX. Revenues for
2009 related to discontinued hub services and aircraft fuel services totaled $171.5 million. The revenues and results
of the DHL hub services operations and the aircraft fuel services are reported as discontinued operations. The results
of discontinued operations for 2011 primarily reflect pension for the former hub employees and costs related to legal
claims related to a civil action alleging that ABX violated immigration labor laws while managing the sort operations
in Wilmington, Ohio.

Table of Contents

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

Other current assets

Total Assets
Liabilities

Employee compensation and benefits
Post-retirement

Total Liabilities

December 31

2011

2010

$
$

—
—

33,943
39,658
73,601

$
$

5,015
5,015

39,980
23,336
63,316

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

Pre-tax earnings (loss)

(1,066)

(110)

9,233

2011

December 31
2010

2009

NOTE P—QUARTERLY RESULTS (Unaudited)

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

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

2011
Revenues from continuing operations

Net earnings (loss) from continuing operations

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

Basic

Diluted

Earnings (loss) per share from continuing operations

Basic

Diluted

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

175,127

193,061

2,881
(117)

63,131

63,936

0.04

160,944

6,750

405

62,792

63,605

12,280

63,333

64,172

0.19

160,111

9,915
(233)

195,480
(4,826)
24

$ 166,465

13,530
(599)

63,334

63,336

64,109

(0.08)
(0.08)

0.21

167,726

$ 178,601

11,388
(230)

11,851
(12)

62,811

64,421

62,811

64,202

62,814

63,809

0.11

0.16

0.15

0.18

0.19

The net loss from continuing operations during the third quarter of 2011 was a result of impairment charges for the
Company's goodwill, other intangibles and aircraft.

Table of Contents

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of December 31, 2011, the Company carried out an evaluation, under the supervision and with the participation
of the Company's Chief Executive Officer and Chief Financial Officer 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 Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective
to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the
Exchange Act is recorded, processed, summarized and reported within time periods specified in the Securities and
Exchange Commission rules and forms and is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.

(b) Changes in Internal Controls

There were no changes in internal control over financial reporting during the most recently completed fiscal quarter
that has materially affected, or is reasonably likely to materially affect, the Company's internal control 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, 2011. 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, 2011, the

Company’s internal control over financial reporting was effective.

March 5, 2012

Table of Contents

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, 2011, 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, 2011, 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, 2011 of the Company and our report dated March 5, 2012 expressed an unqualified opinion on those financial
statements and financial statement schedule and included an explanatory paragraph regarding the Company's three
principal customers.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio
March 5, 2012

Table of Contents

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 2012 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
57

Quint O. Turner

Richard F. Corrado

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 ABX Air, Inc. from January 2000 to February
2008. Mr. Hete was Chief Operating Officer of ABX Air, Inc. from
January 2000 to August 2003. From 1997 until January 2000, Mr. Hete
held the position of Senior Vice President and Chief Operating Officer
of ABX Air, Inc. Mr. Hete served as Senior Vice President,
Administration of ABX Air, 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 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.

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
for Airborne Express from August 2000 through August 2003.

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.

Table of Contents

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 2012 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 2012 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 2012 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 2012 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

Table of Contents

(2)

Financial Statement Schedules

Schedule II—Valuation and Qualifying Account

Description
Accounts receivable reserve:

Year ended:

December 31, 2011
December 31, 2010
December 31, 2009

Balance at
beginning
of period

Additions
charged to
cost and
expenses

Deductions

Balance at end
of period

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

316,873
573,858
877,220

973,244
771,859
58,289

433,671
1,090,042
1,288,043

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

3.1

3.2

4.1

4.2

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.) (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. (15)

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. (22).

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. (22)

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). (15)

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). (15)

Instruments defining the rights of security holders

Specimen of common stock of ABX Holdings, Inc. (3)

Preferred Stock Rights Agreement dated October 17, 2007, by and between ABX Holdings, Inc.
and National City Bank. (15)

Table of Contents

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

Material Contracts

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 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 Wilmington Airpark Sublease, dated as of the effective date of the merger, by and between
ABX Air, Inc. and Airborne, 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)

Director compensation fee summary. (23)

Form of Executive Incentive Compensation Plan for CEO and the next four highest paid
officers. (7)

Form of Time Based Restricted Stock Units Award Agreement for directors, dated October 4,
2005. (8)

Amendment to the Boeing 767 Aircraft modification agreement with Israel Aircraft Industries,
Ltd., dated December 2, 2005. (9)

