Air Transport Services Group Annual Report 2013

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2013 Annual Report

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

OUTSIDE BACK COVER

OUTSIDE FRONT COVER

Air Transport Services Group 2013 Annual Report

Investor Information

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

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

Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio

Annual Meeting
The annual meeting of stockholders
will be May 8, 2014, at 11 a.m. local
time at the Wilmington Air Park,
145 Hunter Drive, 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 is the Chairman of the Executive
Committee and is a member of both the
Audit Committee and the Nominating
and Governance Committee.

Richard A. Baudouin
Principal at Infinity Aviation Capital LLC,
an investment firm involved in aircraft
leasing. Mr. Baudouin has been a
Director of the Company since
January 2013 and is a member of both
the Audit Committee and the Nominating
and Governance Committee.

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

Joseph C. Hete
President and Chief Executive Officer of
Air Transport Services Group, Inc. and
Chief Executive Officer of ABX Air, Inc.
Mr. Hete has been with the company
since 1980 and is a member of the
Executive 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.
General Lichte has been a Director
of the Company since February 2013
and is a member of the Audit Committee
and the Compensation Committee.

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

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

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Celebrating 10 Years of Service
John D. Geary will retire from the Board of
Directors of ATSG after ten years of service
upon the completion of his term in May
2014. The Board and management
express their sincere gratitude to Mr. Geary
for his service to the Company and his
contributions to the Board.

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INSIDE BACK COVER

Air Transport Services Group 2013 Annual Report

operates smaller, narrow-body freighters,
but sees developing opportunities for
Boeing 767s among its current and
potential customers. We are in the
process of providing them with one of
our 767s on a dry-lease basis, and we
stand ready to offer more as their
business grows.

Our combi service for the U.S. military
has been an important mainstay of ATI,
and we expect it to continue even under
expected sharp cutbacks in defense-
related demand for supplementary
commercial airlift. The feedback from
the military remains positive, and the
improved operating efficiencies of the
757s will be a big contributor to the
improvement we expect in our
2014 results.

Finally, we expect 2014 to be a year of
improving financial strength. We have no
current plans for growth investments
beyond our nearly completed
maintenance hangar in Wilmington, which
results in a 2014 capital spending budget
about $53 million smaller than it was in
2013. Although interest rates can change
suddenly, the trend toward rising rates in
2013, together with the disciplined
pension funding approach we have
followed over the past decade, have
significantly reduced our post-retirement
liability and increased our stockholders’
equity. We expect to spend $21 million
less to fund pension plans this year,
versus what we spent in 2013.

Add to that a projection of moderate,
single-digit growth in our Adjusted
EBITDA (a non-GAAP measure defined in
our March 5, 2014 earnings release
available on our web site) in 2014 even

without additional aircraft deployments,
and the result is a significant increase in
cash on our balance sheet as the year
progresses. That makes a compelling
case for debt reduction that, if we achieve
our earnings goals, would make us
eligible for rate reductions on our
outstanding variable-rate debt and give us
greater financial flexibility.

Your Board also will be monitoring our
improving free cash flow and will evaluate
whether some of it could be devoted to
returning capital to our shareholders as
the impact of debt covenant limitations on
such distributions diminishes. That review
will depend on many factors, including
whether we have other, more compelling
investment opportunities, as well as the
degree to which the stock market more
fully appreciates the value you have
already discovered in ATSG.

We have everything we need to deliver
solid revenue and earnings growth in
2014. But if the air freight market
improves and even a few of our
opportunities lead to contracts, this year
could become one of the best in our
history, and set the stage for an even
better year in 2015. We continue to
appreciate the strong support of our
long-term shareholders, and welcome
those of you who have more recently
found what we believe is one of the
best investment opportunities in the air
cargo space.

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

We have everything we need to deliver
solid revenue and earnings growth in 2014.

To Our Shareholders

Your management at Air Transport
Services Group devoted 2013 to
modernizing our fleet and reshaping our
aviation businesses for optimal efficiency
and flexibility. With that investment and
effort behind us, and with an already
strong and improving balance sheet
ahead, we have more opportunities to
increase our financial strength, grow our
business, and explore additional options
for deploying our free cash flow than
ever before.

We marked ten years as a public
company last August, and entered our
second decade with a differentiated
business model and market strategy that
many tell us are unique for their earnings
resiliency, array of air-cargo capabilities,
and cash-generating power. No other
company approaches the scale and
scope of our abilities to create custom
solutions for airlines and other customers
seeking midsize cargo aircraft, and the
ability to operate our cargo aircraft
reliably around the world on a wet- or
dry-lease basis.

While our 2013 results were affected
by non-cash and non-recurring factors
that masked the underlying cash
performance of our business, they also
reflect the persistence of soft markets
for the air cargo carriers, and the
challenges of marketing our cargo aircraft
on a dry- or wet-lease basis.

Revenues decreased to $580 million from
$607 million in 2012. Unexpected
challenges in meeting regulatory
requirements to deploy and operate our
newly converted Boeing 757 combi

aircraft, including delays that resulted
from the federal government’s sequester
last fall, were the primary factors. So, too,
was a continuing slump in demand for air
freighter capacity generally, which left us
unable to place several of our 767
freighters with new customers when
existing agreements expired, or when
they completed modifications.

We had a net loss from continuing
operations in 2013 of $20 million,
inclusive of a non-cash impairment
charge of $53 million that we took in the
fourth quarter last year. That charge
reflects the write-off of the remaining
goodwill associated with our purchase of
Air Transport International (ATI), a cargo
airline we acquired in 2007. Excluding the
impairment charge, adjusted pre-tax
earnings from continuing operations, a
non-GAAP measure (a definition and
reconciliation of adjusted pre-tax earnings
follows on page 24 of our Form 10-K
annual report), was $52 million for 2013,
down from $64 million for 2012. Lower
revenues, and higher depreciation
expenses resulting from newer aircraft
deployments, accounted for most of
the change.

We have completed all of our planned
aircraft modifications and now own 43
Boeing 767 freighters, including one that
entered service at the end of March, as
well as four 757 freighters and four 757
combi aircraft. We don’t expect to
purchase or modify any others this year,
unless a customer commits to a long-
term arrangement for aircraft we don’t
have available now.

No other company approaches the scale
and scope of our abilities to create custom
solutions for airlines and other customers
seeking midsize cargo aircraft. . . .

Air Transport Services Group 2013 Annual Report

We ended 2013 as a more efficient airline
operator than we were when the year
began, in large part due to the March
2013 merger of ATI with Capital Cargo
International Airlines, which we also had
acquired in 2007. That airline merger
contributed significantly to the $9 million
reduction in our payroll-related expenses
in 2013.

The merger and fleet consolidation also
aligned the capabilities of our flight and
maintenance crews around two aircraft
types, the Boeing 757 and 767, which
share many design and operating
features that allow us to interchange
pilots and maintenance crews. It also
helped us shrink our airline overhead,
in part by locating many of the business
and operating units of ATI here in
Wilmington, Ohio, alongside those of
our other airline, ABX Air.

Still, when we tested the goodwill for
ATI after a year of significant losses,
it became apparent that its business
outlook no longer supported the values
we were carrying. ATI remains a viable
platform for both our business with the
U.S. military and our 757 freighter
customers, but its ability to capture its
own share of 767 freighter opportunities
remains limited. We will continue to seek
new opportunities for ATI to deploy its
aircraft assets in 2014.

As we said a year ago, we are well
positioned for a cargo-market recovery.
The 51 cargo aircraft we own, plus the six
we have leased, constitute the world’s
largest midsize aircraft fleet available on a
dry- or wet-lease basis.

All of our freighters and combis are
converted passenger aircraft, and they
average less than five years post-
conversion. The extensive replacement of
structural components, and the upgrades
of avionics and other systems that our
aircraft receive during conversion, support
our projections of their average remaining
useful lives at beyond 15 years. We
believe their market value approximates
$900 million, which compares favorably
to their carrying value on our books.
Most important, any cash we are likely to
spend on our fleet over the next few
years will be for maintenance, upgrades,
or contract-backed expansion, and
not replacement.

These freighters can operate effectively
over a mix of long- and short-haul routes,
and at the margin can capture share from
both smaller narrow-body and larger
wide-body aircraft as cargo network
volumes expand and contract. Our
business model includes a unique
feature, which we call Wet-2-Dry, that
lets customers test the aircraft in their
networks under short-term limited
commitment ACMI relationships, with
the intention of transitioning to a longer-
term dry-lease once the anticipated
performance benefits are borne out
in results.

One of the keys to deploying our aircraft
profitably lies in finding new ways to
participate in markets outside the
Americas. We made significant progress
last year by agreeing to purchase a
25 percent stake in West Atlantic of
Sweden, one of Europe’s largest regional
air cargo operators. West Atlantic primarily

The 51 cargo aircraft we own, plus
the six we have leased, constitute
the world’s largest midsize aircraft fleet
available on a dry- or wet-lease basis.

The Passenger-to-Freighter Conversion Advantage

Passenger-to-freighter conversions
such as the B767-300BDSF conversion
performed by Israel Aerospace Industries
involve the installation, replacement, or
upgrade of a vast array of structural
components and aircraft systems,
lending new life to the aircraft.

Through this process, ATSG has
assembled a serviceable fleet of highly
efficient, midsize freighters with many
years of useful service ahead of them, at
a total cost, even on a payload-adjusted
basis, far lower than a comparable fleet
of newly purchased freighters.

Supernumeraries
area added

9G barrier
installed

Door surround
structure built

Main deck cargo
door installed

Beams, stanchions, and
seat tracks replaced

Frames reinforced

Attendant stations, galleys,
and lavatory removed

Cargo loading
system added

Passenger seats, bins,
and lining removed

New cargo lining, ceiling,
and lighting installed

Oxygen system modified

Pitot static system installed

Smoke detection
system installed

Rear passenger
door deactivated

Water waste and drain
system incorporated

Control cables rerouted

Passenger windows
plugged and sealed

Environmental control
system modified

Cockpit voice recorder and
flight data recorder relocated

Air Transport Services Group 2013 Annual Report

The 51 cargo aircraft we own, plus
the six we have leased, constitute
the world’s largest midsize aircraft fleet
available on a dry- or wet-lease basis.

The Passenger-to-Freighter Conversion Advantage

Supernumeraries
area added

9G barrier
installed

Door surround
structure built

Main deck cargo
door installed

Beams, stanchions, and
seat tracks replaced

Frames reinforced

Attendant stations, galleys,
and lavatory removed

Cargo loading
system added

Passenger seats, bins,
and lining removed

New cargo lining, ceiling,
and lighting installed

Oxygen system modified

Pitot static system installed

Smoke detection
system installed

Rear passenger
door deactivated

Water waste and drain
system incorporated

Control cables rerouted

Passenger windows
plugged and sealed

Environmental control
system modified

Cockpit voice recorder and
flight data recorder relocated

Air Transport Services Group 2013 Annual Report

Add to that a projection of moderate,
single-digit growth in our Adjusted
EBITDA (a non-GAAP measure defined in
our March 5, 2014 earnings release
available on our web site) in 2014 even

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

We have everything we need to deliver
solid revenue and earnings growth in 2014.

