Air Transport Services Group Annual Report 2012

FY2012 Annual Report · Air Transport Services Group

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2012 Annual Report

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Air Transport Services Group 2012 Annual Report

To Our Shareholders

Our company is nearing the end of a dramatic reshaping that will
position us to achieve greater success in 2013. Both our businesses
and our aircraft ﬂ eet are more streamlined than they were a year ago,
priming us to reach or exceed the cash returns we achieved in 2012.

That process started over 18 months ago, after we learned that
our second-largest customer intended to suspend its dedicated North
American air cargo network and outsource those requirements to
others, including DHL. That decision, along with our assessment of the
outlook for our markets, led to our plan to restructure around core
business units and assets to reduce overhead, and yield a more
modern ﬂ eet.

In a business as regulated as ours, those changes take time. And
when they are carried out during a weak global economy and declining
air cargo volumes, the beneﬁ ts are not immediately apparent. As a
result, we fell short of our initial expectations for 2012.

Our net earnings from continuing operations for 2012 rose sharply
to $41.6 million, or 65 cents per share, compared with $23.9 million,
or 37 cents per share. However, our 2011 earnings included impairment
and other charges, which signiﬁ cantly reduced that year’s results.
Operating cash ﬂ ow, which excludes most of the effects of those
charges, decreased by $25.5 million to $110.6 million in 2012.

Boeing 767-300
Special Freighter

Pictured below is one of the
longer-range, higher-capacity
300 series versions of ATSG’s
mainstay freighter, the efﬁ cient
and versatile Boeing 767.

Main deck cargo: twenty-four
88” x 125” pallets
Payload: 127,575 lb (57,868 kg)
Engines: two CF6-80C2B6
Range: 3,200 nm (5,926 km)
with payload
Cruising speed: 522 mph
(840 kph) at altitude
Landing weight: 326,000 lb
(147,871 kg)
Fuel capacity: 24,300 gal
(91,985 L)
Main cargo door: 134” x 96”
(340 x 244 cm)

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Air Transport Services Group 2012 Annual Report

Our revenues decreased to $607.4 million last year from $730.1 million
in 2011. Revenues from that former customer ended in 2011, and were
$187 million that year. 2012 revenues also reﬂ ect our challenges in
meeting our aircraft deployment goals.

As I told you a year ago, growth with good margins and measured risk
is at the center of everything we do. In 2013, we expect to grow through
new business with a wider range of customers, and
start capturing the margin gains we worked hard to
achieve in 2012. At the same time, we will further
reduce our risk proﬁ le by limiting our aircraft purchases
to include only aircraft we would need to meet a speciﬁ c
customer requirement.

As the unrivaled leader in the midsize freighter
space for ACMI and dry leasing, we already have a
solid track record. The world’s leading air-cargo
network operators know who we are, the assets we
have, our superior performance record in operating
them, and our comprehensive solutions for launching
aircraft into global cargo markets.

More often than ever before, we are reaching out
to them in their own markets. We have stationed our
own sales executives in major cargo markets around
the world. They meet regularly with customers about
opportunities emerging in their regions, and promote
the scope and ﬂ exibility of our full range of solutions.
I expect that a signiﬁ cant portion of the new revenue
we generate in 2013 will come from relationships we
developed only in the last few years.

“Growth with good margins
and measured risk is at the
center of everything we do.”

Joe Hete, President and CEO

Margin improvement means shrinking our
excess overhead, and phasing out our less-efﬁ cient
Boeing 727 and McDonnell Douglas DC-8 aircraft.
We completed the principal element of the ﬁ rst piece
by merging our Air Transport International and Capitol Cargo International
Airlines subsidiaries in March 2013. ATI remains headquartered in Little
Rock, Arkansas, but many of our ATI personnel and operating functions
are now here in Wilmington, Ohio, where we also have aircraft maintenance,
ﬂ ight dispatch operations and pilot training facilities. Operating savings
will follow as we adjust our ﬂ ight crew workforce to our combined and
upgraded ATI ﬂ eet.

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Air Transport Services Group 2012 Annual Report

We project annualized synergy savings left to be gained from the
airline merger will be approximately $5 million to $6 million, most of which
will come from staff reductions. Those savings will directly beneﬁ t our
airline services margins.

All of our 727 and DC-8 freighters were retired at the end of 2012,
and the three remaining DC-8 combi (combined passenger and main-
deck cargo capability) aircraft will follow them by mid-2013. At that point,
our ﬂ eet will include 57 midsize aircraft ─ forty-nine Boeing 767s and
eight Boeing 757s ─ including four 757 combis and two more of the
larger 767-300 freighters. More than half of those aircraft
were rebuilt and upgraded within the last ﬁ ve years by
our conversion vendors.

From an asset standpoint, we have never been
better positioned for a cargo-market recovery. The 47
freighters we own and will soon have in service, plus
the six we have leased, constitute the world’s largest
and most modern midsize freighter ﬂ eet available on a
dry- or wet-lease basis.

Our 767 and 757 aircraft each burn less fuel and
are more reliable than most other midsize freighters in
the world’s cargo fleets. In ACMI (Aircraft, Crew,
Maintenance and Insurance) service, where customers
pay fuel costs directly, this is a key competitive
advantage. Reliability is equally important to our
customers and to our bottom line. Under most ACMI
customer agreements, our on-time performance and
other service quality measures are tied to incentive
payments or penalties, and our newer aircraft are proven
performers year after year.

Most midsize freighter aircraft operate in regional networks with a
mix of long- and short-haul routes; cargo payloads can vary substantially.
Because we offer two airframe types in four models, with complementary
capabilities, we are a perfect ﬁ t for these developing networks throughout
the world. Those two airframes have common pilot-type ratings, and
share many parts and maintenance requirements.

The 757 combis we’re adding this year exemplify our more measured
growth strategy, under which aircraft acquisitions are tied to speciﬁ c
customer requirements. The U.S. military created a competition for a

Celebrating
Ten Years of Service

James E. Bushman will be retiring
from the Board of Directors of
ATSG after ten years of service
upon the completion of his term in
May 2013.

The Board and management
express their sincere gratitude to
Mr. Bushman for his service to the
Company and his contributions to
the Board.

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Air Transport Services Group 2012 Annual Report

Boeing 757-200
“Combi” Aircraft

Shown above is a cut-away view
of a 757-200 combi aircraft, which
has both passenger and cargo
space on the main deck.

Main deck cargo: ten
88” x 125” pallets
Payload: 57,900 lb (26,263 kg)
Passengers: 46 to 49
Seat layout: 3x3 in coach
Engines: two RB211-535E4
or PW2037
Range: 3,150 nm (5,834 km)
with payload
Cruising speed: 475 mph
(764 kph) at altitude
Landing weight: 198,416 lb
(90,000 kg)
Fuel capacity: 11,276 gal

next-generation aircraft to replace our DC-8 combis before choosing to
retain us for the current two-year combi award last summer. We
developed our own prototype 757 combi, and separately purchased
three 757 combis built by a competitor (one in December 2012, the
other two in January 2013). After the contract was awarded, acquiring
those three additional combis provided a faster path to develop an all-
757 combi ﬂ eet than continuing to pursue our own conversion program,
and will give us rapid access to the operating efficiencies those
757s represent.

We’re paying close attention to changes in the military budgets in
Washington, but we expect that our combi program is going to remain
fully funded this ﬁ scal year and the next. The combis ﬂ y to remote military
bases where the demand for both resupply payloads and personnel
rotation is constant, and the cost of dispatching separate passenger
and cargo service is prohibitive. We are the pragmatic, cost-effective
solution for a military that depends on outsourced providers for much
of its non-combat airlift needs.

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Air Transport Services Group 2012 Annual Report

And ﬁ nally, we are expecting 2013 to be a year of improving ﬁ nancial
strength as we pull back on our capital spending, and use free cash
ﬂ ow to reduce debt. With minimal capital spending commitments after
2013, we have the ﬂ exibility to pursue a range of alternatives for
deploying free cash ﬂ ow to maximize shareholder returns. These
alternatives include further investment in growth assets based on solid
customer commitments, debt reduction, and returning capital to our
shareholders through share repurchases or dividends.

The businesses of ATSG entered 2013 with the people, assets,
and plans they need to generate solid results. Our outlook for good
baseline growth just from the service we provide today, plus the
prospect of even better results from additional aircraft we hope to
deploy, gives me great conﬁ dence about the future of our company
this year, and in the years ahead.

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

Joint Use
Maintenance
& Paint Hangar,
Wilmington Air Park

Illustrated below is a concept
drawing of the new hangar under
construction at Wilmington Air
Park. When completed, the
building will increase hangar
capacity for ATSG subsidiary
Airborne Maintenance &
Engineering Services by
approximately 50 percent.

Construction started: Jan. 2013
Anticipated opening: Mar. 2014
Aircraft bays: two wide-body
Footprint: 425 x 215 ft
(130 x 66 m)
Total area: 110,430 ft2
(10,259 m2)
Aircraft accomodation:
up to Boeing 747 or 777
Capabilities:
• Heavy maintenance
• Painting
• Tail lift via bridge crane

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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, 2012

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:
$275,383,113. As of March 4, 2013, 64,130,056 shares of the registrant’s common stock, par value $0.01, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 10, 2013 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 10 and in “Results of Operations” starting on page 22.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
2012 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.

Exhibits and Financial Statement Schedules

SIGNATURES

PART IV

Page

77
77

PART I

ITEM 1. BUSINESS

General Development of Business

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 services are summarized below:

Aircraft leasing: The Company's aircraft leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”),
services global demand for medium range and medium capacity airlift by offering Boeing 767 and 757 aircraft
leases. CAM is able to provide competitive lease rates by monitoring the related passenger aircraft sale
markets, acquiring passenger aircraft based on projected into-service costs and rate of return targets, then
managing the modification of passenger aircraft into freighters. As the result, the converted freighters can be
deployed into regional markets more economically than larger capacity aircraft or competing alternatives.
CAM leases cargo aircraft internally to ATSG airlines, and to external customers, typically under multi-year
agreements.

ACMI Services: The Company's airlines provide Boeing 767 and Boeing 757 freighter aircraft and McDonnell
Douglas DC-8 "combi" aircraft (which are capable of carrying passengers and cargo containers on the main
flight deck), typically under contracts supplying a combination of aircraft, crews and maintenance services
for customers. Our airlines are ABX Air, Inc. (“ABX”), Air Transport International, Inc. (“ATI”), and Capital
Cargo International Airlines, Inc. (“CCIA”), each independently certificated by the U.S. Department of
Transportation.

Support services: We offer 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. Our businesses and subsidiaries providing support services are
summarized below.

• ABX provides flight crew training, flight simulator rental and aircraft maintenance services;

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

and overhaul business;

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

aircraft support;

• LGSTX Distribution Services, Inc. ("LDS"), operates mail sorting centers for the U.S Postal Service

("USPS");

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

Customer revenues for 2012 are summarized as follows (in thousands):

ACMI Services

Aircraft leasing

Support services

External revenue (in thousands)

$477,722

$74,599

Subsidiaries

ABX, ATI, CCIA

CAM

$55,117
ABX, AMES,
AMS, GFS,
LDS, LGSTX

Airborne Global Solutions, Inc. ("AGS") is a subsidiary that assists our businesses in achieving their sales and
marketing plans. AGS provides sales leads to our subsidiaries by identifying customers' business and operational
requirements and leveraging the capabilities of our subsidiaries and other third party service providers to develop a
customized air cargo solution that meets their customers' needs.

ATSG is incorporated in Delaware and its headquarters is in Wilmington, Ohio. The Company's common shares
are publicly traded on the NASDAQ Stock Market under the symbol ATSG. ATSG was formed on December 31, 2007,
from the reorganization of ABX for the purpose of creating a holding company structure. 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 757 aircraft, primarily providing air freight transportation
for DHL.

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.

DHL Network Operations (USA), Inc. and its affiliates (individually and collectively, "DHL"), is the Company's
largest customer, totaling 53% of the Company's consolidated revenues in 2012, while the U.S. Military comprised
16% of the Company's consolidated revenues in 2012. During 2011, BAX/Schenker totaled 26% of the Company's
consolidated revenues. However, on July 22, 2011, BAX/Schenker announced its decision 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 began to utilize DHL and other delivery services for its air transportation delivery requirements.
We 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 DHL's U.S. air network to service BAX/
Schenker's freight volumes on DHL's expanded air network.

CAM

CAM’s fleet of 48 serviceable aircraft as of December 31, 2012, consists of Boeing 767, Boeing 757 and McDonnell

Douglas DC-8 aircraft. A list of the Company's aircraft is included in Item 2, Properties.

CAM leases aircraft to ATSG airlines and to external customers, including DHL, 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 is typically 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 have expanded in recent years the Company's combined fleet of Boeing 767 and 757 aircraft
and retired less efficient Boeing 727 and McDonnell Douglas DC-8 freighter aircraft. CAM anticipates demand for
cargo airlift 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. During 2013, we expect to complete the modification
and certification of seven more aircraft and place them into service. Information about the Company's open 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 ("ACMI") 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.

Demand for air cargo services correlates 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 aviation
fuel generally reduces the demand for air delivery services. When aviation fuel prices increase, shippers will consider
using ground transportation if the delivery time allows.