Consent to Assignment and Assumption of ACMI Service Agreement and Hub & Line-Haul
Services Agreement, dated December 28, 2008. (9)

Letter from DHL dated July 19, 2006, notifying ABX Air, Inc. of a change to the scope of
services under the ACMI Service Agreement. (10)

Aircraft Loan and Security Agreement and related promissory note, dated August 24, 2006, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (10)

Aircraft Loan and Security Agreement and related promissory note, dated October 10, 2006, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (11)

Aircraft Loan and Security Agreement and related promissory note, dated February 16, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (12)

Aircraft Loan and Security Agreement and related promissory note, dated April 25, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (13)

Aircraft Loan and Security Agreement and related promissory note, dated July 18, 2007, by and
among ABX Air, Inc. and Chase Equipment Leasing, Inc. (14)

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. (15)

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. (15)

Table of Contents

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (22)

Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (22)

First Amendment to Credit Agreement, dated January 18, 2008. (16)

Assignment Agreement, dated August 11, 2008, with SunTrust Bank and ABX Material Services,
Inc. (17)

Assignment Agreement, dated August 11, 2008, with Regions Bank and ABX Material Services,
Inc. (17)

Severance and Retention Agreement dated August 15, 2008, between DPWN Holdings (USA),
Inc. and ABX Air, Inc. (18)

Agreement dated September 9, 2008, between Israel Aerospace Industries Ltd. and Cargo Aircraft
Management, Inc. for airline conversion. (18)

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. (19)

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. (20)

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. (20)

Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated May 8,
2009. (20)

Lease Assumption and Option Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc., dated May 29, 2009. (20)

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. (21)

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. (24)

Air Transportation Services Agreement between DHL Network Operations (USA), Inc. and ABX
Air, Inc, dated March 29, 2010. (25)

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. (25)

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. (25)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc.
2005 Amended and Restated Long-Term Incentive Plan. (26)

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2005 Amended and Restated Long-Term Incentive Plan. (26)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005
Amended and Restated Long-Term Incentive Plan. (26)

Table of Contents

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

14.1

21.1

23.1

31.1

31.2

32.1

32.2

Aircraft Sale Agreements relating to three used Boeing 767-338ER aircraft between Cargo Aircraft
Management, Inc. and Qantas Airways Limited, each dated June 15, 2010. (27)

Lease Agreement (Wilmington Airpark) between Clinton County Port Authority and Air Transport
Services Group, Inc., dated June 2, 2010. (28)

Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified July 30,
2010. (28)

Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B
Conversions Limited and Israel Aerospace Industries Ltd. (29)

Letter Agreement, dated October 15, 2010, between Precision Conversions, LLC and Cargo
Aircraft Management, Inc. (30)

Agreement to purchase one Boeing 757-200ER passenger aircraft between Cargo Aircraft
Management, Inc., as Buyer, and Aircraft Lease Finance Corporation, as Seller, dated February
11, 2011. (31)

Credit Agreement, dated as of May 9, 2011, among Cargo Aircraft Management, Inc., as Borrower,
Air Transport Services Group, Inc., the Lenders from time to time party thereto, SunTrust Bank,
as Administrative Agent, Regions Bank and JPMorgan Chase Bank, N.A., as Syndication Agents,
and Bank of America, N.A., as Documentation Agent. (32)

Guarantee and Collateral Agreement, dated as of May 9, 2011, made by Cargo Aircraft
Management, Inc. and certain of its Affiliates in favor of SunTrust Bank, as Administrative Agent.
(32)

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.

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Labels Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

Table of Contents

____________________
(1)

(2)

(3)

(4)

(5)

(6)
(7)

(8)
(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

(27)

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 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 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.
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 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 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 2011 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 30, 2011 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

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(28)

(29)

(30)

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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.
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 8, 2011. 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, 2011. 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 3, 2011.

Table of Contents

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 5, 2012

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 5, 2012

Director, President and Chief Executive Officer

March 5, 2012

Director

March 5, 2012

Chief Financial Officer

March 5, 2012

Air Transport Services Group 2011 Annual Report

Investor Information

Stock Information
NASDAQ: ATSG
Company documents
electronically ﬁ led
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 11, 2012, 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.

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
Executive 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 the Executive
Committee, and is 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 Ofﬁ cer (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 Ofﬁ cer of Air
Transport Services Group, Inc. and Chief Executive
Ofﬁ cer of ABX Air, Inc. Mr. Hete has been with the
company since 1980 and is a member of the
Executive Committee.

Randy D. Rademacher
Senior Vice President, Chief Financial Ofﬁ cer 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.

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