To Our Shareholders

Revenues decreased to $580 million from
$607 million in 2012. Unexpected
challenges in meeting regulatory
requirements to deploy and operate our
newly converted Boeing 757 combi

No other company approaches the scale
and scope of our abilities to create custom
solutions for airlines and other customers
seeking midsize cargo aircraft. . . .

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, 2013

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
(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:
$344,217,832. As of March 7, 2014, 64,654,537 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 8, 2014 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 11 and in “Results of Operations” starting on page 23.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
2013 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

76
76

PART I

ITEM 1. BUSINESS

General Development of Business

Air Transport Services Group, Inc. ("ATSG"), through its subsidiaries, provides airline operations, aircraft leases,
aircraft maintenance and other support services primarily to the air cargo transportation and package delivery industries.
ATSG's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”) leases cargo aircraft to our airlines and to
external customers. ATSG wholly owns two airlines, ABX Air, Inc. (“ABX”) and Air Transport International, Inc.
(“ATI”), each independently certificated by the U.S. Department of Transportation. (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.)

ATSG is incorporated in Delaware and its headquarters is in Wilmington, Ohio. ATSG'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. ABX was incorporated in 1980.
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. The Company acquired CAM, ATI and Capital Cargo International Airlines, Inc. ("CCIA")
on December 31, 2007. ATI began operations in 1979 and was an affiliate of BAX Global, Inc. (“BAX/Schenker”)
prior to 2006. During 2013, the Company completed the merger of CCIA with and into ATI, with ATI as the surviving
entity.

We offer a range of complementary services to delivery companies, freight forwarders, airlines and government

customers. Our services are summarized below:

Aircraft leasing: 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 a result, the converted freighters can be deployed into regional
markets more economically than larger capacity aircraft or competing alternatives. CAM's aircraft leases are typically
under multi-year agreements.

ACMI Services: The Company's airlines contract directly with customers to supply a combination of aircraft,
crews and maintenance services. ABX operates Boeing 767 freighter aircraft, while ATI operates Boeing 767 and
Boeing 757 freighter aircraft and Boeing 757 "combi" aircraft. Combi aircraft are capable of carrying passengers and
cargo containers on the main flight deck. The airlines can conduct cargo operations worldwide.

Support services: Customers who lease our aircraft typically need related services, such as scheduled aircraft
maintenance, aircraft line maintenance, crew training and other transportation related solutions which our subsidiaries
can provide. The support services we provide to freight forwarders and other airlines provide us with a competitive
advantage for diversification and incremental revenues. Our businesses and subsidiaries providing support services
are summarized below.

• ABX provides flight crew training, flight simulator rental and aircraft line maintenance services;
• Airborne Maintenance and Engineering Services, Inc. (“AMES”), is an aircraft maintenance, repair and

overhaul business;

• AMES Material Services, Inc. ("AMS"), resells and brokers aircraft parts;
• LGSTX Services, Inc. (“LGSTX”), provides facility and ground equipment 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 2013 are summarized as follows:

ACMI Services

Aircraft leasing

Support services

External revenues (in thousands)

$444,504

$71,604

Subsidiaries and businesses

ABX, ATI

CAM

$63,915
ABX, AMES,
AMS, GFS,
LDS, LGSTX

Airborne Global Solutions, Inc. ("AGS") is our 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 for customers.

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden.
West Atlantic AB, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of
approximately 40 aircraft and is Europe’s largest regional cargo aircraft operator. West Atlantic AB operates its aircraft
on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of
British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 737 aircraft. In addition, Atlantic Airlines Ltd. is
adding the Boeing 767 aircraft to its operating capability.

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. Business with DHL totaled 54% of the Company's consolidated revenues in 2013, while the U.S.
Military comprised 17% of the Company's consolidated revenues in 2013.

CAM

CAM’s fleet of 49 serviceable freighter aircraft as of December 31, 2013, consisted of Boeing 767 and Boeing 757.

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

CAM leases aircraft to ATSG's 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 that it was in at the inception of the lease, as measured by
airframe and engine time since the last 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. Since 2011, CAM has acquired
11 Boeing 767-300 and Boeing 757 aircraft and managed the modification of those aircraft into Boeing 767-300
freighters, Boeing 757 freighters and Boeing 757 combi variants.

ACMI Services

Through the Company's two airline subsidiaries, we provide airline operations to DHL, other airlines, freight
forwarders and the U.S. Military. A typical operating agreement requires our 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. The airlines also operate charter agreements, including with
the U.S. Military, which 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.

Our airlines operate medium payload and medium wide-body aircraft freighters usually on intra-continental flights
and medium range inter-continental flights. The airlines typically operate our aircraft in the customers' regional networks
that connect to and from global cargo networks. We do not operate larger capacity, long haul inter-continental freighters
such as the Boeing 747 or Airbus A380 aircraft. The freighter types we operate have lower investment and ongoing
maintenance costs and can operate cost efficiently with smaller loads on shorter routes than the larger capacity freighters.

The Company, through ABX, has had long term contracts with DHL since August 15, 2003. Under the current
agreements which began in March of 2010, 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 in a U.S. network under a
five year crew, maintenance and insurance agreement ("CMI agreement"). As of December 31, 2013, DHL was leasing
13 aircraft from CAM, all of which ABX operates for DHL under the CMI agreement. Additionally, ABX operates
four DHL owned Boeing 767 aircraft as well as seven ABX leased aircraft for DHL's U.S network as of December 31,
2013. ATI operates four Boeing 757 aircraft under ACMI agreements in DHL's U.S network.

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 with the AMC for the operation
of its unique fleet of four Boeing 757 "combi" aircraft,which are capable of simultaneously carrying passengers and
cargo containers on the main flight deck. ATI has been operating combi aircraft for the U.S. Military since 1993. During
2013, ATI retired its four DC-8 combi aircraft and replaced the aircraft with the more modern Boeing 757 combi aircraft.
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 Boeing 757 combi and Boeing 767 freighter aircraft.

CCIA and ATI each provided airlift to BAX/Schenker's North American network through ACMI agreements using
Boeing 727 and DC-8 aircraft, respectively. 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. 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. By the end of 2012, we retired the remaining Boeing 727 and DC-8
freighter aircraft, replacing their capacity with Boeing 767 aircraft.

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 allowed
for an integrated seniority list. The airlines and ALPA completed the integration of the seniority lists in 2012. We
completed the merger of ATI and CCIA's airline operations in the first quarter of 2013. The combined operation benefits
from 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.

Approximately 14% of the Company's consolidated revenues for 2013 were derived from providing airline
operations for customers other than DHL and the U.S. Military. These ACMI and charter operations are typically
provided to freight forwarders or other airlines and have non U.S. destinations.

We have 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. Our 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 air carriers 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.

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. Additionally, LDS provides international mail forwarding services through the Miami International Airport
and the Los Angles International Airport.

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 ABX and ATI. GFS can provide

these services to U.S certificated supplemental air carriers and foreign air carriers.

Discontinued operations

Discontinued operations relate to hub operations, package sorting and aircraft fuel services that ABX provided to
DHL under previous agreements. 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. These former business activities are reported as discontinued
operations. The financial results of discontinued operations since 2010, 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., 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, 2013, the Company had approximately 1,800 employees, including 1,600 full-time employees
and 200 part-time employees. The Company employed approximately 415 flight crewmembers, 865 aircraft
maintenance technicians and flight support personnel, 235 warehousing, sorting and logistics personnel, 100 employees
for airport maintenance and logistics, 20 employees for sales and marketing and 165 employees for administrative
functions. On December 31, 2012, the Company had approximately 1,900 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, 2013.

Airline

ABX
ATI

Labor Agreement Unit

International Brotherhood of Teamsters
Air Line Pilots Association

Contract
Amendable
Date

12/31/2014
5/28/2014

Percentage of
the Company’s
Employees

14.4%
8.7%

Under the Railway Labor Act (“RLA”), as amended, the crewmember labor agreements do not expire, so the existing
contract remains in effect throughout any negotiation process. If required, mediation under the RLA is conducted by
the National Mediation Board, which has the sole discretion as to how long mediation can last and when it will end.
In addition to direct negotiations and mediation, the RLA includes a provision for potential arbitration of unresolved
issues and a 30-day “cooling-off” period before either party can resort to self-help, including, but not limited to, a work
stoppage.

Training

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

The FAA mandates initial and recurrent training for most flight, maintenance and engineering personnel. Mechanics
and quality control inspectors must also be licensed and qualified to perform maintenance on Company operated and
maintained aircraft. Our airline subsidiaries pay for all of the recurrent training required for their flight crewmembers
and provide training for their ground service and maintenance personnel. Their training programs have received all
required FAA approvals. Similarly, our flight dispatcher's and flight followers receive FAA approved training on the
airlines' requirements and specific aircraft.

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
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.

The U.S. Environmental Protection Agency is authorized to regulate aircraft emissions and has historically
implemented emissions control standards adopted by the International Civil Aviation Organization ("ICAO"). Our
subsidiaries’ aircraft currently meet all known requirements for engine emission levels as applicable by engine design
date. 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 ("EU") are covered by the ETS requirements.
Each year our airlines are required to submit emission allowances in an amount equal to the carbon dioxide emissions
from such flights. If the airlines flight activity during the year produced carbon emissions exceeding the number of
carbon emissions allowances that it had been awarded, the airline must acquire allowances from other airlines in the
open market.

For 2013, the European Commission deferred application of the ETS except as it applies to intra-EU flights. The
deferral expired at the end of 2013. In April 2013, the European Commission deferred application of the ETS until
April 2014 for flights operated to and from non-EU destinations. Unless the European Commission acts, the ETS will
be applicable for all flights to or from Europe beginning in April 2014. ABX currently operates intra-EU flights, and
both ABX and ATI have operated intra-EU flights since the beginning of 2012. Management believes that ABX's and
ATI's intra-EU flights are operated in compliance with ETS requirements.

In October 2013, at the 38th ICAO Assembly, the ICAO reached a non-binding agreement committing ICAO to

develop a global market-based measure to assist in achieving carbon neutral growth by 2020.

The U.S. government, working through the ICAO, 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.

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.

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. Additionally, the DOT has issued ABX 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 the 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 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.

Executive Officers of the Registrant

Information about executive officers of the Company is provided in Item 10. Directors, Executive Officers and

Corporate Governance, of this report.

Available Information

Our filings with the Securities and Exchange Commission ("SEC"), 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 SEC 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 rate of aircraft deployments may impact the Company’s operating results and financial condition.

The Company's future operating results and financial condition will depend in part on our subsidiaries’ ability to
successfully deploy 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.

The actual demand for Boeing 767 and 757 aircraft may be less than we anticipate. The actual lease rates for aircraft
available for lease 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.

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.

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, 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 effectively 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.

