Air Transport Services Group Annual Report 2018

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2018 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 2018 Annual Report

To Our Shareholders

Investor Information

In 2018, we completed several important

initiatives that substantially advance our
business goals around customer diversification,
an assured supply of additional aircraft assets,
and stable customer relationships for long-term
growth. While achieving those goals, we produced
another year of strong financial results and laid
the groundwork for even better years ahead.

The first initiative I mentioned – diversifying

Our November acquisition of Omni Air
International was a major step forward in that
diversification. Omni brought us a thirteen-
aircraft fleet of Boeing 767 and Boeing 777
passenger aircraft, and a leading role in
providing efficient passenger movement for our
nation’s armed forces. Our primary focus when
deciding among capital allocation alternatives is
to select those that create value by generating

strong sustainable cash flows. This is why we
invest in the Boeing 767 freighter

our customer base – has been a major
objective ever since our spin-off from
the DHL/Airborne merger 15 years
ago, when we were dependent on
a single contract for nearly all of
our revenue. Back then, we
charted a course that would
lead us into new markets by
leveraging our airline roots
while emphasizing our
dedicated-aircraft model. Today,
DHL is one of three principal
ATSG customers, along with many
others that are important sources of
our revenues.

Other
32%

Amazon
27%

DoD
15%

DHL
26%

aircraft, which are preferred by the
operators of e-commerce-driven
regional air networks worldwide.
But sourcing, converting, and
deploying significant numbers of
aircraft can be a lengthy process.
Our acquisition of Omni jump-
starts the realization of strong
sustainable cash flow benefits. To
generate a similar scale of cash flow

Revenue by
Customer

contribution would have otherwise
required incremental 767 fleet growth of
more than 30 aircraft and several years

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

P.O. Box 30170

221 Quality Circle, Ste 210

College Station, TX 77842

Independent Auditors

Deloitte & Touche LLP

Cincinnati, Ohio

Annual Meeting

The annual meeting of stockholders

will be May 9, 2019, at 11 a.m.

local time at The Roberts Centre,

123 Gano Road, Wilmington, Ohio.

Investor Relations

Inquiries may be directed to

investor.relations@ATSGinc.com.

Board of Directors

Randy D. Rademacher

Sr. Vice President, Strategy & Acquisitions,

for Reading Rock, Inc., since 2018. He was the

Sr. Vice President, Chief Financial Officer, of

Reading Rock, Inc. from 2008 to 2018. He also

served as President of Comair Holdings LLC

from 1999 to 2005. Mr. Rademacher has been a

Director of the Company since December 2006

and Chairman of the Board since May 2015.

He serves on the Audit Committee and the

Compensation Committee.

Richard M. Baudouin

Senior Advisor for Infinity Transportation since

2016. Prior to his current role, Mr. Baudouin

was a principal of Infinity Aviation Capital,

LLC, from 2011 to 2016, and was a co-founder

and former managing director of Aviation

Capital Group from 1989 to 2010. Mr.

Baudouin has been a Director of the Company

since January 2013. He is the Chairman of the

Nominating and Governance Committee and

serves on the Audit Committee.

Robert K. Coretz

Principal and founder of 10 Tanker Air Carrier.

Mr. Coretz is the founder and former

chairman of Omni Air International,

Omni Aviation Leasing, and T7 Leasing.

Mr. Coretz has been a Director of the

Company since February 2019.

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.

Raymond E. Johns, Jr. (General USAF Ret.)

Co-Chief Executive Officer, President, Government

and Manufacturing, of FlightSafety International Inc.,

since 2018. Prior to his retirement from the U.S. Air

Force, Mr. Johns led the Air Mobility Command at

Scott Air Force Base in Illinois. Mr. Johns has been a

Director of the Company since October 2017.

He serves on the Audit Committee and the

Nominating and Governance Committee.

Laura Peterson

Vice President, China Business Development, for

Boeing Commercial Airplanes, from 2012 to 2016.

Prior to that, Ms. Peterson held a series of executive

positions at Boeing from 1994 to 2012. Ms. Peterson

has been a Director of the Company since June 2018.

She serves on the Compensation Committee and the

Nominating and Governance Committee.

J. Christopher Teets

Partner of Red Mountain Capital Partners LLC,

an investment management firm, since 2005.

Mr. Teets has been a Director of the Company since

February 2009. He is the Chairman of the

Compensation Committee and serves on the

Nominating and Governance Committee.

Jeffrey J. Vorholt

Independent consultant and private investor.

Mr. Vorholt was formerly a full-time faculty member at

Miami University (Ohio) and concurrently an Adjunct

Professor of Accountancy at Xavier University (Ohio)

from 2001 to 2006. A CPA and attorney, he was

the Chief Financial Officer of Structural Dynamics

Research Corporation from 1994 until its

acquisition by EDS in 2001. Mr. Vorholt has been a

Director of the Company since January 2004.

He is the Chairman of the Audit Committee and

is a member of the Compensation Committee.

INSIDE FRONT COVER

INSIDE BACK COVER

Air Transport Services Group 2018 Annual Report

to fully implement. Omni’s additional public
sector revenues also further immunize us against
volatility in the broad economy.

Omni’s focus on the government market and

ACMI passenger service isn’t entirely new
territory for ATSG. Our Air Transport
International subsidiary has been the U.S.
military’s sole source of mixed passenger/cargo
“combi” airlift for decades. Through both ATI
and our ABX Air airline, we have partnered
with Omni Air on one of two teams of
commercial airlines that compete to supplement
the Defense Department’s own passenger and
cargo fleets. In that role, Omni Air is the U.S.

100

2015

2016

2017

2018

2019
(projected)

Aircraft in Service

Defense Department’s go-to supplemental
passenger carrier, due in part to its go-anywhere,
anytime flexibility and reliability.

Our second initiative was to secure access to
high-quality Boeing 767 passenger aircraft we
could either convert into freighters or continue
to operate in passenger configuration with
Omni Air, as the 767 platform remains in strong
demand in both markets. In a very competitive
process, we bid for and won the rights to acquire
twenty 767s that will be retired from American
Airlines over the next three years. Those twenty,
along with five 767s we bought last year that
were still undergoing conversion at year end,
preserve our position as the world’s largest
leasing source of the preferred aircraft type
among customers seeking medium
widebody freighters.

Extending our leasing and CMI relationships

with DHL and Amazon, our blue chip
commercial customers, was our third major
initiative last year.

In December, we completed agreements with

Amazon that collectively added 48 years of
additional 767 dry lease revenue, as lease
durations for twelve of the existing twenty 767
aircraft we provide to them were extended for

effectively at a fixed interest rate, our borrowing

regional networks alongside our larger 767s, the

cost remains relatively low, and we have ample

A321 is a compelling option for our customers

access to capital to continue to grow at an

because its cubic capacity rivals the midsize

attractive return profile. We expect our increased

Boeing 757, but its operating costs are more in

operating cash flow to keep our debt-to-

line with smaller Boeing 737s.

EBITDA ratio, as computed by our banks, at or

Our role as your leadership team is to make

close to 3.5 times.

sure ATSG’s operating units have the people

Three strong market forces will be at our

and assets they need to serve our existing

backs this year, helping drive our results as we

customers well, and to redeploy the substantial

execute our plans. You can sum those forces up

cash flows they generate toward growth

in one word: Speed.

• One of these forces is the competitive

battleground in retailing, where online

opportunities consistent with our return on

capital objectives. Our emphasis in 2019 will be

on execution and achieving the benefits we

e-commerce competitors are using more

envisioned from the significant strategic

airlift to capture share by augmenting low

initiatives we completed in 2018.

Joseph C. Hete

President & Chief Executive Officer

Air Transport Services Group, Inc.

prices with promises of faster delivery.

• Another is the speed of fresh investment in

end-to-end control of supply chains that

serve both online and fixed retailers, along

with other commercial entities. Those new

and upgraded supply chains often require

dedicated cargo aircraft as part of the mix.

• And a third is the U.S. military’s continued

reliance on efficient commercial air

movement of its personnel around the

globe, coupled with the overall growth in

military spending in the 2019 and proposed

2020 federal budgets.

Our goal is to grow and become more

profitable by remaining the No. 1 source of

dedicated midsize cargo and passenger aircraft

that are essential elements of those commercial

and military networks. Keeping that edge will

require continued focus on reliable on-time

service by our airlines, and a mix of available

aircraft types, including the three Boeing 777s

that we added via Omni Air.

While converted 767 freighters will remain

our investment focus this year, we are already

beginning to support programs to convert other

aircraft types as the pipeline of conversion-ready

767s begins to narrow. Our joint venture with

Precision is targeting certification of a converted

freighter variant of the Airbus A321 airframe

early next year. Like the Boeing 767, the Airbus

A321 has proven its reliability and efficiency as

an integral part of many passenger airline fleets

for 25 years. As a cargo aircraft operating within

Air Transport Services Group 2018 Annual Report

two years and the remaining eight aircraft leases
were extended for three years. Also, we agreed
to lease 10 more 767s to them for 10-year
terms, with deliveries of five each during the
second half of 2019 and 2020. The agreements
include provisions for Amazon to acquire
warrants for the purchase of up to 33.2 percent
of ATSG shares, and warrant incentives for
Amazon to lease up to 17 additional aircraft,
beyond the 30 already committed to be under
lease by the end of 2020.

As this report went to press, we were winding

up the final details of another multi-year
extension of our 15-year relationship with DHL
for lease extensions for fourteen 767s currently
deployed in North America and the Middle
East, and the agreement that covers those we
operate in their domestic network. We look
forward to many more years of comprehensive
aircraft, crew and maintenance service for DHL
as a primary source of its airlift.

The key to extending relationships with
long-time customers is to consistently deliver
high quality service. Toward that end, our
airline subsidiaries invest in and maintain
focus on providing customers with reliable
on-time performance.

Some of the benefits of our 2018 investments

and new customer arrangements will accrue
over time. But our Omni Air acquisition had an
immediate positive effect on our 2018 results
and will generate a substantial portion of our
revenue and cash-flow growth in 2019.

Under Generally Accepted Accounting

Principles, or GAAP, our revenues were $892.3
million for 2018, versus $1.1 billion in 2017.
The revenue was impacted by new GAAP
recognition rules that we adopted, including
one under which costs directly reimbursed to us
and controlled by our customers are now
reported net of the corresponding expenses. If
not for that change, our 2018 revenues would
have increased 15 percent instead of declining.
We reported earnings of $67.9 million, or 89
cents per share diluted in 2018. That compares
with $21.7 million, or 36 cents per share in 2017.
Our operating results overall were strong, as
evidenced by a 27 percent increase in Operating
Cash Flow. But accounting-rule changes and
non-cash gains and losses had a major effect on
our revenues and earnings for 2018 as reported
under GAAP.

The largest year-over-year changes in our
GAAP earnings reflected the continuing gains

and losses from revaluation of unexercised

Transport International represented by the Air

warrants we began issuing to Amazon in 2016,

Line Pilots Association and the flight attendants

and a 2017 gain reflecting the effect of the 2017

represented by the Association of Flight

tax law changes on our deferred tax assets. We

Attendants-CWA ratified amendments to their

reported a $7.1 million gain after tax on those

collective bargaining agreements with ATI.

warrant revaluations in 2018, versus a $77.5

Together with recent multi-year labor agreement

million loss in 2017. The tax-law changes

extensions covering pilots and flight attendants

yielded a $59.9 million non-recurring net gain

at Omni Air, approximately 79 percent of crew

in 2017.

Our improved 2018 operating results

members across our airlines are now covered

under labor agreements with two or more years

stemmed primarily from continued growth in

to run before becoming amendable.

cargo aircraft deployments, and improved results

We are off to another great start in 2019. We

from our airline businesses.

are projecting $400 million in capital

In 2018, we deployed ten newly converted

expenditures, mainly to acquire, convert and

freighter aircraft to customers, including nine

lease more 767s to customers, and support the

Boeing 767s and one Boeing 737, just as we did

maintenance requirements of our expanded fleet.

in 2017. Seven of those 767s leased in 2018, plus

The eight to ten additional 767s we expect to

the 737, were leased to external customers. Our

deploy this year include five freighters we will

leasing entity, CAM, also assumed ownership of

lease to Amazon, plus three we expect to lease to

eleven of Omni Air’s passenger aircraft, which

a major global integrator, nearly all of which will

are leased back to Omni for its military-focused

occur in the second half of the year. Five of

ACMI or charter operations.

those 2019 deployments will be from feedstock

Our airline businesses had sharply higher

767-300s we acquired in 2018.

revenues and profits, due in part to a full year of

Our balance sheet remains strong, even as we

operation for all 20 aircraft we fly for Amazon,

increased our borrowings to fund the Omni Air

plus fourth-quarter contributions from Omni

purchase and acquire additional growth assets.

Air. In March 2018, the unionized pilots of Air

Approximately 50 percent of our debt is

Air Transport Services Group 2018 Annual Report

two years and the remaining eight aircraft leases

Some of the benefits of our 2018 investments

were extended for three years. Also, we agreed

and new customer arrangements will accrue

to lease 10 more 767s to them for 10-year

over time. But our Omni Air acquisition had an

terms, with deliveries of five each during the

immediate positive effect on our 2018 results

second half of 2019 and 2020. The agreements

and will generate a substantial portion of our

include provisions for Amazon to acquire

revenue and cash-flow growth in 2019.

warrants for the purchase of up to 33.2 percent

Under Generally Accepted Accounting

of ATSG shares, and warrant incentives for

Amazon to lease up to 17 additional aircraft,

Principles, or GAAP, our revenues were $892.3

million for 2018, versus $1.1 billion in 2017.

beyond the 30 already committed to be under

The revenue was impacted by new GAAP

lease by the end of 2020.

recognition rules that we adopted, including

As this report went to press, we were winding

one under which costs directly reimbursed to us

up the final details of another multi-year

and controlled by our customers are now

extension of our 15-year relationship with DHL

reported net of the corresponding expenses. If

for lease extensions for fourteen 767s currently

not for that change, our 2018 revenues would

deployed in North America and the Middle

East, and the agreement that covers those we

operate in their domestic network. We look

have increased 15 percent instead of declining.

We reported earnings of $67.9 million, or 89

cents per share diluted in 2018. That compares

forward to many more years of comprehensive

with $21.7 million, or 36 cents per share in 2017.

aircraft, crew and maintenance service for DHL

Our operating results overall were strong, as

as a primary source of its airlift.

The key to extending relationships with

evidenced by a 27 percent increase in Operating

Cash Flow. But accounting-rule changes and

long-time customers is to consistently deliver

non-cash gains and losses had a major effect on

high quality service. Toward that end, our

airline subsidiaries invest in and maintain

focus on providing customers with reliable

on-time performance.

our revenues and earnings for 2018 as reported

under GAAP.

The largest year-over-year changes in our

GAAP earnings reflected the continuing gains

and losses from revaluation of unexercised
warrants we began issuing to Amazon in 2016,
and a 2017 gain reflecting the effect of the 2017
tax law changes on our deferred tax assets. We
reported a $7.1 million gain after tax on those
warrant revaluations in 2018, versus a $77.5
million loss in 2017. The tax-law changes
yielded a $59.9 million non-recurring net gain
in 2017.

Our improved 2018 operating results

stemmed primarily from continued growth in
cargo aircraft deployments, and improved results
from our airline businesses.

In 2018, we deployed ten newly converted
freighter aircraft to customers, including nine
Boeing 767s and one Boeing 737, just as we did
in 2017. Seven of those 767s leased in 2018, plus
the 737, were leased to external customers. Our
leasing entity, CAM, also assumed ownership of
eleven of Omni Air’s passenger aircraft, which
are leased back to Omni for its military-focused
ACMI or charter operations.

Our airline businesses had sharply higher
revenues and profits, due in part to a full year of
operation for all 20 aircraft we fly for Amazon,
plus fourth-quarter contributions from Omni
Air. In March 2018, the unionized pilots of Air

Transport International represented by the Air
Line Pilots Association and the flight attendants
represented by the Association of Flight
Attendants-CWA ratified amendments to their
collective bargaining agreements with ATI.
Together with recent multi-year labor agreement
extensions covering pilots and flight attendants
at Omni Air, approximately 79 percent of crew
members across our airlines are now covered
under labor agreements with two or more years
to run before becoming amendable.

We are off to another great start in 2019. We

are projecting $400 million in capital
expenditures, mainly to acquire, convert and
lease more 767s to customers, and support the
maintenance requirements of our expanded fleet.
The eight to ten additional 767s we expect to
deploy this year include five freighters we will
lease to Amazon, plus three we expect to lease to
a major global integrator, nearly all of which will
occur in the second half of the year. Five of
those 2019 deployments will be from feedstock
767-300s we acquired in 2018.

Our balance sheet remains strong, even as we
increased our borrowings to fund the Omni Air
purchase and acquire additional growth assets.
Approximately 50 percent of our debt is

Air Transport Services Group 2018 Annual Report

regional networks alongside our larger 767s, the
A321 is a compelling option for our customers
because its cubic capacity rivals the midsize
Boeing 757, but its operating costs are more in
line with smaller Boeing 737s.

Our role as your leadership team is to make
sure ATSG’s operating units have the people
and assets they need to serve our existing
customers well, and to redeploy the substantial
cash flows they generate toward growth
opportunities consistent with our return on
capital objectives. Our emphasis in 2019 will be
on execution and achieving the benefits we
envisioned from the significant strategic
initiatives we completed in 2018.

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

to fully implement. Omni’s additional public

Defense Department’s go-to supplemental

sector revenues also further immunize us against

passenger carrier, due in part to its go-anywhere,

volatility in the broad economy.

anytime flexibility and reliability.

Omni’s focus on the government market and

Our second initiative was to secure access to

ACMI passenger service isn’t entirely new

territory for ATSG. Our Air Transport

International subsidiary has been the U.S.

high-quality Boeing 767 passenger aircraft we

could either convert into freighters or continue

to operate in passenger configuration with

military’s sole source of mixed passenger/cargo

Omni Air, as the 767 platform remains in strong

“combi” airlift for decades. Through both ATI

demand in both markets. In a very competitive

and our ABX Air airline, we have partnered

with Omni Air on one of two teams of

process, we bid for and won the rights to acquire

twenty 767s that will be retired from American

commercial airlines that compete to supplement

Airlines over the next three years. Those twenty,

the Defense Department’s own passenger and

along with five 767s we bought last year that

cargo fleets. In that role, Omni Air is the U.S.

were still undergoing conversion at year end,

100

2015

2016

2017

2018

2019

(projected)

Aircraft in Service

preserve our position as the world’s largest

leasing source of the preferred aircraft type

among customers seeking medium

widebody freighters.

Extending our leasing and CMI relationships

with DHL and Amazon, our blue chip

commercial customers, was our third major

initiative last year.

In December, we completed agreements with

Amazon that collectively added 48 years of

additional 767 dry lease revenue, as lease

durations for twelve of the existing twenty 767

aircraft we provide to them were extended for

effectively at a fixed interest rate, our borrowing
cost remains relatively low, and we have ample
access to capital to continue to grow at an
attractive return profile. We expect our increased
operating cash flow to keep our debt-to-
EBITDA ratio, as computed by our banks, at or
close to 3.5 times.

Three strong market forces will be at our
backs this year, helping drive our results as we
execute our plans. You can sum those forces up
in one word: Speed.

• One of these forces is the competitive
battleground in retailing, where online
e-commerce competitors are using more
airlift to capture share by augmenting low
prices with promises of faster delivery.

• Another is the speed of fresh investment in
end-to-end control of supply chains that
serve both online and fixed retailers, along
with other commercial entities. Those new
and upgraded supply chains often require
dedicated cargo aircraft as part of the mix.
• And a third is the U.S. military’s continued

reliance on efficient commercial air
movement of its personnel around the
globe, coupled with the overall growth in
military spending in the 2019 and proposed
2020 federal budgets.

Our goal is to grow and become more
profitable by remaining the No. 1 source of
dedicated midsize cargo and passenger aircraft
that are essential elements of those commercial
and military networks. Keeping that edge will
require continued focus on reliable on-time
service by our airlines, and a mix of available
aircraft types, including the three Boeing 777s
that we added via Omni Air.

While converted 767 freighters will remain
our investment focus this year, we are already
beginning to support programs to convert other
aircraft types as the pipeline of conversion-ready
767s begins to narrow. Our joint venture with
Precision is targeting certification of a converted
freighter variant of the Airbus A321 airframe
early next year. Like the Boeing 767, the Airbus
A321 has proven its reliability and efficiency as
an integral part of many passenger airline fleets
for 25 years. As a cargo aircraft operating within

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, 2018

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 every Interactive Data File required to be submitted 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 such files). YES

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”
and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
Non-accelerated filer

Accelerated filer
Emerging growth company

Smaller reporting company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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:
$1,307,024,419. As of March 1, 2019, 59,142,273 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 9, 2019 are incorporated by reference into
Parts II and III.

FORWARD LOOKING STATEMENTS

This annual report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
in Item 7, contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks
and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any
statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as
“future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar
terms. Forward-looking statements are not guarantees of future performance and the Company’s actual results may differ significantly from
the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to, those discussed
in “Risk Factors” in Item 1A . The Company assumes no obligation to revise or update any forward-looking statements for any reason, except
as required by law.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
2018 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Item 1.

Business

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

PART I

PART II

Item 5.

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

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

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

90
90

[THIS PAGE INTENTIONALLY LEFT BLANK]

PART I

ITEM 1. BUSINESS

Company Overview

Air Transport Services Group, Inc. leases aircraft and provides airline operations, ground services, aircraft
modification and maintenance services, and other support services to the air transportation and logistics industries.
Through the Company's subsidiaries, we offer a range of complementary services to delivery businesses, freight
forwarders, airlines and government customers. (When the context requires, we may use the terms “Company” and
“ATSG” in this report to refer to the business of ATSG and its subsidiaries on a consolidated basis.) We offer standalone
services along with bundled, customized solutions, scalable to our customers' needs. Our services are summarized
below.

Aircraft leasing: We lease aircraft through the Company's leasing subsidiary, Cargo Aircraft Management, Inc.
(“CAM”). CAM's fleet consists of Boeing 737, 757 and 767 cargo aircraft, Boeing 767 and 777 passenger aircraft and
Boeing 757 "combi" aircraft which simultaneously carry passengers and cargo on the main deck. CAM services global
demand for cargo airlift by offering Boeing 767, 757 and 737 aircraft leases. CAM is able to provide competitive lease
rates by converting passenger aircraft into cargo freighters. CAM monitors the market for available passenger aircraft,
typically 15 to 20 years beyond their original manufacture date. After evaluation of an aircraft's condition and technical
specifications, CAM acquires passenger aircraft that meet its requirements for projected into-service costs and rate of
return targets. After conversion to freighter configuration, CAM's aircraft can be deployed into markets more
economically than newly built freighters. CAM's aircraft leases are typically under multi-year agreements.

Airline operations: We offer combinations of aircraft, crews, maintenance and insurance services to provide
customized transportation capacity to our customers. ATSG wholly owns three airlines, ABX Air, Inc. (“ABX”), Air
Transport International, Inc. (“ATI”), and Omni Air International, LLC ("OAI") which are each independently
certificated by the U.S. Department of Transportation and separately offer services to customers. ABX operates Boeing
767 freighter aircraft, ATI operates Boeing 767 and 757 freighter and Boeing 757 combi aircraft and OAI operates
Boeing 767 and 777 passenger aircraft.