The Company, through ABX, has had long term contracts with DHL since August 15, 2003. Beginning in August
2003, ABX operated primarily under two commercial agreements with DHL; an aircraft, crew, maintenance and
insurance agreement (“DHL ACMI agreement”) and a hub services agreement (“Hub Services agreement”), both of
which had become effective in conjunction with DHL's acquisition of Airborne. Under these agreements, ABX and
DHL generally operated under a cost-plus pricing structure. ABX provided staff to conduct package sorting, as well
as airport, facilities and equipment maintenance services for DHL under the Hub Services agreement. In 2008, DHL
began to restructure its U.S. operations. 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. Under the agreements, DHL committed to lease 13 Boeing
767 freighter aircraft from CAM, each for a term of seven years. ABX was separately contracted to operate those
aircraft for DHL under a five year crew, maintenance and insurance agreement ("CMI agreement"). As of December
31, 2012, 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"), through contracts awarded by the U.S. Transportation
Command ("USTC"), both of which are organized under the U.S. Military. ATI contracts its unique fleet of McDonnell
Douglas DC-8 "combi" aircraft,which are capable of simultaneously carrying passengers and cargo containers on the
main flight deck for the AMC. The USTC awards flights to U.S. certificated airlines through annual contracts. During
2012, USTC awarded ATI three international routes for combi aircraft through September of 2014. These routes are
not based on or related to the current conflicts in the Middle East. Additionally, ATI often operates temporary "expansion"
routes for the U.S Military using its McDonnell Douglas DC-8 combi and Boeing 767 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.

Aircraft Maintenance and Modification Services

We provide aircraft maintenance and modification services to other airlines through our 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.

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 aircraft. 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.

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 maintenance services for aviation ground support equipment 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. The contracts for these three USPS facilities were renewed in 2012 with similar economic terms through
September 2014. LDS also provides labor for load transfer services to the USPS at two facilities under short term
contracts.

Flight Support

ABX is FAA-certificated to offer flight crew training to customers and rent usage of its 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. 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. Additionally, in the third quarter of 2009, DHL assumed management of aircraft fuel services for its U.S. network
previously provided by ABX. The results of discontinued operations for 2012 and 2011 primarily reflect pension
expense 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).

Competitive Conditions

Our airline subsidiaries compete with other cargo airlines to place aircraft under ACMI arrangements and charter
contracts. Other cargo airlines include Amerijet International, Inc., Atlas Air Worldwide Holdings, Inc., Evergreen
International Aviation, Inc., National Air Cargo Group, Inc., Southern Air Inc. and World Airways, Inc. The primary
competitive factors in the air cargo industry are price, fuel efficiency, geographic coverage, aircraft range, aircraft
reliability and capacity. Cargo airlines also compete for cargo volumes with passenger airlines that have substantial
belly cargo capacity. The air cargo industry is capital intensive and highly competitive, especially during periods of
excess capacity of aircraft compared to cargo volumes.

The scheduled delivery industry is dominated by integrated door-to-door carriers including DHL, TNT Holdings
B.V., 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 lease placements 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 Airbus A300-600
and A330 aircraft can provide capabilities similar to the Boeing 767 for 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, 2012, the Company had approximately 1,900 employees, including 1,655 full-time employees
and 245 part-time employees. The Company employed approximately 460 flight crewmembers, 910 aircraft
maintenance technicians and flight support personnel, 265 warehousing, sorting and logistics personnel, 75 employees
for airport maintenance and logistics, 20 employees for sales and marketing and 170 employees for administrative
functions. On December 31, 2011, the Company had approximately 2,010 employees.

Labor Agreements

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

the Company’s flight crewmembers at December 31, 2012.

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
14.3%
5.9%
4.1%

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.

We began to merge the airline operations of ATI and CCIA during 2012. In September 2012, ATI and CCIA flight
crewmembers, as represented by the Air Line Pilots Association International ("ALPA") ratified a collective bargaining
agreement which allows for an integrated seniority list. The airlines and ALPA completed the integration of the seniority
lists by the end of 2012. We expect to complete the merger of ATI and CCIA's airline operations in the first quarter of
2013.

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. We utilize systems to maintain records about the maintenance
status and history of each major aircraft component, as required by FAA regulations. Using the systems, we track and
control 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. We have developed
and procured systems to track crewmember flight and duty times, 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
6

and regulations. In addition, they must also comply with various other federal, state, local and foreign laws and
regulations.

Environment

Under current federal, state and local environmental laws, ordinances and regulations, a current or previous owner
or operator of real property may be liable for the costs of removal or clean-up of hazardous or toxic substances on,
under, or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances. In addition, the presence of contamination from
hazardous or toxic substances, or the failure to properly clean up such contaminated property, may adversely affect the
ability of the owner of the property to use such property as collateral for a loan or to sell such property. Environmental
laws also may impose restrictions on the manner in which a property may be used or transferred or in which a business
located thereon may be operated and may impose remediation or compliance costs. Under its former 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. Further, the U.S. Congress has, in the past, considered legislation that would regulate greenhouse gas
emissions and some form of federal climate change legislation is possible in the future.

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. In November 2012, the European Commission proposed to defer airlines' compliance obligations for non-
European flights and suspended related non-compliance sanctions until after the 38th ICAO Assembly to be held in
late September and early October of 2013. The European Commission has taken this action to give the process at
ICAO, which is considering international treaties or other actions focusing on reducing greenhouse gas emissions from
aviation, time to come to a conclusion. Under the European Commission proposal, airlines will not face enforcement
action if they do not surrender allowances for their emissions related to flights operated to and from non-EU destinations;
however, all intra-EU flights on any carrier (based in the EU or not) will still have to comply with the requirements of
the ETS. Legislation is required to implement this proposed change and a co-decision by both the EU Member States
and the European Parliament on this change is necessary. A decision is expected before April 2013. Further, at the end
of November 2012, the United States government enacted legislation exempting U.S. airlines from the ETS. ABX
currently operates intra-EU flights, and both ABX and ATI operated intra-EU flights during 2012. Management believes
that ABX's and ATI's intra-EU flights were operated in compliance with ETS requirements.

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. ATI's DOT
certificate authority also authorizes it 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
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 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 our airline
subsidiaries 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 FAA has 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
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.

International Regulations

When operating in other countries, our airlines are subject to aviation agreements between the U.S. and the respective
countries or, in the absence of such an agreement, by principles of reciprocity. International aviation agreements are
periodically subject to renegotiation, and changes in U.S. or foreign governments could result in the alteration or
termination of the agreements affecting our international operations. Commercial arrangements such as ACMI
agreements, between our airlines and our customers in other countries, may require the approval of foreign governmental
authorities. Foreign authorities may limit or restrict the use of our aircraft in certain countries. Also, foreign government
authorities often require licensing and business registration before beginning 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 and protocols to comply with FAA and
TSA regulations. 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 audit 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.

Available Information

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. 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.

ITEM 1A. RISK FACTORS

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

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

Air cargo transportation volumes are strongly correlated to general economic conditions, including the price of
aviation fuel. An economic downturn could reduce the demand for delivery services offered by DHL 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 or marine 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.
During periods of downward economic trends and uncertainty, freight forwarders and integrated delivery businesses
are more likely to defer market expansion plans. As a result, we may experience delays in the deployment of available
aircraft with customers under lease, ACMI or charter arrangements.

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

During 2013, we plan to make capital investments to complete the modification of Boeing 767 and Boeing 757
freighter aircraft and Boeing 757 combi aircraft. 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 willing to offer aircraft to the market under terms more
favorable to lessees.

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 secure additional cargo volumes from customers, in both U.S. and international markets.
Deploying aircraft in international markets can pose additional risks, regulatory requirements and costs.

Our costs incurred in providing airline services could be more than the contractual revenues generated.

Each airline develops 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 airlines rely on flight crews that are unionized. If collective bargaining agreements increase our
costs and we cannot recover such increases, it may be necessary for us 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.

To further streamline the operations impacted by the loss of the BAX/Schenker business, we intend to complete
the merger of the airline operations of ATI and CCIA in the first quarter of 2013, with ATI being the surviving corporation.
The merger will require the FAA to amend ATI's operations specifications to include all CCIA aircraft to be operated
by ATI after the merger. The DOT may also conduct a fitness review of ATI as a result of the merger. The merger of
ATI and CCIA's operations could result in restructuring costs, contract termination costs and other charges. The
execution of the merger plan could be delayed due to regulatory requirements or business reasons, which could increase
expected costs and have an adverse effect on future operating results.

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 imposition 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
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 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 (through
March 30, 2015) 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 U.S. Military may not renew our contracts or may reduce the number of routes that we operate.

Our contracts with the U.S. Military are typically for one year and are not required to be renewed. The U.S. Military
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 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. In May 2012, the FAA indicated that it would reconsider its initial decision to exclude cargo pilots from
these new requirements. 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 three aircraft types. If any of these 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.

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 aircraft modification service providers and aircraft and engine maintenance 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 service providers to meet schedules and turntimes and to control costs in order to remain competitive
to our customers.

The Company's operating results could be negatively impacted by disruptions of its information technology and
communication systems.

Our businesses depend heavily on information technology and computerized systems to communicate and operate
effectively. The Company's systems and technologies, or those of third party's on which we rely, could fail or become
unreliable due to equipment failures, software viruses, cyberattacks, natural disasters, power failures or other causes.
Certain disruptions could prevent our airlines from flying as scheduled, possibly for an extended period of time, which
could have a negative impact on our operating results and reliability. We continually monitor the risks of disruption,
take preventative measures, develop backup plans and maintain redundancy capabilities. However, the measures we
use may not prevent the causes of disruptions we could experience or help us recover failed systems quickly.

The costs incurred in expanding our aircraft maintenance facilities could negatively impact our financial results.

We have agreed to a long term lease of a new 100,000 square foot maintenance hangar, in Wilmington, Ohio that
is currently under construction and expected to be completed in 2014. The new hangar is being built in anticipation
of additional aircraft maintenance contracts, including the ability to house Boeing 747 and 777 aircraft. As construction
agent, we are responsible for managing the construction costs of the project. Additionally, we could incur incremental
operating costs associated with the new hangar, including costs associated with employing additional aircraft
maintenance personnel, before it is completed. Further, we will need to grow the Company's aircraft maintenance
revenues utilizing the expanded capabilities by securing additional business. Those anticipated level of revenues may
not coincide with our costs of operating the new facility.

The Company could violate debt covenants.

The Senior Credit Agreement contains covenants including, among other requirements, limitations on certain
additional indebtedness and guarantees of indebtedness. The Senior Credit Agreement 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
Senior Credit Agreement, the Company is required to maintain aircraft collateral coverage equal to 150% of the
outstanding balance of the term loan and the maximum capacity of the revolving credit facility. The Senior Credit
Agreement stipulates events of default, including unspecified events that may have material adverse effects on the
Company. The Senior Credit Agreement and aircraft loans cross default. If an event of default occurs, the Company
may be forced to repay, renegotiate or replace the Senior Credit Agreement 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, 2012, the Company's liquidity included $15.4 million of cash balances, $70.9 million available
under the revolving credit facility and a $50 million accordion feature through the Senior Credit Agreement subject to
lender consent. Our fleet expansion plan for 2013 involves the acquisition of two Boeing 757 aircraft and the
modification of Boeing 767 and Boeing 757 aircraft which we expect to finance through the Senior Credit Agreement
and cash generated from operations. 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 available when we need the funds, the fleet expansion could be delayed. Further, such sources of credit
would likely result in an increase in our borrowing costs and additional covenant requirements.

Operating results may be affected by fluctuations in interest rates.

Effective March 31, 2011, in conjunction with our 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 Senior Credit Agreement 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
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.

Changes in the ownership of the Company on the part of significant shareholders 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, 2012, the Company has approximately $3.4 million of Boeing 727 and DC-8 freighter aircraft,
engines and related parts. Although we are marketing 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 we are 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 us 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 intangible assets related to acquisitions. If we are
unable to achieve the projected levels of operating results, 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 one of our
airlines were to lose its 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 our aircraft in compliance with government regulations could negatively affect our results of
operations.

All aircraft in the Company’s fleet were manufactured prior to 1995. Manufacturer Service Bulletins and 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. In 2012, the FAA issued an Airworthiness Directive

that requires the replacement of the aft pressure bulkhead on Boeing 767-200 aircraft based on a certain number of
landing cycles. As a result, we expect that most of the Boeing 767-200 aircraft in the Company's fleet will be affected.
The cost of compliance is estimated to be $0.5 to $0.7 million per aircraft over the next ten years.

In addition, FAA regulations require that aircraft manufacturers 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 our airlines 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 Senior Credit Agreement and would materially and adversely affect its airline
operations, effectively eliminating the airline's ability to operate air services.

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

The Company is subject to the regulations of the U.S. Environmental Protection Agency and state and local
governments regarding air quality and other matters. In part, because of the highly industrialized nature of many of the
locations 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 are 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. In November
2012, the European Commission proposed to defer airlines' compliance obligations for non-European flights and
suspended related non-compliance sanctions until after the 38th ICAO Assembly to be held in late September and early
October of 2013. The European Commission has taken this action to give the process at ICAO, which is considering
international treaties or other actions focusing on reducing greenhouse gas emissions from aviation, time to come to a
conclusion. Under the European Commission proposal, airlines will not face enforcement action if they do not surrender
allowances for their emissions related to flights operated to and from non-EU destinations; however, all intra-EU flights
on any carrier (based in the EU or not) will still have to comply with the requirements of the ETS. Legislation is
required to implement this proposed change and a co-decision by both the EU Member States and the European
Parliament on this change is necessary. A decision is expected before April 2013. Further, at the end of November
2012, the United States government enacted legislation exempting U.S. airlines from the ETS.