New FAA rules for Flightcrew Member Duty and Rest Requirements (FMDRR) for passenger airline operations
became effective in January 2014. The new rules apply to our operation of combi aircraft for the U.S military and
impact the required amount and timing of rest periods for pilots between work assignments and modified duty and rest
requirements based on the time of day, number of scheduled segments, flight types, time zones and other factors.
Compliance with these rules may increase our costs more than expected, while failure to remain in compliance with
these rules may subject us to fines or other enforcement action.

If applied to cargo carriers, the new rules would require a pilot to have the opportunity to rest for nine hours 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 our 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 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 two 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 or other mid size aircraft types, instead of the Boeing 767 and 757 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
12

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 turn-times and to control costs in order to remain competitive
to our customers.

Delta TechOps, a division of Delta Airlines, Inc, is the sole engine maintenance provider for the Company's General
Electric CF6 engines that power our fleet of Boeing 767-200 aircraft. If Delta TechOps does not complete the
refurbishment of our engines within the contractual turn-times or if we must replace DeltaTechOps as the maintenance
provider for some or all of the Company's CF6 engines, our operations and financial results may be adversely impacted.

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 if opportunities to expand the aircraft fleet arise.

While we have not planned for additional aircraft acquisitions for 2014, opportunities to grow revenues could
arise that require more aircraft or an aircraft type that we do not currently have. As of December 31, 2013, the Company's
liquidity included $31.7 million of cash balance and $74.3 million available under the revolving credit facility through

the Senior Credit Agreement. The existing sources of liquidity may not be sufficient to support a fleet expansion. We
may need additional sources of credit to acquire and modify additional aircraft. If sources of credit are not available
when we need the funds, the fleet expansion could be delayed. Further, additional sources of credit could 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, we ceased
hedge accounting for certain interest rate swaps which we continue 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. Also, in June 2013, the Company entered into an interest rate swap
with a forward start date of December 31, 2013. We 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.

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 2.55%. Additional debt or lower EBITDA may result in higher interest
rates on the variable rate portion of the Company's debt.

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 costs of insurance coverage or changes to our reserves for self insured claims could affect our operating results
and cash flows.

U.S. government has been offering war risk insurance to U.S. airlines following the terrorist attack of September
11, 2001. The U.S. government has committed to offer war risk insurance to airlines through 2014 after which it may
be necessary to procure war risk insurance in the commercial market. The war risk insurance available to airlines in
the commercial market may be more limited in coverage and/or may be more expensive than the premiums currently
being paid.

The Company is self-insured for 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 impact our results of operations and cash flows.

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).

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 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 and require further investment in our aircraft fleet.

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 24 of the Company's Boeing 767-200 aircraft 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.

The FAA and ICAO are in the process of developing programs to modernize air traffic control and management
systems. The FAA's program, Next Generation Air Transportation Systems, is an integrated system that requires
updating aircraft navigation and communication equipment. The FAA has mandated the replacement of current ground
based radar systems with more accurate satellite based systems on our aircraft by 2020. The ICAO is phasing in similar
requirements for aircraft operating in Europe, beginning in 2015. These programs may increase our costs and limit the
use of our aircraft. Aircraft not equipped with advanced communication systems may be restricted to certain airspace.

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.

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 with options to extend the lease at the Company's discretion. 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, 2013, the Company and its subsidiaries' in-service aircraft fleet consisted of 49 owned aircraft
and six leased aircraft on an operating basis, for a total of 55 aircraft. The aircraft were all formerly passenger aircraft
that have been modified for cargo operations. The aircraft are generally described as having mid-size to medium wide-
body cargo capabilities. The cargo aircraft carry gross payloads ranging from approximately 58,000 to 129,000 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, 2013

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)

757-200 PCF (1)

757-200 Combi (2)

Total in-service

—

1982 - 1987

85,000 - 100,000

1,700 - 5,300

1988 - 1991

121,000 - 129,000

3,200 - 7,100

1984 - 1991

1989 - 1992

68,000

58,000

2,100 - 4,800

2,600 - 4,300

____________________
(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, 2013, CAM had one Boeing 767-300 aircraft that was completing its modification
to a standard freighter configuration and one Boeing 757-200 aircraft that was completing certification as a combi
aircraft. These aircraft are expected to be completed in the first quarter of 2014 and are not reflected in the table above.
CAM also has one Boeing 767-200 passenger aircraft, not reflected in the table above, under lease to an external airline
during 2014.

We believe that our existing facilities and aircraft fleet 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 plaintiffs agreed to settle this matter in exchange for the payment by ABX to plaintiffs
and the putative class members of a monetary amount, which amount management believes to be less than it would
have cost to defend the case at trial. The final settlement was approved by the Court on July 9, 2013 and following a
30-day appeal period during which no objections were received, the settlement funds were paid to the class administrator
for distribution in accordance with the terms of the settlement agreement. This litigation is now concluded.

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 three of the
administrative penalties.

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 the Company's business. The amount
of alleged liability, if any, from these proceedings cannot be determined with certainty; however, we believe that the
Company's 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:

2013 Quarter Ended:
December 31, 2013
September 30, 2013
June 30, 2013
March 31, 2013

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

Low

High

$
$
$
$

6.64
5.95
5.23
4.08

3.38
3.88
4.67
4.71

$
$
$
$

Low

8.20
7.70
6.85
6.09

4.56
5.75
5.88
6.88

High

On March 7, 2014, there were 1,620 stockholders of record of the Company’s common stock. The closing price of

the Company’s common stock was $7.02 on March 7, 2014.

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, 2008 and
ending on December 31, 2013.

12/31/2008

12/31/2009

12/31/2010

12/31/2011

12/31/2012

12/31/2013

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

100.00

1,466.67

4,388.89

2,622.22

2,227.78

4,494.44

144.88

102.37

170.58

131.79

171.30

113.27

199.99

123.81

283.39

162.78

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.

2013

As of and for the Years Ended December 31
2011
(In thousands, except per share data)

2010

2012

2009

OPERATING RESULTS:

Continuing revenues
Operating expenses (1)
Net interest expense and other non operating charges (3)
Earnings 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)

$ 580,023
566,838
13,544
(359)

$ 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

(19,266)
(19,625)
(3)

(24,672)
41,648
(774)

(16,995)
23,865
(673)

(23,413)
39,904
(70)

(17,156)
28,202
6,247

$ (19,628) $

40,874

23,192

39,834

34,449

EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS:

Basic
Diluted

WEIGHTED AVERAGE SHARES:

Basic
Diluted

SELECTED CONSOLIDATED
FINANCIAL DATA:

$
$

(0.31) $
(0.31) $

0.66
0.65

$
$

0.38
0.37

$
$

0.64
0.62

$
$

0.45
0.44

63,992
63,992

63,461
64,420

63,284
64,085

62,807
64,009

62,674
63,279

Cash and cash equivalents
Deferred income tax asset
Property and equipment, net (1)
Goodwill and intangible assets (1)
Total assets
Post-retirement liabilities (4)
Capital lease obligations
Long term debt and current maturities, other than leases
Deferred income tax liability
Stockholders’ equity

31,699
13,957
838,172
39,291
1,033,139
32,865
—
384,515
109,869
368,968

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
364,509
50,044
245,982

____________________
(1)

(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. In the fourth quarter of 2013, the Company recorded an impairment
charge of $52.6 million on goodwill (See Notes C and E to the accompanying consolidated financial statements.)
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.
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.
As a result of higher interest rates and strong investment returns, the funded status of the Company's defined benefit
pension and retiree medical plans improved during 2013. (See notes H and K to the accompanying consolidated financial
statements.)

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

The following Management’s Discussion and Analysis has been prepared with reference to the historical financial
condition and results of operations of Air Transport Services Group, Inc., and its subsidiaries and should be read in
conjunction with the “Risk Factors” in Item 1A of this report, our historical financial statements, and the related notes
contained in this report.

BACKGROUND

The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily
to the air 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. The
Company's principal subsidiaries include two independently certificated airlines, ABX Air, Inc. (“ABX”) and Air
Transport International, Inc. (“ATI”), and an aircraft leasing company, Cargo Aircraft Management, Inc. (“CAM”).

At December 31, 2013, the Company owned 49 cargo aircraft in service condition and leased six more under
operating leases. The combined fleets consisted of forty Boeing 767-200 aircraft, eight Boeing 767-300 aircraft, four
Boeing 757-200 aircraft and three Boeing 757 "combi" aircraft. 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 freighter and combi aircraft to the fleet. The Boeing 757 combi aircraft are capable of simultaneously
carrying passengers and cargo containers on the main flight deck.

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"), which
accounted for 54%, 53% and 36% of the Company's consolidated revenues during the years ended December 31, 2013,
2012 and 2011, respectively. 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. ATI provides four Boeing 757 aircraft to DHL's U.S. network. Additionally ABX provides seven other
Boeing 767 aircraft primarily to DHL's U.S network under contracts and arrangements having durations of one year
or less. During 2013, ATI provided three Boeing 767 aircraft to DHL's Middle East operations, however, these
agreements were terminated during the first quarter of 2014.

The U.S. Military comprised 17%, 16% and 12% of the Company's consolidated revenues during the years ended
December 31, 2013, 2012 and 2011, 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. During 2013, ATI retired its four DC-8 combi aircraft and replaced them with three Boeing 757 combi aircraft
operating for the U.S. Military. Our fourth and final Boeing 757 combi aircraft entered service in February 2014 after
completing the necessary regulatory certification.

A substantial portion of the Company’s revenues and cash flows was historically 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 for the year ended December 31, 2011. The Company's revenues from BAX/Schenker comprised approximately
26% of the Company's total revenues during the year ended December 31, 2011 (15% of total revenues, excluding
directly reimbursable revenues).

At the end of 2012, we ceased Boeing 727 operations at the Company's former airline, Capital Cargo International
Airlines, Inc. ("CCIA"), and DC-8 freighter operations at ATI. During the first quarter of 2013, we completed the
merger of CCIA with and into ATI, with ATI as the surviving entity. The combined operation benefits from a standardized
fleet, two person flight crew, improved reliability of the Boeing 767 and 757 aircraft and from a common pilot type
rating. Additionally, we have reduced administrative and overhead costs as a result of combining positions, information
technology and facilities.

The Company has two reportable segments: ACMI Services, which primarily includes the cargo transportation
operations of its 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 loss from continuing operations was $19.6 million for 2013 compared with net earnings of
$41.6 million for 2012. The pre-tax loss from continuing operations was $0.4 million for 2013 compared with pre-tax
earnings from continuing operations of $66.3 million for 2012. The decrease in earnings from continuing operations
in 2013 as compared to 2012 was primarily due to the recognition of a goodwill impairment charge of $52.6 million
that is not deductible for U.S. federal income tax purposes. Adjusted pre-tax earnings from continuing operations, a
non-GAAP measure (a definition and reconciliation of adjusted pre-tax earnings follows), after removing the impairment
charges was $51.6 million for 2013 compared to $64.4 million for 2012. Adjusted pre-tax earnings from continuing
operations for 2013 declined compared to 2012 due to lower revenues, primarily in the ACMI Services segment, as
well as higher depreciation expenses, due to additional aircraft in service condition.