Support services: We provide transportation related services such as aircraft maintenance, crew training and ground
handling to delivery companies, freight forwarders and other airlines. Customers who lease our aircraft often need
related support services. Offering support services provides us with a competitive advantage for diversification and
incremental revenues. Our businesses and subsidiaries providing support services are summarized below:

• Ground services: We provide load transfer and sorting services, as well as related maintenance services for
material handling equipment, ground equipment and facilities through our LGSTX Services, Inc. (“LGSTX”)
subsidiary. LGSTX also rents ground equipment and sells aviation fuel in Ohio.

• Aircraft maintenance and modification services: We provide airframe modification and maintenance,
component repairs, engineering services and aircraft line maintenance through our subsidiaries Airborne
Maintenance and Engineering Services, Inc. (“AMES”) and Pemco World Air Services, Inc. ("Pemco"). AMES
Material Services, Inc. ("AMS") resells and brokers aircraft parts. We provide line maintenance services at
certain airports.

•

Flight support services: We also offer flight crew training.

The business development and marketing activities of our operating subsidiaries are supported by the Company's
Airborne Global Solutions, Inc. ("AGS") subsidiary. AGS markets the various services and products offered by our
subsidiaries by bundling solutions that leverage the entire portfolio of our subsidiaries' capabilities and experience in
global cargo operations. Our bundled services are flexible and scalable to complement our customers' own resources
and support our operational growth. Further, AGS assists our subsidiaries in achieving their sales and marketing plans
by identifying their customers' business and operational requirements while providing sales leads.

Business Development

The Company is incorporated in Delaware and its headquarters is in Wilmington, Ohio. The Company's common
shares are publicly traded on the NASDAQ Stock Market under the symbol ATSG. ATSG was formed in 2007 for the

purpose of creating a holding company structure that resulted in its predecessor, ABX, which was incorporated in 1980,
becoming a subsidiary of the Company.

We have had multi-year contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL") since August
2003. In 2010, we entered into commercial agreements with DHL under which DHL leased thirteen Boeing 767 freighter
aircraft from CAM and ABX operates those aircraft under a separate crew, maintenance and insurance agreement. The
initial term of the operating agreement was five years, while the terms of the aircraft leases were seven years. Effective
April 1, 2015, the Company and DHL amended and restated the agreements (together, the "CMI agreement") which
extended the Boeing 767 aircraft lease terms and the operation of those aircraft through March 2019. The expiring
Boeing 767 aircraft leases and CMI agreement with DHL are expected to be renewed in March 2019 under terms similar
to the existing terms.

On November 9, 2018, we acquired OAI, a passenger airline, along with related entities Advanced Flight Services,
LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC (referred to collectively herein as "Omni"). OAI is
a leading provider of contracted passenger airlift for the U.S. Department of Defense ("DoD") via the Civil Reserve
Air Fleet ("CRAF") program, and a provider of full-service passenger charter and ACMI services. OAI carries
passengers worldwide for a variety of private sector customers and other government services agencies. The addition
of Omni expanded our customer solution offerings primarily through additional passenger transportation capabilities
and the authority to operate Boeing 777 aircraft. The acquisition increased the Company's revenues, cash flows and
customer diversification. (Additional information about the acquisition of Omni is presented in Note B to the
accompanying consolidated financial statements.)

In September 2015, we began to operate a trial air network for Amazon.com Services, Inc. ("ASI"), the successor
to Amazon Fulfillment Services, Inc., a subsidiary of Amazon.com, Inc. (“Amazon”). We provided cargo handling
and logistical support as the network grew to five dedicated Boeing 767 freighter aircraft during 2015. On March 8,
2016, the Company and ASI entered into an Air Transportation Services Agreement (the “ATSA”) which became
effective April 1, 2016. Pursuant to the ATSA, CAM leases 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing
767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years.
Under the ATSA, ABX and ATI operate those aircraft for an initial term of five years while our LGSTX subsidiary
provides gateway services for ASI at certain airports.

In conjunction with the execution of the original ATSA, the Company and Amazon entered into an Investment
Agreement and a Stockholders Agreement, each dated March 8, 2016. The Investment Agreement calls for the Company
to issue warrants in three tranches, which will result in Amazon having the right to acquire up to 19.9% of the Company’s
outstanding common shares measured as further described below. The first tranche of warrants, issued upon execution
of the Investment Agreement, grants Amazon the right to purchase approximately 12.81 million ATSG common shares,
all of which are now vested. The second tranche of warrants, which were issued and vested on March 8, 2018, grants
Amazon the right to purchase approximately 1.59 million ATSG common shares. The third tranche of warrants will
be issued on September 8, 2020 and will also vest immediately upon issuance. The third tranche of warrants will grant
Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s
ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis,
adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement, after
giving effect to the issuance of the warrants. Each of the three tranches of warrants will be exercisable in accordance
with its terms through the fifth anniversary of the date of the Investment Agreement. The exercise price of the warrants
is $9.73 per share, which represents the closing price of ATSG’s common shares on February 9, 2016.

On December 22, 2018 we announced amendments to the agreements with Amazon to 1) lease and operate ten
additional Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to
ASI by two years to 2023, with an option for three additional years, 3) extend the term of the eight Boeing 767-300
aircraft currently leased to ASI by three years to 2026 and 2027, with an option for three additional years and 4) extend
the ATSA for five years through March 2026, with an option to extend for an additional three years. We plan to deliver
five of the 767-300 aircraft in 2019 and the remainder in 2020, each under a ten year lease.

leases are executed and added to the ATSA operations. These new warrants will expire if not exercised within seven
years from their issuance date. They have an exercise price of $21.53 per share, based on the volume-weighted average
price of the Company's shares over the 30 trading days' immediately preceding execution of a non-binding term sheet
by the parties on October 29, 2018.

Additionally, Amazon will be able to earn incremental warrant rights, increasing its potential ownership from
33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo aircraft from the Company
before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will
have an exercise price of the $21.53 referenced above, provided the parties reach binding agreements on future lease
terms before April 2019. Beginning in April 2019, the exercise price of incremental warrants related to future aircraft
leases will be based on the volume-weighted average price of ATSG’s shares during the 30 trading days immediately
preceding the contractual commitment for each lease.

The warrants potentially issuable under these new agreements with Amazon will require an increase in the number
of authorized common shares of ATSG. We intend to submit a proposal calling for an appropriate increase in the number
of authorized common shares for shareholder consideration at the Company’s next annual meeting of shareholders in
May 2019.

In December 2018, we entered into an agreement to acquire twenty Boeing 767-300 extended-range passenger
aircraft over the next three years. The aircraft covered by this agreement are currently operated by American Airlines.
They were manufactured between 1993 and 2003, and are powered by General Electric CF6-series engines. We will
begin to acquire the aircraft during 2019 and currently expect to begin freighter modification of six of the twenty Boeing
767-300 aircraft during 2019, up to nine during 2020, and no fewer than five in 2021.

In January 2014, we 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 Atlantic Sweden AB, operates a fleet of approximately 40
cargo aircraft. 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
767 and 737 aircraft. We account for our equity interest under the equity method of accounting.

In December 2016, we acquired Pemco. Pemco provides aircraft maintenance, modification, and engineering
services. Pemco is based at the Tampa International Airport where it operates a two-hangar aircraft facility of 311,500
square feet and employs approximately 370 people. Pemco is a leading provider of passenger-to-freighter conversions
for Boeing 737-300 and 737-400 aircraft, having redelivered over 50 Boeing 737 converted aircraft to Chinese operators
over ten years. Pemco's aircraft conversion capabilities and aircraft hangar operations are marketed with our other air
transportation support services.

On August 3, 2017, we entered into a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop
a passenger-to-freighter conversion program for Airbus A321-200 aircraft. We anticipate approval of a supplemental
type certificate in 2020. We expect to make contributions equal to our 49% ownership percentage of the program's
total costs over the next year. We account for our investment in the joint venture under the equity method of accounting.

Revenue Information

The Company has three reportable segments, "CAM" which includes aircraft and engine leasing, “ACMI Services"
which includes the airlines' operations and "MRO Services." which includes the operations of AMES and Pemco. Our
other business operations, including load transfer and package sorting services as well as ground equipment leasing
and maintenance do not constitute reportable segments due to their size. Segment revenues for 2018 are summarized
below (in thousands):

CAM

ACMI
Services

MRO Services

Other Support
Services

External revenues (in
thousands)

$156,516

$548,804

$117,832

$69,193

Customer revenues for 2018 are summarized below.

DHL

Amazon

DoD

Other

Percent of consolidated
revenues

26%

27%

15%

32%

Revenues include the activities of Omni for periods since its acquisition by the Company on November 9, 2018.
Additional financial information about our segments and revenues is presented in Note O to the accompanying
consolidated financial statements.

Description of Business

CAM

CAM leases aircraft to ATSG's airlines and to external customers, including DHL and Amazon, 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 existed at the inception of the lease, as measured
by airframe and engine time and cycles 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.

As of December 31, 2018, CAM’s fleet consisted of 91 serviceable Boeing 777, 767, 757 and 737 passenger and
cargo aircraft. A complete list of the Company's aircraft is included in Item 2, Properties. Through CAM and the
acquisition of Omni, we have expanded in recent years the Company's combined fleet of Boeing 777, 767, 757 and
737 aircraft. Since the beginning of 2016, CAM has managed the modification of 23 Boeing 767-300 passenger aircraft
to a freighter configuration and two Boeing 737 passenger aircraft to a freighter configuration. CAM added two Boeing
767-200 passenger aircraft, six Boeing 767-300 passenger aircraft and three Boeing 777-200 passenger aircraft through
the Company's acquisition of Omni on November 9, 2018.

ACMI Services

ACMI Services consists of the operations of the Company's three airline subsidiaries. Through the airlines, we
provide airlift operations to DHL, Amazon, the DoD and other transportation customers. A typical operating agreement
requires our airline to supply, at a specific rate per block hour and/or per month, a combination of aircraft, crew,
maintenance and insurance for specified transportation operations. These services are commonly referred to as ACMI,
CMI or Charter services depending on the selection of services contracted by the customer. The customer bears the
responsibility for capacity utilization and unit pricing in all cases.

ACMI - The airline provides the aircraft, flight crews, aircraft maintenance and aircraft hull and liability
insurance while the customer is typically responsible for substantially all other aircraft operating expenses,
including fuel, landing fees, parking fees and ground and cargo handling expenses.

CMI -The customer is responsible for providing the aircraft, in addition to the fuel and other operating
expenses. The airline provides the flight crews, aircraft hull and liability insurance and typically aircraft line
maintenance as needed between network flights.

Charter - The airline is responsible for providing full service, including fuel, aircraft, flight crews,
maintenance, aircraft hull and liability insurance, landing fees, parking fees, ground and cargo handling
expenses and other operating expenses for an all-inclusive price.

Our airlines participate in the DoD CRAF Program which allows our airlines to bid for military charter operations
for passenger and cargo transportation. Our airlines provide charter operations to the Air Mobility Command ("AMC")
through contracts awarded by the U.S. Transportation Command ("USTC"), both of which are organized under the
DoD. The USTC secures airlift capacity through fixed awards, which are awarded annually, and through bids for
"expansion routes" which are awarded on a quarterly, monthly and as-needed basis. Under the contracts, we are

responsible for all operating expenses including fuel, landing and ground handling expenses. We receive reimbursements
from the USTC each month if the price of fuel paid by us for the flights exceeds a previously set peg price. If the price
of fuel paid by us is less than the peg price, then we pay the difference to the USTC. Airlines may participate in the
CRAF program either independently, or through teaming arrangements with other airlines. Our airlines are members
of the Patriot Team of CRAF airlines. We pay a commission to the Patriot Team, based on certain revenues we receive
under USTC contracts.

ATI contracts with the USTC to operate 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 DoD since 1993. In January 2018, the USTC contracted with ATI to provide combi aircraft operations through
December 2021 and awarded ATI three international routes for combi aircraft for 2019. OAI has been operating aircraft
for the DoD since 1995. Contracts with the USTC are typically for a one-year period, however, the current passenger
international charter contract has a two year term with option periods through September 2024.

Approximately 8% of the Company's consolidated revenues for 2018 were derived from providing airline operations
for customers other than DHL, Amazon and the DoD. These ACMI and charter operations are typically provided to
delivery companies, freight forwarders, vacation businesses and other airlines.

We provide contracted transportation capacity to our customers. We do not sell passenger travel tickets, nor do
we sell individual package delivery services. Our airlines operate wide-body and medium wide-body aircraft usually
on intra-continental flights and medium and long range inter-continental flights. The airlines typically operate our
freighter aircraft in the customers' regional networks that connect to and from global cargo networks. The aircraft 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 aircraft, such as the Boeing 747 and Airbus A380.

Demand for air transportation 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 air 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.

We have limited exposure to fluctuations in the price of aviation fuel under contracts with our customers. DHL
and Amazon, like most of our ACMI customers, procure 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, AMES and
Pemco subsidiaries. These subsidiaries have technical expertise related to aircraft modifications through a 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. We market our subsidiaries capabilities by identifying aviation-related maintenance and modification
opportunities and matching them to customer needs.

AMES operates in Wilmington, Ohio, a repair station certified by the Federal Aviation Administration (“FAA”)
under Part 145 of the Federal Aviation Regulations, including hangars, a component shop and engineering capabilities.
AMES is AS9100 quality certified for the aerospace industry. AMES’ marketable capabilities include the installation
of avionics systems and flat panel displays for Boeing 757 and 767 aircraft. The Wilmington facility is capable of
servicing airframes as large as the Boeing 747-400 and the Boeing 777 aircraft. AMES , through its Pemco subsidiary,
also operates an FAA certificated Part 145 repair station from a two hangar facility in Tampa, Florida. The Tampa
location has the capability to perform airframe maintenance on Boeing 767, 757, 737, McDonnell Douglas MD-80,
Airbus A320, A321 and various regional jet model aircraft. We have the ability to perform line maintenance and airframe
maintenance on McDonnell Douglas MD-80, Boeing 767, 757, 737, 777, 727 and Airbus A320 aircraft. We also have
the capability to refurbish airframe components, including approximately 60% of the components utilized by Boeing

767 aircraft. Through Pemco, we also perform aircraft modification and engineering services, including passenger-to-
freighter and passenger-to-combi conversions for Boeing 737-200, Boeing 737-300, Boeing 737-400, and 737-700
series aircraft.

AMS is an Aviation Suppliers Association, ASA 100 Accredited reseller and broker of aircraft parts. AMS carries
an inventory of Boeing 767, 757 and 737 spare parts and also maintains inventory on consignment from original
equipment manufacturers, resellers, lessors and other airlines. AMS's 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.

Ground Services

Through the Company's LGSTX subsidiaries, we provide labor and management for load transfer and sorting
services at certain facilities inside or near airports in the U.S. LGSTX also arranges similar load transfer services to
support ASI at certain locations. ASI can terminate these services at one or any location after giving a brief notice
period. LGSTX also provides maintenance services for material handling and sorting equipment as well as ground
support equipment 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, ground handlers, airlines and other customers.
LGSTX is also licensed to resell aircraft fuel. Additionally, we provide international mail forwarding services through
the John F. Kennedy International Airport and the O'Hare International Airport.

We provided mail sorting services at various United States Postal Service ("USPS") locations between September
2004 and September 2018. The contracts for the five USPS facilities we serviced were not renewed with us after they
expired during September 2018.

Flight Support

ABX and OAI are FAA certificated to offer flight crew training to customers. ABX has three flight simulators
which can be rented for customer outside training programs. The Boeing 767 and DC-9 level C simulators allow ABX
to qualify flight crewmembers under FAA requirements without performing check flights in an aircraft.

Competitive Conditions

Our airline subsidiaries compete with other airlines to place aircraft under ACMI arrangements and charter contracts.
Other cargo airlines include Amerijet International, Inc., Atlas Air, Inc., Kalitta Air LLC, Northern Air Cargo, LLC,
National Air Cargo Group, Inc., Southern Air, Inc. and Western Global Airlines, LLC. Of these, Atlas Air, Inc. also
operates passenger aircraft. The primary competitive factors in the air transportation industry are operating costs, fuel
efficiency, geographic coverage, aircraft range, aircraft reliability and capacity. The cost of airline operations is
significantly impacted by the cost of flight crewmembers, which can vary among airlines depending on their collective
bargaining agreements. Cargo airlines also compete for cargo volumes with passenger airlines that have substantial
belly cargo capacity. The air transportation industry is capital intensive and highly competitive, especially during
periods of excess capacity of aircraft compared to commercial cargo volumes and DoD requirements.

The scheduled delivery industry is dominated by integrated door-to-door delivery companies including DHL, the
USPS, FedEx Corporation, United Parcel Service, Inc. and ASI. 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 wide-body airlift. Competitors in the
aircraft leasing markets include GE Capital Aviation Services and Altavair Aviation Leasing, among others.

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. Other
aircraft MROs include AAR Corp and Hong Kong Aircraft Engineering Co.

Airline Operations

Flight Operations and Control

The Company's airline operations are conducted pursuant to authority granted to each of them by the FAA and the
U.S. Department of Transportation ("DOT"). Airline flight operations, including aircraft dispatching, flight tracking,
crew training 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. The FAA prescribes the requirements,
methods and means by which air carrier flight operations are conducted, including but not limited to the qualifications
and training of flight crew members, the release of aircraft for flight, the tracking of flights, the time crew members
can be on duty, aircraft operating procedures, proper navigation of aircraft, compliance with air traffic control instructions
and other operational functions.

Aircraft Maintenance

Our airlines’ operations are regulated by the FAA for aircraft safety and maintenance. Each airline performs routine
inspections and airframe maintenance in accordance with applicable FAA-approved aircraft maintenance programs.
In addition, the airlines build into their maintenance programs FAA-mandated Airworthiness Directive and manufacturer
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 and Pemco, to perform heavy 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 quantity of spare items maintained is based on the fleet size, engine type operated and the
reliability history of the item types.

Security

The Transportation Security Administration (“TSA”) requires ABX and ATI to comply with security protocols as
set out in each carrier’s standard all-cargo aircraft operator security plan containing extensive security practices and
procedures that must be followed. The security plan provides for the conducting of background checks on those with
access to cargo and/or aircraft, the securing of the aircraft while on the ground, the acceptance and screening of cargo
to be moved by air, the handling of suspicious cargo and the securing of cargo ground facilities, among other
requirements. Comprehensive internal audit and evaluation programs are actively mandated and maintained. In the
case of OAI, a passenger carrier, additional requirements apply including passenger and baggage screening, airport
terminal security, assessment and distribution of intelligence including the TSA "no-fly" list, and threat response.

Customers are required to inform the airlines in writing of the nature and composition of any freight which is
classified as "Hazardous Materials" or “Dangerous Goods” by the DOT. Notwithstanding these procedures, our airline
subsidiaries could unknowingly transport contraband or undeclared hazardous materials for customers, or could
unknowingly transport an unauthorized passenger or one on possession of an unauthorized item, which could result in
fines and penalties and possible damage to the aircraft.

Insurance

Our airline subsidiaries are required by the 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, 2018, the Company had approximately 3,830 full-time and part-time employees. The Company
employed approximately 770 flight crewmembers, 350 flight attendants, 1,800 aircraft maintenance technicians and
flight support personnel, 560 employees for airport maintenance and logistics, 45 employees for sales and marketing
and 305 employees for administrative functions. In addition to full time and part time employees, the Company

typically has approximately 300 temporary employees mainly serving the aircraft line maintenance operations. On
December 31, 2017, the Company had approximately 3,010 full-time and part-time 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, 2018.

Airline

ABX
ATI
Omni
ATI
Omni

Labor Agreement Unit

International Brotherhood of Teamsters
Air Line Pilots Association
International Brotherhood of Teamsters
Association of Flight Attendants
Association of Flight Attendants

Contract
Amendable
Date

12/31/2014
11/14/2023
4/1/2021
11/14/2023
12/1/2021

Percentage of
the Company’s
Employees

6.5%
6.7%
6.9%
1.0%
8.2%

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 dispatchers and flight followers receive FAA approved training on the
airlines' requirements and specific aircraft.

Intellectual Property

The Company owns many STCs issued by the FAA. The Company uses these STCs mainly in support of its own

fleets; however, AMES and Pemco have marketed certain STCs to other airlines.

Information Systems

We are dependent on technology to conduct our daily operations including data processing, communications and
regulatory compliance. We rely on critical computerized systems for aircraft maintenance records, flight planning,
crew scheduling, employee training, financial records and other processes. We utilize information 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 maintenance schedules and also control inventories and maintenance tasks, including the
work directives of personnel performing those tasks. We rely on information systems to track crewmember flight and
duty times, and crewmember training status. The Company’s flight operations systems coordinate flight schedules and
crew schedules.

We invest significant time and financial resources to acquire, develop and maintain information systems to facilitate
our operations. Our information technology infrastructure includes security measures, backup procedures and

redundancy capabilities. We rely increasingly on third party applications and hosted technologies. To remain
competitive we must continue to deploy new technologies while controlling its costs and maintaining regulatory
compliance.

Regulation

Our subsidiaries’ airline operations are primarily regulated by the DOT, the FAA and the TSA. Those operations
must comply with numerous economic, safety, security and environmental laws, ordinances and regulations. In addition,
they must comply with various other federal, state, local and foreign laws and regulations.

Environment

The U.S. Environmental Protection Agency ("EPA") is authorized to regulate aircraft emissions and has historically
implemented emissions control standards adopted by the International Civil Aviation Organization ("ICAO"). In 2016,
however, the EPA issued a finding on greenhouse gas ("GHG") emissions from aircraft and its relationship to air
pollution. This finding is a regulatory prerequisite to the EPA’s adoption of a new certification standard for aircraft
emissions. 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 EPA may adopt regulations requiring reductions
in emissions for one or more localities based on the measured air quality at such localities. These 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 GHG 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 GHG emissions to the airline industry. Currently, under the European Union’s ETS, all ABX, ATI
and OAI flights that are wholly within the European Union are covered by the ETS requirements, and each year our
airlines are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such
flights. If the airline's 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. Our airlines operate intra-EU flights from time to time and management believes that such flights are operated
in compliance with ETS requirements.

Similarly, in 2016, the ICAO passed a resolution adopting the Carbon Offsetting and Reduction Scheme for
International Aviation (“CORSIA”), which is a global, market-based emissions offset program to encourage carbon-
neutral growth beyond 2020. A pilot phase is scheduled to begin in 2021 in which countries may voluntarily participate,
and full mandatory participation is scheduled to begin in 2027. ICAO continues to develop details regarding
implementation, but compliance with CORSIA will increase our operating costs.

However, the U.S. recently withdrew from the Paris climate accord, an agreement among 196 countries to reduce
GHG emissions, and the effect of that withdrawal on future U.S. policy regarding GHG emissions, on CORSIA and
on other GHG regulation is uncertain.