The U.S. Congress and certain states have 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, 2012, the Company and its subsidiaries' in-service aircraft fleet consisted of 48 owned aircraft
and six leased aircraft, on an operating basis, for a total of 54 aircraft. The aircraft were all formerly passenger aircraft
that have been modified for standard cargo operations, except for four DC-8 combi aircraft. The aircraft are generally
described as having mid size to medium wide-body cargo capabilities. The cargo aircraft carry gross payloads ranging
from approximately 67,000 to 125,000 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 and 767-300 aircraft are operated for Category III landings. This allows their
crews to land under weather conditions with runway visibility of only 600 feet at airports with Category III Instrument
Landing Systems.

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

In-service Aircraft as of
December 31, 2012

Aircraft Type

Total Owned

Operating
Lease

Year of
Manufacture

Gross Payload
(Lbs.)

Still Air Range
(Nautical Miles)

767-200 SF (1)

767-300 SF (1)

DC-8-CF (2)

757-200 SF (1)

Total in-service

1982 - 1987

67,000 - 99,000

1,800 - 4,400

1988 - 1989

125,000

2,800 - 4,400

1968 - 1970

80,000 - 85,000

1,800 - 4,400

1984 - 1991

68,000

2,700 - 4,000

____________________
(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.

In addition, as of December 31, 2012, CAM had two Boeing 767-300 aircraft that were undergoing modification
to a standard freighter configuration, one Boeing 757-200 aircraft that was undergoing modification to a standard
freighter configuration and two Boeing 757-200 aircraft that were completing modification and certification as combi
aircraft (capable of carrying passengers and cargo containers on the main flight deck). These aircraft are expected to
be completed in 2013 and are not reflected in the table above. CAM also had one Boeing 767-200 passenger aircraft,
currently in storage, not reflected in the table above. In January 2013, CAM purchased two more Boeing 757 combi
aircraft which we expect to enter service in 2013.

We believe that our existing facilities, aircraft fleet and planned aircraft investments as further 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.

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.

On December 2, 2011, the parties agreed to settle this matter at a conference presided over by the Court. 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.

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, imposed four separate administrative penalties on
ABX in the approximate aggregate amount of €0.4 million ($0.5 million) for numerous alleged violations of an ordinance
limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport)
during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to the first
administrative penalty, but is continuing to pursue the appeal of the remaining three.

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

ITEM 4. 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 indicated:

2012 Quarter Ended:
December 31, 2012
September 30, 2012
June 30, 2012
March 31, 2012

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

Low

High

$
$
$
$

3.38
3.88
4.67
4.71

3.86
4.30
6.14
7.00

$
$
$
$

Low

4.56
5.75
5.88
6.88

5.92
7.04
8.50
8.65

High

On March 4, 2013, there were 1,732 stockholders of record of the Company’s common stock. The closing price of

the Company’s common stock was $5.46 on March 4, 2013.

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, 2007 and
ending on December 31, 2012.

12/31/2007

12/31/2008

12/31/2009

12/31/2010

12/31/2011

12/31/2012

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

100.00
100.00

100.00

4.31
59.03

72.93

63.16
82.25

72.29

189.00
97.32

91.64

112.92
98.63

79.89

95.93
110.78

95.85

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 Senior Credit Agreement. Under the provisions of ABX's 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.

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:
Continuing revenues
Operating expenses (1)
Net interest expense and other non operating charges (4)
Earnings (loss) from continuing operations before
income taxes (1)
Income tax expense
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of
taxes (2)
Net earnings (loss)

EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS:

Basic
Diluted

WEIGHTED AVERAGE SHARES:

Basic
Diluted

SELECTED CONSOLIDATED
FINANCIAL DATA:

Cash and cash equivalents
Deferred income tax asset
Property and equipment, net (1)
Goodwill and intangible assets (1)
Total assets
Post-retirement liabilities
Capital lease obligations (3)
Long term debt and current maturities, other than leases
(3)
Deferred income tax liability
Stockholders’ equity
____________________
(1)

2012

As of and for the Years Ended December 31
2010
(In thousands, except per share data)

2011

2009

2008

$ 607,438
528,750
12,368
66,320

$ 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)

(24,672)
41,648
(774)

(16,995)
23,865
(673)

(23,413)
39,904
(70)

(17,156)
28,202
6,247

(6,229)
(62,848)
6,858

40,874

23,192

39,834

34,449

$ (55,990)

$
$

0.66
0.65

$
$

0.38
0.37

$
$

0.64
0.62

$
$

0.45
0.44

$
$

(1.01)
(1.01)

63,461
64,420

63,284
64,085

62,807
64,009

62,674
63,279

62,484
62,484

15,442
19,154
818,924
92,126
1,035,611
187,533
—

364,481
46,422
299,256

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

346,904
42,530
270,147

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

364,509
50,044
245,982

440,204
—
80,392

(2)

(3)

(4)

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 Senior Credit Agreement (see Note F to the accompanying
consolidated financial statements) 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.

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

The Company 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, it offers a range of
complementary services to delivery companies, freight forwarders, airlines and government customers. The Company's
principal subsidiaries include three independently certificated airlines, ABX Air, Inc. (“ABX”), Capital Cargo
International Airlines, Inc. (“CCIA”) and Air Transport International, Inc. (“ATI”), and an aircraft leasing company,
Cargo Aircraft Management, Inc. (“CAM”).

At December 31, 2012, the Company owned 48 cargo aircraft in serviceable condition and leased six more under
operating leases. The owned fleet consisted of thirty-six Boeing 767-200 aircraft, five Boeing 767-300 aircraft, three
Boeing 757 and four McDonnell Douglas DC-8 "combi" aircraft. The combi aircraft are capable of simultaneously
carrying passengers and cargo containers on the main flight deck. The Company's airline subsidiaries also leased four
Boeing 767-200 freighter aircraft and two Boeing 767-300 freighter aircraft from third parties as of December 31, 2012.

In recent years we have modernized the Company's aircraft fleet, retiring less efficient Boeing 727 and DC-8 aircraft
and adding Boeing 767-200, Boeing 767-300 and Boeing 757 aircraft to the fleet. During 2013 we plan to continue
adding Boeing 767 and Boeing 757 aircraft to the fleet by modifying former passenger aircraft. As of December 31,
2012, the Company owned two Boeing 767-300 aircraft that were being modified from passenger configuration into
a standard freighter configuration, one Boeing 757 aircraft undergoing standard freighter modification and two Boeing
757 aircraft being prepared for service as combi aircraft. Additionally, in January 2013, the Company purchased two
more Boeing 757 combi aircraft that are in the process of obtaining airworthiness certification for their combi
modification. We expect all seven of these aircraft to enter service during 2013.

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"), which
accounted for 53% of the Company's consolidated revenues in 2012 and 36% of the Company's consolidated revenues
in both 2011 and 2010. The Company has had long term contracts with DHL since August 2003. Commencing March
31, 2010, the Company and DHL executed commercial agreements under which DHL leases 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. In addition to the 13 CAM-
owned Boeing 767 aircraft, ABX also operates four DHL-owned Boeing 767 aircraft under the CMI agreement. We
also provide two Boeing 757 aircraft to DHL under multi-year contracts. Additionally, during 2012 the Company's
airlines provided eight other Boeing 767 aircraft and one Boeing 757 aircraft to DHL under contracts and arrangements
having durations of one year or less.

The U.S. Military comprised 16%, 12% and 14% of the Company's consolidated revenues during the years ended
December 31, 2012, 2011 and 2010, respectively. The Company's airlines contract their services to the Air Mobility
Command ("AMC"), through the U.S. Transportation Command ("USTC") both of which are organized under the U.S.
Military.

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. In July 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. In
September 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. Instead of dedicated aircraft,
BAX/Schenker now utilizes DHL and other delivery services for its air transportation delivery requirements.

The Company ceased providing services to BAX/Schenker as of the end of 2011. 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 and $194.3 million for the years ended December 31, 2011 and 2010, respectively. The Company's revenues
from BAX/Schenker comprised approximately 26% and 29% of the Company's total revenues during the years ended
December 31, 2011 and 2010, respectively, (15% and 18% of total revenues, excluding directly reimbursable revenues).

The Company has two reportable segments: ACMI Services, which primarily includes the cargo transportation
operations of its three airlines and the CAM segment. The Company's other business operations, which primarily
provide support services to the transportation industry, include aircraft maintenance, aircraft parts sales, ground
equipment leasing and mail handling services. These operations do not constitute reportable segments due to their size.

RESULTS OF OPERATIONS

Summary

The consolidated net earnings from continuing operations were $41.6 million and $23.9 million for 2012 and 2011,
respectively. The pre-tax earnings from continuing operations were $66.3 million and $40.9 million for 2012 and 2011,
respectively. The increase in earnings from continuing operations in 2012 as compared to 2011 was primarily due to
the 2011 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 related to the refinancing of the Company's debt in 2011.
Adjusted pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted
pre-tax earnings is shown below), after removing impairment charges, net derivative gains or losses and charges related
to debt refinancing was $64.4 million for 2012 compared to $75.8 million for 2011. The adjusted pre-tax earnings in
2012 compared to 2011 was bolstered by increased operations for the Company's Boeing 767 and Boeing 757 aircraft,
but were negatively impacted by the discontinuation of the BAX/Schenker North American air network in the fourth
quarter of 2011.

Total customer revenues from continuing operations decreased by $122.7 million to $607.4 million during 2012
compared to 2011. The decline reflects $187.0 million of revenues during 2011 from services for the BAX/Schenker
air network which was discontinued. Revenues from reimbursed fuel and other reimbursed operating expenses declined
by $85.7 million during 2012 compared to 2011. These declines were also primarily due to the discontinuation of the
BAX/Schenker air network. Excluding directly reimbursed revenues, customer revenues decreased by $37.0 million
during 2012 compared to 2011. Revenue from the deployment of additional Boeing 767 and Boeing 757 aircraft by
ACMI Services during 2012, was more than offset by the revenue decline from the discontinuation of the BAX/Schenker
air network.

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
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

Net gain (loss) on derivative instruments

Write-off of unamortized debt issuance costs

Pre-Tax Earnings from Continuing Operations

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

Adjusted Pre-Tax Earnings

Years Ending December 31
2011

2010

2012

154,565

140,469

101,375

404,053
74,940
—
478,993

112,343

745,901

444,778
160,683
—
605,461

105,284

851,214

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

87,660

768,447

(138,463)

(121,081)

(101,065)

607,438

730,133

667,382

68,499

53,221

41,586

(14,503)
—
—
(14,503)

11,650

(1,205)

1,879

—

66,320
—
(1,879)
—
—
64,441

6,576
(20,383)
—
(13,807)

11,331

(2,118)

(4,881)

(2,886)

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

Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such
costs include fuel expense, 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, interest
rate derivative gains and losses, the write-off of debt issuance costs and earnings from the termination of the severance
and retention agreement ("S&R agreement") with DHL 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.

CAM

Through the CAM subsidiary, we offer aircraft leasing to external customers and also lease aircraft internally to
the Company's airlines. Aircraft leases normally cover a term of five to seven years. In a typical leasing agreement,
customers pay rent and maintenance deposits on a monthly basis.

As of December 31, 2012, CAM had 48 aircraft in serviceable condition, 28 of them leased internally to the
Company's airlines. CAM's revenues grew $14.1 million during 2012 compared to 2011, as a result of additional
aircraft leases over the last two years. During 2012, CAM completed the modification of one Boeing 767-200 freighter
aircraft and three Boeing 767-300 freighter aircraft, and placed those aircraft under leases with internal customers. As
of December 31, 2012 and 2011, CAM leased 20 and 21 aircraft to external customers, respectively. Revenues from

external customers accounted for $6.8 million of the increased revenue for 2012, due primarily to four additional aircraft
leases placed with external customers throughout 2011. During the fourth quarter of 2012, a regional carrier returned
a Boeing 767-200 aircraft to CAM before the end of the original lease term. The aircraft is being prepared for
redeployment in ACMI services.

CAM's revenues from the Company's airlines totaled $80.0 million during 2012, compared to $72.7 million for
2011. CAM's revenues from internal leases of Boeing 727 and DC-8 freighter aircraft for 2012 declined $15.0 million
compared to 2011 due to the retirement of Boeing 727 and DC-8 aircraft previously operated for BAX/Schenker, but
the decline was more than offset by the additional Boeing 767 aircraft leases.

CAM's pre-tax earnings, inclusive of an interest expense allocation and a $6.8 million charge for aircraft impairment
in 2011, were $68.5 million and $53.2 million during 2012 and 2011, respectively. CAM's pre-tax earnings, excluding
the aircraft impairment charges, increased by $8.5 million for 2012 compared to 2011. Improved earnings reflected
additional Boeing 767 aircraft placed under leases during 2011 and 2012. CAM's pre-tax earnings for 2012 do not
reflect $0.9 million of unpaid rents related to Boeing 767 aircraft under lease with a regional airline. Those amounts
will be recognized as we receive payment from the carrier. Management and the lessee are discussing the timing of
future payments which could result in the early return of a leased Boeing 767-200 aircraft in 2013.

During 2013, we expect CAM to deploy two more Boeing 767-300 and five 757-200 aircraft that are being prepared
for future deployment, as discussed further below under "Fleet Summary 2012." The reputation of the Boeing 767 and
Boeing 757 aircraft for reliability and cost effectiveness in medium range markets remains strong. The placement of
additional aircraft under long term leases, however, could be affected by economic conditions and market uncertainty.

ACMI Services Segment

The ACMI Services segment provides airline operations to its customers, typically under contracts providing for
a combination of aircraft, crews, maintenance and insurance ("ACMI"). Our customers are usually responsible for
supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating
expenses, such as landing fees, ramp expenses and certain aircraft maintenance expenses. Aircraft charter agreements,
including those for the U.S. Military, usually require the airline to provide full service, including fuel and other operating
expenses for a fixed, all-inclusive price. As of December 31, 2012, ACMI Services included 47 in-service aircraft,
including 28 leased internally from CAM, six leased from external providers and 13 CAM-owned freighter aircraft
which are under lease to DHL and operated by ABX under the CMI agreement.