Total customer revenues from continuing operations decreased by $27.4 million to $580.0 million during 2013
compared to 2012. Revenues were negatively impacted by FAA requirements which delayed the deployment of Boeing
757 aircraft and the training of the related flight crews, as well as continued softness in international cargo markets.
Excluding directly reimbursed revenues, customer revenues decreased 4%, or by $20.4 million during 2013 compared
with 2012. Total operating expenses, without impairment charges, declined as we restructured the ATI airline, falling
3% during 2013 compared with 2012.

Due to recent events and market changes, we do not expect ATI to generate as much net cash flow from ATI's
Boeing 767 operations as previously expected. In December 2013 and in January 2014, the Company received
notification from DHL that it would cease using three ATI Boeing 767 aircraft for services in the Middle East by the
end of February 2014. Further, as a result of persistent stagnant growth conditions and excess airlift capacity, including
the recent projections published by the U.S. Military that reflect continued reductions in their demand for cargo (non
combi) airlift, we plan to allocate fewer Boeing 767 aircraft to ATI than previously projected. We expect instead to
deploy more Boeing 767 aircraft with other airlines, including Atlantic Airline Ltd., an airline owned by West Atlantic,
AB, for which the Company acquired a 25% equity interest in January 2014. As a result, we recorded an impairment
charge of $52.6 million at the end of 2013 to write-off ATI's goodwill.

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
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 of $6.8
million in 2011
ACMI Services

Airline services
Asset impairment charges

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 (Loss) from Continuing Operations

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

Adjusted Pre-Tax Earnings

Years Ending December 31
2012

2011

2013

160,342

154,565

140,469

376,592
67,912
444,504

117,292

722,138

404,053
74,940
478,993

112,343

745,901

444,268
160,683
604,951

105,284

850,704

(142,115)

(138,463)

(120,571)

580,023

607,438

730,133

66,208

68,499

53,221

(25,601)
(52,585)
(78,186)

12,200

(1,212)

631

—

(359)
52,585
(631)
—
51,595

(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

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 and the write-off of debt issuance costs. 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, 2013, CAM had 49 freighter aircraft in service condition, 29 of them leased internally to the
Company's airlines. CAM's revenues grew $5.8 million during 2013 compared to 2012, as a result of additional internal
aircraft leases. CAM's revenues from the Company's airlines totaled $88.7 million during 2013, compared to $80.0
million for 2012. Since the beginning of 2012, CAM has placed one Boeing 767-200 freighter aircraft, four Boeing
767-300 freighter aircraft, one Boeing 757-200 freighter aircraft and three Boeing 757 combi aircraft under leases with
internal airlines. As of December 31, 2013 and 2012, CAM leased 20 aircraft to external customers. Revenues from
external customers decreased $3.0 million for 2013 compared to 2012. 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 was redeployed
internally within ACMI services.

CAM's pre-tax earnings, inclusive of an interest expense allocation were $66.2 million and $68.5 million during
2013 and 2012, respectively. Reduced earnings reflect additional internal lease revenues offset by higher depreciation
expense for Boeing 767 and Boeing 757 aircraft, increased expenses to place and support the larger fleet of Boeing
767 and 757 aircraft and higher allocated interest expense compared to 2012.

During 2014, CAM's fourth and final Boeing 757 combi aircraft completed its airworthiness certification and began
operations for ATI. Additionally, we expect CAM to complete the modification of a Boeing 767-300 in the first quarter
of 2014. While we do not have a customer commitment for this Boeing 767 aircraft, interest in the Boeing 767 aircraft
for its reliability and cost effectiveness in medium range markets remains strong. The lease of additional aircraft,
however, could be affected by continued low growth economic conditions and excess industry airlift capacity.

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, 2013, ACMI Services included 48 in-service aircraft,
including 29 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 $444.5 million and $479.0 million during 2013 and 2012, respectively. ACMI
Services incurred pre-tax losses of $78.2 million during 2013, compared to pre-tax losses of $14.5 million for 2012.
Excluding asset impairment charges of $52.6 million recorded during 2013, ACMI Services incurred pre-tax losses of
$25.6 million in 2013. Larger pre-tax losses in 2013 compared to 2012 were primarily a result of lower revenues.
Revenues from ACMI Services declined $34.5 million during 2013 compared with 2012. Airline services revenues
from external customers, which do not include revenues for the reimbursement of fuel and certain operating expenses,
declined $26.2 million. Lower revenues resulted from operating fewer international cargo lanes for our customers,
including the U.S. Military, as well as fewer ad hoc charters. Since mid 2012, some of our aircraft have been replaced
by our customer's own airlift capacity on certain international cargo lanes. Block hours flown for the U.S. Military
were down 4% compared to 2012, primarily due to the phase-in of the Boeing 757 combi aircraft, which replaced the
DC-8 combi aircraft operated by ATI. Revenues for the U.S. Military were negatively impacted by delays in FAA
approvals for the Boeing 757 combi aircraft and the pilot training program. Before the Boeing 757 combi aircraft could
begin operations, the aircraft had to be certified by the FAA and our pilots trained to conduct Boeing 757 passenger
operations. Additionally, during the phase-in of the Boeing 757 aircraft, we experienced reduced availability of combi
aircraft as the DC-8 combi airframe maintenance requirements became due. In addition, expenses for non-reimbursed
airframe maintenance checks increased $3.6 million compared to 2012. The increase is primarily due to a larger required
work scope for the checks scheduled in 2013 compared to 2012.

Billable block hours declined 13% for 2013 compared to 2012. Revenues declined relatively less than block hours
declined because a larger portion of our 2013 revenues were derived from shorter express routes instead of longer
international routes flown during 2012. The effective average revenue rates per block hour paid by non-military
customers are higher for express routes in which aircraft utilization is lower, compared to lower rates per block hour
for longer, international routes.

Operating expense for ACMI Services declined $15.1 million during 2013 compared to 2012, excluding impairment
charges, due partially to combining the ATI and CCIA operations, which resulted in a 28% reduction in airline related
headcount compared to the beginning of 2012. Operating expenses for landings, ramp and travel declined due to the
lower level of international block hours flown. These expense reductions, which were related to personnel and the level
of flights, were partially offset by higher aircraft depreciation expense and aircraft rent expense, which increased due
to the addition of Boeing 767-300 aircraft.

As noted above, during the first quarter of 2014, DHL ended ACMI agreements for three Boeing 767 aircraft that
we provided to its Middle East operation. Since the third quarter of 2013, three Boeing 767 aircraft have been redeployed
under agreements with customers. We deployed an additional aircraft for DHL, connecting Panama to their domestic
network, another was deployed for a European airline on a transatlantic route, and the third was deployed for a Miami
based airline serving the Caribbean. Two of these operations could be converted into aircraft leases between CAM and
the customer.

Currently, the ACMI Services segment has five aircraft that are underutilized. Improved aircraft utilization and
revenue growth for ACMI Services depends on the cost competitiveness of the airlines, aircraft reliability, market
preferences for the type of aircraft that we operate, airlift capacity in the markets, regulatory approvals and general
economic conditions. Continued stagnant economic conditions and market uncertainty may slow the pace of aircraft
deployments into incremental revenue operations. 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. The ability of the ACMI Services segment to generate
operating profits will also depend on the timing of retraining of crewmembers for the Boeing 767 and 757 operations
and continued cost controls.

Other Activities

The Company sells aircraft parts and provides aircraft maintenance and modification services primarily through
its aircraft maintenance and repair business, Airborne Maintenance and Engineering Services, Inc. ("AMES"). The
Company also provides services to the U.S. Postal Service (“USPS”), which mainly consists of sorting services at five
USPS facilities. The Company also leases and maintains ground support equipment and provides facility maintenance
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 $63.9 million and $55.1 million for 2013 and 2012,
respectively. Revenues from services provided to the USPS increased $6.4 million during 2013 primarily due to
increased volumes at the facilities that we operate for the USPS. In addition to the increased revenues from the USPS,
aircraft maintenance revenues from external customers increased by $1.5 million.

The pre-tax earnings from other activities were $12.2 million and $11.7 million for 2013 and 2012, respectively.
The increase of $0.5 million of pre-tax earnings for 2013 compared to 2012 primarily reflects additional volumes
processed for the USPS during the year and additional aircraft maintenance revenues for external customers.

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 747-400 and the Boeing 777. The hangar is
anticipated to cost approximately $15.7 million and due to adverse weather conditions, is not expected to be completed
until May 2014. The Company leases the facility from the CCPA and began 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 less than $0.1 million for 2013 compared to $1.2
million for 2012. The results of discontinued operations primarily contain pension expense for former employees that

supported sort operations under a hub services agreement with DHL. During 2013, pension expense for discontinued
operations decreased 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 2013

The Company’s aircraft fleet is summarized below as of December 31, 2013 ($'s in thousands):

In-service aircraft

Aircraft owned

Boeing 767-200

Boeing 767-300

Boeing 757-200

Boeing 757-200 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 757-200 Combi

Total

Carrying value

ACMI
Services

CAM

Total

—
—

—

1
1

$ 714,835

1,275

1
1

58,533

As of December 31, 2013, ACMI Services leased 29 of its in-service aircraft internally from CAM. As of
December 31, 2013, 13 of CAM's 20 Boeing 767-200 aircraft shown above were leased to DHL and operated by ABX.
CAM leased the other seven Boeing 767-200 aircraft to external airlines.

Aircraft fleet activity during 2013 is summarized below:

- CAM completed the modification of one Boeing 767-300 freighter aircraft and leased the aircraft internally to
ABX.

- CAM completed the modification of one Boeing 757 freighter aircraft and leased the aircraft internally to ATI.

- CAM purchased two Boeing 757 combi aircraft that had not been certified for airworthiness. CAM completed
the airworthiness requirements for three Boeing 757 combi aircraft and leased them internally to ATI, which
deployed the aircraft for the U.S. Military.

- We removed four DC-8 combi aircraft from the in-service fleet.

CAM also has a Boeing 767-200 passenger aircraft that had been placed in temporary storage when its airframe
maintenance cycle expired. In 2013, CAM reached an agreement to lease the aircraft to an external airline during 2014.
As of December 31, 2013, the Company had Boeing 727 and DC-8 airframes and engines with a carrying value of $3.0
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 $9.3 million during 2013 compared to 2012. The lower expenses
are the result of the lower number of employees after merging and restructuring ATI and CCIA. Headcount declined
10% between the beginning of 2012 and the end of 2013. Pension expense for continuing operations decreased $4.4
million during 2013 due to strong investment returns on pension plan assets.

Fuel expense decreased by $4.6 million during 2013 compared to 2012. Fuel expense primarily reflects the costs
of fuel to operate U.S. Military charters, position aircraft for service and for maintenance purposes. The decrease during
2013 compared to 2012 reflects a decline in the number of flights flown for the U.S. Military, fewer ad hoc charter
flights and the use of the more fuel efficient Boeing 757 combi aircraft instead of DC-8 combi aircraft.