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 and international air transportation serving the United
States, such as consumer protection, accommodation of passengers with disabilities, requiring a minimum level of
insurance and the requirement that a company 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 certain international routes.
9

The DOT has issued to 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 more than 120 foreign
countries. ABX and ATI also hold 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. The DOT has issued to OAI a Certificate of Public Convenience and Necessity for Interstate Charter Air
Transportation and a Certificate of Public Convenience and Necessity for Foreign Charter Air Transportation that
authorizes it to engage in interstate and foreign charter air transportation of persons, property and mail.

By maintaining these certificates, the Company, through ABX and ATI, can and currently does conduct all-cargo
charter operations worldwide subject to the receipt of any necessary foreign government approvals. Further, the
certificates issued to ATI and OAI authorize the air carriers to conduct passenger charter operations worldwide subject
to the receipt of any necessary foreign government approvals. 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 and does undertake.

The DOT has the authority to impose civil penalties, or to modify, suspend or revoke our certificates and exemption
authorities for cause, including failure to comply with federal laws or DOT regulations. A corporation or a limited
liability company structured like a corporation holding the above-referenced certificates and exemption authorities
must continuously 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 no more 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
each 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 detailed "operations specifications" to carriers that possess the
technical competence to safely 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, ATI and OAI believe they hold
all airworthiness and other FAA certificates and authorities required for the conduct of their business and the operation
of their aircraft. The FAA has the power to suspend, modify or revoke such certificates for cause and to impose civil
penalties for any failure to comply with federal laws and FAA regulations.

The FAA has the authority to issue regulations, airworthiness directives and other mandatory orders relating to,
among other things, the inspection, maintenance and modification of aircraft and the replacement of aircraft structures,
components and parts, based on industry safety findings, 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 regulations and airworthiness directives as conditions warrant, the FAA
has adopted new regulations to address issues involving aging, but still economically viable, aircraft on a more systematic
basis. FAA regulations mandate that aircraft manufacturers establish aircraft limits of validity and service action

requirements based on the number of aircraft flight cycles (a cycle being one takeoff and one landing) and flight hours
before widespread fatigue damage might occur. Service action requirements include inspections and modifications to
preclude development of significant fatigue damage in specific aircraft structural areas. The Boeing Company has
provided its recommendations of the limits of validity to the FAA, and the FAA has now approved the limits for the
Boeing 757, 767 and 777 model aircraft. Consequently, after the limit of validity is reached for a particular model
aircraft, air carriers will be unable to continue to operate the aircraft without the FAA first granting an extension of
time to the operator. There can be no assurance that the FAA would extend the deadline, if an extension were to be
requested. For the oldest aircraft in our fleets, we estimate the limit of validity would not be reached for at least 20
years.

The FAA requires each of our airline subsidiaries to implement a drug and alcohol testing program with respect to
all employees performing safety sensitive functions and, unless already subject to testing, contractor employees that
engage in safety sensitive functions. Each of the Company's airlines complies with these regulations.

Transportation Security Administration

The TSA, an administration within the Department of Homeland Security, is responsible for the screening of
passengers and their baggage. TSA rules also dictate the manner in which cargo must be screened prior to being loaded
on aircraft. Our airline subsidiaries comply with all applicable aircraft, passenger and cargo security requirements.
The TSA has adopted cargo security-related rules that have imposed additional burdens on our airlines and our customers.
The TSA also 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. The TSA holds (and has exercised) authority to issue regulations, including in cases of emergency the
authority to do so without advance notice, including issuance of a grounding order as occurred on September 11, 2001.
TSA's enforcement powers are similar to the DOT's and FAA's described above.

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. Such authorities have
enforcement powers generally similar to those of the U.S. agencies described above.

Data Protection

There has recently been increased regulatory and enforcement focus on data protection in the U.S. (at both the state
and federal level) and in other countries. For example, the European Union ("E.U.") General Data Protection Regulation
("GDPR"), which became effective in May 2018, greatly increases the jurisdictional reach of E.U. law and increases
the requirements related to personal data, including individual notice and opt-out preferences and public disclosure of
significant data breaches. Additionally, violations of the GDPR can result in significant fines. Other governments have
enacted or are enacting similar data protection laws, and are considering data localization laws that would govern the
use of data outside of their respective jurisdictions.

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 issues landing rights, inspects passengers entering the United States,
and inspects cargo imported to the U.S. from our subsidiaries’ international operations, and those operations
are subject to similar regulatory requirements in foreign jurisdictions;

The Company and its subsidiaries must comply with U.S. Citizenship and Immigration Services regulations
regarding the eligibility of our employees to work in the U.S., and the entry of passengers to the U.S.;

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

The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury and other government
agencies administer and enforce economic and trade sanctions based on U.S. foreign policy, which may
limit our business activities in and for certain areas.

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, and is incorporated in this item by reference.

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.

A limited number of key customers are critical to our business and the loss of one or more of such customers could
materially adversely affect our business, results of operations and financial condition.

Our business is dependent on a limited number of key customers. There is a risk that any one of our key customers
may not renew their contracts with us on favorable terms or at all, perhaps due to reasons beyond our control. As
discussed below, certain key customers have the opportunity to terminate their agreements in advance of the expiration
date.

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

Air 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, Amazon and other delivery
businesses, in particular expedited shipping services utilizing aircraft, as well as the demand for the chartered passenger
flights OAI operates. Further, during an economic slowdown, cargo customers generally prefer to use ground-based
or marine transportation services instead of more expensive air transportation services. Accordingly, an economic
downturn could reduce the demand for airlift and aircraft leases. Additionally, if the price of aviation fuel rises
significantly, the demand for aircraft and air transportation services may decline. During periods of downward economic
trends and rising fuel costs, freight forwarders and integrated delivery businesses are more likely to defer market
expansion plans. When the cost of air transportation increases, the demand for passenger transportation may decline.
We may experience delays in the deployment of available aircraft with customers under lease, ACMI or charter
arrangements and our revenues may be adversely affected.

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

Each airline develops business proposals for the performance of ACMI, CMI, charter and other services for its
customers, including DHL, ASI and the DoD, by projecting operating costs, crew productivity and maintenance
expenses. Projections contain key assumptions, including maintenance costs, 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 business
proposals. If actual costs are higher than projected or aircraft reliability is less than expected, future operating results
may be negatively impacted. Lastly, because the majority of OAI's business currently consists of flights chartered by
the U.S. Department of Defense (DoD) for the transportation of DoD personnel, a downturn in DoD's need for such
services could adversely affect OAI's operating results.

The Company’s airlines rely on flight crews that are unionized. If collective bargaining agreements increase our
costs and we cannot recover such increases, our operating results would be negatively impacted. It may be necessary
for us to terminate customer contracts or curtail planned growth.

Our operating results could be adversely impacted by negotiations regarding collective bargaining agreements with
flight crewmember representatives.

The flight crewmembers for each of the Company's airlines are unionized. ABX and OAI's crewmembers are
represented by the International Brotherhood of Teamsters ("IBT") while ATI's crewmembers are represented by the
Air Line Pilots Association ("ALPA"). The collective bargaining agreement ("CBA") between ABX and the IBT is
currently amendable. The IBT and ABX management are in the process of renegotiating the terms of the CBA. The
airline and the union are each required to maintain the status quo during the renegotiation of the CBA; neither the airline
nor the union may engage in a lock-out, strike or other self-help until such time as they are released from further
negotiations by the mediator for the National Mediation Board ("NMB"), and after the conclusion of a mandatory 30-
day “cooling off” period. It is rare for mediators to declare an impasse and release the parties. Instead, the NMB prefers
to require the parties to remain in negotiations until such time as they come to an agreement. Despite this process, it's
possible for disruptions in customer service to occur from time to time, resulting in increased costs for the airline and
monetary penalties under certain customer agreements if monthly reliability thresholds are not achieved. Further, if
we do not maintain minimum reliability thresholds over an extended period of time, we could be found in default of
one or more customer agreements.

Contract negotiations with the union could result in reduced flexibility for scheduling crewmembers and higher

operating costs for the airlines, making the Company's airlines less competitive than other airlines.

During 2017, the NMB ruled that ABX and ATI do not constitute a single transportation system for the purposes of
collective bargaining. The NMB could reconsider whether the airlines constitute a single transportation system and
require that the ABX and ATI crewmembers, or that the ABX, ATI and Omni crewmembers, be represented by the same
union. A single transportation system determination by the NMB could give rise to complex contractual issues, including
integrating the airlines' seniority lists, and materially impact the dynamics with respect to future CBA negotiations.
While it is unlikely that the NMB would reconsider or find that ABX and ATI, or that ABX, ATI and Omni, constitute
a single transportation system, the case-by-case analysis used by the NMB makes such predictions uncertain.

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 support of customers' operations while generating a positive return on investment. Our
success will depend, in part, on our customers' ability to secure additional cargo volumes, in both U.S. and international
markets. Deploying aircraft in international markets can pose additional risks, costs and regulatory requirements which
could result in periods of delayed deployments. Deploying an aircraft into service typically requires various approvals
from the FAA. Aircraft deployments could be delayed if FAA approval is delayed.

The actual demand for Boeing 777, 767, 757 and 737 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.

We may fail to meet the scheduled delivery date for aircraft required by customer agreements.

If CAM cannot meet the agreed delivery schedule for an aircraft lease, the customer may have the right to cancel
the aircraft lease, thus delaying revenues until the aircraft can be completed and re-marketed successfully and exposing
CAM to potential liability to the original customer.

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

Certain of our airline operating agreements contain monthly incentive payments for reaching specific on-time
reliability thresholds. Additionally, such airline operating agreements contain monetary penalties for aircraft reliability
below certain 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 our airlines are placed in
default due to the failure to maintain reliability thresholds, the customer may elect to terminate all or part of the services
we provide under certain customer agreements after a cure period.

If ABX fails to maintain aircraft reliability above a minimum threshold under the restated CMI agreement with
DHL for two consecutive calendar months or three months in a rolling twelve month period, we would be in default
of the restated CMI agreement with DHL. In that event, DHL may elect to terminate the restated CMI agreement,
unless we maintain the minimum reliability threshold during a 60-day cure period. If DHL terminates the CMI agreement
due to an ABX event of default, we would be subject to a monetary penalty payable to DHL.

If our airlines fail to maintain aircraft reliability above a minimum threshold under the ATSA with ASI for either a
specified number of consecutive calendar months or a specified number of calendar months (whether or not consecutive)
in a specified trailing period, we could be held in default. In that event, ASI may elect to terminate the ATSA and
pursue those rights and remedies available to it at law or in equity.

If OAI fails to maintain reliability above a minimum threshold under its contract with the DoD with respect to the
flight segments flown during a given month, we could be held in default. In that event, the DoD may elect to terminate
the contract. In addition, missions that experience carrier controllable delays are subject to monetary penalties.
Depending on the delay interval, the compensation paid to OAI for the performance of the services can be reduced by
a specified percentage amount.

Under the provisions of airline operating and aircraft lease agreements with customers, customers may be able to
terminate the operating agreements or aircraft lease agreements, subject to early termination provisions.

Customers can typically terminate one or more of the aircraft from their related airline operating agreement for
convenience at any time during the term, subject to a 60 day notice period and paying the Company a fee. Additionally,
the lease agreements may contain provisions for terminating an aircraft lease for convenience, including a notice period
and paying a lump sum amount to the Company.

Amazon may terminate the ATSA in its entirety after providing 180 days of advance notice and paying to the

Company a termination fee which reduces over the term of the agreement.

DHL may terminate the restated CMI agreement in its entirety after providing 180 days of advance notice and

paying a significant termination fee which amortizes down during the term of the agreement.

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

Our contracts with the DoD are typically for one year and are not required to be renewed. The DoD may terminate
the contracts for convenience or in the event we were to fail 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.

The anticipated strategic and financial benefits of our relationship with Amazon may not be realized.

We entered into the agreements with Amazon with the expectation that the transactions would result in various
benefits including, among others, growth in revenues, improved cash flows and operating efficiencies. Achieving the
anticipated benefits from the agreements is subject to a number of challenges and uncertainties, such as unforeseen
costs and less flying than expected. If we are unable to achieve our objectives the expected benefits may be only
partially realized or not at all, or may take longer to realize than expected, which could adversely impact our financial
condition and results of operations.

The Company's future earnings and earnings per share, as reported under generally accepted accounting principles,
will be impacted by the Amazon stock warrants.

We expect that the warrants issuable to Amazon will increase the number of diluted shares reported. The warrants
are subject to fair value measurements during periods that they are outstanding. Accordingly, future fluctuations in the
fair value of the warrants may adversely impact the Company's reported earnings measures. See Note D in the
accompanying consolidated financial statements for further information about warrants.

If Amazon exercises its right to acquire shares of our common stock pursuant to the warrants, it will dilute the owenership
interests of our then-existing stockholders and could adversely affect the market price of our common stock.

If Amazon exercises its right to acquire shares of our common stock pursuant to the warrants, it will dilute the
ownership interests of our then-existing stockholders and reduce our earnings per share. In addition, any sales in the
public market of any common stock issuable upon the exercise of the warrants by Amazon could adversely affect
prevailing market prices of our common stock.

Changes in the fair value of certain financial instruments could impact the financial results of the Company.

Certain financial instruments are subject to fair value measurements at the end of each reporting period. Accordingly,
future fluctuations in their fair value may adversely impact the Company's reported earnings. See Note E in the
accompanying consolidated financial statements for further information about the fair value of our financial instruments.

The convertible note hedge transactions and the warrant transactions that we entered into in September 2017 may
affect the value of our common stock.

In connection with the pricing of our 1.125% senior convertible notes due 2024 (the "Notes") and the exercise by
the initial purchasers of their option to purchase additional Notes, we entered into privately-negotiated convertible note
hedge transactions with the hedge counterparties. The convertible note hedge transactions cover, subject to customary
anti-dilution adjustments, the number of shares of common stock that initially underlie the Notes. We also entered into
separate, privately-negotiated warrant transactions with the hedge counterparties relating to the same number of shares
of our common stock that initially underlie the Notes, subject to customary anti-dilution adjustments.

The hedge counterparties and/or their affiliates may modify their hedge positions with respect to the convertible
note hedge transactions and the warrant transactions from time to time. They may do so by purchasing and/or selling
shares of our common stock and/or other securities of ours, including the Notes in privately-negotiated transactions
and/or open-market transactions or by entering into and/or unwinding various over-the-counter derivative transactions
with respect to our common stock. The hedge counterparties are likely to modify their hedge positions during any
observation period for the Notes.

The effect, if any, of these activities on the market price of our common stock will depend on a variety of factors,
including market conditions, and cannot be determined at this time. Any of these activities could, however, adversely
affect the market price of our common stock. In addition, the hedge counterparties and/or their affiliates may choose
to engage in, or to discontinue engaging in, any of these transactions with or without notice at any time, and their
decisions will be at their sole discretion and not within our control.

We are subject to counterparty risk with respect to the convertible note hedge transactions. The hedge counterparties
are financial institutions, and we will be subject to the risk that they might default under the convertible note hedge
transactions. Our exposure to the credit risk of the hedge counterparties is unsecured by any collateral. Global economic
conditions have from time to time resulted in failure or financial difficulties for many financial institutions. If a hedge
counterparty becomes subject to insolvency proceedings, we will become an unsecured creditor in those proceedings
with a claim equal to our exposure at that time under our transactions with that hedge counterparty. Our exposure will
depend on many factors but, generally, the increase in our exposure will be correlated to the increase in the market
price and volatility of our common stock. In addition, upon a default by a hedge counterparty, we may suffer adverse
tax consequences and more dilution than we currently anticipate with respect to our common stock. We can provide
no assurances as to the financial stability or viability of any hedge counterparty.

Conversion of the Notes or exercise of the warrants may dilute the ownership interest of stockholders. Any sales in
the public market of the common stock issuable upon such conversion of the Notes or such exercise of the warrants
could adversely affect prevailing market prices of our common stock. In addition, the existence of the Notes may

encourage short selling by market participants because the conversion of the Notes could depress the price of our
common stock.

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

Our DoD 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 DoD. In addition, the DOT, FAA and TSA can initiate announced or unannounced
investigations of our subsidiary air carriers and repair stations to determine if they are continuously conducting their
operations in accordance with all applicable laws, rules and regulations.

Our participation in the CRAF Program could adversely restrict our commercial business in times of national emergency.

All three of our airlines participate in the CRAF Program, which permits the DoD to utilize participants’ aircraft

during national emergencies when the need for military airlift exceeds the capability of military aircraft.

Proposed rules from the DOT, FAA and TSA could increase the Company's operating costs and reduce customer
utilization of airfreight.

FAA rules for Flightcrew Member Duty and Rest Requirements (FMDRR) for passenger airline operations became
effective in January 2014. The rules apply to our operation of passenger and combi aircraft for the DoD and other
customers 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. Failure to remain in compliance with these rules may subject us to fines or other enforcement action.

There are separate crew rest requirements applicable to all-cargo aircraft of the type operated by the Company.
The FAA has rejected, as have the Courts, an attempt to apply the passenger airline crew rest rules to all-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 through to 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 three aircraft types. If any of these aircraft types encounter technical
difficulties that resulted in significant FAA airworthiness directives or grounding, our ability to lease the aircraft would
be adversely impacted, as would our airlines' operations. The market growth in demand for the Boeing 777, 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 777, 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 airlines provide flight services throughout the world, sometimes operating in remote regions. Our aircraft
may experience maintenance events in locations that do not have the necessary repair capabilities or are difficult to
reach. As a result, we may incur additional expenses and lose billable revenues that we would have otherwise earned.
Under certain customer agreements, we are required to provide a spare aircraft while scheduled maintenance is
completed. If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide
airlift capacity and forgo revenues.

Lessees of our aircraft may fail to make contractual payments or fail to maintain the aircraft as required.

Our financial results depend in part on our lease customers' ability to make lease payments and maintain the related
aircraft. Our customers' ability to make payments could be adversely impacted by changes to their financial liquidity,
competitiveness, economic conditions and other factors. A default of an aircraft lease by a customer could negatively
impact our operating results and cash flows and result in the repossession of the aircraft.

While we often require leasing customers to pay monthly maintenance deposits, customers are normally responsible
for maintaining our aircraft during the lease term. Failure of a customer to perform required maintenance and maintain
the appropriate records during the lease term could result in higher maintenance costs, a decrease in the value of the

aircraft, a lengthy delay in or even our inability to place the aircraft in a subsequent lease, any of which could have an
adverse effect on our results of operations and financial condition.

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 primary engine maintenance provider for the Company's
General Electric CF6 engines that power our fleet of Boeing 767 aircraft. If Delta TechOps does not complete the
refurbishment of our engines within the contractual turn-times or if we must replace Delta TechOps 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 and data breaches.

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 parties on which we rely, could fail or become
unreliable due
to equipment failures, software viruses, cyberattacks, natural disasters, power failures,
telecommunication outages, 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 financial results and operating
reliability. We continually monitor the risks of disruption, take preventative measures, develop backup plans and
maintain redundancy capabilities. The measures we use may not prevent the causes of disruptions we could experience
or help us recover failed systems quickly.

The costs of maintaining safeguards, recovery capabilities and preventive measures may continue to rise. Further,

the costs of recovering or replacing a failed system could be very expensive.

In addition, the provision of service to our customers and the operation of our networks and systems involve the
storage and transmission of significant amounts of proprietary information and sensitive or confidential data, including
personal information of customers, employees and others. To conduct our operations, we regularly move data across
national borders, and consequently we are subject to a variety of continuously evolving and developing laws and
regulations in the United States and abroad regarding privacy, data protection and date security. The scope of the laws
that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. For
example, the European Union's General Data Protection Regulation ("GDPR"), which greatly increases the jurisdictional
reach of European Union law and adds a broad array of requirements for handling personal data, including the public
disclosure of significant data breaches, became effective in May 2018. Other countries have enacted or are enacting
data localization laws that require data to stay within their borders. All of these evolving compliance and operational
requirements impose significant costs that are likely to increase over time.

The costs of our aircraft maintenance facilities could negatively impact our financial results.

We lease and operate a 310,000 square foot aircraft maintenance facility and a 100,000 square foot component repair
shop in Wilmington, Ohio. Additionally, we lease and operate a 311,500 square foot, two-hangar aircraft maintenance
complex in Tampa, Florida. Accordingly, a large portion of the operating costs for our aircraft maintenance and
conversion business are fixed. As a result, we need to retain existing aircraft maintenance business levels to maintain
a profitable operation. The actual level of revenues may not be sufficient to cover our operating costs. Additionally,
revenues from aircraft maintenance can vary among periods due to the timing of scheduled maintenance events and
the completion level of work during a period.

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 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, the Company is

required to maintain aircraft collateral coverage equal to 110% of the outstanding balance of the term loan and the total
funded revolving credit facility. 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 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.

Operating results may be affected by fluctuations in interest rates.

The Company enters into interest rate derivative instruments from time to time in conjunction with its debt levels.
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 unsubordinated term loans. We typically do not designate
the derivative instruments as hedges for accounting purposes. 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 loans and the
revolving credit facility both bear a variable interest rate of 4.78%, 4.64% and 4.78%, respectively. 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, the plans' funded status and funding requirements are sensitive
to changes in interest rates. The plans' funded status and annual pension expense are recalculated at the beginning of
each calendar year using the fair value of plan assets and market-based interest rates at that point in time, as well as
assumptions for asset returns and other actuarial assumptions. Future fluctuations in interest rates, including the impact
on asset returns, 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.

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 those 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).

Strategic investments in other businesses may not result in the desired benefits.

We enter into joint venture and other business ownership agreements with the expectation that such investment will
result in various benefits including revenue growth through geographic diversification and product diversification,
improved cash flows and better operating efficiencies. Achieving the anticipated benefits from such agreements is
subject to a number of challenges and uncertainties. The expected benefits may be only partially realized or not at all,
or may take longer to realize than expected, which could adversely impact our financial condition and results of
operations. We may make additional capital contributions to these businesses.

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 and equity investments. 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, equity investments 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.

We may be impacted by government requirements associated with transacting business in foreign jurisdictions.

The U.S and other governments have imposed trade and economic sanctions in certain geopolitical areas. The U.S.
Departments of Justice, Commerce and Treasury, as well as other government agencies have a broad range of civil and
criminal penalties they may seek to impose for violations of the Foreign Corrupt Practices Act (“FCPA”), sanctions
administered by the Office of Foreign Assets Control (“OFAC”) and other regulations. In addition, the DOT, FAA and
TSA may at times limit the ability of our airline subsidiaries to conduct flight operations in certain areas of the world.
Under such laws and regulations, we may be obliged to limit our business activities, we may incur costs for compliance
programs and we may be subject to enforcement actions or penalties for noncompliance. In recent years, the U.S.
government has increased their oversight and enforcement activities with respect to these laws and the relevant agencies
may continue to increase these activities.

Penalties, fines and sanctions levied by governmental agencies or the costs of complying with government regulations
and trade policies 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 terms of 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.

Recently, trade discussions between the U.S. and some of its trading partners have been fluid and any trade
agreements that may be entered into are subject to a number of uncertainties, including the imposition of new tariffs
or adjustments and changes to the products covered by existing tariffs. The impact of new laws, regulations and policies
that affect global trade cannot be predicted.

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.

Manufacturer Service Bulletins and FAA regulations and FAA airworthiness directives issued under its “Aging
Aircraft” program cause operators of older aircraft to be subject to additional inspections and modifications to address
problems of corrosion and structural fatigue at specified times. The FAA may issue airworthiness directives that could
require significant costly 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
takeoff-and-landing cycles. As a result, some of the Company's Boeing 767-200 aircraft have been affected. The cost
of compliance is estimated to be approximately $1.0 million per aircraft.