Revenues from ACMI Services were $479.0 million and $605.5 million during 2012 and 2011, respectively. The
decrease of $126.5 million is primarily the result of the discontinuation of services for BAX/Schenker's North American
air network. Since June 30, 2011, we have retired all of our Boeing 727 and DC-8 freighter aircraft in response to the
discontinuation of BAX/Schenker's North American air network in 2011. Airline services revenues, which do not
include revenues for the reimbursement of fuel and certain operating expenses, declined 9% during 2012 compared to
2011, reflecting the loss of BAX/Schenker revenues of $85.7 million during 2011. During 2011, ACMI Services
revenues also included $100.9 million for the reimbursement of fuel and other operating expenses for the BAX/Schenker
air network.

Revenue declines from BAX/Schenker were partially offset by revenues from additional Boeing 767 aircraft added
to the ACMI Services fleet since December 31, 2011. Since December 31, 2011, ACMI Services has added two Boeing
767-200 and four Boeing 767-300 aircraft into the operating fleet. Airline service revenues, excluding those from
BAX/Schenker, increased $44.9 million during 2012 compared to 2011, driven by these additional Boeing 767 aircraft.
Aircraft block hours flown for customers other than BAX/Schenker increased 9% during 2012, compared to 2011.

ACMI Services incurred pre-tax losses of $14.5 million during 2012, compared to pre-tax losses of $13.8 million
for 2011. Excluding asset impairment charges of $20.4 million incurred during 2011, ACMI Services achieved pre-
tax earnings of $6.6 million in 2011. The operating results during 2012 were negatively impacted by the discontinuation
of BAX/Schenker's North American air network, the cost of training flight crew members for the Boeing 767 aircraft,
increased pension expenses, higher engine maintenance expenses and delays in placing aircraft into revenue service.
While ATI and CCIA reduced the number of crew members and other employees in the ACMI Services segment due
to the termination of the BAX/Schenker network, salaries and benefits expenses during 2012 included the costs of
training senior, former DC-8 and Boeing 727 crewmembers for the Boeing 767 aircraft the Boeing 757 aircraft.

During 2012, four Boeing 767-300 aircraft and two Boeing 767-200 aircraft were added into the ACMI Services
in-service fleet. Due to sluggish economic conditions, initial deployment and redeployment of aircraft into incremental
revenue generating services were delayed, thereby adversely impacting operating results for 2012. In December 2012,
DHL discontinued an ACMI contract for a Boeing 767 on a transatlantic flight. However, in January 2013, we reached
agreements to operate three more Boeing 767-200 aircraft and a Boeing 757 aircraft for DHL's U.S. network. These
aircraft replace the Boeing 727 aircraft that were retired at the end of 2012.

ATI operates four DC-8 combi aircraft for the U.S. Military. In July 2012, the U.S. Military's Air Mobility Command
notified ATI that it was awarded a two-year agreement to continue the combi aircraft flights through September 2014.
ATI intends to service the award with its DC-8 combi aircraft and phase-in more modern Boeing 757 combi aircraft
starting in the second quarter of 2013.

To further streamline the operations impacted by the loss of the BAX/Schenker business, we began to merge the
airline operations of ATI and CCIA during 2012. In September 2012, ATI and CCIA flight crewmembers, as represented
by the Air Line Pilots Association International ("ALPA"), ratified a collective bargaining agreement which allows for
an integrated seniority list. The airlines and ALPA completed the integration of the seniority lists in 2012, to be effective
beginning in March of 2013. We expect to complete the merger of ATI and CCIA's airline operations in the first quarter
of 2013. The combined operation will benefit from the standardized fleet, two person flight crew, common pilot type
rating and improved reliability of the Boeing 767 and Boeing 757 aircraft compared to the Boeing 727 and DC-8
freighter aircraft formerly operated by the airlines.

Revenue for ACMI Services depends on a number of key factors including regulatory approvals, the cost
competitiveness of the airlines, aircraft reliability, market preferences for the type of aircraft that we operate and general
economic conditions. Continued stagnant economic conditions and market uncertainty may continue to slow the pace
by which we deploy aircraft into incremental revenue operations. We may further reduce staff levels as required to
match with customer demand and aircraft utilization levels.

When new deployments of aircraft begin, typically start-up expenses are incurred, including those for proving
flights, route authorities, overfly rights, travel and other activities which may impact future operating results. Revenue-
generating service may begin sometime later; however, depending on the satisfaction of a number of conditions,
including international regulations and laws, contract negotiations, flight crew availability, and arranging resources for
aircraft handling.

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 and provides ground support equipment,
related maintenance, leasing and facility maintenance services, 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 $55.1 million and $57.4 million for 2012 and 2011,
respectively. Revenues from services provided to the USPS increased $2.1 million during 2012 primarily due to two
additional USPS facilities that we started in mid 201l. Increased revenues from the USPS, however, were more than
offset by lower aircraft maintenance revenues from external customers, which declined $4.2 million. Maintenance
services revenues for external customers declined during 2012 compared to 2011 because the Company's aircraft
maintenance and repair business, Airborne Maintenance and Engineering Services, Inc. ("AMES"), has limited hangar
facilities and used those facilities for more internal contracts for the Company's own airlines and CAM instead of
external customer projects during 2012.

The pre-tax earnings from other activities were $11.7 million and $11.3 million for 2012 and 2011, respectively.
The increase of $0.4 million of pre-tax earnings for 2012 compared to 2011 primarily reflects process streamlining
initiatives at the sorting facilities.

In 2013, the Company, as construction agent for the Clinton County Port Authority ("CCPA") in Wilmington, Ohio,
began construction of a 100,000 square foot aircraft hangar facility adjacent to the existing aircraft maintenance facility
currently utilized by AMES. While the current facility houses aircraft as large as the Boeing 767, the new facility will
provide AMES the capability of servicing aircraft as large as a Boeing 747 and the Boeing 777. The hangar is anticipated

to cost approximately $15.7 million and is expected to take approximately 12 to 14 months to complete. The Company
will lease the facility from the CCPA and begin to make related rent payments beginning in 2014. We could incur
incremental costs associated with the new hangar, including the costs of aircraft maintenance personnel before the
hangar is completed. Further, we will need to grow aircraft maintenance revenues utilizing the expanded hangar
capabilities by expanding business with current customers and contracting with new customers. Our future operating
results could be adversely impacted if anticipated revenues do not coincide with our costs of operating the new facility.

Discontinued Operations

Discontinued operations are a result of DHL's decision in 2008 to restructure its U.S. operations. 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 hub and parcel sorting 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.

Pre-tax losses related to the former sorting operations were $1.2 million for 2012 compared to $1.1 million for
2011. The results of discontinued operations primarily contain pension expense 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 2013, pension expense for discontinued
operations is expected to decrease approximately $1.2 million due primarily to the effects of recent investment returns
used to actuarially calculate the Company's annual pension expense.

Fleet Summary 2012

The Company’s aircraft fleet is summarized below as of December 31, 2012 ($'s in thousands):

In-service aircraft

Aircraft owned

Boeing 767-200

Boeing 767-300

Boeing 757

DC-8 combi

Total

Carrying value

Operating lease

Boeing 767-200

Boeing 767-300

Total

Carrying value

Aircraft for freighter and combi modification

Boeing 767-300
Boeing 757

Total

Carrying value

ACMI
Services

CAM

Total

—
—

—

2
3

$ 656,388

1,134

2
3

$ 108,697

As of December 31, 2012, ACMI Services leased 28 of its in-service aircraft internally from CAM. As of
December 31, 2012, 13 of CAM's 20 Boeing 767-200 aircraft shown above were leased to DHL and operated by ABX
and CAM leased the other seven Boeing 767-200 aircraft to external airlines.

Aircraft fleet activity during 2012 is summarized below:

- CAM completed the standard freighter modification of one Boeing 767-200 aircraft and leased the aircraft
internally to an airline affiliate.

- A Boeing 767-200 passenger aircraft was placed in temporary storage when its airframe maintenance cycle
expired. The aircraft will remain in storage until it enters the freighter modification process or is prepped for
service.

- ABX began to lease a Boeing 767-300 aircraft from an external lessor.

- CAM purchased two Boeing 767-300 passenger aircraft for modification into standard freighter aircraft.

- CAM completed the freighter modification of three Boeing 767-300 aircraft and leased the aircraft internally
to an airline affiliate.

- CAM received a Boeing 767-200 aircraft, returned from a lessee, and placed the aircraft internally with an
airline affiliate.

- CAM purchased a Boeing 757 combi aircraft that is completing the process for obtaining its airworthiness
certificate.

- We removed three DC-8 freighter aircraft and four Boeing 727 aircraft from the in-service fleet.

In 2013, CAM purchased two more Boeing 757 combi aircraft that are completing the process for airworthiness
certification. We expect to place four Boeing 757 combi aircraft into service for the U.S. Military during the first half
of 2013. We also expect to complete the modification of one Boeing 757 freighter and place it into service for DHL
during the first half of 2013. Additionally, we expect to complete the modification of two Boeing 767-300 aircraft
during the first half of 2013.

As of December 31, 2012, the Company had Boeing 727 and DC-8 airframes and engines with a carrying value of
$3.4 million that were available for sale. This carrying value is based on fair market values less the estimated costs to
sell the airframes, engines and parts.

Expenses from Continuing Operations

Salaries, wages and benefits expense decreased $4.2 million during 2012 compared to 2011. Reductions in the
number of employees, including Boeing 727 and DC-8 crew members, since 2011 were partially offset by costs of
additional crew members for the expanded number of Boeing 767 aircraft operated by the Company and by increased
pension expense compared to 2011. Pension expense for continuing operations increased $5.7 million during 2012
when compared to 2011 due to the effects of lower discount rates used to actuarially calculate the Company's annual
pension expense.

Fuel expense decreased by $96.1 million during 2012 compared to 2011. The decrease occurred in conjunction
with BAX/Schenker's discontinuation of its North American air network in the fourth quarter of 2011. During 2011,
while under contract with BAX/Schenker, ATI provided aviation fuel for the BAX/Schenker air network and was
reimbursed by BAX/Schenker for the costs of fuel. The Company is no longer incurring aviation fuel expenses or
recording a related reimbursable revenue for the BAX/Schenker network. Fuel expense during 2012 primarily reflects
the costs of fuel to operate U.S. Military charters, position aircraft for service and for maintenance purposes.

Maintenance, materials and repairs expense increased by $10.6 million during 2012 compared to 2011. During
2012, maintenance expense reductions stemming from the discontinuation of Boeing 727 aircraft and DC-8 freighter
aircraft since 2011 were offset by higher maintenance expenses to support the larger fleet of Boeing 767 and 757 aircraft.
The Company expensed 20 and 14 scheduled airframe heavy maintenance events during 2012 and 2011, respectively,
We expect aircraft maintenance expenses to increase in 2013 due to higher costs for aircraft parts and rate increases
under certain maintenance agreements.

Depreciation and amortization expense decreased $6.6 million during 2012 compared to 2011. The decline in
depreciation expense reflects the removal of the Boeing 727 aircraft and the DC-8 freighter aircraft from service, offset
by incremental depreciation expense for four Boeing 767 aircraft added to the in-service fleet since December 2011.
The Boeing 727 aircraft and DC-8 freighter aircraft were removed from service in conjunction with BAX/Schenker's

discontinuation of its North American air network in 2011.

Travel expense decreased by $5.7 million during 2012 compared to 2011. The decrease is a result of the

discontinuation of the BAX/Schenker North American air network in the fourth quarter of 2011.

Rent expense increased by $0.8 million during 2012 compared to 2011. Rent expense increased primarily due to
the lease of an additional Boeing 767-300 aircraft beginning in May 2012. Rent expense was not significantly affected
by the discontinuation of the BAX/Schenker North American air network because the Company did not lease the aircraft
used in that network.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $6.7 million during 2012
compared to 2011. The decrease during 2012 reflects the discontinuation of the BAX/Schenker North American air
network in the fourth quarter of 2011.

Insurance expense decreased by $1.6 million during 2012 compared to 2011, primarily due to the reduction in

Boeing 727 and DC-8 aircraft during 2012 and the fourth quarter of 2011.

Other operating expenses include professional fees, navigational services, employee training, utilities and the cost
of parts sold to customers. Other operating expenses decreased by $2.2 million during 2012 compared to 2011. During
2012, increased expenses for international aircraft operations were offset by lower costs stemming from the
discontinuation of the BAX/Schenker North American air network.

Interest expense increased by $0.2 million during 2012 compared to 2011. Interest expense was higher in 2012
compared to 2011 primarily due to an increase in the amount of borrowings under the revolving credit loan offset by
lower interest rates. Interest rates on the Company’s variable interest, unsubordinated term loan decreased to 2.47%
at December 31, 2012 from 2.58% at December 31, 2011. We expect interest expense to increase during 2013 due to
a higher level of debt which is being used to expand the Company's aircraft fleet.

During 2012, the Company recorded pre-tax net gains on derivatives of $1.9 million compared to pre-tax net losses
on derivatives of $4.9 million during 2011, reflecting the impact of higher market interest rates since December 31,
2011 on the interest rate swaps held by the Company at December 31, 2012.

In 2011, the Company executed a Senior Credit Agreement replacing its previous credit agreement. During 2011,
the Company wrote off $2.9 million of unamortized debt issuance costs associated with the former credit agreement.
During 2011, 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 pre-tax losses which had previously been reflected in other comprehensive
income.