Maintenance, materials and repairs expense decreased by $0.5 million during 2013 compared to 2012. The decline
in maintenance expense reflects fewer customer reimbursed airframe heavy maintenance events, offset by higher engine
maintenance expenses compared to the previous year. Engine maintenance expenses increased during 2013 due to
higher costs for engine parts and engine maintenance services. Aircraft maintenance expenses can vary among periods
due to the number of scheduled airframe maintenance checks and the scope of the checks that are performed.

Depreciation and amortization expense increased $7.3 million during 2013 compared to 2012. The increase in
depreciation expense reflects the removal of the Boeing 727 aircraft and the DC-8 aircraft from service, offset by
incremental depreciation expense for one Boeing 767 aircraft, one Boeing 757 freighter aircraft and three Boeing 757
combi aircraft added to the in-service fleet since December 2012.

Travel expense decreased by $4.0 million during 2013 compared to 2012. The decrease reflects the lower level
of employee headcount and less international travel needed to support fewer international flight operations during 2013.

Rent expense increased by $1.5 million during 2013 compared to 2012. Rent expense increased primarily due to

the lease of an additional Boeing 767-300 aircraft beginning in May 2012.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $4.8 million during 2013
compared to 2012. The decrease was due to the reduction in block hours and flights operated in 2013 compared to
2012.

Insurance expense decreased by $1.5 million during 2013 compared to 2012, primarily due to the reduction in

Boeing 727 and DC-8 aircraft.

Other operating expenses increased by $1.3 million during 2013 compared to 2012. Other operating expenses
include professional fees, navigational services, employee training, utilities and the cost of parts sold to customers.
Operating expenses also includes the net gains from the sales of spare aircraft engines. The increase was primarily
due to lower gains from the sales of spare equipment in 2013 compared to 2012.

Interest expense decreased by $0.1 million during 2013 compared to 2012. Lower interest expense on interest rate
swaps held by the Company was partially offset by higher interest expense on additional borrowings under the Senior
Credit Agreement and lower capitalized interest during 2013 compared to 2012.

The Company recorded pre-tax net gains on derivatives of $0.6 million during the year ended December 31, 2013
compared to pre-tax net gains on derivatives of $1.9 million during 2012, reflecting the impact of fluctuating market
interest rates.

Income tax expense from continuing operations decreased $5.4 million for 2013 compared to 2012, due to lower
pre-tax earnings. The Company's effective income tax rate from continuing operations was approximately 36.9% for
the year ended December 31, 2013 after adjusting for $52.6 million of non-deductible impairment charges. The effective
tax rate from continuing operations for the year ended December 31, 2012 was to 37.2%. for 2012.

We estimate that the Company's effective tax rate for 2014 will be approximately 37.6%. As of December 31,
2013, the Company had operating loss carryforwards for U.S. federal income tax purposes of approximately $97.5
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 until 2016
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.

2012 compared to 2011

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 above), 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.

During the third quarter of 2011, in conjunction with the phase-out of BAX/Schenker's dedicated airlift in North
America, which relied on operations provided by ATI and CCIA, we tested the carrying values of aircraft, spare parts,
goodwill and other intangibles. As a result, we recorded pre-tax impairment charges totaling $27.1 million to reduce
the carrying values of the Company's Boeing 727 and DC-8 freighters, goodwill and customer relationship intangible
assets to their individual fair values. The lower fair value of these aircraft and BAX/Schenker's July 2011 decision to
terminate its dedicated air network were the result of prolonged recessionary conditions and trends toward higher fuel
prices. Demand for Boeing 727 and DC-8 aircraft had diminished because these older aircraft are less fuel efficient
and generally not as reliable as more modern aircraft.

CAM

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 executed over the previous 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 was subsequently
redeployed 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.

ACMI Services Segment

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 during 2012. 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 to operate Boeing 767 aircraft and 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.

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

4
2

—

—
—

—

$ 656,388

4
2

1,134

$ 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.
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.

- 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.

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

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.

Other Activities

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, 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.

Discontinued Operations

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.

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.

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.

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, resulting from the discontinuation of services for BAX/Schenker's North
American air network during 2011.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $94.4 million, $110.6 million and $136.1 million in 2013,
2012 and 2011, respectively. Cash flows generated from operating activities decreased in 2013 compared to 2012
primarily due to lower payments received from DHL, increased pension contributions and lower operating profitability
partially offset by lower payments to vendors. Cash outlays for pension contributions were $27.5 million, $24.7 million
and $18.0 million in 2013, 2012 and 2011, respectively.

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 $112.7 million, $155.2 million and $213.1 million
in 2013, 2012 and 2011, respectively. Capital expenditures in 2013 included $79.0 million for the acquisition of two
Boeing 757 combi aircraft and the costs of Boeing 757 and Boeing 767 aircraft modifications, $23.9 million for required
heavy maintenance, $6.7 million for construction of the new aircraft hangar and $3.1 million for other equipment costs.
Our capital expenditures in 2012 included $134.9 million for the acquisition and modification of aircraft, $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.

Cash proceeds of $1.5 million, $5.8 million and $11.1 million were received in 2013, 2012 and 2011, respectively,

for the sale of aircraft engines, airframes and parts.

Net cash provided by financing activities was $33.0 million, $23.8 million and $48.0 million in 2013, 2012 and
2011, respectively. Our borrowing activities were necessary to finance our strategy to acquire and modify aircraft for

deployment into air cargo markets and modernize the combi fleet deployed for the U.S. Military. During 2013, we
drew $80.0 million from the revolving credit facility under the Senior Credit Agreement to fund capital spending and
we made debt principal payments of $53.8 million. Additionally, $6.2 million of the principal balance of the DHL
promissory note was extinguished during 2013, pursuant to the CMI agreement with DHL.

Commitments

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

as of December 31, 2013.

Contractual Obligations

Payments Due By Period

Total

Less Than
1 Year

2-3
Years

4-5
Years

After 5
Years

Long term debt, including interest payments

$ 423,769

36,439

$ 79,706

$ 299,874

Operating leases

Hangar lease

53,244

18,303

22,561

592

21,306

1,434

7,845

1,667

7,750

1,532

14,610

Total contractual cash obligations

$ 495,316

59,592

$ 102,446

$ 309,386

$ 23,892

The long term debt bears interest at 2.55% 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 the 100,000 square foot aircraft hangar in 2013. The
hangar is projected to cost approximately $15.7 million and is expected to be completed in May 2014. 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. We began to make lease payments for the hangar
directly to the trustee for the State of Ohio 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 $7.2 million expected to be funded in
2014. In January 2014, we drew $15.0 million from the revolving credit facility to help fund the Company's 25 percent
equity interest in West Atlantic AB of Gothenburg, Sweden.

We estimate that capital expenditures for 2014 will be $45 million for airframe and engine maintenance, hangar
construction and other expenditures. Actual capital spending for any future period will be impacted by aircraft
maintenance and modification processes and hangar construction. We expect to finance the capital expenditures 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 $131.3 million and a revolving credit facility from which the Company has drawn $190.5 million, net of repayments
as of December 31, 2013. 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 could draw up to an additional $50 million, subject to the
lenders' consent. The Credit Amendment did not affect the EBITDA based pricing or covenants of the Senior Credit
Agreement. In October 2013, the lenders agreed to make the accordion funds of $50.0 million available to the Company,
increasing the capacity of the revolving credit facility to $275.0 million. While we do not anticipate a need to draw
the additional funds in the near future, the added capacity provides management additional flexibility during the
remaining term of the Senior Credit Agreement which ends on July 20, 2017. Additional debt or lower EBITDA 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 2.55%.

At December 31, 2013, the Company had $31.7 million of cash balances. The Company had $74.3 million available
under the revolving credit facility, net of outstanding letters of credit, which totaled $10.2 million. As specified under
the terms of ABX's CMI agreement with DHL, the $7.8 million balance at December 31, 2013 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

Revenues generated from airline service agreements are typically recognized based on hours flown or the amount
of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive
payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to
revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer
agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from

charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been
completed. Revenues from the sale of aircraft parts are recognized when the parts are delivered. Revenues earned and
expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period
in which the services are completed and delivered to the customer. Revenues derived from transporting freight and
sorting parcels are recognized upon delivery of shipments and completion of services. Aircraft lease revenues are
recognized as operating lease 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, 2013, CAM's
fair value exceeded its carrying value by more than 25%. However, the carrying amount of ATI was higher than its
fair value at December 31, 2013. Further, based on the results of the second step of the goodwill test, we recorded a
charge as of December 31, 2013, to write-off ATI's goodwill.

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 and the lease rates that will be realized. For 2014, we project that CAM's fleet will be under lease approximately
90 percent of the total months that such aircraft are available for lease. We project that ATI will operate four combi
aircraft for the U.S. Military, four Boeing 757 aircraft for DHL and up to three Boeing 767 aircraft for other customers
during 2014.

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, we group assets and liabilities at the lowest level
for which identifiable cash is 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. In conjunction with the
impairment of ATI's goodwill (discussed above) as of December 31, 2013, we tested the related asset group for
recoverability using undiscounted cash flows and concluded that the projected cash flows support the recoverability
of the assets' carrying value.

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 6.25%. 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, 2013 was 50% equities, 47% fixed income, 3% real
estate and 0% cash. The pension trust includes $48.9 million of investments (7% of the plans' assets) whose fair values
have been estimated in the absence of readily determinable fair values. Such investments include private equity, hedge
fund investments and real estate funds. Management’s estimates are based on information provided by the fund managers
or general partners of those funds.

In evaluating our assumptions regarding expected long term investment returns on plan assets, we consider a
number of factors, including our historical plan returns in connection with our asset allocation policies, assistance from
investment consultants hired to provide oversight over our actively managed investment portfolio, and long term
inflation assumptions. The selection of the expected return rate materially affects our pension costs. Our expected long
term rate of return was 6.25% 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 2013 would be increased by approximately $7.4 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,
2013, based on the method described above, were 5.25% for crewmembers and 5.35% for non-crewmembers. If we
were to lower our discount rates by a hypothetical 50 basis points, pension expense in 2013 would be increased by
approximately $1.2 million.

The assumed future increase in salaries and wages is no longer a significant estimate in determining pension costs

because each defined benefit pension plan was frozen during 2009 with respect to additional benefit accruals.

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

obligation and accumulated other comprehensive income (in thousands):

Change in assumption

100 basis point decrease in rate of return

50 basis point decrease in discount rate

Aggregate effect of all the above changes

Discontinued Operations

Effect of change

December 31, 2013

2013
Pension
expense

Pension
obligation

Accumulated
other
comprehensive
income (pre-tax)

7,378

— $

1,225

8,603

(51,721)
(51,721)

—

51,721

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 July 2013, the FASB issued Accounting Standard Update No. 2013-11, "Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists" (ASU
2013-11"). ASU 2013-11 clarifies guidance and eliminates diversity in practice on the presentation of unrecognized
tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting
date. This new guidance is effective for annual reporting periods beginning on or after December 15, 2013, and
subsequent interim periods. The Company is currently assessing the impact, if any, that this pronouncement will have
on the condensed consolidated financial statements.