In addition, FAA regulations require that aircraft manufacturers establish limits on aircraft flight cycles to address
issues involving aging, 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. See Item 2. Properties, for a description of the company's aircraft, including year of manufacture.

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 began phasing in
similar requirements for aircraft operating in Europe during 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 continue to provide air transportation 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 ("EPA") 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 ("GHG") emissions. The European Commission
has mandated the extension of the European Union Emissions Trading Scheme ("ETS") for GHG emissions to the
airline industry. Under the European Union ETS, all ABX, ATI and OAI flights that are wholly within the European
Union are now 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.

Similarly, in 2016, the International Civil Aviation Organization (“ICAO”) passed a resolution adopting the Carbon
Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions
offset program to encourage carbon-neutral growth beyond 2020. A pilot phase is scheduled to begin in 2021 in which
countries may voluntarily participate, and full mandatory participation is scheduled to begin in 2027. ICAO continues
to develop details regarding implementation, but compliance with CORSIA will increase our operating costs.

The U.S. Congress and certain states have also considered legislation regulating GHG emissions. In addition, even
in the absence of such legislation, the EPA could regulate greenhouse GHG emissions, especially aircraft engine
emissions. In July 2016, the EPA, issued a finding that aircraft engine emissions cause or contribute to air pollution
that may reasonably be anticipated to endanger public health. This finding is a regulatory prerequisite to the EPA’s
adoption of a new certificate standard for aircraft emissions. However, the U.S. recently withdrew from the Paris
climate accord, an agreement among 196 countries to reduce GHG emissions, and the effect of that withdrawal on
future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulations is uncertain.

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 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. Further, even without such legislation or regulation, increased awareness and adverse publicity in
the global marketplace about greenhouse gas emitted by companies in the airline and transportation industries could
harm our reputation and reduce demand for our services.

Severe weather or other natural or manmade disasters could adversely affect our business.

Severe weather conditions and other natural or manmade disasters, including storms, floods, fires or earthquakes,
epidemics or pandemics, conflicts or unrest, or terrorist attacks, may result in decreased revenues, as our customers
reduce their transportation needs, or increased costs to operate our business, which could have a material adverse effect
on our results or operations for a quarter or year. Any such event affecting one of our major facilities could result in a
significant interruption in or disruption of our business.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

The Company leases portions of the air park in Wilmington, Ohio, under lease agreements with a regional port
authority, the terms of which expire in May of 2019 and June 2036 with options to extend. The leases include corporate
offices, 310,000 square feet of maintenance hangars and a 100,000 square foot component repair shop at the air park.
We also have the non-exclusive right to use the Wilmington airport, which includes one active runway, taxiways and
ramp space. We also lease and operate a 311,500 square foot, two hangar aircraft maintenance complex at the Tampa
International Airport in Florida. We lease approximately 82,500 square feet of office and warehouse space at the Tulsa
International Airport in Oklahoma. In addition, we lease smaller maintenance stations, offices and ramp space at certain
airport and regional locations typically on a short-term basis. Further, we lease warehousing space inside or near certain
U.S. airports to support our customers' parcel handling requirements.

As of December 31, 2018, the Company and its subsidiaries' in-service aircraft fleet consisted of 88 owned aircraft
and two aircraft leased from external companies. The majority of the aircraft were formerly passenger aircraft that
have been modified for cargo operations. These cargo aircraft are generally described as being mid-size or having
medium wide-body cargo capabilities. The cargo aircraft carry gross payloads ranging from approximately 47,900 to
129,000 pounds. These cargo aircraft are well suited for intra-continental flights and medium range inter-continental
flights.

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

In-service Aircraft as of
December 31, 2018

Aircraft Type

Total

Owned

Operating
Lease

Year of
Manufacture

Gross Payload
(Lbs.)

Still Air Range
(Nautical Miles)

767-200 SF (1)

767-200 Passenger

767-300 SF (1)

767-300 Passenger

777-200 Passenger

757-200 PCF (1)

757-200 Combi (2)

737-400 SF (1)

Total in-service

—

1982 - 1987

85,000 - 100,000

1,700 - 5,300

2001

63,000 - 73,000

6,500 - 7,600

1988 - 1997

121,000 - 129,000

3,200 - 7,100

1993 - 2002

85,000 - 99,700

6,300 - 7,200

2004 - 2007

119,500 - 123,900

8,700 - 9,500

1984 - 1991

1989 - 1992

1991

68,000

58,000

47,900

2,100 - 4,800

2,600 - 4,300

2,200 - 2,800

____________________
(1)

These aircraft are configured for standard cargo containers loaded through large standard main deck cargo
doors.
These aircraft are configured as “combi” aircraft capable of simultaneously carrying passengers and cargo
containers on the main flight deck.

(2)

In addition, as of December 31, 2018, CAM had one Boeing 767-200 passenger aircraft that is not reflected in the
table above. The Boeing 767-200 aircraft discontinued passenger service when a customer's operation ended. CAM
also owns five Boeing 767-300 aircraft which were undergoing or preparing to undergo modification to a standard
freighter configuration and are expected to be completed in 2019. Additionally, CAM has one Boeing 767-200 cargo
aircraft being prepped for future leasing.

We believe that our existing facilities and aircraft fleet are appropriate for our current operations. As described in
Note I to the accompanying financial statements, we plan to invest in additional aircraft to meet our 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

We are currently a party to legal proceedings 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

Market Information

The Company's common stock is publicly traded on the NASDAQ Global Select Market under the symbol ATSG.

The closing price of ATSG’s common stock was $23.27 on February 28, 2019.

Holders

On February 28, 2019, there were 1,434 stockholders of record of ATSG’s common stock.

Dividends

We are restricted from paying dividends on ATSG's common stock in excess of $100.0 million during any calendar

year under the provisions of the Senior Credit Agreement. No cash dividends have been paid or declared.

Securities authorized for issuance under equity compensation plans

For the response to this Item, see Item 12

Purchases of equity securities by the issuer and affiliated purchasers

On August 5, 2014, the Board of Directors authorized the Company to repurchase up to $50.0 million of outstanding
common stock. In May 2016, the Board amended the Company's common stock repurchase program increasing the
amount that management may repurchase from $50.0 million to $100.0 million of outstanding common stock. In
February 2018, the Board increased the authorization from $100.0 million to $150.0 million (less amounts previously
repurchased). The Board's authorization does not require the Company to repurchase a specific number of shares or
establish a time frame for any repurchase and the Board may terminate the repurchase program at any time. Repurchases
may be made from time to time in the open market or in privately negotiated transactions. There is no expiration date
for the repurchase program. There were no repurchases made during the fourth quarter of 2018. As of December 31,
2018, the Company had repurchased 6,592,349 shares and the maximum dollar value of shares that could then be
purchased under the program was $61.3 million.

Performance Graph

The graph below compares the cumulative total stockholder return on a $100 investment in ATSG’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, 2013 and ending
on December 31, 2018.

12/31/2013

12/31/2014

12/31/2015

12/31/2016

12/31/2017

12/31/2018

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

100.00

105.81

114.62

144.06

124.60

122.81

124.46

197.28

133.19

149.57

286.03

172.11

185.07

281.95

165.84

169.26

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 “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.

2018

As of and for the Years Ended December 31
2016
(In thousands, except per share data)

2017

2015

2014

OPERATING RESULTS:

Revenues from continuing operations (1)
Operating expenses (3)
Net interest expense and other non operating charges
Financial instrument (gain) loss (2)
Earnings (loss) from continuing operations before
income taxes
Income tax gain (expense) (4)
Earnings (loss) from continuing operations
Earnings (loss) from discontinued operations, net of
taxes (3)
Consolidated net earnings (loss)

EARNINGS (LOSS) PER SHARE FROM
CONTINUING OPERATIONS:

Basic
Diluted

FINANCIAL DATA:

$ 892,345
781,327
30,836
(7,296)
87,478

$1,068,200
968,800
26,147
79,789
(6,536)

$ 768,870
698,307
18,002
18,107
34,454

$ 619,264
547,514
10,107
(920)
62,563

$ 589,592
526,519
12,393
(1,096)
51,776

(19,595)
67,883
1,402

28,276
21,740
(3,245)

(13,394)
21,060
2,428

(23,408)
39,155
2,067

(19,702)
32,074
(2,214)

69,285

18,495

23,488

41,222

29,860

$
$

1.16
0.89

$
$

0.37
0.36

$
$

0.34
0.33

$
$

0.61
0.60

$
$

0.50
0.49

Cash and cash equivalents
Property and equipment, net
Goodwill and intangible assets (5)
Total assets
Post-retirement liabilities (3)
Long term debt and current maturities, other than leases
Deferred income tax liability (4)
Stockholders’ equity

59,322
$
1,555,005
535,359
2,470,585
68,907
1,401,252
113,243
436,438

32,699
$
1,159,962
44,577
1,548,844
63,266
515,758
99,444
395,279

16,358
$
1,000,992
45,586
1,259,330
79,528
458,721
122,532
311,902

17,697
875,401
38,729
1,041,721
110,166
318,200
96,858
364,157

30,560
847,268
39,010
1,011,203
94,368
344,094
83,223
347,489

____________________
(1)

Revenues reflect the adoption of Financial Accounting Standards Board's Accounting Standards Update No. 2014-09,
“Revenue from Contracts with Customers (Topic 606)” using a modified retrospective approach, under which financial
statements are prepared under the revised guidance for the year of adoption, but not for prior years. (See Note O to the
accompanying consolidated financial statements.)
During 2018, 2017, and 2016 the re-measurement of financial instrument fair values, primarily for warrants granted to a
customer resulted in gains of $7.3 million and losses of $79.8 million and $18.1 million, respectively, before income taxes.
(See Note D to the accompanying consolidated financial statements.)
During 2014, ABX settled $98.7 million of pension obligation from the pension plans assets. The settlement resulted in
pre-tax charges of $6.7 million to continued operations and $5.0 million to discontinued operations for 2014. Effective
December 31, 2016, ABX modified its unfunded, non-pilot retiree medical plan to terminate benefits to all participants.
As a result, ABX settled $0.6 million of retiree medical obligations and recorded a pre-tax gain of $2.0 million to continued
operations. On August 30, 2017, the ABX transferred investment assets from the pension plan trust to purchase a group
annuity contract. As a result, ABX recorded pre-tax settlement charges of $5.3 million to continued operations and $7.6
million to discontinued operations. As a result of fluctuating interest rates and investment returns, the funded status of
the Company's defined benefit pension and retiree medical plans vary from year to year. (See Note J to the accompanying
consolidated financial statements.)
Earnings from continuing operations for 2017 was impacted by a $59.9 million reduction in deferred income taxes related
to the Tax Cuts and Jobs Act legislation enacted in December 2017. (See Note K to the accompanying consolidated financial
statements.)
On November 9, 2018, the Company acquired Omni. (see Note B and Note C to the accompanying consolidated financial
statements.)

(2)

(3)

(4)

(5)

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. It should be read in
conjunction with the accompany consolidated financial statements and related notes included in Item 8 of this report
as well as business development described in Item 1 and risk factors in Item 1A of this report.

OVERVIEW

We lease aircraft and provide airline operations, aircraft modification and maintenance services, ground services,
and other support services to the air transportation and logistics industries. Through the Company's subsidiaries, we
offer a range of complementary services to delivery companies, freight forwarders, e-commerce operators, airlines and
government customers. Our principal subsidiaries include three independently certificated airlines, (ABX, ATI and
OAI) and an aircraft leasing company, (CAM ). CAM provides competitive aircraft lease rates by converting passenger
aircraft into cargo freighters and offering them to customers under long-term leases.

We have three reportable segments: CAM, which leases Boeing 777, 767, 757 and 737 aircraft and aircraft engines;
ACMI Services, which includes the cargo and passenger transportation operations of the three airlines; and MRO
Services, which provides aircraft maintenance and modification services to customers. Our other business operations,
which primarily provide support services to the transportation industry, include load transfer and sorting services as
well as related equipment maintenance services. These operations do not constitute reportable segments due to their
size. On November 9, 2018, the Company acquired OAI, a passenger airline, along with related entities (referred to
collectively as Omni). Revenues and operating expenses include the activities of Omni for periods since their acquisition
by the Company on November 9, 2018.

At December 31, 2018, CAM owned 88 aircraft that were in revenue service. This fleets consists of 34 Boeing
767-200 freighter aircraft, two Boeing 767-200 passenger aircraft, 33 Boeing 767-300 freighter aircraft, six Boeing
767-300 passenger aircraft, three Boeing 777-200 passenger aircraft, four Boeing 757-200 freighter aircraft, four Boeing
757 "combi" aircraft and two Boeing 737-400 freighter aircraft. At December 31, 2018, CAM also owned five Boeing
767-300 aircraft either already undergoing, or awaiting induction into the freighter conversion process and one Boeing
767-200 aircraft being staged for redeployment. Our largest customers are DHL Network Operations (USA), Inc. and
its affiliates, ASI, which is a subsidiary of Amazon, and the U.S. Department of Defense.

We have had long-term contracts with DHL since August 2003. DHL accounted for 26%, 30% and 37% of the
Company's consolidated revenues excluding directly reimbursed revenues during the years ended December 31, 2018,
2017 and 2016, respectively. Under a 2015 CMI agreement with DHL, ABX operates and maintains aircraft based on
pre-defined fees scaled for the number of aircraft hours flown, aircraft scheduled and flight crews provided to DHL for
its network. Under the pricing structure of the CMI agreement, ABX is responsible for complying with FAA
airworthiness directives, the cost of Boeing 767 airframe maintenance and certain engine maintenance events for the
DHL-leased aircraft that it operates. As of December 31, 2018, the Company, through CAM, leased 16 Boeing 767
aircraft to DHL comprised of nine Boeing 767-200 aircraft through March 2019 and seven Boeing 767-300 aircraft
expiring between 2019 and 2024. Ten of the 16 Boeing 767 were being operated by the Company's airlines for DHL.
We also operate four CAM-owned Boeing 757 aircraft under other operating arrangements with DHL. All but two of
the expiring Boeing 767 aircraft leases and CMI agreement with DHL are expected to be renewed in March 2019 under
terms similar to the existing terms.

We have been providing freighter aircraft and services for cargo handling and logistical support for Amazon's ASI
since September 2015. Revenues from our commercial arrangements with ASI comprised approximately 27%, 27%
and 18% of our consolidated revenues excluding directly reimbursed revenues during the years ended December 31,
2018, 2017 and 2016, respectively. On March 8, 2016, we entered into an Air Transportation Services Agreement (the
“ATSA”) with ASI pursuant to which CAM leased 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200
freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The
ATSA also provides for the operation of those aircraft by our airline subsidiaries, for a term of five years, and the
performance of ground handling services by our subsidiary, LGSTX. In December 2018, the Company announced
agreements with Amazon to 1) lease and operate ten additional Boeing 767-300 aircraft for ASI, 2) extend the term of
the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option for three more years, 3)

extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an
option for three more years and 4) extend the ATSA by five years through March 2026, with an option to extend for an
additional three years. During January, 2019, amendments to extend the terms of aircraft leases were executed. We
plan to deliver five of the 767-300 aircraft in 2019 and the remainder in 2020 for lease. All ten of these aircraft leases
will be for ten years. Under the ATSA, we operate the aircraft based on pre-defined fees scaled for the number of
aircraft hours flown, aircraft scheduled and flight crews provided to ASI for its network.

In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement
and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants
in three tranches which grant Amazon the right to acquire up to 19.9% of the Company’s pre-transaction outstanding
common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company
following the date of the Investment Agreement and after giving effect to the warrants granted. In conjunction with
the commitment for the ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and
additional aircraft operations under the ATSA, Amazon will be issued warrants for 14.8 million common shares which
could expand its potential ownership in the Company to approximately 33.2%, including the warrants described above
for the 2016 agreements. These new warrants will vest as existing leases are extended and additional aircraft leases
are executed and added to the ATSA operations. Additionally, Amazon can earn incremental warrant rights, increasing
its potential ownership from 33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo
aircraft from the Company before January 2026. For additional information about the warrants see Note D to the
accompanying consolidated financial statements.

Our accounting for the warrants issued to Amazon has been determined in accordance with the financial reporting
guidance for equity-based payments to non-employees and for financial instruments. The fair value of the warrants
issued or issuable to Amazon are recorded as a lease incentive asset and are amortized against revenues over the duration
of the aircraft leases. The warrants are accounted for as financial instruments, and accordingly, the fair value of the
outstanding warrants are measured and classified in liabilities at the end of each reporting period. As of December 31,
2018, our liabilities reflected 14.83 million outstanding warrants having a fair value of $13.76 per share. During 2018,
the re-measurements of the warrants to fair value resulted in a non-operating gain of $7.4 million before the effect of
income taxes compared to a $81.8 million loss for the year ended December 31, 2017.

The DoD comprised 15%, 10% and 14% of the Company's consolidated revenues excluding directly reimbursed
revenues during the years ended December 31, 2018, 2017 and 2016, respectively. The Company's airlines provide
passenger airlift services to the U.S. DoD as participants in the CRAF program. Due to the acquisition of OAI, we
expect the DoD to comprise 35% of our 2019 consolidated revenues.

RESULTS OF OPERATIONS

Aircraft Fleet Summary

Our fleet of cargo and passenger aircraft is summarized in the following table as of December 31, 2018, 2017 and
2016. Our CAM-owned operating aircraft fleet has increased by 29 aircraft since the end of 2016, driven by customer
demand for the Boeing 767-300 converted freighter as well as the purchase of 11 passenger aircraft operated by OAI.
Our freighters, converted from passenger aircraft, utilize standard shipping containers and can be deployed into regional
cargo markets more economically than larger capacity aircraft, newly built freighters or other competing alternatives.
At December 31, 2018, the Company owned five Boeing 767-300 aircraft that were either already undergoing, or
awaiting induction into the freighter conversion process.

Aircraft fleet activity during 2018 is summarized below:

- CAM completed the modification of nine Boeing 767-300 freighter aircraft, six purchased in the previous year
and three purchased in 2018. CAM began to lease seven of those aircraft under multi-year leases to external
customers. CAM began to lease the other two aircraft to ATI.

- CAM completed the modification of one Boeing 737-400 freighter aircraft purchased in the previous year and
entered into a multi-year lease with an external customer.

- With the Company's acquisition of Omni, CAM added two Boeing 767-200 passenger aircraft, six Boeing
767-300 passenger aircraft and three Boeing 777-200 passenger aircraft. All eleven of these passenger aircraft
are being leased to OAI. Additionally, OAI leases two other Boeing 767 aircraft from third party lessors.

- ABX returned one Boeing 767-300 and two Boeing 767-200 freighter aircraft to CAM. The 767-300 aircraft
was then leased to an external customer under a multi-year lease and is being operated by ABX while the two
767-200 aircraft were leased to different external customers under multi-year leases.

- CAM sold one Boeing 767-300 freighter aircraft, which was under lease to an external customer.

- CAM purchased eight Boeing 767-300 passenger aircraft for the purpose of converting the aircraft into a
standard freighter configuration.

- External lessees returned two Boeing 767-200 freighter aircraft to CAM. One of these aircraft is being prepped
for redeployment to another lessee while the other aircraft was removed from service.

2018

2017

2016

ACMI
Services CAM Total

In-service aircraft

Aircraft owned

Boeing 767-200 Freighter

Boeing 767-200 Passenger

Boeing 767-300 Freighter

Boeing 767-300 Passenger

Boeing 777-200 Passenger

Boeing 757-200 Freighter

Boeing 757-200 Combi

Boeing 737-400 Freighter

Total

Operating lease

Boeing 767-200 Passenger

Boeing 767-300 Passenger

Total
Other aircraft

Owned Boeing 767-300
under modification
Owned Boeing 737-400
under modification
Owned Boeing 767 available
or staging for lease

2 —

6 —

3 —

4 —

—

1 —

2 —

—

— —
1
—

—
1

— —

4 —

—

— —

—

—
1
— —

—

1
—

— —

4 —

— —

—

— —
1
—

—

—
1

As of December 31, 2018, ABX, ATI and OAI were leasing 29 in-service aircraft internally from CAM for use in
ACMI Services. As of December 31, 2018, three of CAM's 29 Boeing 767-200 freighter aircraft shown in the fleet
table above and seven of the 28 Boeing 767-300 freighter aircraft were leased to DHL and operated by ABX.
Additionally, 12 of CAM's 29 Boeing 767-200 freighter aircraft and eight of CAM's 28 Boeing 767-300 freighter aircraft
were leased to ASI and operated by ABX or ATI. CAM leased the other 14 Boeing 767-200 freighter aircraft and 13
Boeing 767-300 aircraft to external customers, including six Boeing 767-200 aircraft to DHL that are being operated
by a DHL-owned airline. The carrying values of the total in-service fleet as of December 31, 2018, 2017 and 2016
were $1,334.9 million, $955.2 million and $793.9 million, respectively. The table above does not reflect one Boeing
767-200 passenger aircraft owned by CAM that is not in service condition or the process of freighter modification.

Revenue and Earnings Summary

External customer revenues from continuing operations decreased by $175.9 million to $892.3 million during 2018
compared to 2017. Effective January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No.
2014-09, “Revenue from Contracts with Customers (Topic 606)” ("Topic 606”). As a result of adopting Topic 606
beginning January 1, 2018, the Company reported certain revenues net of related expenses that are directly reimbursed
by customers. Corresponding 2017 and 2016 revenues include such expense reimbursements. Excluding revenues
directly reimbursed in 2017 and 2016, customer revenues increased by $113.6 million, or 15% during 2018 compared
to 2017 and increased by $136.7 million, or 21% during 2017 compared to 2016. These external customer revenues
increased during 2018 and 2017 due to additional aircraft leases from CAM's leasing operations, expanded CMI and
logistic services for ASI and increased aircraft maintenance and modification services for various customers. Revenues
in 2018 also grew for additional passenger transportation services provided to the DoD after the company completed
its acquisition of OAI in November 2018.

The consolidated net earnings from continuing operations were $67.9 million for 2018 compared to $21.7 million
for 2017 and $21.1 million for 2016. The pre-tax earnings from continuing operations were $87.5 million for 2018
compared to pre-tax losses of $6.5 million for 2017 and pre-tax earnings of 34.5 million for 2016. Earnings were
affected by specific events and certain adjustments that do not directly reflect our underlying operations among the
years presented. Consolidated net earnings for 2017 were impacted by $59.9 million of tax benefits for the re-
measurement of the Company's deferred tax assets and liabilities at the new federal corporate tax rate of 21% enacted
by the Tax Cuts and Jobs Act legislation ("Tax Act") in December 2017. Consolidated net earnings for 2018 benefited
from the lower corporate tax rate, reduced from 35% in 2017 and 2016. On a pre-tax basis, earnings included net gains
of $7.3 million and losses of $79.8 million and $18.1 million for the years ended December 31, 2018, 2017 and 2016,
respectively, for the re-measurement of financial instruments, including warrant obligations granted to Amazon. Pre-
tax earnings were also reduced by $16.9 million, $14.0 million and $4.5 million for the years ended December 31,
2018, 2017 and 2016, respectively, for the amortization of lease incentives given to ASI in the form of warrants.
Additionally, pre-tax earnings from continuing operations included gains of $8.2 million and expenses of $6.1 million
and $6.8 million for the years ended December 31, 2018, 2017 and 2016, respectively, for settlement charges,
curtailments and other non-service components of retiree benefit plans. Pre-tax earnings included losses of $10.5
million and $3.1 million for the years ended December 31, 2018 and 2017, respectively, for the Company's share of
development costs for a joint venture. Pre-tax earnings for 2018 also included expense of $5.3 million for acquisition
fees incurred during the Company's acquisition of Omni. Pre-tax earnings for the year ended December 31, 2016, also
included a $1.2 million charge for the Company's share of capitalized debt issuance costs that were expensed when
West Atlantic AB, a non-consolidated affiliate, restructured its debt. After removing the effects of these items, adjusted
pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted pre-tax
earnings from continuing operations follows) were $104.6 million for 2018 compared to $96.5 million for 2017 and
$65.1 million for 2016.