The effective tax rate from continuing operations for the year ended December 31, 2012 was 37.2% compared to
41.6% for 2011. 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 decline in the effective tax rate from continuing operations for 2012 compared to 2011 was also a result
of decreased state income taxes for 2012 as a result of the the discontinuation of services for BAX/Schenker's North
American air network during 2011.

We estimate that the Company's effective tax rate for 2013 will be approximately 37.5%. As of December 31,
2012, the Company had operating loss carryforwards for U.S. federal income tax purposes of approximately $93.4
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. The Company's taxable income earned from international flights are primarily sourced to
the United States under international aviation agreements and treaties. If we begin to operate in countries without such
agreements, the Company could incur additional foreign income taxes.

2011 compared to 2010

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. The 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 provided limited airlift directly to BAX/Schenker from September 2011 through the peak delivery
season, until late December 2011. Beginning in January 2012, DHL contracted with the Company's airlines to
supplement DHL's U.S. air network to service BAX/Schenker freight volumes on its expanded air network without use
of the Company's DC-8 aircraft and with only limited use of Boeing 727 aircraft. The Company's impairment charges
in 2011 stemming from BAX/Schenker's 2011 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 Senior Credit Agreement with a consortium of banks. The Senior Credit
Agreement refinanced the Company's previous term loan and provides liquidity to expand the Company's aircraft fleet
through April 2016. The Senior Credit Agreement 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 Senior Credit Agreement, 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.

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 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.

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 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.

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
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
training 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.

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

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

—

$ 617,373

419

$ 101,700

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 more 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.

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 of them 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 were not collateral for the Company's Senior Credit Agreement.

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.

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.

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.

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.

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 2011, the Company no longer incurred 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 a declining supply of used Boeing 767 parts.

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.

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.

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 Senior Credit Agreement, 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 that had previously been reflected in other
comprehensive income. Additionally, the Senior Credit Agreement 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.

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 proportionately 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.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $110.6 million, $136.1 million and $112.3 million in 2012,
2011 and 2010, respectively. Cash flows generated from operating activities decreased in 2012 compared to 2011
primarily reflecting payments to vendors associated with the wind-down of the BAX/Schenker operations, the timing
of cash collections from customers and additional pension contributions. Cash outlays for pension contributions were
$24.7 million, $18.0 million and $36.6 million in 2012, 2011 and 2010, respectively. 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 and the acquisition of aircraft for

freighter modification. Cash payments for capital expenditures were $155.2 million, $213.1 million and $110.7 million
in 2012, 2011 and 2010, respectively. Capital expenditures in 2012 included $134.9 million for the acquisition of two
Boeing 767-300 aircraft and one Boeing 757 aircraft and the costs of aircraft modifications, $11.3 million for required
heavy maintenance and $9.0 million for other equipment costs. Our 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.

Cash proceeds of $5.8 million, $11.1 million and $32.0 million were received in 2012, 2011 and 2010, respectively,
for the sale of aircraft engines, airframes and parts. During 2010, we received proceeds from DHL to complete the
sale of aircraft put to DHL under provisions of the former DHL ACMI agreement.

Net cash provided by financing activities was $23.8 million and $48.0 million in 2012 and 2011, respectively. Our
borrowing activities were necessary to finance the our strategy to acquire and modify aircraft for deployment into the
air cargo markets. During 2012, we drew $50.0 million from the revolving credit facility under the Senior Credit
Agreement to fund capital spending and we made debt principal payments of $26.2 million. Additionally, $6.2 million
of the principal balance of the DHL promissory note was extinguished during 2012, pursuant to the CMI agreement
with DHL. During 2010, we made principal payments of $70.2 million and did not need to draw from the revolving
credit facility.

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.

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, 2012, five such aircraft have
completed the modification process, one Boeing 767-300 aircraft was undergoing modification to a standard freighter
configuration and one Boeing 767-300 aircraft was awaiting modification. If the Company were to cancel the conversion
program as of December 31, 2012, it would owe IAI approximately $2.0 million associated with engineering efforts,
and conversion part kits.

Since October 2010, the Company has entered into separate agreements with Precision Conversions, LLC
(“Precision”) for the conversion of Boeing 757 passenger aircraft to standard freighter configuration and a combi
aircraft variant. The Boeing 757 combi variant developed by Precision incorporates 10 full cargo pallet positions along
with seating for up to 52 passengers. As of December 31, 2012, one Boeing 757 had completed, and another was
undergoing, the modification process for standard freighter configuration and a third Boeing 757 aircraft was in the
combi conversion process. If the Company were to cancel the conversion program as of December 31, 2012, it would
owe Precision approximately $5.0 million associated with engineering efforts and conversion part kits.

In December 2012, the Company entered an agreement to purchase three Boeing 757 aircraft modified for combi
service and a spare engine. The Company purchased one of the aircraft in 2012 while the other two and the spare
engine were purchased in January of 2013.

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

as of December 31, 2012.

Contractual Obligations
Long term debt, including interest payments

Operating leases

Hangar lease

Aircraft purchase and modification obligations

Payments Due By Period

Total

Less Than
1 Year

2-3
Years

4-5
Years

After 5
Years

$ 409,296

33,360

$ 68,434

$ 289,892

$ 17,610

78,323

18,303

55,599

25,208

—

55,599

35,060

1,194

—

13,791

1,666

—

4,264

15,443

—

Total contractual cash obligations

$ 561,521

$ 114,167

$ 104,688

$ 305,349

$ 37,317

The long term debt bears interest at 2.47% to 7.36% per annum.

In 2012, the Company entered into agreements with the CCPA to construct and lease an aircraft hangar in Wilmington,
Ohio, adjacent to the existing aircraft maintenance facility currently leased by the Company. The Company acts as
construction agent for the CCPA and began construction of a 100,000 square foot aircraft hangar in 2013. The hangar
is projected to cost approximately $15.7 million and is expected to take approximately 12 to 14 months to complete.
The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of
Ohio loan on incremental taxes. The table above does not include the costs to build the hangar because the projected
costs will be reimbursed by the State of Ohio during the construction period. The costs incurred to build the hangar
will be included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the
CCPA will be included in "Other liabilities" on the Company's balance sheet. We will begin to make lease payments
for the hangar directly to the trustee for the State of Ohio beginning in 2014. The initial term of the hangar lease expires
in 2036.

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 $29.9 million expected to be paid in 2013.

We estimate that capital expenditures for 2013 will be $95 million for the acquisition of two Boeing 757 aircraft,
related modification costs for Boeing 767-300 and Boeing 757 aircraft and other aircraft related expenditures. Also,
capital expenditures for 2013 are expected to include an additional $15 million for the new hangar construction and
other projects. Actual capital spending for any future period will be impacted by the progress in the aircraft modification
process and hangar construction. We expect to finance the aircraft purchases and modifications from current cash
balances, future operating cash flow and the Senior Credit Agreement.

Liquidity

The Company has a Senior Credit Agreement with a consortium of banks that includes an unsuborinated term loan
of $144.4 million and a revolving credit facility from which the Company has drawn $143.0 million, net of repayments
as of December 31, 2012. On July 20, 2012, the Company executed the first amendment to the Senior Credit Agreement
("Credit Amendment"). The Credit Amendment increased the amount available under the revolving credit facility by
$50 million to $225 million, extended the maturity of the term loan and revolving credit facility to July 20, 2017, and
provided for an accordion feature whereby the Company may draw up to an additional $50 million, subject to the
lenders' consent. If the Company exercises the accordion feature, the same terms and conditions of the Senior Credit
Agreement would apply to the accordion feature and additional collateral would need to be posted to maintain the 150%
collateral coverage requirement. The additional debt may result in higher interest rates. Under the Senior Credit
Agreement, 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 the revolving credit
facility both bear a variable interest rate of 2.47%. The Credit Amendment did not affect the EBITDA based pricing
or covenants of the Senior Credit Agreement.

maintain collateral coverage equal to 150% of the outstanding balance of the term loan and the total revolving credit
facility. Under the Senior Credit Agreement, the Company is subject to covenants and warranties that are usual and
customary, 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 Senior Credit Agreement stipulates
events of default including unspecified events that may have a material adverse effect on the Company. If an event of
default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.

At December 31, 2012, the Company had $15.4 million of cash balances. The Company had $70.9 million available
under the revolving credit facility, net of outstanding letters of credit, which totaled $11.1 million. In January 2013,
the Company drew an additional $60.0 million through the revolving credit facility to finance aircraft acquisitions and
related modification costs. If needed, the Company also expects to have available the $50 million accordion feature
noted above. As specified under the terms of ABX's CMI agreement with DHL, the $14.0 million balance at December
31, 2012 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 Senior Credit Agreement, 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, 2012 and 2011, 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. Those factors 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

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.

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, 2012, CAM's
fair value exceeded its carrying value by more than 25% and ATI's fair value exceeded its carrying value by 7%.

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 two Boeing
767 freighter aircraft over the next year and place them under long term lease agreements. We anticipate that CAM
will successfully complete the modification of four Boeing 757 aircraft into combi configuration and one Boeing 757
aircraft to standard freighter configuration and that ATI will deploy them over the next year. We expect that ATI will
operate four combi aircraft for the U.S. Military and that ATI will operate four Boeing 757 aircraft and eight Boeing
767 aircraft for DHL and other customers. 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 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 and recent claims trends. Changes in claim
severity and frequency could result in actual claims being materially different than the costs provided for in our results
of operations. We maintain excess claim coverage with common insurance carriers to mitigate our exposure to large
claim losses.

Contingencies

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

Income Taxes

We account for income taxes under the provisions of FASB ASC Topic 740-10 Income Taxes. The objectives of
accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred
tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial
statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been
recognized in the Company’s financial statements or tax returns. Fluctuations in the actual outcome of expected future
tax consequences could materially impact the Company’s financial position or its results of operations.

The Company has significant deferred tax assets including net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes which begin to expire in 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. Employees are no longer accruing benefits under any of the defined benefit pension plans.
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 and
mortality also affect the valuations. 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, 2012 was 48% equities, 49% fixed income, 3% real
estate and 0% cash. The pension trust includes $44.2 million of investments (6% of the plans' assets) whose fair values
have been estimated in the absence of readily determinable fair values. Such investments include private equity, 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 2012 would be increased by approximately $6.8 million. We use a market value of assets as of the
measurement date for determining pension expense.

In selecting the interest rate to discount estimated future benefit payments that have been earned to date to their
net present value (defined as the projected benefit obligation), we match the plan’s benefit payment streams to high-
quality bonds of similar maturities. The selection of the discount rate not only affects the reported funded status
information as of December 31 (as shown in Note 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,
2012, based on the method described above, were 4.25%. If we were to lower our discount rates by a hypothetical 50
basis points, pension expense in 2012 would be increased by approximately $5.5 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

Effect of change

December 31, 2012

2012
Pension
expense

Pension
obligation

Accumulated
other
comprehensive
income (pre-tax)

6,813

— $

5,498

12,311

(65,745)
(65,745)

—

65,745

Discontinued Operations

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

Exit Activities

We account for the costs associated with exit activities in accordance with FASB ASC Topic 420-10 Exit or Disposal
Cost Obligations. One-time, involuntary employee termination benefits are generally expensed when the Company
communicates the benefit arrangement to the employee that it will no longer require the services of the employee
beyond a minimum retention period. Liabilities for contract termination costs associated with exit activities are
recognized in the period incurred and measured initially at fair value.

New Accounting Pronouncements

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.

In July 2012, the FASB issued Accounting Standards Update No. 2012-02, "Intangibles - Goodwill and Other
(Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment," ("ASU 2012-02"). ASU 2012-02 is a revised
standard which provides entities with the option to first use an assessment of qualitative factors to determine whether
the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of an
indefinite-lived intangible asset is less than its carrying amount. If a conclusion is reached that the indefinite-lived
intangible asset fair value is not more likely than not below carrying value, no further impairment testing is necessary.
This revised guidance applies to fiscal years beginning after September 15, 2012, and the related interim and annual
goodwill impairment tests. The Company does not believe this standard will have a material impact on the condensed
consolidated financial statements.

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 syndicated credit agreement ("Senior Credit Agreement"). The Senior
Credit Agreement includes a term loan of $150 million. On July 20, 2012, the Company executed the first amendment
to the Senior Credit Agreement (“Credit Amendment”). The Credit Amendment increased the amount available under
the revolving credit loan by $50 million, extended the maturity of the term loan and revolving credit loan to July 20,
2017, and provided for an accordion feature whereby the Company may draw up to an additional $50.0 million, subject
to the lenders' consent. Under the terms of the Senior Credit Agreement, 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
Senior Credit Agreement 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. 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 $72.2 million as of December 31, 2012. See Note J in the accompanying consolidated financial statements
for a discussion of our accounting treatment for these hedging transactions.

As of December 31, 2012, the Company has $77.1 million of fixed interest rate debt and $287.4 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
40

flows resulting from a hypothetical 20% increase in interest rates. A hypothetical 20% increase or decrease in interest
rates would have resulted in a change in interest expense of approximately $1.3 million for the year ended December 31,
2012.

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, 2012, a 20% increase in interest rates would
have decreased the fair value of our fixed interest rate debt by approximately $1.8 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, 2012, ABX's defined benefit pension plans had total investment assets of $682.6 million under
investment management. See Note H in the accompanying consolidated financial statements for further discussion of
these assets.