In September 2013, the United States Treasury Department and the Internal Revenue Service (“IRS”) issued final
and proposed regulations (the “Tangible Property Regulations”) effective for tax years beginning on or after January
1, 2014, that provided guidance on a number of matters with regard to tangible property, including whether expenditures
qualified as deductible repairs, the treatment of materials and supplies, capitalization of tangible property, dispositions
of property, and related elections. The Company is assessing the financial impact as a result of these regulations and
as a result of such assessment, no material impact is expected. Future transitional guidance in the form of revenue
procedures issued by the IRS, and the finalization of the proposed regulations, could impact our current estimates.

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. In October 2013, the lenders agreed to make the accordion funds of $50.0 million available to
the Company, increasing the capacity of the revolving credit facility to $275.0 million. 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 unsubordinated term loan. Accordingly, in July 2011, the Company entered into an interest rate swap instrument.
Additionally, the Company entered into another interest rate swap in June 2013. 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 $131.3 million as of December 31, 2013. See Note J in the accompanying
consolidated financial statements for a discussion of our accounting treatment for these hedging transactions.

As of December 31, 2013, the Company has $62.8 million of fixed interest rate debt and $321.7 million of variable
interest rate debt outstanding. Variable interest rate debt exposes us to differences in future cash flows resulting from
changes in market interest rates. Variable interest rate risk can be quantified by estimating the change in annual cash
flows resulting from a hypothetical 20% increase in interest rates. A hypothetical 20% increase or decrease in interest
rates would have resulted in a change in interest expense of approximately $1.6 million for the year ended December 31,
2013.

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, 2013, a 20% increase in interest rates would
have decreased the fair value of our fixed interest rate debt by approximately $0.9 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, 2013, ABX's defined benefit pension plans had total investment assets of $751.2 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 Service Group, Inc. and subsidiaries
(the "Company") as of December 31, 2013 and 2012, 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, 2013. Our audits also included the financial statement schedules listed in the Table of Contents at Item 15a(2).
These financial statements and financial statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements and financial statement schedules 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, 2013 and 2012, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted
in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information
set forth therein.

As discussed in Note B to the consolidated financial statements, the Company’s two principal customers account
for 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, 2013.

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, 2013, based on the criteria established
in Internal Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated March 10, 2014 expressed an unqualified opinion on the Company's internal
control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Dayton, Ohio
March 10, 2014

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 $717 in 2013 and $749 in 2012
Inventory
Prepaid supplies and other
Deferred income taxes
Aircraft and engines held for sale
TOTAL CURRENT ASSETS

Property and equipment, net
Other assets
Pension assets, net of obligations
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
Post-retirement obligations
Other liabilities
Deferred income taxes

TOTAL LIABILITIES

Commitments and contingencies (Note G)
STOCKHOLDERS’ EQUITY:

December 31, December 31,

2013

2012

31,699
52,247
9,050
9,730
13,957
2,995
119,678
838,172
21,143
14,855
4,896
34,395
$ 1,033,139

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

34,818
23,163
9,695
23,721
8,733
100,130
360,794
30,638
62,740
109,869
664,171

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

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;
64,618,305 and 64,130,056 shares issued and outstanding in 2013 and 2012,
respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

—

646
524,953
(126,813)
(29,818)
368,968
$ 1,033,139

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

See notes to consolidated financial statements.
43

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 (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES

INCOME TAX EXPENSE
EARNINGS (LOSS) FROM CONTINUING OPERATIONS

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

BASIC EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL BASIC EARNINGS (LOSS) PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL DILUTED EARNINGS (LOSS) PER SHARE

WEIGHTED AVERAGE SHARES

Basic
Diluted

Year Ended December 31
2012
607,438

2013
580,023

2011
730,133

175,383
49,376
97,053
91,749
18,693
27,468
11,204
6,216
52,585
—
—
37,111
566,838
13,185

74
(14,249)
631
—
(13,544)

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)

(359)

66,320

(19,266)

(19,625)
(3)

(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)

(19,628) $

40,874

23,192

(0.31) $
—
(0.31) $

0.66
(0.02)
0.64

0.65
(0.02)
0.63

0.38
(0.01)
0.37

0.37
(0.01)
0.36

63,992
63,992

63,461
64,420

63,284
64,085

See notes to consolidated financial statements.

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

Years Ended December 31
2012

2011

2013

NET EARNINGS (LOSS)
OTHER COMPREHENSIVE INCOME (LOSS):

Defined Benefit Pension

Defined Benefit Post-Retirement

Gains and Losses on Derivatives

(19,628) $

40,874

23,192

90,530

(3,032)

(29)

(10,976)

(3,227)

(37)

(56,301)

(3,257)

2,745

TOTAL COMPREHENSIVE INCOME (LOSS), net of tax

67,841

26,634

(33,621)

See notes to consolidated financial statements.

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

Years Ended December 31
2012

2011

2013

OPERATING ACTIVITIES:

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

$ (19,625) $

(3)

41,648
(774)

23,865
(673)

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 assets
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES

INVESTING ACTIVITIES:

Capital expenditures
Proceeds from property and equipment
Proceeds from the redemption of interest-bearing investments
Reimbursement of hangar construction costs

NET CASH (USED IN) INVESTING ACTIVITIES

FINANCING ACTIVITIES:

Principal payments on long term obligations
Proceeds from borrowings
Financing fees

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

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

—
52,585
91,749
7,061
18,772
2,732
(6,200)
(631)
—

(4,994)
(900)
2,012
(6,205)
(112)
(38,352)
(3,478)
94,411

—
—
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

(112,712)
1,521
—
6,803
(104,388)

(155,243)
5,772
—
—
(149,471)

(53,766)
80,000
—
26,234

16,257
15,442
31,699

13,752
1,313

6,200
1,055

(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)
133,220

(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

See notes to consolidated financial statements.

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

Common Stock

Number

Amount

Additional
Paid-in
Capital

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total

63,652,228

637

$ 518,925

(171,251) $

(46,234) $ 302,077

BALANCE AT JANUARY 1, 2011
Stock-based compensation plans

Grant of restricted stock
Issuance of common shares, net of
withholdings

Forfeited restricted stock
Amortization of stock awards and
restricted stock

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
Stock-based compensation plans

641

$ 523,087

Grant of restricted stock
Issuance of common shares, net of
withholdings
Forfeited restricted stock
Tax benefit from common stock
compensation
Amortization of stock awards and
restricted stock

258,800

238,049
(8,600)

2
—

(3)

(1,050)
—

187

2,732

—

(1,186)
—

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

—

(1,048)
—

187

2,732
87,469
67,841
(29,818) $ 368,968

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2013 64,618,305

646

$ 524,953

(19,628)
(126,813) $

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 two 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”) 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").

Subsequent Events

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden.
West Atlantic AB, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of
approximately 40 aircraft and is Europe’s largest regional cargo aircraft operator. West Atlantic AB operates its aircraft
on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of
British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 737 aircraft. In addition, Atlantic Airlines Ltd. is
currently adding the Boeing 767 aircraft to its operating capability.

In January 2014, the Company drew $15.0 million from the revolving credit facility to help fund its 25 percent

ownership of West Atlantic AB.

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:

Boeing 767 and 757 aircraft and flight equipment

Support equipment
Vehicles and other equipment

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 $1.1 million, $2.8 million and $2.2 million for the years
ended December 31, 2013, 2012 and 2011, 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.

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 $28.3 million and $31.6 million at December 31, 2013 and December 31,
2012, respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims
being materially different than the costs accrued.

Pension and Post-Retirement Benefits

The costs of benefits provided by defined benefits pension and post-retirement health care plans are recorded in the
period the employees provide service. Costs adjustments for plan amendments are amortized over the expected working
life or the life expectancy of plan participants. The funded status of the Company's plans is measured as the difference
between the fair value of plan assets and the accumulated benefit obligations to plan participants. The overfunded or
underfunded status of a plan is recorded as an asset or liability. The funded status is ordinarily measured annually at
year end.

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

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

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 54%, 53% and 36% of the Company's consolidated revenues from continuing operations for the
years ended December 31, 2013, 2012 and 2011, respectively. The Company’s balance sheets include accounts
receivable with DHL of $24.1 million and $18.3 million as of December 31, 2013 and December 31, 2012, respectively.

The Company leases Boeing 767 aircraft to DHL under both long-term and short-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, air starts and related maintenance services to DHL
under separate agreements.

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 17%, 16% and 12% of the Company's total revenues from
continuing operations for the years ended December 31, 2013, 2012 and 2011, respectively. The Company's balance
sheets included accounts receivable with the U.S. Military of $4.8 million and $4.2 million as of December 31, 2013
and December 31, 2012, respectively.

BAX/Schenker

The Company had contracts to provide airlift to BAX Global, Inc.'s network in North America ("BAX/Schenker").
Revenues from the services performed for BAX/Schenker were approximately 26% of the Company’s total revenues
from continuing operations for the year ended December 31, 2011. 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 the Company's DC-8 aircraft and with only limited use of the Company's
Boeing 727 aircraft.

No services were performed for Bax/Schenker during 2013 and 2012. The Company’s balance sheets had no

accounts receivable with BAX/Schenker as of December 31, 2013 and 2012.

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.
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 at the time 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.

As of December 31, 2013, 2012 and 2011, the goodwill amounts were retested for impairment. The CAM goodwill
was not impaired. The ATI goodwill was found to be impaired as of December 31, 2013. The Company recorded an
impairment charge of $52.6 million in 2013 to write-off the ATI goodwill. As a result of recent events and market
changes, the Company does not expect ATI to generate the forecasted net cash flows from ATI's Boeing 767 operations
as previously expected. In December 2013 and in January 2014, the Company received notification from DHL that it
would cease using ATI's Boeing 767 services in the Middle East by the end of February 2014. Further, as a result of
persistent stagnant growth conditions and excess airlift capacity, including the recent projections published by the U.S.
Military that reflect continued reductions in their demand for cargo (non combi) airlift, the Company plans to allocate
fewer Boeing 767 aircraft to ATI than previously expected. The Company expects instead to deploy more Boeing 767
aircraft with other airlines, including Atlantic Airline Ltd., an airline owned by West Atlantic, AB for which the Company
acquired a 25% equity interest in January 2014.

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).

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

ACMI Services

CAM

Total

Carrying value as of December 31, 2011

Impairment

Carrying value as of December 31, 2012

Impairment

Carrying value as of December 31, 2013

52,585

—

$
52,585
(52,585) $
— $

34,395

—

34,395

— $

34,395

86,980

—

86,980
(52,585)
34,395

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

Carrying value as of December 31, 2011

Amortization

Carrying value as of December 31, 2012

Amortization

Carrying value as of December 31, 2013

Customer

Airline

Relationships

Certificates

Total

2,396
(250)
2,146
(250)
1,896

4,000
(1,000)
3,000

—

3,000

6,396
(1,250)
5,146
(250)
4,896

The customer relationship intangible amortizes over seven more years. The Company recorded amortization
expense for the customer relationship intangible asset of $0.3 million, $0.3 million and $0.6 million for the years ending
December 31, 2013, 2012 and 2011, respectively. The airline certificate related to Capital Cargo International Airlines,
Inc.'s ("CCIA") 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, 2013

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, 2012

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Total Liabilities

— $

301

(2,515) $
(2,515) $

— $

321

(2,515)
(2,515)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

— $

339

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

— $

357

(3,146)
(3,146)

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 $6.3 million more than the carrying value, which was $384.5 million at December 31, 2013. As of
December 31.2012, the fair value of the Company’s debt obligations was approximately $3.8 million more than the
carrying value, which was $364.5 million. 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,
2013
1,236,225
51,179
1,771
1,154
1,290,329
(452,157)
838,172

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

CAM owned aircraft with a carrying value of $250.9 million and $273.4 million that were under leases to external
customers as of December 31, 2013 and 2012, respectively. Minimum future lease payments for aircraft and equipment
leased to external customers as of December 31, 2013 is scheduled to be $54.8 million, $54.8 million, $48.2 million,
$23.1 million and $4.2 million for each of the next five years ending December 31, 2018.