Adjusted pre-tax earnings from continuing operations for 2018 improved by 8.5% compared to 2017, driven
primarily by additional revenues and the improved financial results of our airline operations. We experienced additional
revenues and earnings due to the acquisition of Omni in November 2018. Adjusted pre-tax earnings from continuing
operations also improved due to additional aircraft leases and the expansion of gateway ground operations for ASI.
Growth in revenue was partially offset by the cost necessary to support expanded flight operations, higher costs for
flight crews, higher depreciation expense and employee expenses, particularly in support of logistical services. Pre-
tax earnings for 2018 and 2017 included additional interest expense due to the acquisition of Omni and the expansion
of the fleet and included $8.3 million and $2.1 million for the amortization of convertible debt discount and issuance
costs. Operating results for 2016 were negatively impacted when ABX flight crewmembers went on strike for two
days, which disrupted our customers' operations and reduced our revenues.

A summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is

shown below (in thousands):

Revenues from Continuing Operations:

CAM

Aircraft leasing and related services
Lease incentive amortization

Total CAM
ACMI Services
MRO Services

Other Activities

Total Revenues

Eliminate internal revenues

Customer Revenues - non reimbursed

Revenues for reimbursed expenses

Customer Revenues

Pre-Tax Earnings from Continuing Operations:

CAM, inclusive of interest expense
ACMI Services
MRO Services

Other Activities

Inter-segment earnings eliminated

Net unallocated interest expense

Net financial instrument re-measurement (loss) gain

Transaction fees

Other non-service components of retiree benefits costs, net

Loss from non-consolidated affiliate

Pre-Tax Earnings from Continuing Operations

Add other non-service components of retiree benefit costs, net
Add charges for non-consolidated affiliate
Add lease incentive amortization
Add transaction fees
Add net loss (gain) on financial instruments

Adjusted Pre-Tax Earnings from Continuing Operations

Years Ending December 31
2017

2016

2018

245,860
(16,904)
228,956
548,839
207,539

79,040

1,064,374

(172,029)

892,345

—

892,345

223,546
(13,986)
209,560
459,272
205,401

93,856

968,089

199,598
(4,506)
195,092
410,598
111,913

105,608

823,211

(189,309)

(181,111)

778,780

289,420

1,068,200

642,100

126,770

768,870

65,576

61,510

17,717
14,499

9,107

(12,436)

(6,729)

7,296

(5,264)

8,180

(10,468)

87,478
(8,180)
10,468
16,904
5,264
(7,296)
104,638

8,557
19,741

5,590

(11,583)

(1,322)

(79,789)

—

(6,105)

(3,135)

(6,536)
6,105
3,135
13,986
—
79,789
96,479

68,608

(25,016)
12,308

9,519

(5,498)

(545)

(18,107)

—

(6,815)

—

34,454
6,815
1,229
4,506
—
18,107
65,111

Adjusted pre-tax earnings from continuing operations, a non-GAAP measure, is pre-tax earnings excluding
settlement charges and other non-service components of retiree benefit costs, gains and losses for the fair value re-
measurement of financial instruments, lease incentive amortization, the transaction fees related to the acquisition of
Omni, the start-up costs of a non-consolidated joint venture and the charge off of debt issuance costs from a non-
consolidated affiliate during the first quarter of 2016. We exclude these items from adjusted pre-tax earnings because
they are distinctly different in their predictability or not closely related to our on-going operating activities. Management
uses adjusted pre-tax earnings to compare the performance of core operating results between periods. Presenting this
measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain
items among 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.

We adopted Topic 606 using a modified retrospective approach, under which financial statements are prepared
under the revised guidance for the year of adoption, but not for prior years. We determined that under Topic 606, the
Company is an agent for aircraft fuel and certain other costs reimbursed under its ACMI and CMI contracts and for
certain ground services that it arranges for ASI. Under the new standard, such reimbursed amounts are reported net of
29

the corresponding expenses beginning in 2018. Revenues during 2017 and 2016 included $289.4 million and $126.8
million for reimbursable revenues under its ACMI and CMI contracts and for directly reimbursed ground services,
which under the new standard, would have been reported net of the related expenses in 2018.

2018 and 2017

CAM

CAM offers aircraft leasing and related services to external customers and also leases aircraft internally to the
Company's airlines. CAM acquires passenger aircraft and manages the modification of the aircraft into freighters. The
follow-on aircraft leases normally cover a term of five to eight years.

As of December 31, 2018 and 2017, CAM had 59 and 51 aircraft under lease to external customers, respectively.
CAM's revenues grew by $19.4 million during 2018 compared to 2017, primarily as a result of additional aircraft leases.
Revenues from external customers totaled $156.5 million and $140.4 million for 2018 and 2017, respectively. CAM's
revenues from the Company's airlines totaled $72.4 million during 2018, compared to $69.1 million for 2017, reflecting
lease revenues for the addition of the eleven passenger aircraft acquired with Omni in November 2018. CAM's aircraft
leasing and related services revenues, which exclude customer lease incentive amortization, increased $22.3 million
in 2018 compared to 2017, primarily as a result of new aircraft leases in 2018. Since the beginning of 2018, CAM has
added nine Boeing 767-300 freighter aircraft and one Boeing 737-400 freighter aircraft to its lease portfolio. CAM
also added two Boeing 767-200 passenger aircraft, six Boeing 767-300 passenger aircraft and three Boeing 777-200
passenger aircraft to its lease portfolio after the Company's acquisition of Omni in November 2018.

CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $65.6 million and $61.5 million
during 2018 and 2017, respectively. Increased pre-tax earnings reflect the eleven passenger aircraft leased to Omni as
well as the ten freighter aircraft placed into service in 2018, offset by a $6.2 million increase in internally allocated
interest expense due to higher debt levels, the $2.9 million increase in the amortization of the ASI lease incentive in
2018 compared to 2017, and $18.8 million more depreciation expense driven by the addition of ten Boeing aircraft in
2018 compared to 2017.

During 2018, CAM purchased eight 767-300 passenger aircraft for freighter conversion, two of which were leased
to external customers and one leased internally during 2018 after completing the conversion process. As of December 31,
2018, the remaining five of these Boeing 767-300 passenger aircraft were being modified from passenger to freighter
configuration. The Company also leased one Boeing 737-400 aircraft which was purchased during 2017 to an external
customer after completing the conversion process in 2018.

We expect CAM to complete the freighter modification of the five passenger aircraft which were in the modification
process at December 31, 2018. We have customer commitments or letters of intent for these five aircraft. In December,
2018, we entered into an agreement to acquire twenty Boeing 767-300 extended-range passenger aircraft over the next
three years. The aircraft covered by this agreement are currently operated by American Airlines. Additionally, the
Company has agreements to acquire three more Boeing 767-300 passenger aircraft. CAM will begin to acquire the
aircraft during 2019 and currently expects to begin freighter modification of at least eight Boeing 767-300s during
2019, up to nine during 2020 and no fewer than six in 2021. CAM's operating results will depend on its continuing
ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers.
CAM's future operating results will also depend on the timing and lease rates under which these aircraft are ultimately
leased. CAM's future operating results will also be impacted by the amortization of additional warrants committed to
Amazon in conjunction with the recent agreements for ten additional long-term aircraft leases and amendments to
extend the terms of existing aircraft leases.

ACMI Services

The ACMI Services segment provides airline operations to its customers, typically under contracts providing for
a combination of aircraft, crews, maintenance, insurance and aviation fuel. Our customers are typically 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, certain aircraft maintenance expenses and fuel procured directly by the
airline. Aircraft charter agreements, including those for the DoD, usually require the airline to provide full service,
including fuel and other operating expenses for a fixed, all-inclusive price. As of December 31, 2018, ACMI Services

included 62 in-service aircraft, including 29 leased internally from CAM, ten CAM-owned freighter aircraft which are
under lease to DHL and operated by ABX under a CMI agreement, 20 CAM-owned freighter aircraft which are under
lease to ASI and operated by ATI and ABX under the ATSA, two passenger aircraft leased from an external lessor and
another CAM-owned freighter operated by ATI.

Total revenues from ACMI Services decreased $65.9 million during 2018 compared with 2017 to $548.8 million.
ACMI Services revenues for the 2017 year included $155.5 million for the reimbursement of fuel and certain operating
expenses. Such revenues for 2018 are reported net of expenses after the adoption of Topic 606. Airline services revenues
from external customers, excluding revenues for the reimbursement of fuel and certain operating expenses, increased
$89.6 million. Improved revenues, excluding directly reimbursed expenses, were driven by additional aircraft operations
for ASI, a 5% increase in billable block hours as well as the acquisition of OAI. As of December 31, 2018, ACMI
Services revenues included the operation of eleven more CAM-owned aircraft compared to December 31, 2017.

ACMI Services had pre-tax earnings of $17.7 million during 2018, compared to $8.6 million for 2017. Improved
pre-tax results in 2018 compared to 2017 were bolstered by expanded revenues, the timing of scheduled airframe
maintenance events, and the acquisition of OAI. Scheduled airframe maintenance expense decreased $0.7 million
during 2018 compared to 2017. Airframe maintenance expense varies depending upon the number of C-checks and
the scope of the checks required for those airframes scheduled for maintenance. In March 2018, ATI began to implement
an amendment to the collective bargaining agreement with its crewmembers. The amendment resulted in increased
wages for the ATI crewmembers beginning in the second quarter of 2018.

The future growth for ACMI Service may be impacted by additional aircraft operations for Amazon. As a result
of recent agreements, we expect Amazon to lease at least ten additional Boeing 767-300 aircraft from CAM with
placements beginning in the second half of 2019. Amazon may contract the operation of those aircraft through our
existing ATSA. Future operating results would also be impacted by the vesting of additional warrants committed to
Amazon in exchange for adding aircraft into the ATSA.

Maintaining profitability in ACMI Services will depend on a number of factors, including customer flight schedules,
crewmember productivity and pay, employee benefits, aircraft maintenance schedules and the number of aircraft we
operate. ABX is negotiating with its flight crewmembers' collective bargaining unit. These negotiations could result
in changes that may effect our productivity, employee compensation levels and the marketability of our services.

MRO Services

MRO Services sells aircraft parts and provides aircraft maintenance and modification services through the AMES
and Pemco subsidiaries. Total revenues from MRO Services were $207.5 million and $205.4 million for 2018 and
2017, respectively. External customer revenues increased $11.1 million during 2018 compared to 2017. Revenues for
2018 reflect the change in accounting standards beginning in 2018 after the adoption of Topic 606 to recognize certain
aircraft maintenance and modification services over time instead of upon completion. During 2017, revenues were
recognized in large amounts upon completion and redelivery of an aircraft to the customer.

The pre-tax earnings from MRO Services decreased by $5.2 million to $14.5 million in 2018. The decline in MRO
Services profitability reflects a mix of more lower margin maintenance services revenues and longer completion times.

Other Activities

We provide other support services to our ACMI Services customers and other airlines by leveraging our knowledge
and capabilities developed for our own operations over the years. Through September 30, 2018, we provided mail and
package sorting and logistical support to the U.S. Postal Service (“USPS”) at five USPS facilities. We arrange and
perform similar services for certain ASI gateway locations in the U.S. We provide maintenance for ground equipment,
facilities and material handling equipment. We also resell aviation fuel in Ohio and provide flight training.

External customer revenues from all other activities, excluding directly reimbursed revenues, decreased $3.1 million
in 2018 compared to 2017. Declines in USPS revenue during 2018 were offset partially by additional ground support
services provided to ASI. During June of 2018, we began to provide cargo handling and related ground support services
directly to ASI at one of its gateway locations.

The pre-tax earnings from other activities increased by $3.5 million to $9.1 million in 2018. Additional earnings
were a result of additional ASI services and improved results from an airline affiliate accounted for under the equity
method.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased $24.4 million during 2018 compared to 2017 driven by higher
headcount for flight operations, maintenance services and package sorting services. The increase in expense for 2018
included $13.4 million for Omni, acquired in November 2018. The increase during 2018 also included higher flight
crew wages in conjunction with an amendment to the collective bargaining agreement with the ATI crewmembers,
additional employees and additional aircraft maintenance technician time to support increased block hours and increased
MRO services revenues.

Depreciation and amortization expense increased $24.3 million during 2018 compared to 2017. The increase in
depreciation expense included $8.7 million for Omni assets acquired in November 2018. The increase also reflects
incremental depreciation for 15 Boeing 767-300 aircraft and additional aircraft engines added to the operating fleet
since mid-2017, as well as capitalized heavy maintenance and navigation technology upgrades. We expect depreciation
expense to increase during future periods in conjunction with our fleet expansion and capital spending plans.

Maintenance, materials and repairs expense increased by $5.1 million during 2018 compared to 2017. The increase
in expense for 2018 included $2.8 million for Omni, acquired in November 2018. The remainder of the increase was
due primarily to MRO Services for external customers. During 2018, MRO Services had an increased level of customer
revenues and direct expenses compared to 2017. Aircraft maintenance and material expenses can vary among periods
due to the number of maintenance events and the scope of airframe checks that are performed.

Fuel expense decreased by $110.3 million during 2018 compared to 2017. In 2017, fuel expense included
reimbursable fuel billed to DHL, ASI and other ACMI customers which is being netted against the revenue in 2018
after the adoption of Topic 606. The customer-reimbursed fuel for 2017 was $133.5 million. Fuel expense includes
the cost of fuel to operate DoD charters as well as fuel used to position aircraft for service and for maintenance purposes.
Fuel expense, excluding customer-reimbursed fuel, increased $23.2 million for 2018 compared to 2017. The increase
for 2018 included $13.8 million for Omni. The remainder of the increase was due to more block hours flown for
military customers in 2018.

Contracted ground and aviation services expense includes navigational services, aircraft and cargo handling
services, baggage handling services and other airport services. Contracted ground and aviation services decreased
$130.5 million during 2018 compared to 2017. The decrease is primarily due to the netting of reimbursable revenues
from certain ground services arranged for ASI against the expense in 2018 due to the adoption of Topic 606. The
customer-reimbursed expenses in 2017 were $138.4 million. Without these customer-reimbursed expenses, contracted
ground and aviation services increased $7.9 million during 2018 compared to 2017. This increase included $5.8 million
for Omni.

Travel expense increased by $7.1 million during 2018 compared to 2017. The increase for 2018 included $6.3

million for Omni.

Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $16.3 million during 2018
compared to 2017. The decrease is primarily due to the netting of reimbursable revenues from landing and ramp fees
billed to DHL, ASI and other ACMI customers against expense in 2018 due to the adoption of Topic 606.

Rent expense increased by $0.3 million during 2018 compared to 2017. This increase included $1.1 million for
Omni. This increase was partially offset by decreases in building rent after the expiration of the contracts for the five
USPS facilities.

Insurance expense increased by $1.3 million during 2018 compared to 2017. Aircraft fleet insurance has increased

due to additional aircraft operations during 2018 compared to 2017.

Other operating expenses increased by $1.8 million during 2018 compared to 2017. Other operating expenses
include professional fees, employee training and utilities. The increase for 2018 included $4.0 million for Omni. Other
operating expenses during 2018 were partially offset by improved operating results of an airline affiliate accounted for
under the equity method.

Interest expense increased by $11.8 million during 2018 compared to 2017. Interest expense increased due to a
higher average debt level, including an additional term loan under the Senior Credit Agreement of $675.0 million to
finance the acquisition of Omni and higher interest rates on the Company's outstanding loans. Interest expense in 2018
and 2017 was also impacted by the convertible notes issued in September 2017. The convertible notes have a principal
value of $258.8 million and bear interest at a cash coupon rate of 1.125%. At the time of issuance, the value of the
conversion feature of the convertible notes was recorded as a debt discount and is being amortized along with debt
issuance cost to interest expense over the seven year term of the convertible notes. The amortization of the convertible
debt discount and issuance costs was $8.3 million and $2.1 million during 2018 and 2017, respectively. We expect
interest expense to increase for 2019 reflecting our additional level of borrowings and higher interest rates.

The Company recorded pre-tax net gains on financial instruments of $7.3 million during the year ended December
31, 2018, compared to losses of $79.8 million during 2017. The gains and losses are primarily a result of re-measuring,
as of December 31, 2018 and 2017, the fair value of the stock warrants granted to Amazon. A decrease in the fair value
of the warrant obligation since December 31, 2017 corresponded to a decrease in the traded price of the Company's
shares and resulted in a non-cash gain for 2018. The increase in the fair value of the warrant obligation since December
31, 2016 corresponded to an increase in the traded price of the Company's shares and resulted in a non-cash loss in
2017. The non-cash gains and losses resulting from quarterly re-measurements of the warrants may vary widely among
quarters.

Non service components of retiree benefits were a net gain of $8.2 million for 2018 compared to a net loss of $6.1
million for 2017. The non service component gain and losses of retiree benefits are actuarially determined and include
the amortization of unrecognized gain and loss stemming from changes in assumptions regarding discount rates,
expected investment returns and other retirement plan assumptions. Non service components also include the effects
of large pension settlement transactions. As a result of a pension settlement transaction, the Company recognized pre-
tax settlement charges of $5.3 million to continued operations during 2017. Non service components of retiree benefits
can varying significantly from one year to the next based on investment results and changes in discount rates used to
account for defined benefit retirement plans.

Income tax expense from earnings from continuing operations decreased $47.9 million for 2018 compared to 2017.
Income tax benefits from earnings from continuing operations for 2017 included a benefit of $59.9 million due to the
enactment of the Tax Act in December 2017. The re-measurement of deferred tax balances using the lower federal
rates enacted by the Tax Act resulted in a reduction in our net deferred tax liability and the recognition of a deferred
tax benefit. Income taxes included deferred income tax effects for the gains and losses from warrants re-measurements
and the amortization of the customer lease incentive. The income tax effects of the warrant re-measurements and the
amortization of the customer lease incentive are different than the book expenses and benefits required by generally
accepted accounting principles because for tax purposes, the warrants are valued at a different time and under a different
valuation method. The effective tax rate, before including the warrant revaluations, incentive amortization and the
2017 re-measurement effects of the Tax Act, was 24.0% for 2018 compared to 37.5% for the year ended December 31,
2017. The effective tax rate declined for 2018 due to the effects of the lower statutory tax rates enacted by the Tax Act.

The effective rate for 2019 will be impacted by a number of factors, including the re-measurement of the stock
warrants at the end of each reporting period. As a result of the warrant re-measurements and related income tax treatment,
the overall effective tax can vary significantly from period to period. We estimate that the Company's effective tax rate
for 2019, before applying the deductibility of the stock warrant re-measurement and related incentive amortization and
the benefit of the stock compensation, will be approximately 25%.

As of December 31, 2018, the Company had operating loss carryforwards for U.S. federal income tax purposes
of approximately $253.8 million which will begin to expire in 2031 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 2024 or later. The Company may, however, be required to pay minimum taxes and certain state and
local income taxes before then. The Company's taxable income earned from international flights is primarily sourced
to the United States under international aviation agreements and treaties. When we operate in countries without such
agreements, the Company could incur additional foreign income taxes.

Discontinued Operations

The financial results of discontinued operations primarily reflect pension, workers' compensation cost adjustments
and other benefits for former employees previously associated with ABX's former hub operations, package sorting and
aircraft fueling services provided to DHL. Pre-tax gains related to the former sorting operations were $1.8 million for
2018 compared to pre-tax losses of $5.1 million for 2017. Pre-tax earnings during 2018 were a result of reductions in
self- insurance reserves for former employee claims and pension credits. During 2017, pension expense for discontinued
operations included a $7.6 million pre-tax charge for the settlement of certain retirement obligations through a third
party group annuity contract.

2017 compared to 2016

Fleet Summary 2017 & 2016

As of December 31, 2017, ABX and ATI were leasing 19 in-service aircraft internally from CAM for use in ACMI
Services. As of December 31, 2017, six of CAM's 29 Boeing 767-200 aircraft shown in the aircraft fleet table above
and six of the 21 Boeing 767-300 aircraft were leased to DHL and operated by ABX. Additionally, 12 of CAM's 29
Boeing 767-200 aircraft and eight of CAM's 21 Boeing 767-300 aircraft were leased to ASI and operated by ABX or
ATI. CAM leased the other 11 Boeing 767-200 aircraft and seven Boeing 767-300 aircraft to external customers,
including four Boeing 767-200 aircraft to DHL that are being operated by a DHL-owned airline. The carrying values
of the total in-service fleet as of December 31, 2017, 2016 and 2015 were $955.2 million, $793.9 million and $742.6
million, respectively. The table above does not reflect one Boeing 767-200 passenger aircraft owned by CAM.

Aircraft fleet activity during 2017 is summarized below:

- CAM completed the modification of seven Boeing 767-300 freighter aircraft purchased in the previous year
and began to lease five of those aircraft, which are being operated by ATI, under a multi-year lease to ASI.
CAM began to lease the sixth aircraft to ATI and the Company leased the seventh aircraft under a multi-year
lease to an external customer.

- CAM leased one Boeing 767-300 freighter aircraft, which was modified during 2016, to ASI under a multi-
year lease. ATI was separately contracted to operate that aircraft.

- CAM leased one Boeing 767-200 freighter, which was being staged for leasing, to ATI.

- External lessees returned two Boeing 767-200 freighter aircraft which were operated by ABX. Two Boeing
767-200 aircraft were redeployed to external customers.

- CAM purchased eight Boeing 767-300 passenger aircraft during 2017 for the purpose of converting the aircraft
into standard freighter configuration. Two of these aircraft completed the freighter modification and entered
into multi-year leases with external customers.

- The Company purchased two Boeing 737-400 passenger aircraft during 2017 for the purpose of converting the
aircraft into standard freighter configuration. One aircraft completed the freighter modification process and
entered into a multi-year lease with an external customer.

As of December 31, 2016, ACMI Services leased 18 of its in-service aircraft internally from CAM. As of
December 31, 2016, eight of CAM's 29 Boeing 767-200 aircraft shown in the aircraft fleet table above and six of the
12 Boeing 767-300 aircraft, were leased to DHL and operated by ABX. Additionally, 12 of CAM's 29 Boeing 767-200
aircraft and two of CAM's 12 Boeing 767-300 aircraft were leased to ASI and operated by ABX or ATI. CAM leased
the other nine Boeing 767-200 aircraft and four Boeing 767-300 aircraft to external customers, including two Boeing
767-200 aircraft to DHL for operation by a DHL affiliate. Aircraft fleet activity during 2016 is summarized below:

- CAM completed the modification of two Boeing 767-300 freighter aircraft purchased in the previous year and
began to lease both aircraft under a multi-year lease to external customers. One of these aircraft is being operated
by ABX for the customer.