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 Comprehensive Income

Consolidated Statements of Cash Flows

Consolidated Statements of Stockholders’ Equity

Notes to Consolidated Financial Statements

Page

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, 2012, and 2011, and the related consolidated statements of operations,
comprehensive income, stockholders' equity, and cash flows for each of the three years in the period ended December
31, 2012. 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, 2012 and 2011, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2012, 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 two 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, 2012.

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, 2012, 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 4, 2013 expressed an unqualified opinion on the Company's internal control
over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio
March 4, 2013

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

ASSETS
CURRENT ASSETS:

Cash and cash equivalents
Accounts receivable, net of allowance of $749 in 2012 and $434 in 2011
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, December 31,

2012

2011

15,442
47,858
9,430
8,855
19,154
3,360
104,099
818,924
20,462
5,146
86,980
$ 1,035,611

36,521
22,917
8,502
21,265
10,311
99,516
343,216
185,097
62,104
46,422
736,355

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

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;
64,130,056 and 64,015,789 shares issued and outstanding in 2012 and 2011,
respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

—

641
523,087
(107,185)
(117,287)
299,256
$ 1,035,611

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

See notes to consolidated financial statements.

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

REVENUES
OPERATING EXPENSES

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

OPERATING INCOME
OTHER INCOME (EXPENSE)

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

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 PER SHARE

Continuing operations
Discontinued operations
TOTAL BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

Continuing operations
Discontinued operations
TOTAL DILUTED EARNINGS PER SHARE

WEIGHTED AVERAGE SHARES

Basic
Diluted

Year Ended December 31
2011
730,133

2012
607,438

2010
667,382

184,644
53,928
97,540
84,477
22,683
25,970
15,973
7,716
—
—
—
35,819
528,750
78,688

136
(14,383)
1,879
—
(12,368)

66,320

(24,672)

41,648
(774)

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

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

40,860

(16,995)

23,865
(673)

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

316
(18,675)
—
—
(18,359)

63,317

(23,413)

39,904
(70)

40,874

23,192

39,834

0.66
(0.02)
0.64

0.65
(0.02)
0.63

0.38
(0.01)
0.37

0.37
(0.01)
0.36

0.64
(0.01)
0.63

0.62
—
0.62

63,461
64,420

63,284
64,085

62,807
64,009

See notes to consolidated financial statements.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

Years Ended December 31
2011

2010

2012

NET EARNINGS
OTHER COMPREHENSIVE INCOME (LOSS):

Defined Benefit Pension

40,874

23,192

39,834

Actuarial gain (loss) for retiree liabilities

(27,518)

(91,715)

(19,685)

Reclassifications to net income

Income tax benefit

Defined Benefit Post-Retirement

Actuarial gain (loss) for retiree liabilities

Reclassifications to net income

Income tax (expense) or benefit

Gains and Losses on Derivatives

Unrealized gain (loss) for derivative instruments

Reclassifications to net income

Income tax (expense) or benefit

10,681

5,861

168

(5,119)

1,724

—

(57)

2,700

32,714

192

(5,341)

1,892

631

3,709

(1,595)

2,068

6,395

22,659

(3,847)

(6,827)

(848)

(106)

346

TOTAL COMPREHENSIVE INCOME (LOSS)

26,634

(33,621) $

39,989

See notes to consolidated financial statements.

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

Years Ended December 31
2011

2010

2012

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
Net (gain) loss on derivative instruments
Write-off of unamortized debt issuance costs

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

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

41,648
(774)

23,865
(673)

39,904
(70)

—
—
84,477
5,562
23,749
3,231
(6,200)
(1,879)
—

(4,328)
(1,759)
(5,688)
654
4,898
(27,926)
(5,032)
110,633

(155,243)
5,772
—
(149,471)

(26,223)
50,000
—
23,777

(15,061)
30,503
15,442

13,195
377

6,200
4,770

$
$

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

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

$
$

See notes to consolidated financial statements.

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

Common Stock

Number
63,416,564

Amount
634
$

Additional
Paid-in
Capital
$ 502,822

Accumulated
Deficit
(211,085) $

Accumulated
Other
Comprehensive
Income (Loss)

BALANCE AT JANUARY 1, 2010
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

367,200

(95,736)
(35,800)

(1)
—

(4)

(958)
—

498

1,720
14,847

Debt extinguishment, net of tax
Total comprehensive income
BALANCE AT DECEMBER 31, 2010 63,652,228
Stock-based compensation plans

637

$ 518,925

39,834
(171,251) $

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

313,300

161,161
(110,900)

1
(1)

(3)

(1,187)
1

2,877

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2011 64,015,789
Stock-based compensation plans

640

$ 520,613

Grant of restricted stock
Withholdings of common shares, net
of issuances
Forfeited restricted stock
Amortization of stock awards and
restricted stock

254,200

(83,933)
(56,000)

(1)
(1)

(3)

(755)
1

3,231

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2012 64,130,056

641

$ 523,087

23,192
(148,059) $

2,877
(56,813)
(33,621)
(103,047) $ 270,147

—

(756)
—

40,874
(107,185) $

3,231
(14,240)
26,634
(117,287) $ 299,256

Total

(46,389) $ 245,982

—

(959)
—

498

1,720
14,847
39,989
(46,234) $ 302,077

155

—

(1,186)
—

See notes to consolidated financial statements.

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

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

Nature of Operations

Air Transport Services Group, Inc. is a holding company whose principal subsidiaries include an aircraft leasing
company and independently certificated airlines. The Company 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, it offers a range of complementary services to delivery companies, freight forwarders,
airlines and government customers.

The airlines, ABX Air, Inc. (“ABX”), Capital Cargo International Airlines, Inc. (“CCIA”) and Air Transport
International, Inc. (“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.

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. The Company serves a base of
concentrated customers who have a diverse line of international cargo traffic. DHL Network Operations (USA), Inc.
and its affiliates, “DHL,” is the Company's largest customer. ATI provides passenger transportation, primarily to the
U.S. Military, using "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”).

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Air Transport Services Group, Inc.
and its wholly-owned subsidiaries. Inter-company balances and transactions have been eliminated. The financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP").

Use of Estimates

The preparation of financial statements in conformity with GAAP 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.

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 its inventory of aircraft parts and supplies 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. 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. Finite-lived intangible
assets are amortized over their estimated useful economic lives. The Company also conducts impairment assessments
of goodwill, indefinite-lived intangible assets and finite-lived intangible assets whenever events or changes in
circumstance indicate an impairment may have occurred.

Property and Equipment

Property and equipment held for use is stated at cost, net of any impairment recorded. The cost and accumulated
depreciation of disposed property and equipment are removed from the accounts with any related gain or loss reflected
in earnings from operations.

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

or lease term. Depreciable lives are summarized as follows:

DC-8 combi 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 excess aircraft capacity 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. To conduct impairment testing, the Company groups assets and liabilities at the
lowest level for which identifiable cash flows 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.
For assets held for sale, impairment is recognized when the fair value less the cost to sell the asset is less than the
carrying value.

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, including those on the Boeing 767-300 and Boeing 757 aircraft, 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 airline's
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 $2.8 million, $2.2 million and $1.5 million for the years
ended December 31, 2012, 2011 and 2010, 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's results of discontinued operations consist primarily of pension expenses and other benefits for
former employees previously associated with ABX's former 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 and
recent claims trends. Other liabilities included $31.6 million and $31.2 million at December 31, 2012 and December 31,
2011, respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims
being materially different than the costs accrued.

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 certain changes in the Company’s liabilities for pension and other post retirement benefits
and gains and losses associated with interest rate hedging instruments.

Fair Value Information

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

•

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

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

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

Revenue Recognition

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

New Accounting Pronouncements

Company anticipates that the adoption of this standard will expand its consolidated financial statement footnote
disclosures.

NOTE B—SIGNIFICANT CUSTOMERS

DHL

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"). The Company
has had long term contracts with DHL since August 2003. Revenues from continuing operations performed for DHL
were approximately 53%, 36% and 36% of the Company's consolidated revenues from continuing operations for the
years ended December 31, 2012, 2011 and 2010, respectively. The Company’s balance sheets include accounts
receivable with DHL of $18.3 million and $9.8 million as of December 31, 2012 and December 31, 2011, respectively.

The Company leases Boeing 767 aircraft to DHL under long term lease agreements. Under a separate crew,
maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the
Company and Boeing 767 aircraft that DHL owns. Pricing for services provided through the CMI agreement 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 Company provides DHL with scheduled maintenance services for aircraft that DHL leases or owns.
The Company also provides Boeing 767 and Boeing 757 air cargo transportation services for DHL through additional
ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single
contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also
provides ground equipment, such as power units, and related maintenance services to DHL under separate agreements.

As of December 31, 2012, 26 of the 54 in service aircraft owned or leased by the Company, were under contract
to DHL. In January 2013, the Company reached agreements to operate three more Boeing 767-200 aircraft and a
Boeing 757 aircraft for DHL's U.S. network. These aircraft replace the Boeing 727 aircraft that were retired at the end
of 2012.

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.

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, DHL contracted
with the Company's airlines to supplement DHL's U.S. air network to service BAX/Schenker freight volumes on its
expanded air network without the use of ATI's DC-8 aircraft and with only limited use of CCIA's Boeing 727 aircraft.

No services were performed for Bax/Schenker during 2012. Revenues from the services performed for BAX/
Schenker were approximately 26% and 29% of the Company’s total revenues from continuing operations for the years
ended December 31, 2011 and 2010, respectively. The Company’s balance sheets had no accounts receivable with
BAX/Schenker as of December 31, 2012, and included accounts receivable with BAX/Schenker of $5.5 million as of
December 31, 2011, respectively.

U.S. Military

A substantial portion of the Company's revenues are also derived from the U.S. Military. The U.S. Military awards
flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from
services performed for the U.S. Military were approximately 16%, 12% and 14% of the Company's total revenues from
continuing operations for the years ended December 31, 2012, 2011 and 2010, respectively. The Company's balance
sheets included accounts receivable with the U.S. Military of $4.2 million and $5.2 million as of December 31, 2012
and December 31, 2011, respectively.

NOTE C—GOODWILL AND OTHER INTANGIBLES

The Company has two reporting units that have goodwill, ATI (a component of the ACMI Services segment) and
CAM. 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 in 2011 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 that it provides to the
U.S. Military.

The carrying amounts of goodwill by reportable segment, are as follows (in thousands):

Carrying value as of December 31, 2010

Impairment

Carrying value as of December 31, 2011

Carrying value as of December 31, 2012

ACMI Services

CAM

Total

55,382
(2,797)
52,585

52,585

34,395

—

34,395

89,777
(2,797)
86,980

86,980

The Company's intangible assets relate to the ACMI Services segment and are as follows (in thousands):

Carrying value as of December 31, 2010

Amortization

Impairment

Carrying value as of December 31, 2011

Amortization

Carrying value as of December 31, 2012

Customer

Airline

Relationships

Certificates

Total

5,259
(581)
(2,282)
2,396
(250)
2,146

4,000

—

4,000
(1,000)
3,000

9,259
(581)
(2,282)
6,396
(1,250)
5,146

The customer relationship intangible amortizes over eight more years. The Company recorded amortization expense
for the customer relationship intangible asset of $0.3 million, $0.6 million and $0.8 million for the years ending December
31, 2012, 2011 and 2010, respectively. The airline certificate related to CCIA' s Boeing 727 aircraft operations amortized
through December 31, 2012. The remaining airline certificates have an indefinite life and therefore are not amortized.

NOTE D—FAIR VALUE MEASUREMENTS

The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance
sheets 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
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, 2012

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, 2011

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Total Liabilities

— $

339

(3,146) $
(3,146) $

— $

357

(3,146)
(3,146)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

10,002

11,541

— $

(5,024) $
(5,024) $

— $

21,543

(5,024)
(5,024)

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, based on Level 2 observable inputs, was
approximately $3.8 million more than the carrying value, which was $364.5 million at December 31, 2012. 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

The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and flight equipment.

Property and equipment, to be held and used, is summarized as follows (in thousands):

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

Accumulated depreciation
Property and equipment, net

December 31,
2012
1,148,781
52,209
1,597
814
1,203,401
(384,477)
818,924

December 31,
2011
1,012,000
51,297
1,589
714
1,065,600
(316,687)
748,913

CAM owned aircraft with a carrying value of $273.4 million and $316.4 million that were under leases to external
customers as of December 31, 2012 and 2011, respectively. Minimum future lease payments for aircraft and equipment
leased to external customers as of December 31, 2012 is scheduled to be $53.0 million, $52.4 million, $52.4 million,
$45.0 million and $20.2 million for each of the next five years ending December 31, 2017.

Stagnant economic growth and higher fuel prices precipitated BAX/Schenker's decision to phase-out its North
American air network in 2011 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 marketed 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 Boeing 727 and DC-8 freighter aircraft and engines
available for sale totaled $3.4 million and $9.8 million as of December 31, 2012 and 2011, respectively.

Cash flows generated from sales of aircraft and engines totaled $5.8 million, $11.1 million and $32.0 million for
the years ended December 31, 2012, 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.

NOTE F—DEBT OBLIGATIONS

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

Unsubordinated term loan

Revolving credit facility

Aircraft loans

Promissory note due to DHL, unsecured

Total long term obligations

Less: current portion

Total long term obligations, net

December 31,

2012

2011

144,375

143,000

63,156

13,950

364,481
(21,265)
343,216

150,000

106,000

70,754

20,150

346,904
(13,223)
333,681

The Company executed a syndicated credit agreement ("Senior Credit Agreement") in May 2011 which includes
an unsubordinated term loan and a revolving credit facility. In July 2012, the Company executed the first amendment
to the Senior Credit Agreement (“Credit Amendment”). The Credit Amendment increased the amount available under
the revolving credit facility by $50 million to $225.0 million, extended the maturity of the term loan and revolving
credit facility to July 20, 2017, and provided for an accordion feature whereby the Company may draw up to an additional
$50.0 million, subject to the lenders' consent.