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. 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 $3.0 million
and $3.4 million as of December 31, 2013 and 2012, respectively. Cash flows generated from sales of aircraft and
engines totaled $1.5 million, $5.8 million and $11.1 million for the years ended December 31, 2013, 2012 and 2011,
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.

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,

2013

2012

131,250

190,500

55,015

7,750

384,515
(23,721)
360,794

144,375

143,000

63,156

13,950

364,481
(21,265)
343,216

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 $50.0 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. In October 2013, the lenders agreed to make the accordion funds of
$50.0 million available to the Company, increasing the capacity of the revolving credit facility to $275.0 million.

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 2.545% and 2.545%,
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, 2013, the unused revolving credit facility totaled $74.3 million, net of draws of $190.5 million and
outstanding letters of credit of $10.2 million.

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, 2013, for the next five years are

as follows (in thousands):

2014

2015

2016

2017

2018

2019 and beyond

Principal
Payments

23,721

24,344

33,865

291,195

3,640

7,750

384,515

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 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

Lease 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 due to adverse weather conditions, is not
expected to be completed until May 2014. 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 are
included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the CCPA
are included in "Other liabilities" on the Company's balance sheet. The Company began 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, 2013 are scheduled below (in thousands):

2014
2015

2016

2017

2018

2019 and beyond

Total minimum lease payments

Guarantees and Indemnifications

Operating
Leases

Hangar
Lease

22,561 $

12,499

8,807

4,733

3,113

1,533

53,246 $

592

602

832

834

833

14,610

18,303

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

Brussels Noise Ordinance

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

Employees Under Collective Bargaining Agreements

As of December 31, 2013, the flight crewmember employees of ABX and ATI were represented by the labor unions

listed below:

Airline

ABX

ATI

Labor Agreement Unit

International Brotherhood of Teamsters

Air Line Pilots Association

Percentage of
the
Company’s
Employees

14.4%

8.7%

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

Overfunded plans, net asset
Underfunded plans

Current liabilities
Non-current liabilities

$
$

Pension Plans

2013

761,774

860,463
—
35,957
—
—
—
2,448
(28,966)
(108,128)
761,774

682,553
67,719
2,448
27,492
(28,966)
751,246

14,855

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

Post-retirement
Healthcare Plans

2013

2012

7,482

8,781
275
264
—
—
—
—
(1,364)
(474)
7,482

— $
—
—
1,364
(1,364)

— $

8,781

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

—
—
—
974
(974)
—

—

(1,339) $
(24,044) $

(1,331) $
(176,579) $

(888) $
(6,594) $

(1,105)
(7,676)

Components of Net Periodic Benefit Cost

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

years ended December 31, 2013, 2012 and 2011, 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

2013

2012

2011

2013

2012

2011

— $

35,957

37,089

37,163

(45,990)

(39,882)

(39,027)

—

12,296

10,681

—

2,700

275

264

—

419

269

379

—

433

247

389

—

529

(5,654)

(5,552)

2,263

7,888

836

(4,696) $

(4,471) $

(4,387)

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 are as follows (in thousands):

Pension Plans

Post-Retirement
Healthcare Plans

2013

2012

2013

2012

Unrecognized prior service cost

Unrecognized net actuarial loss

— $

40,190

— $ (4,182) $ (9,836)
2,920

2,027

182,342

Accumulated other comprehensive (income) loss

$ 40,190

$ 182,342

$ (2,155) $ (6,916)

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 2014
(in thousands):

Amortization of actuarial loss

Prior Service Cost

Assumptions

Post-
Retirement
Healthcare
Plans

Pension
Plans

(2) $
—

320
(3,487)

Assumptions used in determining the funded status of ABX’s pension plans at December 31 were as follows:

Discount rate - crewmembers

Discount rate - non-crewmembers

Expected return on plan assets

2013

5.25%

5.35%

6.25%

Pension Plans

2012

4.25%

6.75%

2011

5.10%

4.65%

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 4.15% for pilots and 3.85% for non-
pilots at December 31, 2013. 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. 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
2013

2012

—%
50%
47%
3%
100%

—%
48%
49%
3%
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.

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 2013 and 2012, the Company made contributions to its defined benefit plans of $27.5 million and $24.7 million,
respectively. The Company estimates that its contributions in 2014 will be approximately $6.3 million for its defined
benefit pension plans and $0.9 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):

2014

2015

2016

2017

2018

Years 2019 to 2023

Pension
Benefits

Post-retirement
Healthcare
Benefits

31,260

33,144

37,769

37,332

39,860

232,378

888

844

764

755

749

3,775

Fair Value Measurements

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

Temporary Cash Investments—These investments consist of U.S. dollars and foreign currencies held in master
trust accounts at The 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, 2013

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

— $

—

63,313

107,635

6,761

—

— $

10,503

—

164,230

349,904

—

19,561

29,339

—

10,503

63,313

271,865

356,665

19,561

29,339

177,709

524,637

48,900

751,246

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

— $

—

63,396

96,008

5,832

—

— $

5,720

2,123

138,846

326,478

—

17,181

26,969

—

5,720

65,519

234,854

332,310

17,181

26,969

165,236

473,167

44,150

682,553

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, 2012

Unrealized gains

Purchases & settlements

December 31, 2012

Unrealized gains

Purchases & settlements

December 31, 2013

Defined Contribution Plans

Hedge Funds &
Private Equity

Real Estate
Investments

Total

25,759

14,557

3,612
(2,402)
26,969

3,884
(1,514)
29,339

2,624

—

17,181

2,380

—

19,561

40,316

6,236
(2,402)
44,150

6,264
(1,514)
48,900

The Company sponsors defined contribution capital accumulation plans (401k) that are funded by both voluntary
employee salary deferrals and by employer contributions. Expenses for defined contribution retirement plans were as
follows (in thousands):

Years Ended December 31
2012

2011

2013

Capital accumulation plans
Total expense

$
$

5,131
5,131

$
$

5,300
5,300

$
$

4,938
4,938

NOTE I—INCOME TAXES

At December 31, 2013, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $97.5 million, which begin to expire in 2024 if not utilized before then. The
deferred tax asset balance includes $2.0 million net of a $0.2 million valuation allowance related to state NOL CFs,
which have remaining lives ranging from one to twenty years. 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, 2013 and 2012 are

as follows (in thousands):

Deferred tax assets:

December 31

2013

2012

Net operating loss carryforward and federal credits

36,624

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)

2,841

6,470

16,667

3,050

8,903

1,262

75,817

(155,769)
(9,466)
(6,265)
(229)
(171,729)
(95,912) $

34,401

1,742

62,823

18,010

3,181

10,770

458

131,385

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

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

Years Ended December 31

2013

2012

2011

—

425

17,902

—

872

18,774

19,266

$
(2) $

— $

337

145

23,454

—

736

24,190

24,672

$
(441) $

(950)
—

426

15,968

—

1,551

17,519

16,995
(393)

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

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

2013

2012

2011

35.0 %

— %

(234.7)%

(5,121.2)%

(26.4)%

(19.3)%

(5,366.6)%

35.0 %

0.3 %

0.9 %

— %

1.1 %

(0.1)%

37.2 %

35.0 %

— %

3.1 %

2.4 %

1.7 %

(0.6)%

41.6 %

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
2012

2013

2011

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

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

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. At December 31, 2013, 2012 and 2011, the Company's unrecognized tax benefits were $0.0 million, $0.0
million and $0.0 million respectively. Accrued interest and penalties on tax positions are recorded as a component of
interest expense. Interest and penalties expense was immaterial for 2013, 2012 and 2011.

The Company began to file, effective in 2008, federal tax returns under a common parent of the consolidated group
that includes ABX and all the wholly-owned subsidiaries. All returns related to the current consolidated group remain
open to examination with the exception of the 2008. The consolidated federal tax returns prior to 2007 remain open
to federal examination only to the extent of net operating loss carryforwards carried over from or utilized in those years.
State and local returns filed for 2005 through 2012 are generally also open to examination by their respective
jurisdictions.

NOTE J—DERIVATIVE INSTRUMENTS

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. In addition to the interest rate swap above, the Company entered into an interest rate
swap in June of 2013 having an initial notional value of $65.6 million and a forward start date of December 31, 2013.
Under this swap, the Company will pay a fixed rate of 1.1825% and receive a floating rate that resets monthly based
on LIBOR.

The outstanding interest rate swaps are not designated as hedges 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 $0.6 million
and $1.9 million for the years ending December 31, 2013 and 2012, respectively, to reflect the interest rate swaps at
market value. The Company recorded an unrealized loss on derivatives of $4.9 million for the year ending December
31, 2011, which includes a $3.9 million pre-tax charge in 2011 to recognize the losses previously recorded in accumulated
other comprehensive income for certain interest rate swaps which had previously been designated as cash flow hedges.
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

May 9, 2016

June 30, 2017

December 31, 2013

December 31, 2012

Stated
Interest
Rate

2.020%

1.183%

Notional
Amount

65,625

Market
Value
(Liability)

(1,988)
(527)

Notional
Amount

72,188

—

Market
Value
(Liability)

(3,146)
—

NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

December 31, 2013, 2012 and 2011 (in thousands):

Balance as of January 1, 2011

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 costs (reclassified to salaries, wages and
benefits)

Negative prior service cost (reclassified to salaries,
wages and benefits)

Hedging gain (reclassified to interest expense)

Unrealized loss on derivative instruments
(reclassified to net gain (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

(54,325)

10,761

(2,670)

(46,234)

(91,715)
—

192

—

631

(91,523)
631

2,700

211

—

—
32,714
(56,301)
(110,626)

(5,552)
—

—
1,892
(3,257)
7,504

—

—
(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 costs (reclassified to salaries, wages and
benefits)

Negative prior service cost (reclassified to salaries,
wages and benefits)

Hedging gain (reclassified to interest expense)

Income Tax (Expense) or Benefit

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

Other comprehensive income (loss) before
reclassifications:

10,681

433

—

—
5,861
(10,976)
(121,602)

(5,552)
—
1,724
(3,227)
4,277

—

—
(57)
20
(37)
38

11,114

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

Actuarial gain for retiree liabilities

129,856

474

—

130,330

Amounts reclassified from accumulated other
comprehensive income

Actuarial costs (reclassified to salaries, wages and
benefits)

Negative prior service cost (reclassified to salaries,
wages and benefits)

Hedging gain (reclassified to interest expense)

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2013

12,296

419

—

—
(51,622)
90,530
(31,072)

(5,654)
—
1,729
(3,032)
1,245

—

—
(50)
21
(29)
9

12,715

(5,654)
(50)
(49,872)
87,469
(29,818)

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

2013

2012

2011

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

1,463,272

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

627,488

(526,848)

(68,950)

(17,200)

1,477,762

506,644

5.97

5.73

5.72

8.25

7.07

5.83

4.47

1,458,037

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

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 $5.46, $5.63 and $8.25 for 2013, 2012 and 2011, 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 $6.78, $7.05 and $11.17 for 2013, 2012 and 2011, respectively. The market condition awards were valued using
a Monte Carlo simulation technique based on volatility over three years for the awards granted in 2013, 2012 and 2011
using daily stock prices and using the following variables:

Risk-free interest rate

Volatility

2013

0.4%

61.0%

2012

0.4%

90.1%

2011

1.3%

For the years ended December 31, 2013, 2012 and 2011, the Company recorded expense of $2.7 million, $3.2
million and $2.9 million, respectively, for stock incentive awards. At December 31, 2013, there was $2.8 million of
unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average
period of 1.6 years. As of December 31, 2013, none of the awards were convertible, 441,812 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 1,754,787 additional outstanding shares of the Company’s common stock
depending on service, performance and market results through December 31, 2015.