- CAM purchased eleven Boeing 767-300 passenger aircraft during 2016 for the purpose of converting the aircraft
into standard freighter configuration. Two aircraft completed the freighter modification and entered into long-
term leases with ASI in 2016, and are both being operated by ATI under multi-year leases. CAM sold one of

the eleven aircraft to an external customer during 2016. One aircraft completed the freighter modification and
entered into service with ATI during the fourth quarter. This aircraft was subsequently entered into a long-term
lease with ASI in January 2017, and is being operated by ATI under a multi-year agreement. The remaining
seven Boeing 767-300 passenger aircraft were undergoing or preparing to undergo modification to a standard
freighter configuration as of December 31, 2016 and are expected to be completed in 2017.

- In conjunction with the ATSA, ABX and ATI returned a total of ten Boeing 767-200 freighter aircraft to CAM
and external lessees returned two Boeing 767-200 freighter aircraft. All twelve were subsequently leased to
ASI under multi-year leases. ABX and ATI were separately contracted to operate the aircraft for ASI.

- Five other Boeing 767-200 freighter aircraft were returned from external lessees. Four were subsequently
leased to ABX or ATI while one is now being prepped for other leasing.

- ABX returned one Boeing 767-200 freighter and one Boeing 767-300 freighter to CAM, which were
subsequently leased to different external lessees. ABX is operating the Boeing 767-300 freighter for the
customer.

- ATI ceased operating one DHL-owned Boeing 757-200 freighter aircraft during the third quarter.

CAM

As of December 31, 2017 and 2016, CAM had 51 and 41 aircraft under lease to external customers, respectively.
CAM's revenues grew by $14.5 million during 2017 compared to 2016, primarily as a result of additional aircraft leases.
Revenues from external customers totaled $140.4 million and $117.6 million for 2017 and 2016, respectively. CAM's
revenues from the Company's airlines totaled $69.1 million during 2017, compared to $77.5 million for 2016, reflecting
the transition of CAM owned aircraft to long-term leases with external customers. CAM's aircraft leasing and related
services revenues, which excludes customer lease incentive amortization, increased $23.9 million in 2017 compared
to 2016, primarily as a result of new aircraft leases since mid-2016, additional engine maintenance agreements and the
timing of maintenance related revenues. From mid-2016 through the end of December 2017, we have added 13 Boeing
767-300 freighter aircraft and one Boeing 737-400 freighter aircraft to CAM's lease portfolio.

CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $61.5 million and $68.6 million
during 2017 and 2016, respectively. Decreased pre-tax earnings reflect a $5.0 million increase in internally allocated
interest expense due to higher debt levels, the $9.5 million increase in the amortization of the ASI lease incentive in
2017 compared to 2016, and $15.7 million more depreciation expense driven by the addition of ten Boeing aircraft in
2017 compared to 2016. These increases were partially offset by additional external lease revenues and the timing of
customer maintenance revenues.

CAM's agreement to lease 20 Boeing 767 freighter aircraft to ASI includes 12 Boeing 767-200 freighter aircraft
for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. Leases for six of these
aircraft began in April 2016, and the remaining fourteen were executed by the third quarter of 2017, to fulfill the 20
aircraft requirement.

During 2017, CAM purchased eight 767-300 passenger aircraft for freighter conversion, two of which were leased
to external customers during 2017 after completing the conversion process. As of December 31, 2017, the remaining
six of these Boeing 767-300 passenger aircraft were being modified from passenger to freighter configuration. The
Company also purchased two Boeing 737-400 aircraft during 2017 and one aircraft was being modified from passenger
to freighter configuration as of December 31, 2017, while the other was leased to an external customer after completing
the conversion process.

ACMI Services

As of December 31, 2017, ACMI Services included 51 in-service aircraft, including 19 leased internally from
CAM, 12 CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the restated CMI
agreement, and 20 CAM-owned freighter aircraft which are under lease to ASI and operated by ATI and ABX under
the ATSA.

Total revenues from ACMI Services increased $121.9 million during 2017 compared with 2016 to $614.7 million.
Airline services revenues from external customers, which do not include revenues for the reimbursement of fuel and

certain operating expenses, increased $48.7 million. Improved revenues were driven by additional aircraft operations
for ASI and reflect a 22% increase in billable block hours. As of December 31, 2017, ACMI Services included the
operation of five more CAM-owned aircraft compared to December 31, 2016. Beginning in April 2016, in conjunction
with the long-term leases executed between ASI and CAM, the related aircraft rent revenues for five aircraft operated
for ASI during the first quarter of 2016 are reflected under CAM instead of ACMI Services.

ACMI Services had pre-tax earnings of $2.5 million during 2017, compared to pre-tax losses of $32.1 million for
2016. Improved pre-tax results in 2017 compared to 2016 were bolstered by expanded revenues, the timing of scheduled
airframe maintenance events, lower flight crew and related training expenses and decreased pension expense. Scheduled
airframe maintenance expense decreased $5.5 million during 2017 compared to 2016. Airframe maintenance expense
varies depending upon the number of C-checks and the scope of the checks required for those airframes scheduled for
maintenance. Pension expense for ACMI Services, including the non-service components of retiree benefit costs,
decreased $1.0 million as actuarially determined for 2017, compared to 2016. The pension expense in 2017 included
a $5.3 million pre-tax charge for the settlement of certain retirement obligations through a third party group annuity
contract.

Operating results for ACMI Services were negatively impacted in 2016 by $7.0 million in lost revenue due to a
work stoppage by ABX crewmembers represented by the Airline Professionals Association of the International
Brotherhood of Teamsters in November 2016. Although the flight crews were ordered back to work within two days
through a temporary restraining order issued by a U.S. district court, the full revenue schedule of flying operations did
not resume for nearly three weeks. During 2016, we incurred additional costs for flight crews to keep pace with ASI's
expanding air network. During 2016, flight crew compensation increased by $13.0 million to pay additional crews
while being trained for expanded aircraft operations and when ABX's flight crews stopped volunteering for additional
flight time, ABX paid a premium to assign trips to crewmembers and awarded additional compensatory days off.

MRO Services

Total revenues from MRO Services were $205.4 million and $111.9 million for 2017 and 2016, respectively.
External customer revenues increased $66.0 million to $106.8 million during 2017 compared to 2016. The increase
in revenue was driven by an increase in airframe maintenance and modification revenues due to the addition of Pemco,
which was acquired at the end of 2016. The pre-tax earnings from MRO Services increased by $7.4 million to $19.7
million in 2017, reflecting expanded aircraft maintenance and modification services with the addition of Pemco.

Other Activities

External customer revenues from all other activities increased $88.7 million to $206.3 million for 2017. Customer
revenues increased due to increased volumes at the USPS and ASI locations. The pre-tax earnings from other activities
decreased by $3.9 million to $5.6 million in 2017, reflecting the termination of hub logistics services we provided
through May of 2017 for ASI at the airport in Wilmington, Ohio along with reduced aviation fuel sales after ASI
discontinued its hub.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased $50.5 million during 2017 compared to 2016 driven by higher
headcount for flight operations, maintenance services and package sorting services. The increase in expense for 2017
included $33.6 million for Pemco, acquired in December 2016. The increase during 2017 also included additional line
maintenance resources to support our customers expanded network and increased block hours. During 2017, employee
benefit expenses increased due to the higher level of headcount.

Depreciation and amortization expense increased $19.1 million during 2017 compared to 2016. The increase in
depreciation expense reflects incremental depreciation for 13 Boeing 767-300 aircraft, one Boeing 737-400 aircraft
and additional aircraft engines added to the operating fleet since mid-2016, as well as capitalized heavy maintenance
and navigation technology upgrades.

Maintenance, materials and repairs expense increased by $22.5 million during 2017 compared to 2016. The increase
is primarily due to the addition of Pemco's maintenance and materials, which added $36.4 million of expenses for 2017
compared to 2016. The additional expense from Pemco was partially offset by fewer airframe checks for the Company's
airlines and lower airframe maintenance costs for third party customers during 2017 compared to 2016. Aircraft
36

maintenance expenses can vary among periods due to the number of scheduled airframe maintenance checks and the
scope of the checks that are performed. In May 2017, our airlines entered into maintenance agreements for certain
General Electric CF6 engines that power many of the Boeing 767-300 aircraft leased from CAM. Under the agreement,
the engines are maintained by the service provider for a fixed fee per cycle. As a result, beginning in June 2017, the
airlines began to record engine maintenance expense as flights occur. As a result, our airlines recorded an additional
$4.2 million of engine maintenance expense, partially offset by a reduction to engine depreciation expense.

Fuel expense increased by $62.4 million during 2017 compared to 2016. Fuel expense includes the cost of fuel to
operate DoD charters, reimbursable fuel billed to DHL, ASI and other ACMI customers, as well as fuel used to position
aircraft for service and for maintenance purposes. The increase in fuel expense was due to a higher level of customer-
reimbursed fuel which increased $66.9 million for 2017 compared to 2016. Fuel expense for military customers and
other purposes declined due to fewer block hours flown for military customers in 2017.

Contracted ground and aviation services expense includes navigational services, aircraft and cargo handling services
and other airport services. Contracted ground and aviation services increased $89.6 million during 2017 compared to
2016. The increase is primarily due to additional logistical support services arranged for ASI gateways.

Travel expense increased by $7.3 million during 2017 compared to 2016. The increase reflects additional airline

services and a higher level of employee headcount in airline operations during 2017 compared to 2016.

Landing and ramp expense, which includes the cost of deicing chemicals, increased by $8.8 million during 2017
compared to 2016, driven by additional flight operations. Landing and ramp fees can vary based on the flight schedules
and the airports that are used in a period.

Rent expense increased by $2.0 million during 2017 compared to 2016. Rent expense increased due to the
acquisition of Pemco, acquired at the end of 2016, as well as increases in aircraft simulators rented to train new flight
crews.

Insurance expense increased by $0.4 million during 2017 compared to 2016. Aircraft fleet insurance has increased

due to additional aircraft operations during 2017 compared to 2016.

Other operating expenses increased by $7.2 million during 2017 compared to 2016. Other operating expenses
include professional fees, employee training and utilities. Other operating expenses during the first quarter of 2016
included a $1.2 million charge for the Company's share of capitalized debt issuance costs that were written off when
West Atlantic AB, a non-consolidated affiliate, restructured its debt. Other operating expenses increased by $3.1 million
due to the addition of Pemco.

Interest expense increased by $5.7 million during 2017 compared to 2016. Interest expense increased due to a
higher average debt level and interest rates on the Company's outstanding loans, offset by more capitalized interest
related to our fleet expansion during 2017. Capitalized interest increased $0.5 million during 2017 to $1.8 million.
Interest expense in 2017 was also impacted by the convertible notes issued in September 2017. At the time of issuance,
the value of the conversion feature of the convertible notes was recorded as a debt discount and is being amortized
along with debt issuance cost to interest expense over the seven year term of the convertible notes. The amortization
of the debt discount and issuance costs was $2.1 million during 2017.

The Company recorded pre-tax net losses on financial instruments of $79.8 million during the year ended December
31, 2017, compared to losses of $18.1 million during 2016. The losses are primarily a result of re-measuring, as of
December 31, 2017 and 2016, the fair value of the stock warrants granted to Amazon. Increases in the fair value of
the warrant obligation since the previous re-measurement dates of December 31, 2016 and 2015, respectively,
corresponded to an increase in the traded price of the Company's shares and resulted in non-cash losses.

Income tax benefits increased $41.7 million for 2017 compared to 2016. Income tax benefits from earnings from
continuing operations for 2017 included a benefit of $59.9 million due to the enactment of the Tax Act in December
2017. The re-measurement of deferred tax balances using the lower federal rates enacted by the Tax Act, resulted in a
reduction in our net deferred tax liability and the recognition of a deferred tax benefit. The effective tax rate, before
including the effects of the Tax Act, warrant losses and incentive amortization was 37.5% for 2017 compared to 35.3%
for the year ended December 31, 2016. The higher effective tax rate for 2017 compared to 2016 reflects a lesser amount
of discrete tax benefits related to state income taxes and employee stock incentive awards during 2017 compared to
2016.

Discontinued Operations

Pre-tax losses related to the former sorting operations were $5.1 million for 2017 compared to pre-tax gains of
$3.8 million for 2016. During 2017, discontinued operations included a $7.6 million pre-tax charge for the settlement
of certain retirement obligations through a third party group annuity contract. Pre-tax earnings during 2016 were a
result of reductions in self- insurance reserves for former employee claims and pension credits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $298.0 million, $235.0 million and $193.1 million in 2018,
2017 and 2016, respectively. Improved cash flows generated from operating activities during 2018 and 2017, were
driven primarily by additional aircraft leases to customers and by increased operating levels of the ACMI Services
segment. Cash outlays for pension contributions were $22.2 million, $4.5 million and $6.3 million in 2018, 2017 and
2016, 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 $292.9 million, $296.9 million and $264.5 million
in 2018, 2017 and 2016, respectively. Capital expenditures in 2018 included $197.1 million for the acquisition of eight
Boeing 767-300 aircraft and freighter modification costs; $61.7 million for required heavy maintenance; and $34.1
million for other equipment, including purchases of aircraft engines and rotables. Capital expenditures in 2017 included
$209.4 million for the acquisition of eight Boeing 767-300 aircraft and two Boeing 737-400 aircraft and freighter
modification costs; $53.3 million for required heavy maintenance; and $34.2 million for other equipment, including
purchases of aircraft engines and rotables. Our capital expenditures in 2016 included $185.3 million for the acquisition
of eleven Boeing 767-300 aircraft, freighter modification costs and next generation navigation modifications; $30.4
million for required heavy maintenance; and $48.8 million for other equipment, including purchases of aircraft engines
and rotables.

Cash proceeds of $17.6 million, $0.4 million and $12.4 million were received in 2018, 2017 and 2016, respectively,

for the sale of aircraft engines, airframes and parts.

During 2018 and 2017, we spent $866.6 million and $11.8 million, respectively, to purchase equity interests in
other businesses and to acquire Omni. Spending in 2018 included $855.1 million for the acquisition of Omni, net of
cash acquired. Spending during 2018 and 2017 included entry and subsequent contributions into a joint-venture with
Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft.

Net cash provided by financing activities was $870.5 million, $79.7 and $75.1 million in 2018, 2017 and 2016,
respectively. On November 9, 2018, in conjunction with the Omni acquisition, the Company amended its Senior Credit
Agreement to include a new term loan of $675.0 million and drew an additional $180.0 million from the revolving
credit facility. We paid related debt issuance cost of $9.5 million during 2018. During 2018, we drew a total $945.0
million from the revolving credit facility with the proceeds used to fund the acquisition of Omni and other capital
spending. We made debt principal payments of $58.6 million. Our borrowing activities were necessary to complete
the acquisition of Omni as well as purchase and modify aircraft for deployment into air cargo markets.

In September 2017, we received proceeds of $258.8 million from the issuance of convertible notes. In conjunction
with the issuance of convertible notes, we received $38.5 million for the issuance of stock warrants and paid $56.1
million for related convertible note hedges. We paid issuance costs of $6.5 million for these transactions. The net
proceeds from these transactions were $234.7 million, of which $205.0 million was used to pay down the balance of
our revolving credit facility, thereby increasing the amount available for future draws under that facility. The convertible
notes and the related transactions are described further in Note G of the accompanying condensed consolidated financial
statements.

During 2018, we spent $3.6 million to buy 157,000 shares of the Company's common stock pursuant to a share
repurchase plan authorized in 2014. The repurchase plan, which originally authorized the Company to purchase up to
$50.0 million of common stock, was amended by the Board in May 2016 to increase such authorization to up to $100
million and amended by the Board again in February 2018 to increase such authorization to up to $150 million. We

spent $11.2 million and $63.6 million during 2017 and 2016, respectively, to repurchase shares under the authorized
plan.

Commitments

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

as of December 31, 2018.

Payments Due By Year

Contractual Obligations

Total

2019

2020 and
2021

2022 and
2023

2024 and
after

Debt obligations, including interest payments

$ 1,728,957

90,750

$ 209,183

$ 1,167,727

$ 261,297

Facility leases

Aircraft and modification obligations

Aircraft and other leases

47,983

53,845

21,481

10,898

53,845

6,607

18,251

—

9,870

8,373

—

3,003

10,461

—

2,001

Total contractual cash obligations

$ 1,852,266

$ 162,100

$ 237,304

$ 1,179,103

$ 273,759

The long term debt bears interest at 1.125% to 4.78% per annum at December 31, 2018. For additional information

about the Company's debt obligations, see Note G of the accompanying financial statements.

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 $8.5 million expected to be funded in
2019. For additional information about the Company's pension obligations, see Note J of the accompanying financial
statements.

As of December 31, 2018, the Company has five aircraft that were in or awaiting the modification process. The
Company is committed to induct one more aircraft into the freighter modification process through 2019. Additionally,
we placed non-refundable deposits to purchase 20 more Boeing 767-300 passenger aircraft through 2021. We estimate
that capital expenditures for 2019 will total $400 million of which the majority will be related to aircraft purchases and
freighter modifications. Actual capital spending for any future period will be impacted by aircraft acquisitions,
maintenance and modification processes. We expect to finance the capital expenditures from current cash balances,
future operating cash flow and the Senior Credit Agreement. The Company outsources a significant portion of the
aircraft freighter modification process to a non-affiliated third party. The modification primarily consists of the
installation of a standard cargo door and loading system. For additional information about the Company's aircraft
modification obligations, see Note I of the accompanying financial statements.

Since August 3, 2017, the Company has been part of a joint-venture with Precision Aircraft Solutions, LLC, to
develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. We anticipate approval of a
supplemental type certificate from the FAA in 2020. We expect to make contributions equal to the Company's 49%
ownership percentage of the program's total costs during 2019.

Liquidity

The Company has a Senior Credit Agreement with a consortium of banks that includes two unsubordinated term
loans of $721.4 million, net of debt issuance costs, and a revolving credit facility from which the Company has drawn
$475.0 million, net of repayments, as of December 31, 2018. The revolving credit facility has a capacity of $545.0
million, permitted additional indebtedness of $300.0 million of which $258.8 million has been utilized for the issuance
of convertible notes, and an accordion feature whereby the Company can draw up to an additional $400.0 million
subject to the lenders' consent. The Senior Credit Agreement is collateralized by the Company's fleet of Boeing 777,
767 and 757 freighter aircraft. Under the terms of the Senior Credit Agreement, the Company is required to maintain
collateral coverage equal to 110% of the outstanding balances of the term loans and the total funded revolving credit
facility. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term
loan plus the revolving credit facility commitment, which was $545.0 million. Each year, through May 6, 2019, the
Company may request a one year extension of the final maturity date, subject to the lenders' consent. Absent such
future extensions, the maturity date is currently set to expire on May 30, 2023.

Under the Senior Credit Agreement, the Company is subject to covenants and warranties that are usual and
customary including, among other things, limitations on certain additional indebtedness, guarantees of indebtedness,
as well as a total debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization expenses) ratio and
a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default including unspecified events
that may have a material adverse effect on the Company. If an event of default occurs, the Company may be forced to
repay, renegotiate or replace the Senior Credit Agreement.

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 EBITDA. At the Company's current debt-to-EBITDA ratio, the unsubordinated term loans and the revolving
credit facility bear variable interest rates of 4.78%, 4.64% and 4.78%, respectively.

At December 31, 2018, the Company had $59.3 million of cash balances. The Company had $57.9 million available
under the revolving credit facility, net of outstanding letters of credit, which totaled $12.1 million. Also, the Company
has up to $400 million of additional borrowing capacity available under the accordion feature of its Senior Credit
Agreement, subject to lender consent. 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,
capital spending, scheduled debt payments and required pension funding 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, 2018 and 2017, 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

a monthly basis and recorded to revenue in the corresponding month earned. Revenues for operating expenses that are
reimbursed through airline service agreements, including consumption of aircraft fuel, are generally recognized as the
costs are incurred, on a net basis. 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 and engines
are recognized when the parts are delivered. Effective January 1, 2018 the Company records revenues and estimated
earnings for its airframe maintenance and aircraft modification contracts using the percentage-of-completion cost input
method. Prior to January 1, 2018, revenues earned and expenses incurred in providing aircraft-related maintenance,
repair or modification services were usually recognized in the period in which the services were completed and delivered
to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which the services
are performed.

Goodwill and Intangible Assets

We assess in the fourth quarter of each year whether the Company’s goodwill acquired in acquisitions is impaired
in accordance with the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic
350-20 Intangibles—Goodwill and Other. 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.

The goodwill impairment test requires significant judgment, including the determination of the fair value of each
reporting unit that has goodwill. We estimate the fair value 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 and EBITDA (earnings before interest,
taxes, depreciation and amortization). We derive cash flow assumptions from many factors including recent market
trends, expected revenues, cost structure, aircraft maintenance schedules and long term strategic plans for the deployment
of aircraft. Key assumptions under the discounted cash flow models include projections for the number of aircraft in
service, capital expenditures, long term growth rates, operating cash flows and market-derived discount rates.

The performance of the goodwill impairment test is the 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 impairment exists. If
the carrying value of a reporting unit is higher than its fair value an impairment loss is recorded for the difference and
charged to operations. See additional information about the goodwill impairment tests in Note C of the accompanying
consolidated financial statements.

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 CAM, OAI and Pemco, separately, using multiples of EBITDA
and revenues from comparable publicly traded companies. Based on our analysis, the individual fair values of CAM,
OAI and Pemco exceeded their respective carrying values as of December 31, 2018. Our key assumptions used for
CAM's goodwill testing include uncertainties, including the level of demand for cargo aircraft by shippers, the DoD
and freight forwarders and CAM's ability to lease aircraft and the lease rates that will be realized. The demand for
customer airlift is projected based on input from customers, management's interface with customer planning personnel
and aircraft utilization trends. Our key assumptions used for OAI's goodwill testing include the number of aircraft that
OAI will operate, the amount of revenues that the aircraft will generate, the number of flight crews and cost of flight
crews needed. Our key assumptions used for Pemco's goodwill testing include the level of revenues that customers
will seek from Pemco and the cost of labor and contract resources Pemco is expected to incur. Certain events or changes
in circumstances could negatively impact our key assumptions. Customer preferences may be impacted by changes
in aviation fuel prices. Key customers, including DHL, Amazon and the DoD, may decide that they do not need as
many aircraft as projected or may find alternative providers.

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 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 an asset

group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value,
and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering
quoted market values, discounted cash flows or internal and external appraisals, as applicable.

Depreciation

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

Self-Insurance

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

Contingencies

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

Income Taxes

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

The Company has significant deferred tax assets including net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes which begin to expire in 2031. 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.

Stock Warrants

The Company’s accounting for warrants issued to a lessee is determined in accordance with the financial reporting
guidance for equity-based payments to non-employees and for financial instruments. The warrants issued to lessees
are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligation.
The lease incentive is amortized against revenues over the duration of related aircraft leases. The unexercised warrants
are classified in liabilities and re-measured to fair value at the end of each reporting period, resulting in a non-operating
gain or loss.