Under the terms of the Senior Credit Agreement, interest rates are 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 2.47% and 2.47%, respectively.
The Credit Amendment did not affect the EBITDA based pricing or covenants of the Senior Credit Agreement. The
Senior Credit Agreement provides for the issuance of letters of credit on the Company's behalf. As of December 31,
2012, the unused revolving credit facility totaled $70.9 million, net of draws of $143.0 million and outstanding letters
of credit of $11.1 million. In January 2013, the Company drew $60.0 million from the revolving credit facility to
finance additional aircraft acquisitions and modification costs.

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.

The scheduled annual principal payments on long term debt, as of December 31, 2012, for the next five years are

as follows (in thousands):

2013

2014

2015

2016

2017

2018 and beyond

Principal
Payments

21,265

23,721

24,344

33,865

243,695

17,591

364,481

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.

The Senior Credit Agreement 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 Senior Credit Agreement, the Company is required to
maintain collateral coverage equal to 150% of the outstanding balance of the term loan and total capacity of the revolving
credit facility. The Senior Credit Agreement 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 Senior Credit Agreement stipulates events of default, including unspecified events that may have material
adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or
replace the Senior Credit Agreement. The Company is currently in compliance with the financial covenants specified
in the Senior Credit Agreement. The Senior Credit Agreement 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, provided the Company's
total debt to EBITDA ratio is under two times, after giving effect to the dividend or repurchase. 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.

In conjunction with the execution of the Senior Credit Agreement in 2011, 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.

NOTE G—COMMITMENTS AND CONTINGENCIES

Leases Commitments

The Company leases six Boeing 767 aircraft, airport facilities, office space, maintenance facilities and certain
equipment under operating leases. In December 2012, the Company entered into agreements with the Clinton County
Port Authority ("CCPA") to construct and lease an aircraft hangar in Wilmington, Ohio, adjacent to the existing aircraft
maintenance facility currently leased by the Company. The Company acts as construction agent for the CCPA and
began construction of a 100,000 square foot aircraft hangar in 2013. While the current facility houses aircraft as large
as the Boeing 767, the new hangar will provide the capability of servicing aircraft as large as a Boeing 747 and a Boeing
777. The hangar is anticipated to cost approximately $15.7 million and is expected to take 12 to 14 months to complete.
The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of
Ohio loan on incremental taxes. The costs incurred to build the hangar will be included in "Property and equipment"
and the amounts that are reimbursed through the State of Ohio and the CCPA will be included in "Other liabilities" on
the Company's balance sheet. The Company will begin to make lease payments for the hangar directly to the trustee

for the State of Ohio beginning in 2014.

The future minimum lease payments of the Company as of December 31, 2012 are scheduled below (in thousands):

2013

2014

2015

2016

2017

2018 and beyond

Total minimum lease payments

Aircraft Commitments

Operating
Leases

Hangar
Lease

25,208 $

22,477

12,583

8,922

4,869

4,264

78,323 $

—

592

602

832

834

15,443

18,303

Since October 2010, the Company has entered into separate agreements with Precision Conversions, LLC
(“Precision”) for the conversions of Boeing 757 passenger aircraft to standard freighter configuration and a combi
aircraft variant. The Boeing 757 combi variant developed by Precision incorporates 10 full cargo pallet positions along
with seating for up to 52 passengers. As of December 31, 2012, one Boeing 757 had completed the modification process
for standard freighter configuration, one Boeing 757 aircraft was in the freighter conversion process and yet another
one was in the combi conversion process. If the Company were to cancel the conversion program as of December 31,
2012, it would owe Precision approximately $5.0 million associated with engineering efforts and conversion part kits.

In December 2012, the Company entered an agreement to purchase three Boeing 757 aircraft modified for combi
service and a spare engine. The Company purchased one of the aircraft in December 2012 and the other two aircraft
and spare engine in January 2013.

Guarantees and Indemnifications

Certain leases and agreements of the Company contain guarantees and 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

settlement.

Brussels Noise Ordinance

Other

Employees Under Collective Bargaining Agreements

As of December 31, 2012, 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

14.3%

5.9%

4.1%

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.

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

2012

860,463

772,612
—
37,089
—
—
—
1,657
(26,130)
75,235
860,463

594,697
87,598
1,657
24,731
(26,130)
682,553

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

Post-retirement
Healthcare Plans

2012

2011

8,781

9,275
269
379
—
—
(460)
—
(974)
292
8,781

— $
—
—
974
(974)

— $

9,275

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

—
—
—
1,304
(1,304)
—

(177,910) $

(177,915) $

(8,781) $

(9,275)

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

years ended December 31, 2012, 2011 and 2010, are as follows (in thousands):

Service cost

Interest cost

Expected return on plan assets

Amortization of prior service cost

Amortization of net (gain) loss

Net periodic benefit cost

Pension Plans

Post-Retirement Healthcare Plan

2012

2011

2010

2012

2011

2010

— $

2,286

37,089

37,163

36,678

(39,882)

(39,027)

(35,600)

—

10,681

—

2,700

—

2,069

269

379

—

433

247

389

—

529

341

800

—

364

(5,552)

(4,167)

7,888

836

5,433

(4,471) $

(4,387) $

(2,662)

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, 2012, are as follows (in thousands):

Pension Plans

Post-Retirement
Healthcare Plans

2012

2011

2012

2011

Unrecognized prior service cost

Unrecognized net actuarial loss

— $

182,342

— $ (9,836) $ (14,929)
3,061

2,920

165,505

Accumulated other comprehensive (income) loss

$ 182,342

$ 165,505

$ (6,916) $ (11,868)

The following table sets forth the amounts of unrecognized net actuarial loss and (gain) recorded in accumulated
other comprehensive loss that is expected to be recognized as components of net periodic benefit expense during 2013
(in thousands):

Amortization of actuarial loss

Prior Service Cost

Post-
Retirement
Healthcare
Plans

Pension
Plans

$ 12,295

—

419
(5,654)

Assumptions

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

Discount rate - crewmembers

Discount rate - non-crewmembers

Expected return on plan assets

2012

4.25%

6.75%

Pension Plans

2011

5.10%

4.65%

6.75%

2010

5.35%

5.55%

6.75%

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 3.35% for pilots and 2.95% for non-
pilots at December 31, 2012. 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 was 4.15% for pilots and 4.15% for non-pilots at December 31, 2010. 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.

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
2012

2011

—%
48%
49%
3%
100%

2%
46%
50%
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 2012 and 2011, the Company made contributions to its defined benefit plans of $24.7 million and $18.0 million,
respectively. The Company estimates that its contributions in 2013 will be approximately $27.7 million for its defined
benefit pension plans and $1.1 million for its post-retirement healthcare plans.

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

of the respective plans as follows (in thousands):

2013

2014

2015

2016
2017

Years 2018 to 2022

Fair Value Measurements

Pension
Benefits

Post-retirement
Healthcare
Benefits

28,810

32,901

32,166

34,639

36,711

217,159

1,105

1,009

922

841

823

3,944

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
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 composed 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, 2012

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

Total plan assets

— $

—

17,181

26,969
44,150

—

5,720

65,519

234,854

332,310

17,181

26,969
682,553

— $

—

63,396

96,008

5,832

—

5,720

2,123

138,846

326,478

—

—
165,236

—
473,167

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

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, 2011

Unrealized gains

Purchases & settlements

December 31, 2011

Unrealized gains

Purchases & settlements

December 31, 2012

Defined Contribution Plans

Hedge Funds &
Private Equity

Real Estate
Investments

Total

25,510

12,214

713
(464)
25,759

3,612
(2,402)
26,969

2,343

—

14,557

2,624

—

17,181

37,724

3,056
(464)
40,316

6,236
(2,402)
44,150

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
2011

2010

2012

Capital accumulation plans
Profit sharing plans
Total expense

NOTE I—INCOME TAXES

5,300
—
5,300

4,938
—
4,938

4,527
110
4,637

At December 31, 2012, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $93.4 million, which begin to expire in 2024 if not utilized before then. The
deferred tax asset balance includes $1.1 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, 2012 and 2011 are

as follows (in thousands):

Deferred tax assets:

December 31

2012

2011

Net operating loss carryforward and federal credits

34,401

Capital and operating leases

Post-retirement employee benefits

Employee benefits other than post-retirement

Inventory reserve

Deferred revenue

Other

Deferred tax assets

Deferred tax liabilities:

Accelerated depreciation

Partnership items

State taxes

Valuation allowance against deferred tax assets

Deferred tax liabilities

Net deferred tax (liability)

1,742

62,823

18,010

3,181

10,770

458

35,814

763

65,695

17,324

3,172

9,624

221

131,385

132,613

(147,282)
(9,418)
(1,724)
(229)
(158,653)
(27,268) $

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

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

Years Ended December 31

2012

2011

2010

— $

337

145

23,454

—
736

24,190

24,672

$
(441) $
— $

(950) $
—

426

15,968

—
1,551

17,519

16,995

$
(393) $
— $

1,275

—

1,278

20,452

—
408

20,860

23,413
(40)
(14,847)

Current taxes:

Federal

Foreign

State

Deferred taxes:

Federal

Foreign
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

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

Foreign income taxes

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

2012

2011

2010

35.0 %

0.3 %

0.9 %

— %

1.1 %

(0.1)%

37.2 %

35.0 %

— %

3.1 %

2.4 %

1.7 %

(0.6)%

41.6 %

35.0 %

— %

1.7 %

— %

0.9 %

(0.6)%

37.0 %

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
Effective income tax rate

Years Ended December 31
2011

2012

2010

(35.0)%
(1.3)%
(36.3)%

(35.0)%
(1.8)%
(36.8)%

(35.0)%
(1.3)%
(36.3)%

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 2012, 2011 and 2010. Changes in
unrecognized tax benefits are as follows (in thousands):

As of January 1
Expiration of uncertain tax positions
As of December 31

2012

2011

2010

— $
—
— $

4,287
(4,287)
—

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
current consolidated group remain open to examination with the exception of the 2008 Federal return. 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 through 2011 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
paid a fixed rate of 3.105% and received a floating rate that reset quarterly based on LIBOR. The notional value of
the interest rate swaps stepped 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
would 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 Senior Credit Agreement requires the Company
to maintain derivative instruments for protection from fluctuating interest rates, for at least fifty percent of the outstanding
balance of term loan. As a result, the Company entered into an 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 pays a
fixed rate of 2.02% and receives 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.

The Company recorded an unrealized gain on derivatives of $1.9 million and an unrealized loss on derivatives of
$4.9 million for the years ending December 31, 2012 and 2011, respectively, 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, 2012

December 31, 2011

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

Notional
Amount

Market
Value
(Liability)

3.105% $

3.105%

2.020%

— $

—

72,188

— $

59,500

—
(3,146)

35,000

75,000

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

NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following items by components for the years ended

December 31, 2012, 2011 and 2010 (in thousands):

Balance as of January 1, 2010

Other comprehensive income (loss) before
reclassifications:

Actuarial gain (loss) for retiree liabilities

Unrealized gain (loss) for derivative instruments

Amounts reclassified from accumulated other
comprehensive income:

Actuarial gain (loss)

Negative prior service cost

Hedging gain

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2010

Other comprehensive income (loss) before
reclassifications:

Actuarial gain (loss) for retiree liabilities

Unrealized gain (loss) for derivative instruments

Amounts reclassified from accumulated other
comprehensive income:

Actuarial gain (loss)

Negative prior service cost

Hedging gain

Unrealized loss on derivative instruments

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2011

Other comprehensive income (loss) before
reclassifications:

Defined
Benefit
Pension

Defined
Benefit Post-
Retirement

Gains and
Losses on
Derivative

Total

(43,103)

(1,224)

(2,062)

(46,389)

(19,685)
—

22,659

—

—
(848)

2,974
(848)

2,068

—

—
6,395
(11,222)
(54,325)

(91,715)
—

2,700

—

—
32,714
(56,301)
(110,626)

321
(4,168)
—
(6,827)
11,985
10,761

192

—

211
(5,552)
—

—
1,892
(3,257)
7,504

—

—
(106)
346
(608)
(2,670)

2,389
(4,168)
(106)
(86)
155
(46,234)

—

631

(91,523)
631

—

—
(223)
3,932
(1,595)
2,745
75

2,911
(5,552)
(223)
3,932
33,011
(56,813)
(103,047)

Actuarial gain (loss) for retiree liabilities

(27,518)

168

—

(27,350)

Amounts reclassified from accumulated other
comprehensive income

Actuarial gain

Negative prior service cost

Hedging gain

Income Tax Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2012

10,681

—

—
5,861
(10,976)
(121,602)

433
(5,552)
—
1,724
(3,227)
4,277

—

—
(57)
20
(37)
38

11,114
(5,552)
(57)
7,605
(14,240)
(117,287)

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

Year Ended December 31

2012

2011

2010

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Outstanding at beginning of period

1,458,037

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

601,647

(472,112)

—

(124,300)

1,463,272

736,541

5.77

5.93

5.25

—

6.24

5.97

4.90

1,514,300

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

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 $5.63, $8.25 and $4.00 for 2012, 2011 and 2010, 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 $7.05, $11.17 and $5.60 for 2012, 2011 and 2010, respectively. The market condition awards were valued using
a Monte Carlo simulation technique based on volatility over three years for the awards granted in 2012, 2011 and 2010
using daily stock prices and using the following variables:

Risk-free interest rate

Volatility

2012

0.4%

90.1%

2011

1.3%

2010

1.7%

125.0%

125.3%

For the years ended December 31, 2012, 2011 and 2010, the Company recorded expense of $3.2 million, $2.9
million and $1.7 million, respectively, for stock incentive awards. At December 31, 2012, there was $2.7 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. As of December 31, 2012, none of the awards were convertible, 423,672 units of the Board members
time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards
could result in a maximum number of 1,797,872 additional outstanding shares of the Company’s common stock
depending on service, performance and market results through December 31, 2014.