NOTE M—EARNINGS PER SHARE

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

December 31

2013

2012

2011

Earnings (loss) from continuing operations

Weighted-average shares outstanding for basic earnings per share

(19,625) $

41,648

63,992

63,461

Common equivalent shares:

Effect of stock-based compensation awards

Weighted-average shares outstanding assuming dilution

Basic earnings (loss) per share from continuing operations

Diluted earnings (loss) per share from continuing operations

—

63,992

(0.31) $

959

64,420

0.66

0.65

23,865

63,284

801

64,085

0.38

0.37

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 481,900 shares, 370,400 shares and 584,700 shares of restricted stock for 2013, 2012 and 2011,
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 none, 229,000 and 176,000 at December 31, 2013,
2012 and 2011, respectively.

NOTE N—SEGMENT INFORMATION

The Company operates in two reportable segments. 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
2012

2011

2013

160,342

154,565

444,504

117,292

478,993

112,343

140,469

604,951

105,284

(142,115)

(138,463)

(120,571)

580,023

607,438

730,133

71,604

74,599

444,504

63,915

477,722

55,117

580,023

607,438

64,096

59,351

27,546

107

24,599

527

67,791

604,951

57,391

730,133

54,897

36,136

91,749

84,477

91,063

—

52,585

—

— $

66,208

68,499

(78,186)

12,200

(1,212)

631

—

(14,503)

11,650

(1,205)

1,879

—

6,761

15,304

2,282

2,797

27,144

53,221

(13,807)

11,331

(2,118)

(4,881)

(2,886)

40,860

Pre-tax earnings from continuing operations

(359) $

66,320

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,

2013

2012

2011

808,987

810,664

141,664

294

82,194

161,650

—

63,297

1,033,139

1,035,611

760,588

137,640

—

95,491

993,719

Interest expense of $0.6 million, $0.9 million and $1.2 million for 2013, 2012 and 2011, respectively, was reimbursed
through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest
expense allocated to CAM was $12.4 million, $12.2 million and $10.7 million for the years ending December 31, 2013,
2012 and 2011, respectively.

During 2013, the Company had capital expenditures of $30.9 million and $74.1 million for the ACMI Services and
CAM segments, respectively. The ACMI Services segment reflects a goodwill impairment charge of $52.6 million
recorded in the fourth quarter of 2013. Additionally, the ACMI Services segment reflects impairment charges of $2.8
million on the goodwill, $2.3 million on its acquired intangibles and $15.3 million on its aircraft which were recorded
in the third quarter of 2011. The CAM segment reflects 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 $235.1 million, $314.2 million and $291.3 million for
2013, 2012 and 2011, 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, 2013, 2012

and 2011 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,

2013

2012

2011

23,175

21,669

30,117

10,030

593

23,671

8,304

1,473

25,845

21,613

8,465

1,468

63,915

55,117

57,391

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. 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.

ABX sponsors defined benefit plans for retirees that include the former employees of the hub operations.
Additionally, ABX is self insured for medical coverage and workers' compensation. The Company may incur expenses
and cash outlays in the future related to pension obligations, reserves for medical expenses and wage loss for former
employees. Carrying amounts of significant assets and liabilities of the discontinued operations are below (in thousands):

Assets

Pension assets, net of obligations

Total Assets

Liabilities

Employee compensation and benefits
Post-retirement

Total Liabilities

December 31

2013

2012

294
294

—
—

34,007
—
34,007

35,703
36,887
72,590

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

Pre-tax loss

2013

December 31
2012

2011

(5) $

(1,215) $

(1,066)

NOTE P—QUARTERLY RESULTS (Unaudited)

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

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

2013

Revenues from continuing operations

143,279

138,904

140,877

8,501
(1)

6,915
(1)

63,810

64,524

0.13

145,506

6,662
(230)

64,050

64,859

0.11

153,554

11,219
(160)

$ 156,963
(42,840)
(1)

64,054

7,799

—

64,052

65,036

0.12

(0.67)
(0.67)

153,826

$ 154,552

11,556
(186)

12,211
(198)

63,431

64,374

63,431

64,393

63,456

64,667

63,525

64,244

0.11

0.10

0.18

0.17

0.18

0.19

Net earnings (loss) from continuing operations

Net loss from discontinued operations
Weighted average shares:

Basic

Diluted

Earnings (loss) per share from continuing operations

Basic

Diluted

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

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, 2013, 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, 2013. 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 (1992).

Based on management’s assessment of those criteria, management believes that, as of December 31, 2013, the

Company’s internal control over financial reporting was effective.

March 10, 2014

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 Transportation Service Group, Inc. and
subsidiaries (the "Company") as of December 31, 2013, based on criteria established in Internal Control - Integrated
Framework (1992) 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, 2013, based on the criteria established in Internal Control - Integrated Framework (1992) 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, 2013 of the Company and our report dated March 10, 2014 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 10, 2014

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 2014 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

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 2014 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 2014
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 2014 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 2014 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

Description

Accounts receivable reserve:

Year ended:

December 31, 2013
December 31, 2012
December 31, 2011

Schedule II—Valuation and Qualifying Account

Balance at
beginning
of period

Additions
charged to
cost and expenses

Deductions

Balance at end
of period

748,929
433,671
1,090,042

193,046
347,686
316,873

225,062
32,428
973,244

716,913
748,929
433,671

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

3.3

3.4

3.5

10.1

10.2

10.3

10.4

10.5

Certificate of Incorporation of Air Transport Services Group, Inc. (formerly known as ABX
Holdings, Inc.). (6)

Bylaws of Air Transport Services Group, Inc. (formerly known as ABX Holdings, Inc.). (6)

Amended and Restated Certificate of Incorporation of Air Transport Services Group, Inc.
reflecting corrections and amendments through May 17, 2013. [This document represents the
Amended and Restated Certificate of Incorporation of Air Transport Services Group, Inc. in
compiled form, incorporating all corrections and amendments. This compiled document has not
been filed with the Delaware Secretary of State.] (20)

Amended and Restated Bylaws of Air Transport Services Group, Inc., reflecting amendments
through May 10, 2013. (20)

Amended and Restated Certificate of Incorporation of Air Transport Services Group, Inc.
reflecting corrections and amendments through August 16, 2013. [This document represents the
Amended and Restated Certificate of Incorporation of Air Transport Services Group, Inc. in
compiled form, incorporating all corrections and amendments. This compiled document has not
been filed with the Delaware Secretary of State.] (21)

Material Contracts

Director compensation fee summary. (10)

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

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)

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

Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (8)

Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007,
by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (8)

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. (7)

Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated
May 8, 2009. (7)

Lease Assumption and Option Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc., dated May 29, 2009. (7)

Air Transportation Services Agreement between DHL Network Operations (USA), Inc. and
ABX Air, Inc, dated March 29, 2010. (10)

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. (10)

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. (10)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc.
2005 Amended and Restated Long-Term Incentive Plan. (11)

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2005 Amended and Restated Long-Term Incentive Plan. (11)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005
Amended and Restated Long-Term Incentive Plan. (11)

Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B
Conversions Limited and Israel Aerospace Industries Ltd. (12)

Letter Agreement, dated October 15, 2010, between Precision Conversions, LLC and Cargo
Aircraft Management, Inc. (13)

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. (14)

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. (14)

Amendment to Confidentiality and Standstill Agreement, dated as of June 11, 2012, between
Air Transport Services Group, Inc. and Red Mountain Capital Partners LLC. (15)

Form of amended and restated change-in-control agreement in effect between Air Transport
Services Group, Inc. and its executive officers. (17)

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. (16)

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

14.1

21.1

23.1

31.1

31.2

32.1

32.2

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.
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. (18)

Amended and Restated Lease Agreement, dated December 27, 2012, between Clinton County
Port Authority and Air Transport Services Group, Inc. (18)

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. (18)

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. (18)

Lease Agreement for the Jump Hangar Facility, dated December 1, 2012, between Clinton
County Port Authority and Air Transport International, LLC. (18)

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. (18)

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. (18)

Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified
March 18, 2013. (19)

Air Transport Services Group, Inc. Nonqualified Deferred Compensation Plan, dated October
31, 2013. (21)

Second Amendment to the Credit Agreement, dated October 22, 2013, 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
Agents. (21)

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)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

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 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 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
Securities and Exchange Commission.
Incorporated by reference to the Company's Proxy Statement for the 2013 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 28, 2013 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 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 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.
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 4, 2013. 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 Form 8-K filed with the Securities and Exchange Commission
on March 18, 2013.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 8, 2013.

(21)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 6, 2013.

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

Title

Date

/S/ JOSEPH C. HETE
Joseph C. Hete

President and Chief Executive Officer (Principal
Executive Officer)

March 10, 2014

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

Title

Date

Director and Chairman of the Board

March 10, 2014

/S/ RICHARD M. BAUDOUIN
Richard M. Baudouin

/S/ JOHN D. GEARY
John D. Geary

Director

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

Director

March 10, 2014

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

March 10, 2014

[THIS PAGE INTENTIONALLY LEFT BLANK]

Air Transport Services Group 2013 Annual Report

Investor Information

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

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

Independent Auditors
Deloitte & Touche LLP
Dayton, Ohio

Annual Meeting
The annual meeting of stockholders
will be May 8, 2014, at 11 a.m. local
time at the Wilmington Air Park,
145 Hunter Drive, Wilmington, Ohio.

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

Board of Directors

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©

INSIDE FRONT COVER

INSIDE BACK COVER

2013 Annual Report

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

OUTSIDE BACK COVER

OUTSIDE FRONT COVER