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.

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, key assumptions include discount rates, expected
long term investment returns, retirement ages and mortality. 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 6.20%. Our assumed
rate of return is based on a targeted long term investment allocation of 30% equity securities, 65% fixed income securities
and 5% cash. The actual asset allocation at December 31, 2018 was 25% equities, 74% fixed income and 1% cash.
The pension trust includes $4.6 million of investments (1% 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 6.20% after analyzing expected returns on investment vehicles and considering our long term
asset allocation expectations. Fluctuations in long-term interest rates can have an impact on the actual rate of return.
If we were to lower our long term rate of return assumption by a hypothetical 100 basis points, expense in 2018 would
be increased by approximately $6.1 million. We use a market value of assets as of the measurement date for determining
pension expense.

In selecting the interest rate to discount estimated future benefit payments that have been earned to date to their
net present value (defined as the projected benefit obligation), we match the plan’s benefit payment streams to high-
quality bonds of similar maturities. The selection of the discount rate not only affects the reported funded status
information as of December 31 (as shown in Note J to the accompanying consolidated financial statements), but also
affects the succeeding year’s pension and post-retirement healthcare expense. The discount rates selected for
December 31, 2018, based on the method described above, were 4.65% for crewmembers and 4.65% for non-
crewmembers. If we were to lower our discount rates by a hypothetical 50 basis points, pension expense in 2018 would
be increased by approximately $7.2 million.

Our mortality assumptions at December 31, 2018, reflect the most recent projections released by the Actuaries
Retirement Plans Experience Committee, a committee within the Society of Actuaries, a professional association in
North America. The assumed future increase in salaries and wages is not a significant estimate in determining pension
costs because each defined benefit pension plan was frozen during 2009 with respect to additional benefit accruals.

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

obligation and accumulated other comprehensive income (in thousands):

Change in assumption

100 basis point decrease in rate of return

50 basis point decrease in discount rate

Aggregate effect of all the above changes

Effect of change

December 31, 2018

2018
Pension
expense

Pension
obligation

Accumulated
other
comprehensive
income (pre-tax)

6,116

— $

7,187

13,303

(41,348)
(41,348)

—

41,348

New Accounting Pronouncements

For information regarding recently issued accounting pronouncements and the expected impact on our annual
statements, see Note A "SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT
ACCOUNTING POLICIES" in the accompanying notes to Consolidated Financial Statements included in Part II, Item
8 of this Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk for changes in interest rates.

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 original unsubordinated term loan and twenty-
five percent of the outstanding balance of the second term loan issued in November 2018. Accordingly, in February
2016, the Company entered into an interest rate swap instrument. Additionally, the Company entered into more interest
rate swaps in February 2017, April 2017, June 2017 and December 2018, respectively. 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 combined notional values were $331.3 million as of December 31, 2018. See Note H in the
accompanying consolidated financial statements for a discussion of our accounting treatment for these hedging
transactions.

As of December 31, 2018, the Company has $204.8 million of fixed interest rate convertible debt and $1,196.4
million of variable interest rate debt outstanding. Variable interest rate debt exposes us to differences in future cash
flows resulting from changes in market interest rates. Variable interest rate risk can be quantified by estimating the
change in annual cash 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 $5.1 million for the
year ended December 31, 2018.

The convertible 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
convertible debt through a hypothetical 20% increase in interest rates. As of December 31, 2018, a 20% increase in
interest rates would have decreased the fair value of our fixed interest rate convertible debt by approximately $0.6
million.

The Company is exposed to concentration of credit risk primarily through cash deposits, cash equivalents, marketable
securities and derivatives. As part of its risk management process, the Company monitors and evaluates the credit
standing of the financial institutions with which it does business. The financial institutions with which it does business
are generally highly rated. The Company is exposed to counterparty risk, which is the loss it could incur if a counterparty
to a derivative contract defaulted.

As of December 31, 2018, the Company's liabilities reflected 14.83 million stock warrants issued to a customer.
The fair value of the stock warrant obligation is re-measured at the end of each reporting period and marked to market.
The fair value of the stock warrant is dependent on a number of factors which change, including the Company's common
stock price, the volatility of the Company’s common stock and the risk-free interest rate. See Note E in the accompanying
consolidated financial statements for further information about the fair value of the stock warrants

The Company sponsors defined benefit pension plans and post-retirement healthcare plans for certain eligible
employees. The Company's related pension expense, plans' funded status, and funding requirements are sensitive to
changes in interest rates. The funded status of the plans and the annual pension expense is recalculated at the beginning
of each calendar year using the fair value of plan assets. market-based interest rates at that point in time, as well as
assumptions for asset returns and other actuarial assumptions. Higher interest rates could result in a lower fair value
of plan assets and increased pension expense in the following years. At December 31, 2018, ABX's defined benefit
pension plans had total investment assets of $625.6 million under investment management. See Note J in the
accompanying consolidated financial statements for further discussion of these assets.

The Company is exposed to market risk for changes in the price of jet fuel. The risk associated with jet fuel,

however, is largely mitigated by reimbursement through the agreements with its customers.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Operations

Consolidated Statements of 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 stockholders and the Board of Directors of Air Transport Services Group, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Air Transport Services Group, Inc. and subsidiaries
(the "Company") as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive
income, cash flows, and stockholders' equity, for each of the three years in the period ended December 31, 2018, and
the related notes and the schedule listed in the Table of Contents at Item 15a (2) (collectively referred to as the "financial
statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the
United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria
established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated March 1, 2019, expressed an unqualified opinion on the Company's
internal control over financial reporting.

Change in Accounting Principle

As discussed in Note A to the financial statements, the Company has changed its method of accounting for revenue
from contracts with customers in fiscal year 2018 due to the adoption of the new revenue standard. The Company
adopted the new revenue standard using the modified retrospective approach.

Emphasis of a Matter

As discussed in Note D to the consolidated financial statements, the Company's three principal customers account for
a substantial portion of the Company's revenue. The Company's financial security is dependent on its ongoing
relationship with its three principal customers existing as of December 31, 2018.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement
of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio
March 1, 2019

We have served as the Company's auditor since 2002.

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

ASSETS

CURRENT ASSETS:

Cash, cash equivalents and restricted cash
Accounts receivable, net of allowance of $1,444 in 2018 and $2,445 in 2017
Inventory
Prepaid supplies and other
TOTAL CURRENT ASSETS

Property and equipment, net
Lease incentive
Goodwill and acquired intangibles
Convertible note hedges
Other assets

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
Convertible note obligations
Stock warrant obligations
Post-retirement obligations
Other liabilities
Deferred income taxes

TOTAL LIABILITIES

Commitments and contingencies (Note I)
STOCKHOLDERS’ EQUITY:

December 31, December 31,

2018

2017

59,322
147,755
33,536
18,608
259,221
1,555,005
63,780
535,359
—
57,220
$ 2,470,585

32,699
109,114
22,169
20,521
184,503
1,159,962
80,684
44,577
53,683
25,435
$ 1,548,844

109,843
50,932
19,623
29,654
19,082
229,134
1,371,598
—
203,782
64,485
51,905
113,243
2,034,147

99,728
40,127
10,455
18,512
15,850
184,672
497,246
54,359
211,136
61,355
45,353
99,444
1,153,565

Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior
Participating Preferred Stock
Common stock, par value $0.01 per share; 110,000,000 shares authorized;
59,134,173 and 59,057,195 shares issued and outstanding in 2018 and 2017,
respectively
Additional paid-in capital
Accumulated earnings (deficit)
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

—

591
471,158
56,051
(91,362)
436,438
$ 2,470,585

591
471,456
(13,748)
(63,020)
395,279
$ 1,548,844

See notes to consolidated financial statements.
47

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

REVENUES
OPERATING EXPENSES

Salaries, wages and benefits
Depreciation and amortization
Maintenance, materials and repairs
Fuel
Contracted ground and aviation services
Travel
Landing and ramp
Rent
Insurance
Transaction fees
Other operating expenses

OPERATING INCOME
OTHER INCOME (EXPENSE)

Interest income
Non-service component of retiree benefit (costs) gains
Net gain (loss) on financial instruments
Loss from non-consolidated affiliate
Interest expense

EARNINGS (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES
INCOME TAX BENEFIT (EXPENSE)
EARNINGS FROM CONTINUING OPERATIONS

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

BASIC EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL BASIC EARNINGS PER SHARE

DILUTED EARNINGS (LOSS) PER SHARE

Continuing operations
Discontinued operations
TOTAL DILUTED EARNINGS PER SHARE

WEIGHTED AVERAGE SHARES

Basic
Diluted

Year Ended December 31
2017
$ 1,068,200

2018
892,345

2016
768,870

276,106
154,556
141,575
149,579
147,092
27,390
22,271
13,629
4,820
—
31,782
968,800
99,400

116
(6,105)
(79,789)
(3,135)
(17,023)
(105,936)

224,852
135,496
119,123
87,134
57,491
20,048
13,455
11,625
4,456
—
24,627
698,307
70,563

131
(6,815)
(18,107)
—
(11,318)
(36,109)

(6,536)

34,454

300,514
178,895
146,692
39,293
16,640
34,443
5,968
13,899
6,112
5,264
33,607
781,327
111,018

251
8,180
7,296
(10,468)
(28,799)
(23,540)

87,478

(19,595)

67,883
1,402

28,276

21,740
(3,245)

69,285

18,495

1.16
0.02
1.18

0.89
0.02
0.91

0.37
(0.06)
0.31

0.36
(0.05)
0.31

(13,394)

21,060
2,428

23,488

0.34
0.04
0.38

0.33
0.04
0.37

58,765
68,356

58,907
59,686

61,330
62,994

See notes to consolidated financial statements.

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

Years Ended December 31
2017

2018

2016

NET EARNINGS
OTHER COMPREHENSIVE INCOME (LOSS):

Defined Benefit Pension

Defined Benefit Post-Retirement

Foreign Currency Translation

69,285

18,495

23,488

(28,467)

16,513

20,214

256

(131)

204

129

(986)

(82)

TOTAL COMPREHENSIVE INCOME (LOSS), net of tax

40,943

35,341

42,634

See notes to consolidated financial statements.

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

Years Ended December 31
2017

2018

2016

OPERATING ACTIVITIES:

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

67,883
1,402

21,740
(3,245)

21,060
2,428

Depreciation and amortization
Pension and post-retirement
Deferred income taxes
Amortization of stock-based compensation
Net (gain) loss on financial instruments

Changes in assets and liabilities:

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

204,559
3,766
18,986
5,047
(7,296)

25,380
(3,273)
10,724
(3,824)
3,605
(35,293)
6,359
298,025

INVESTING ACTIVITIES:

Expenditures for property and equipment
Proceeds from property and equipment
Acquisitions and investments in businesses, net of cash acquired
Redemption of long term deposits

NET CASH (USED IN) INVESTING ACTIVITIES

(292,915)
17,570
(866,558)
—
(1,141,903)

FINANCING ACTIVITIES:

Principal payments on long term obligations
Proceeds from borrowings
Payments for financing costs
Proceeds from convertible notes
Purchase convertible note hedges
Proceeds from issuance of warrants
Purchase of common stock
Withholding taxes paid for conversion of employee stock awards
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:

Accrued expenditures for property and equipment
Accrued consideration for acquisition

(58,640)
945,000
(9,953)
—
—
—
(3,581)
(2,325)
870,501

26,623
32,699
59,322

17,278
1,213

11,234
7,845

$
$

170,751
20,933
(30,771)
3,632
79,789

(31,313)
(4,107)
23,500
(7,331)
780
(13,083)
3,717
234,992

(296,939)
381
(11,792)
9,975
(298,375)

(254,446)
115,000
(7,887)
258,750
(56,097)
38,502
(11,184)
(2,914)
79,724

16,341
16,358
32,699

13,693
1,938

$
$

140,002
11,532
13,807
3,165
18,107

(9,597)
(5,269)
5,603
(3,216)
5,678
(11,819)
1,611
193,092

(264,477)
12,380
(17,395)
—
(269,492)

(44,069)
185,000
—
—
—
—
(63,570)
(2,300)
75,061

(1,339)
17,697
16,358

10,738
923

25,142

$
— $

9,118
—

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
Earnings
(Deficit)

Accumulated
Other
Comprehensive
Income (Loss)

Total

64,077,140

641

$ 518,259

(55,731) $

(99,012) $ 364,157

Purchase of common stock

(4,825,545)

(48)

BALANCE AT JANUARY 1, 2016
Stock-based compensation plans

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

Forfeited restricted stock

Tax benefit from common stock
compensation
Warrants granted to customer

Amortization of stock awards and
restricted stock

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2016
Stock-based compensation plans

171,500

42,796

(4,600)

—

(2)

(2,300)

—
(63,522)

1,087

(13,271)

3,165

59,461,291

595

$ 443,416

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

113,000

17,441

(3,900)

—

(1)

(2,914)

—

Purchase of common stock

(530,637)

(5)

(11,179)

Warrants issued

Amortization of stock awards and
restricted stock

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2017
Stock-based compensation plans

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

Purchase of common stock

Reclassification of bond hedge, net
of taxes

Reclassification of note conversion
obligation, net of taxes

Cumulative effect in change in
accounting principle
Amortization of stock awards and
restricted stock

38,502

3,632

59,057,195

591

$ 471,456

198,900

36,378

(1,300)

(157,000)

—

(2)

(2,329)

—

(3,578)

(50,435)

50,999

5,047

Total comprehensive income
BALANCE AT DECEMBER 31, 2018

59,134,173

591

$ 471,158

—

(2,300)

—

(63,570)

1,087

(13,271)

23,488
(32,243) $

3,165
19,146
42,634
(79,866) $ 331,902

—

(2,914)

—

(11,184)

38,502

18,495
(13,748) $

3,632
35,341
16,846
(63,020) $ 395,279

—

(2,329)

—

(3,580)

(50,435)

50,999

514

5,047
40,943
(28,342)
(91,362) $ 436,438

514

69,285
56,051

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 subsidiaries primarily operate within the airfreight
and logistics industry. The Company leases aircraft and provides airline operations, ground services, aircraft
modification and maintenance services and other support services mainly to the cargo transportation and package
delivery industries. The Company's subsidiaries offer a range of complementary services to delivery companies, freight
forwarders, airlines and government customers.

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 airlines, ABX Air, Inc. (“ABX”), Air
Transport International, Inc. (“ATI”), Omni Air International LLC ("OAI" ) 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 provides air transportation services to a concentrated base of customers.
The Company provides a combination of aircraft, crews, maintenance and insurance services for a customer's
transportation network through customer "CMI" and "ACMI" agreements and through charter contracts in which aircraft
fuel is also included. In addition to its aircraft leasing and airline services the Company sells aircraft parts, provides
aircraft maintenance and modification services, equipment maintenance services and arranges load transfer and package
sorting services for customers.

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Air Transport Services Group, Inc.
and its wholly-owned subsidiaries. Investments in an affiliate in which the Company has significant influence but does
not exercise control are accounted for using the equity method of accounting. Using the equity method, the Company’s
share of a non-consolidated affiliate's income or loss is recognized in the consolidated statement of earnings and
cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment.
Inter-company balances and transactions are eliminated. The financial statements of the Company are prepared in
accordance with accounting principles generally accepted in the United States of America ("GAAP").

On November 9, 2018, the Company acquired OAI, a passenger airline, along with related entities Advanced Flight
Services, LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC (referred to collectively herein as "Omni").
OAI is a leading provider of contracted passenger airlift for the U.S. Department of Defense ("DoD") via the Civil
Reserve Air Fleet ("CRAF") program, and a provider of full-service passenger charter and ACMI services. OAI carries
passengers worldwide for a variety of private sector customers and other government services agencies. Revenues and
operating expenses include the activities of Omni for periods since their acquisition by the Company on November 9,
2018.

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, stock warrants and other financial instruments, 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.

Cash includes restricted cash of $5.3 million as of December 31, 2018 and none as of December 31, 2017. Restricted
cash is customers’ deposits held in an escrow account as required by DOT regulations. The cash is restricted to the
extent of customers’ deposits on flights not yet flown. Restricted cash is released from escrow upon completion of
specific flights, which are scheduled to occur within the twelve months.

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note D), other airlines, the
U.S. Postal Services ("USPS"), delivery companies 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. 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. The assessment
also requires an estimation of fair value of each reporting unit that has goodwill. 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 impairment exists. If the carrying amount of a reporting unit is higher than its fair
value an impairment loss is recorded for the difference and charged to operations.

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. Finite-
lived intangible assets are amortized over their estimated useful economic lives.

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 777, 767, 757 and 737 aircraft and flight equipment

Ground equipment
Leasehold improvements, facilities and office equipment

7 to 18 years

3 to 10 years

3 to 25 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 recorded 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 of airframe maintenance for Boeing 767-200 aircraft operated by ABX 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. Many of the Company's General Electric CF6 engines that power the Boeing 767-200 aircraft are
maintained under “power by the hour” and "power by the cycle" agreements with an engine maintenance provider.
Further, in May 2017, the Company entered into similar maintenance agreements for certain General Electric CF6
engines that power many of the Company's Boeing 767-300 aircraft. Under these agreements, the engines are maintained
by the service provider for a fixed fee per cycle and/or flight hour. As a result, the cost of maintenance for these engines
is generally expensed as flights occur. Maintenance for the airlines’ other aircraft engines, including Boeing 777 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.

For aircraft leased from external lessors, the Company may be required to make periodic payments to the lessor
under certain aircraft leases for future maintenance events such as engine overhauls and major airframe maintenance.
Such 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 it is less than probable that a deposit will be
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 $1.8 million, $1.8 million and $1.3 million for the years
ended December 31, 2018, 2017 and 2016, 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 represents a strategic shift
that had a major impact on the Company. The results of discontinued operations are aggregated and presented separately
in the consolidated statements of operations.

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 $17.6 million and $18.4 million at December 31, 2018 and December 31,
2017, 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 funded status of any of the Company's defined benefit pension or post-retirement health care plan is the difference
between the fair value of plan assets and the accumulated benefit obligations to plan participants. The over funded or
underfunded status of a plan is reflected in the consolidated balance sheet as an asset for over funded plans, or as a
liability for underfunded plans.

The funded status is ordinarily re-measured annually at year end using the fair value of plans assets, market based
discount rates and actuarial assumptions. Changes in the funded status of the plans as a result of re-measuring plan
assets and benefit obligations, are recorded to accumulated comprehensive loss and amortized into operating expense
using a corridor approach. The Company's corridor approach amortizes variances in plan assets and benefit obligations
that are a result of the previous measurement assumptions into earnings when the net deferred variances exceed 10%
of the greater of the market value of plan assets or the benefit obligation at the beginning of the year. The amount in
excess of the corridor is amortized over the average remaining service period to retirement date of active plan participants.
Costs adjustments for plan amendments are also deferred and amortized over the expected working life or the life
expectancy of plan participants. Irrevocable settlement transactions that relieve the Company from responsibilities of
providing retiree benefits and significantly eliminate the Company's related risk may result in recognition of gains or
losses from accumulated other comprehensive loss.

Customer Security and Maintenance Deposits

The Company's customer leases typically obligate the lessee to maintain the Company's aircraft in compliance with
regulatory standards for flight and aircraft maintenance. The Company may require an aircraft lessee to pay a security
deposit or provide a letter of credit until the expiration of the lease. Additionally, the Company's leases may require a
lessee to make monthly payments toward future expenditures for scheduled heavy maintenance events. The Company
records security and maintenance deposits in other liabilities. If a lease requires monthly maintenance payments, the
Company is typically required to reimburse the lessee for costs they incur for scheduled heavy maintenance events
after completion of the work and receipt of qualifying documentation. Reimbursements to the lessee are recorded
against the previously paid maintenance deposits.

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. All deferred income
taxes are classified as noncurrent in the statement of financial position.

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 position is not
recognized if it has less than a 50% likelihood of being sustained. The Company recognizes interest and penalties
accrued related to uncertain tax positions in operating expense.

Purchase of Common Stock

The Company's Board of Directors has authorized management to repurchase outstanding common stock of the
Company from time to time on the open market or in privately negotiated transactions. The authorization does not
require the Company to repurchase a specific number of shares and the Company may terminate the repurchase program
at any time. Upon the retirement of common stock repurchased, the excess purchase price over the par value for retired
shares of common stock is recorded to additional paid-in-capital.

Stock Warrants

The Company’s accounting for warrants issued to a lessee is determined in accordance with the financial reporting
guidance for equity-based payments to non-employees and for financial instruments. The warrants issued to a lessee
are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligation.
The lease incentive is amortized against revenues over the duration of related aircraft leases. The unexercised warrants
are classified in liabilities and re-measured to fair value at the end of each reporting period, resulting in a non-operating
gain or loss.

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,
gains and losses associated with interest rate hedging instruments and fluctuations in currency exchange rates related
to the foreign affiliate.

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

Aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the
applicable lease agreements. 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 airline service 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. Contracts for the sale of aircraft parts typically result in the recognition
of revenue when the parts are delivered. Effective January 1, 2018 the Company records revenues and estimated
earnings over time for its airframe maintenance and aircraft modification contracts using the percentage-of-completion
cost input method. Prior to January 1, 2018, revenues earned and expenses incurred in providing aircraft-related
maintenance, repair or modification services were usually recognized in the period in which the services were completed

and delivered to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which
the services are performed.

Accounting Standards Updates

Effective January 1, 2018 the Company adopted the Financial Accounting Standards Board's ("FASB") Accounting
Standards Update ("ASU") No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” ("Topic 606”) which
superseded previous revenue recognition guidance. Topic 606 is a comprehensive new revenue recognition model that
requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that
reflects the consideration it expects to receive in exchange for those goods or services. The Company's lease revenues
within the scope of Accounting Standards Codification 840, Leases, ("Topic 840") are specifically excluded from Topic
606.

The Company adopted the standard using a modified retrospective approach, under which financial statements are
prepared under the revised guidance for the year of adoption, but not for prior years. Under this method, entities
recognize a cumulative catch-up adjustment to the opening balance of retained earnings at the effective date for open
contract performance at that time. The Company's adoption efforts included the identification of revenue within the
scope of the standard, the evaluation of customer contracts in conjunction with new guidance and an assessment of the
qualitative and quantitative impacts of the new standard on its financial statements. The evaluation included the
application of each of the five steps identified in the Topic 606 revenue recognition model.

The Company determined that under Topic 606, it is an agent for aviation fuel and certain other costs reimbursed
by customers under its ACMI and CMI contracts and for certain cargo handling services that it arranges for a customer.
Under the new revenue standard, such reimbursed amounts are reported net of the corresponding expenses beginning
in 2018. This application of Topic 606 did not have a material impact on the Company's reported earnings in any period.
Additionally under Topic 606, the Company is required to record revenue over time, instead of at the time of completion,
for certain customer contracts for airframe and modification services that do not have an alternative use and for which
the Company has an enforceable right to payment during the service cycle. The Company adopted the provisions of
this new standard using the modified retrospective method which requires the Company to record a one time adjustment
to retained deficit for the cumulative effect that the standard has on open contracts at the time of adoption. Upon
adoption of the new standard the Company accelerated $3.6 million of revenue resulting in an immaterial adjustment
to its January 1, 2018 retained deficit for open airframe and modification services contracts.