NOTE M—EARNINGS PER SHARE

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

December 31

2012

2011

2010

Earnings from continuing operations

Weighted-average shares outstanding for basic earnings per share

41,648

23,865

63,461

63,284

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

959

64,420

0.66

0.65

801

64,085

0.38

0.37

39,904

62,807

1,202

64,009

0.64

0.62

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 370,400 shares, 584,700 shares and 564,100 shares of restricted stock for 2012, 2011 and 2010,
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 229,000, 176,000 and 9,000 at December 31, 2012,
2011 and 2010, respectively.

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 has with 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, facility and ground equipment maintenance services and management services for workers' compensation 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

Net gain (loss) on derivative instruments

Write-off of unamortized debt issuance costs

Year Ended December 31
2011

2010

2012

154,565

140,469

478,993

112,343

605,461

105,284

101,375

579,412

87,660

(138,463)

(121,081)

(101,065)

607,438

730,133

667,382

74,599

67,791

477,722

55,117

604,951

57,391

607,438

730,133

59,351

54,897

24,599

527

36,136

84,477

91,063

—

6,761

15,304

2,282

2,797

— $

27,144

68,499

53,221

(14,503)

11,650

(1,205)

1,879

—

(13,807)

11,331

(2,118)

(4,881)

(2,886)

43,294

578,198

45,890

667,382

40,215

47,176

203

87,594

—

41,586

20,888

8,017

(7,174)

—

Pre-tax earnings from continuing operations

66,320

40,860

63,317

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

Assets:

CAM

ACMI Services

Discontinued operations
All other

Total

December 31, December 31, December 31,

2012

2011

2010

810,664

760,588

161,650

—
63,297

137,640

—
95,491

600,245

198,024

5,015
97,370

1,035,611

993,719

900,654

Interest expense of $0.9 million, $1.2 million and $1.9 million for 2012, 2011 and 2010, respectively, was reimbursed

through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest
expense allocated to CAM was $12.2 million, $10.7 million and $9.3 million for the years ending December 31, 2012,
2011 and 2010, respectively.

During 2012, the Company had capital expenditures of $20.4 million and $126.5 million for the ACMI Services
and CAM segments, respectively. The ACMI Services segment also 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 $314.2 million, $291.3 million and $234.5 million for
2012, 2011 and 2010, 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, 2012, 2011

and 2010 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

2012

21,669

25,845

23,671

8,304

1,473

21,613

8,465

1,468

2010

15,963

19,386

8,868

1,673

55,117

57,391

45,890

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. 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 2012, 2011 and 2010 primarily reflect pension for the former hub employees
and costs related to legal claims concerning a civil action alleging that ABX violated immigration labor laws while
managing the sort operations in Wilmington, Ohio.

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):

Liabilities

Employee compensation and benefits
Post-retirement

Total Liabilities

December 31

2012

2011

35,703
36,887
72,590

33,943
39,658
73,601

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

Pre-tax loss

2012

December 31
2011

2010

(1,215) $

(1,066) $

(110)

NOTE P—QUARTERLY RESULTS (Unaudited)

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

2012
Revenues from continuing operations

Net earnings from continuing operations

Net loss from discontinued operations
Weighted average shares:

Basic

Diluted

Earnings per share from continuing operations

Basic

Diluted

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

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

145,506

153,554

153,826

$ 154,552

6,662
(230)

63,431

64,374

0.11

0.10

175,127

2,881
(117)

63,131

63,936

11,219
(160)

63,431

64,393

0.18

0.17

193,061

12,280

63,333

64,172

11,556
(186)

12,211
(198)

63,456

64,667

63,525

64,244

0.18

0.19

195,480
(4,826)
24

$ 166,465

13,530
(599)

63,334

63,336

64,109

0.04

0.19

(0.08) $
(0.08) $

0.21

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.

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, 2012, 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, 2012. 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, 2012, the

Company’s internal control over financial reporting was effective.

March 4, 2013

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, 2012, 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, 2012, 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, 2012 of the Company and our report dated March 4, 2013 expressed an unqualified opinion on those financial
statements and financial statement schedule and included an explanatory paragraph regarding the Company's two
principal customers.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio
March 4, 2013

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual
Meeting of Stockholders under the captions “Election of Directors,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” and “Corporate Governance and Board Matters.”

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
58

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.

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 incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual

Meeting of Stockholders under the captions “Executive Compensation” and “Director Compensation.”

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

The responses to this Item are incorporated herein by reference to the definitive Proxy Statement for the 2013
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.”

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual

Meeting of Stockholders under the captions “Related Person Transactions” and “Independence.”

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The response to this Item is incorporated herein by reference to the definitive Proxy Statement for the 2013 Annual

Meeting of Stockholders under the caption “Fees of the Independent Registered Public Accounting Firm.”

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 Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders’ Equity
Notes to Consolidated Financial Statements

(2)

Financial Statement Schedules

Schedule II—Valuation and Qualifying Account

Description
Accounts receivable reserve:

Year ended:

December 31, 2012
December 31, 2011
December 31, 2010

Balance at
beginning
of period

Additions
charged to
cost and
expenses

Deductions

Balance at end
of period

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

347,686
316,873
573,858

32,428
973,244
771,859

748,929
433,671
1,090,042

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
Articles of Incorporation

3.1

3.2

4.1

4.2

4.3

10.1

10.2

10.3

10.4

Certificate of Incorporation of Air Transport Services Group, Inc. (formerly known as ABX
Holdings, Inc.). (7)

Bylaws of Air Transport Services Group, Inc. (formerly known as ABX Holdings, Inc.). (7)

Instruments defining the rights of security holders

Preferred Stock Rights Agreement dated December 31, 2007, by and between Air Transport
Services Group, Inc. (formerly known as ABX Holdings, Inc.) and National City Bank. (8)

First Amendment to Preferred Stock Rights Agreement, dated as of October 30, 2009. (23)

Second Amendment to Preferred Stock Rights Agreement, dated as of June 11, 2012. (23)

Material Contracts

Director compensation fee summary. (14)

Aircraft Loan and Security Agreement and related promissory note, dated August 24, 2006, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (2)

Aircraft Loan and Security Agreement and related promissory note, dated October 10, 2006, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (3)

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

10.21

10.22

10.23

10.24

Aircraft Loan and Security Agreement and related promissory note, dated April 25, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (5)

Aircraft Loan and Security Agreement and related promissory note, dated July 18, 2007, by and
among ABX Air, Inc. and Chase Equipment Leasing, Inc. (6)

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. (8)

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. (8)

Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (13)

Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007,
by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (13)

First Amendment to Credit Agreement, dated January 18, 2008. (9)

Assignment Agreement, dated August 11, 2008, with SunTrust Bank and ABX Material
Services, Inc. (10)

Assignment Agreement, dated August 11, 2008, with Regions Bank and ABX Material Services,
Inc. (10)

Agreement dated September 9, 2008, between Israel Aerospace Industries Ltd. and Cargo
Aircraft Management, Inc. for airline conversion. (11)

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. (12)

Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated
May 8, 2009. (12)

Lease Assumption and Option Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc., dated May 29, 2009. (12)

Air Transportation Services Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc, dated March 29, 2010. (15)

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. (15)

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. (15)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc.
2005 Amended and Restated Long-Term Incentive Plan. (16)

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2005 Amended and Restated Long-Term Incentive Plan. (16)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005
Amended and Restated Long-Term Incentive Plan. (16)

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. (17)

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

10.41

Lease Agreement (Wilmington Airpark) between Clinton County Port Authority and Air Transport
Services Group, Inc., dated June 2, 2010. (18)

Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified July 30,
2010. (18)

Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B
Conversions Limited and Israel Aerospace Industries Ltd. (19)

Letter Agreement, dated October 15, 2010, between Precision Conversions, LLC and Cargo
Aircraft Management, Inc. (20)

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. (21)

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. (22)

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. (22)

Amendment to Confidentiality and Standstill Agreement, dated as of June 11, 2012, between
Air Transport Services Group, Inc. and Red Mountain Capital Partners LLC. (23)

Form of amended and restated change-in-control agreement in effect between Air Transport
Services Group, Inc. and its executive officers.(25)

Amendment to the Credit Agreement, dated July 20, 2012, 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. (24)

Purchase and sale agreement, dated December 17, 2012, between Cargo Aircraft Management,
Inc., and National Air Cargo Group, Inc. for the purchase of three Boeing 757-200 aircraft filed
herewith. Those portions of the Agreement marked with an [*] have been omitted pursuant to a
request for confidential treatment and have been filed separately with the SEC.

Amended and Restated Lease Agreement, dated December 27, 2012, between Clinton County
Port Authority and Air Transport Services Group, Inc., filed herewith.

Loan Agreement, Chapter 166, Ohio Revised Code, dated December 1, 2012, between the
Director of Development Services Agency of Ohio and Clinton County Port Authority, filed
herewith.

Guaranty Agreement, dated December 1, 2012, among Air Transport Services Group, Inc.,
Airborne Maintenance and Engineering Services, Inc., Air Transport International, LLC,
Clinton County Port Authority, the Directory of Development Services Agency of Ohio, and the
Huntington National Bank, filed herewith.

Lease Agreement for the Jump Hangar Facility, dated December 1, 2012, between Clinton
County Port Authority and Air Transport International, LLC, filed herewith.

Leasehold Mortgage, Assignment of Leases and Rents, Security Agreement and Financing
Statement, dated December 1, 2012, among Air Transport International, LLC and the Director
of Development Services Agency of Ohio filed herewith.

Bond Purchase Agreement, dated December 13, 2012, among the State of Ohio, acting by and
through its Treasurer of State, the Development Services Agency of Ohio, acting by and through
a duly authorized representative, Clinton County Port Authority, Air Transport International,
LLC and Stifel, Niolaus & Company, Inc filed herewith.

14.1

21.1

23.1

31.1

31.2

32.1

32.2

Code of Ethics

Code of Ethics—CEO and CFO. (1)

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

____________________
(1)
(2)

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 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 Form 8-A/A of ABX Holdings, Inc. filed with the Securities and Exchange
on January 2, 2008.
Incorporated by reference to the Company’s 8-K/A, submitted for filing with the Securities and Exchange
Commission on March 17, 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 August 10, 2009.
Incorporated by reference to the Company’s Annual Report of Form 10-K filed on March 17, 2008 with the

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

Securities and Exchange Commission.
Incorporated by reference to the Company's Proxy Statement for the 2012 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 30, 2012 with the Securities and Exchange Commission.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 10, 2010. Those portions of the Agreement marked with an [*] have been
omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 10, 2010.
Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on June 21, 2010. Those portions of the Agreement marked with an [*] have been omitted
pursuant to a request for confidential treatment and have been filed separately with the SEC.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 4, 2010.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 3, 2010. Those portions of the Agreement marked with an [*] have been
omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
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.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on June 18, 2012.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on July 24, 2012.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 2, 2012.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly

caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES

Air Transport Services Group, Inc.

Signature

/S/ JOSEPH C. HETE
Joseph C. Hete

Title
President and Chief Executive Officer (Principal
Executive Officer)

Date

March 4, 2013

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/ RICHARD M. BAUDOUIN
Richard M. Baudouin

/S/ JAMES E. BUSHMAN
James E. Bushman

/S/ JOHN D. GEARY
John D. Geary

/S/ JOSEPH C. HETE
Joseph C. Hete

/S/ ARTHUR J. LICHTE
Arthur J. Lichte

/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

March 4, 2013

Title

Date

Director

Director, President and Chief Executive Officer
(Principal Executive Officer)

Director

March 4, 2013

Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer)

March 4, 2013

Air Transport Services Group 2012 Annual Report

Investor Information

Stock Information
NASDAQ: ATSG
Company documents ﬁ led
with the SEC may be found
at www.sec.gov and also at
www.atsginc.com.

Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio

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

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

By courier:
250 Royall Street
Canton, MA 02021

Annual Meeting
The annual meeting of stockholders
will be May 10, 2013, at 11 a.m.
local time at the Roberts Centre,
123 Gano Road, 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.

Richard M. Baudouin
Principal of Inﬁ nity Aviation Capital
LLC, an investment ﬁ rm involved in
aircraft leasing. Mr. Baudouin has
been a Director of the Company
since January 2013.

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 a
member of 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.

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 a
member of the Audit 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.
He is a member of the Executive
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 Nominating and Governance
Committee and the Compensation
Committee.

General Arthur J. Lichte,
USAF (retired)
Retired four-star general of the
U.S. Air Force and former
Commander of the Air Mobility
Command at Scott Air Force Base,
Illinois. General Lichte has been a
Director of the Company since
January 2013.

Jeffrey J. Vorholt
Independent consultant and private
investor, and formerly the Chief
Financial Ofﬁ cer of Structural
Dynamics Research Corporation
from 1994 until its acquisition by
EDS in 2001. Mr. Vorholt has been
a Director of the Company since
January 2004. He is the Chairman
of the Audit Committee and is a
member of the Compensation
Committee.

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3/28/13 8:05:20 AM

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

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3/28/13 8:05:20 AM