In January 2017, the FASB issued ASU "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment" (“ASU 2017-04”). This new standard eliminates Step 2 from the goodwill impairment test and
requires an entity to perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying
amount. An entity recognizes an impairment charge for the amount by which the carrying amount exceeds the reporting
unit’s fair value. ASU 2017-04 is effective for any annual or interim goodwill impairment tests in the fiscal years
beginning after December 15, 2019 and must be applied prospectively. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this new accounting
guidance on January 1, 2018. The adoption did not have an impact on the Company's financial position, results of
operations, or cash flows.

In March 2017, the FASB issued ASU "Compensation - Retirement Benefits (Topic 715): Improving the Presentation
of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost "(ASU 2017-07"). ASU 2017-07 requires
an employer to report the service cost component of retiree benefits in the same line item or items as other compensation
costs arising from services rendered by the pertinent employees during the period. The other components of net benefit
cost are required to be presented separately from the service cost component and outside a subtotal of income from
operations. The Company adopted ASU 2017-07 on January 1, 2018, retrospectively to all periods presented. As a
result, retiree benefit plan interest expense, investment returns, settlements and other non-service cost components of
retiree benefit expenses are excluded from the Company's operating income subtotal as reported in the Company's
Consolidated Statement of Operations, but remain included in earnings before income taxes. Information about retiree
benefit plans' interest expense, investment returns and other components of retiree benefit expenses can be found in
Note J.

In February 2016, the FASB issued ASU "Leases (Topic 842)" ("Topic 842"), which will require the recognition of
right to-use-assets and lease liabilities for leases previously classified as operating leases by lessees. Topic 842 is

effective for annual reporting periods beginning after December 15, 2018 and must be adopted using a modified
retrospective approach which allows entities to either apply the new guidance to all periods presented or only to the
most current period presented.

Under Topic 842, operating leases result in the recognition of right-of-use (“ROU”) assets and lease liabilities on
the balance sheet. ROU assets represent the lessee's right to use the leased asset for the lease term and lease liabilities
represent the obligation to make lease payments. Under Topic 842, operating lease ROU assets and liabilities are
recognized at commencement date based on the present value of lease payments over the lease term.

The adoption of Topic 842 will have a material impact on the Company's consolidated balance sheet due to the
recognition of the ROU assets and lease liabilities. The adoption of Topic 842 is not expected to have a material impact
on the Company's consolidated statement of operations or consolidated statement of cash flows. Because the Company
is using the modified retrospective transition method to adopt Topic 842, it will not be applied to prior periods and have
no impact on previously reported results. Upon adoption of Topic 842, the Company estimates that it will record ROU
assets and a related lease liability of approximately $52 million based on the present value of operating lease payments.

The Company's aircraft lease revenues, which were about 19% of total revenues for the year December 31, 2018,
are accounted for under the current lease standard, Topic 840 through December 31, 2018 and will be accounted for
under Topic 842 upon adoption. The Company does not expect the adoption of Topic 842 to have a significant impact
on its revenue accounting or its consolidated financial statements.

In February 2018, the FASB issued ASU “Reclassification of Certain Tax Effects From Accumulated Other
Comprehensive Income" ("ASU 2018-02"). ASU 2018-02 amends ASC 220, Income Statement - Reporting
Comprehensive Income, to allow a reclassification from accumulated other comprehensive income to retained earnings
for stranded tax effects resulting from U.S. federal tax legislation known as the Tax Cuts and Jobs Act. In addition,
under the ASU 2018-02, a Company will be required to provide certain disclosures regarding stranded tax effects. ASU
2018-02 is effective for years beginning after December 15, 2018, and interim periods within those fiscal years. The
Company is currently evaluating the impact of the standard on its financial statements and disclosures.

In June 2018, the FASB issued ASU “Improvements to Non-employee Share-based Payment Accounting" ("ASU
2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC 718"), to simplify the
accounting for share-based payments granted to non-employees for goods and services. ASU 2018-07 supersedes ASC
505-50, "Equity-Based Payments to Non-employees" ("ASC 505-50"). ASU 2018-07 aligns much of the accounting
for share-based payments granted to non-employees for goods and services with the accounting for share-based
payments granted to employees. ASU 2018-07 is effective for years beginning after December 15, 2018. Companies
will apply the new guidance to equity classified non-employee awards for which a measurement date has not been
established and liability-classified non-employee awards that have not been settled as of the date of adoption by
recognizing a cumulative-effect adjustment to retained earnings as of the beginning of the annual period of adoption.
The Company is currently evaluating the impact of the standard on its financial statements and disclosures.

NOTE B—ACQUISITION OF OMNI

On November 9, 2018, the Company acquired Omni including OAI and its aircraft fleet. The Company acquired
Omni for cash consideration of $867.7 million. The Company funded the all-cash acquisition by amending its senior
credit agreement to issue a new term loan for $675.0 million, drawing $180.0 million from its revolving credit facility
and using its available cash.

The acquisition of Omni by the Company is reported in accordance with Accounting Standards Codification 805,
Business Combinations, in which the total purchase price is allocated to Omni’s tangible and intangible assets acquired
and liabilities assumed based on their estimated fair values as of the date of the acquisition. The excess of the purchase
price over the estimated fair value of net assets acquired was recorded as goodwill. The purchase price exceeded the
fair value of the net assets acquired due to the strategic opportunities and expected benefits associated with adding
Omni's capabilities to the Company's existing offerings in the market. The benefits of adding Omni include the following:

• Additional passenger transportation capabilities
• FAA operating authority for the Boeing 777 aircraft
•
• Passenger aircraft life cycle leading to potential freighter conversion

Increased revenues, cash flows and customer diversification

The allocation of the purchase price to specific assets and liabilities is based, in part, upon internal estimates of
assets and liabilities and independent appraisals. Based on the preliminary valuations, the following table summarizes
estimated fair values of the assets acquired and liabilities assumed (in thousands) for the consideration paid:

Cash

Accounts receivable

Other current assets

Other assets

Intangibles

Goodwill

Property and equipment

Current liabilities

Customer deposits

Net assets acquired

4,693

63,041

8,366

7,836

140,000

353,466

328,869
(32,646)
(5,950)
867,675

Property and equipment acquired includes the engines and airframes of eight Boeing 767 and three Boeing 777
passenger aircraft owned by Omni and leasehold improvements for two Boeing 767 aircraft under operating leases.
The fair values assigned to the acquired aircraft were derived from market comparisons with the assistance of an
independent appraiser. Depreciation expense of property and equipment is provided on a straight-line basis over the
lesser of the asset’s remaining useful life or lease term. The estimated remaining life of these airframes range between
seven and eighteen years. The estimated life of the airframes and engines include the Company's intent to convert a
portion of Omni's passenger aircraft to freighter aircraft after the aircraft are no longer used for passengers. The value
of major airframe maintenance and engine overhauls are depreciated over the useful life of the overhaul. Intangible
assets consisted of $134.0 million for customer relationships and $6.0 million for airline certificates. The value assigned
to Omni's customer relationships was determined by discounting the estimated cash flows associated with the existing
customers as of the acquisition date, taking into consideration expected attrition of the existing customer base. The
estimated cash flows were based on revenues for those existing customers, net of operating expenses and net contributory
asset charges associated with servicing those customers. The estimated revenues were based on revenue growth rates
and customer renewal rates. Operating expenses were estimated based on the supporting infrastructure expected to
sustain the assumed revenue levels. The customer relationship intangibles are estimated to amortize over seven to
twenty years on a straight-line basis and airline certificates have indefinite lives and therefore are not amortized. The
goodwill is deductible for U.S. income tax purposes over 15 years.

The following table provides unaudited pro forma financial results (in thousands) for the Company after giving
effect to the acquisition of Omni and adjustments described below. This information is based on adjustments to the
historical consolidated financial statements of Omni using the purchase method of accounting for business combinations
as if the acquisition had taken place on January 1, 2017. The unaudited pro forma adjustments do not include any of
the cost savings and other synergies which may result from the acquisition. These unaudited pro forma financial results
are based on assumptions considered appropriate by management and include all material adjustments as considered
necessary. These unaudited pro forma results have been prepared for comparative purposes only and do not purport
to be indicative of results that would have actually been reported as of the date or for the year presented had the
acquisition taken place on such date or at the beginning of the year indicated, or to project the Company’s financial
position or results of operations which may be reported in the future (in thousands).

Pro forma revenues

Pro forma net earnings from continuing operations

Year Ended December 31,

2018

1,320,234

88,454

2017

1,425,823

13,660

Revenues for 2018 reflect the adoption of Topic 606 prospectively on January 1, 2018, as described in Note O.
Under this new revenue standard, such reimbursed amounts are reported net of the corresponding expenses beginning

in 2018. Pro forma revenues for 2017 included $289.4 million of reimbursed expenses. The following adjustments
were made to the historical financial records to create the unaudited pro forma information in the table above:

• Adjustments to eliminate transactions between the Company and Omni during the years ended December 31, 2017

and the ten and one half months ended November 9, 2018 respectively.

• Adjustment to reflect estimated additional depreciation and amortization expense of $10.6 million and $10.0 million
for the year ended December 31, 2017 and the ten and one half months ended November 9, 2018, respectively,
resulting primarily from the fair value adjustments to Omni’s intangible assets. Pro forma combined depreciation
expense for the periods presented reflect the increased fair values of the aircraft acquired and longer useful lives
of the aircraft, indicative of the Company's polices and intent to modify certain aircraft to freighters as an aircraft
is removed from passenger service.

• Adjustment to reflect additional interest expense and amortization of debt issuance costs for the year ended
December 31, 2017 and the ten and one half months ended November 9, 2018, related to the combined $855 million
from an unsubordinated term loan and revolving facility draws using the prevailing rates of 4.57%.

• Adjustment to apply the statutory tax rate of the Company to the pre-tax earnings of Omni and the pro forma
adjustments for the year ended December 31, 2017 and the ten and one half months ended November 9, 2018.
Omni had historically elected to be treated as pass-through entities for income tax purposes. Accordingly, no
provision for income taxes had been made in Omni's consolidated statements of earnings. The adjustments reflect
tax rates of 35% for 2017 and 22.58% for the first ten and one half months ended November 9, 2018.

• Adjustment to remove acquisition related expenses of $5.3 million for professional fees and classified as

"Transaction fees " within the consolidated statement of operations for 2018.

NOTE C—GOODWILL, INTANGIBLES AND EQUITY INVESTMENTS

As of December 31, 2018, 2017 and 2016, the goodwill amount for CAM was tested for impairment. To perform
the goodwill impairment test, the Company determined the fair value of CAM using industry market multiples and
discounted cash flows utilizing a market-derived rate of return (level 3 fair value inputs). The goodwill included in
the CAM segment was not impaired. Similarly, as of December 31, 2018 and 2017, the goodwill amount recorded
for the acquisition of PEMCO World Air Services, Inc., ("Pemco"), a business unit included in MRO Services, was
tested for impairment. To perform the goodwill impairment test, the Company determined the fair value of Pemco,
using industry market multiples and discounted cash flows utilizing a market-derived rate of return (level 3 fair value
inputs). The goodwill recorded from the Pemco acquisition was not impaired.

As disclosed in Note B, on November 9, 2018, the Company acquired Omni. The purchase price was allocated
to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the
date of acquisition. The excess purchase price over the estimated fair value of net assets acquired was recorded as
goodwill. Identified intangible assets included OAI's certificated authority granted by the FAA to operate as an airline
and OAI's long term customer relationships.

The carrying amounts of goodwill are as follows (in thousands):

Carrying value as of December 31, 2016

Purchase price adjustment for the acquisition of Pemco

Carrying value as of December 31, 2017

Acquisition of Omni

CAM

34,395

—

34,395

118,895

ACMI
Services

MRO
Services

— $

2,738

—

146

— $

2,884

234,571

—

Total

37,133

146

37,279

353,466

Carrying value as of December 31, 2018

$ 153,290

$ 234,571

2,884

$ 390,745

The Company's acquired intangible assets are as follows (in thousands):

Carrying value as of December 31, 2016

Amortization

Carrying value as of December 31, 2017

Acquisition of Omni

Amortization

Carrying value as of December 31, 2018

Airline

Amortizing

Certificates

Intangibles

Total

3,000

—

3,000

6,000

—

9,000

5,453
(1,155)
4,298

134,000
(2,684)
135,614

8,453
(1,155)
7,298

140,000
(2,684)
144,614

The airline certificates have an indefinite life and therefore are not amortized. The Company amortizes finite-
lived intangibles assets, including customer relationship and STC intangibles, over 4 to 20 years. The Company recorded
intangible amortization expense of $2.7 million, $1.2 million and $0.3 million for the years ending December 31, 2018,
2017 and 2016, respectively. Estimated amortization expense for the next five years is $11.7 million, $11.7 million,
$10.9 million, $10.9 million and $10.9 million.

Stock warrants issued to a lessee (see Note D) as an incentive are recorded as a lease incentive asset using their
fair value at the time that the lessee has met its performance obligation and amortized against revenues over the duration
of related aircraft leases. The Company's lease incentive granted to the lessee was as follows (in thousands):

Carrying value as of December 31, 2016

Warrants granted

Amortization

Carrying value as of December 31, 2017

Amortization

Carrying value as of December 31, 2018

Lease

Incentive

54,730

39,940
(13,986)
80,684
(16,904)
63,780

The lease incentive began to amortize in April 2016, with the commencement of certain aircraft leases. Based on
the warrants granted as of December 31, 2018, the Company expects to record amortization, as a reduction to the lease
revenue, of $16.9 million, $16.9 million, $11.7 million, $8.3 million and $7.9 million for each of the next five years
ending December 31, 2023.

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden
("West"). West, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of 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 767 and 737 aircraft. West leases four Boeing 767
aircraft and two Boeing 737 from the Company.

On August 3, 2017 the Company entered into a joint-venture agreement with Precision Aircraft Solutions, LLC,
to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The Company anticipates
approval of a supplemental type certificate from the FAA in 2020. The Company expects to make contributions equal
to its 49% ownership percentage of the program's total costs over the next two years. During the 2018 and 2017 years,
the Company contributed $11.4 million and $8.7 million to the joint venture, respectively.

The Company accounts for its investment in West and the aircraft conversion joint venture under the equity method
of accounting, in which the carrying value of each investment is reduced for the Company's share of the non-consolidated
affiliates operating results. The carrying value of West and the joint venture totaled $12.5 million and $12.7 million
at December 31, 2018 and 2017, respectively. and are reflected in “Other Assets” in the Company’s consolidated balance
sheets. The Company’s carrying value of West included $5.5 million of excess purchase price over the Company's fair
value of West's identified nets assets in January of 2014 and $2.4 million paid to West in 2017 for a preferred equity

instrument. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value
on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in
value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded carrying
value and the fair value of the investment. The fair value is generally determined using an income approach based on
discounted cash flows or using negotiated transaction values.

NOTE D—SIGNIFICANT CUSTOMERS

DHL

The Company has had long term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL")
since August 2003. Revenues from aircraft leases and related services performed for DHL were approximately 26%,
24% and 34% of the Company's consolidated revenues from continuing operations for the years ended December 31,
2018, 2017 and 2016, respectively. Revenues excluding directly reimbursed expenses from continuing operations
performed for DHL comprised approximately 30% and 37% of the Company's consolidated revenues from continuing
operations for the years ended December 31, 2017 and 2016, respectively. The Company’s balance sheets include
accounts receivable with DHL of $13.4 million and $15.7 million as of December 31, 2018 and December 31, 2017,
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. 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. 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.

Amazon

The Company has been providing freighter aircraft and services for cargo handling and logistical support for
Amazon.com Services, Inc. ("ASI"), successor to Amazon Fulfillment Services, Inc., a subsidiary of Amazon.com, Inc.
("Amazon") since September 2015. On March 8, 2016, the Company entered into an Air Transportation Services
Agreement (the “ATSA”) with ASI, pursuant to which CAM leases 20 Boeing 767 freighter aircraft to ASI, including
12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of
seven years. The ATSA also provides for the operation of those aircraft by the Company’s airline subsidiaries, and the
management of ground services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). The ATSA became
effective on April 1, 2016 and had an original term of five years.

In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement
and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants
in three tranches which will grant Amazon the right to acquire up to 19.9% of the Company’s outstanding common
shares as described below. The first tranche of warrants, issued upon the execution of the Investment Agreement and
all of which are now fully vested, granted Amazon the right to purchase approximately 12.81 million ATSG common
shares, with the first 7.69 million common shares vesting upon issuance on March 8, 2016, and the remaining 5.12
million common shares vesting as the Company delivered additional aircraft leased under the ATSA. The second tranche
of warrants, which were issued and vested on March 8, 2018, grants Amazon the right to purchase approximately 1.59
million ATSG common shares. The third tranche of warrants will be issued and vest on September 8, 2020, and will
grant Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s
ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis,
adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after
giving effect to the warrants granted. The exercise price of the warrants is $9.73 per share, which represents the closing
price of ATSG’s common shares on February 9, 2016. Each of the three tranches of warrants are exercisable in accordance
with its terms through March 8, 2021.

The Company’s accounting for the warrants has been determined in accordance with the financial reporting guidance
for equity-based payments to non-employees and for financial instruments. The warrants issued to Amazon as of March
8, 2016, were recorded to stockholders equity, having a fair value of $4.89 per share. At that time, the fair value of the
7.69 million vested warrants issued to Amazon was recorded as a lease incentive asset and is being amortized against
revenues over the duration of the aircraft leases. On May 12, 2016, the Company’s stockholders approved an amendment
to the Certificate of Incorporation of the Company at the annual meeting of stockholders to increase the number of
authorized common shares and to approve the warrants in full as required under the rules of the Nasdaq Global Select
Market. The stockholders' approval enabled features of the warrants that required the vested warrants of the first tranche
and the warrants of the second and third tranches to be classified as financial instruments as of May 12, 2016.
Accordingly, the fair value of those warrants was measured and classified in liabilities on that date. Since May 12,
2016, 5.1 million additional warrants vested in conjunction with the execution of eight aircraft leases. As of December
31, 2018, the Company's liabilities reflected 14.83 million warrants having a fair value of $13.76 per share. During
the years ended December 31, 2018 and 2017, the re-measurements of the warrants to fair value resulted in a non-
operating gain of $7.4 million and non-operating losses of $81.8 million before the effect of income taxes, respectively.

On December 22, 2018 the Company announced agreements with Amazon to 1) lease and operate ten additional
Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two
years to 2023 with an option for three more years, 3) extend the term of the eight Boeing 767-300 aircraft currently
leased to ASI by three years to 2026 and 2027 with an option for three more years.and 4) extend the ATSA by five years
through March 2026, with an option to extend for an additional three years. The Company plans to deliver five of the
767-300 aircraft in 2019 and the remainder in 2020. All ten of these aircraft leases will be for ten years.

In conjunction with the commitment for ten additional 767 aircraft leases, extensions of twenty existing Boeing
767 aircraft leases and the ATSA described above, Amazon will be issued warrants for 14.8 million common shares
which could expand its potential ownership in the Company to approximately 33.2%, including the warrants described
above for the 2016 agreements. These new warrants will vest as existing leases are extended and additional aircraft
leases are executed and added to the ATSA operations. These new warrants will expire if not exercised within seven
years from their issuance date. They have an exercise price of $21.53 per share, based on the volume-weighted average
price of the Company's shares over the 30 trading days immediately preceding execution of a non-binding term sheet
by the parties on October 29, 2018.

Additionally, Amazon will be able to earn incremental warrant rights, increasing its potential ownership from
33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo aircraft from the Company
before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will
have an exercise price of the $21.53 referenced above, provided the parties reach binding agreements on future lease
terms before April 2019. Beginning in April 2019, pricing of warrants related to future aircraft leases will be based on
the volume-weighted average price of ATSG’s shares during the 30 trading days immediately preceding contractual
commitment for each lease.

The warrants potentially issuable under these new agreements with Amazon will require an increase in the number
of authorized common shares of the Company. Management intends to submit a proposal calling for an appropriate
increase in the number of authorized common shares for shareholder consideration at the Company’s next annual
meeting of shareholders in May 2019. None of these warrants had been issued or vested as of December 31, 2018.

Revenues from continuing operations performed for Amazon comprised approximately 27%, 44% and 29% of the
Company's consolidated revenues from continuing operations for the years ending December 31, 2018, 2017 and 2016,
respectively. Revenues excluding directly reimbursed expenses from continuing operations performed for Amazon
comprised approximately 27% and 18% of the Company's consolidated revenues from continuing operations for the
years ended December 31, 2017 and 2016, respectively. The Company’s balance sheets include accounts receivable
with Amazon of $29.2 million and $44.2 million as of December 31, 2018 and December 31, 2017, respectively.

The Company's earnings in future periods will be impacted by the number of warrants granted, the re-measurements
of warrant fair value, amortizations of the lease incentive asset and the related income tax effects. For income tax
calculations, the value and timing of related tax deductions will differ from the guidance described above for financial
reporting.

DoD

The Company is a provider of cargo and passenger airlift services to the DoD. The DoD awards flights to U.S.
certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services
performed for the DoD were approximately 15%, 7% and 12% of the Company's total revenues from continuing
operations for the years ended December 31, 2018, 2017 and 2016, respectively, including revenues for Omni beginning
November 9, 2018. Revenues excluding directly reimbursed expenses from continuing operations performed for the
DoD comprised approximately 10% and 14% of the Company's consolidated revenues from continuing operations for
the years ended December 31, 2017 and 2016, respectively. The Company's balance sheets included accounts receivable
with the DoD of $50.5 million and $6.7 million as of December 31, 2018 and December 31, 2017, respectively.

NOTE E—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, stock warrant obligations, convertible note, convertible note hedges and interest rate swaps are
based on observable inputs (Level 2) from comparable market transactions. The fair value of the stock warrant
obligations were determined using a Black-Scholes pricing model which considers the Company’s common stock price
and various assumptions, such as the volatility of the Company’s common stock, the expected dividend yield, and the
risk-free interest rate. The fair value of the note conversion obligations and the convertible note hedges were estimated
using a Black-Scholes pricing model and incorporate the terms and conditions of the underlying financial instruments.
The valuations are, among other things, subject to changes in both the Company's credit worthiness and the counter-
parties to the instruments as well as change in general market conditions. While the change in fair value of the note
conversion obligations and the convertible note hedges are generally expected to move in opposite directions, the net
change in any given period may be material.

The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):

As of December 31, 2018

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Assets

Cash equivalents—money market
Interest rate swap

Total Assets

Liabilities

Interest rate swap

Stock warrant obligations

Total Liabilities

As of December 31, 2017

Assets

Cash equivalents—money market

Interest rate swap

Convertible note hedges

Total Assets

Liabilities

Note conversion obligations

Stock warrant obligation

Total Liabilities

— $

—

— $

—

— $

17,986

2,971

20,957

(1,138) $

(203,782)
(204,920) $

— $

—

— $

—

— $

17,986

2,971

20,957

(1,138)
(203,782)
(204,920)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

— $

1,326

— $

—

1,840

53,683

—

— $

56,849

— $

1,326

1,840

53,683

56,849

(54,359) $
(211,136)
(265,495) $

— $

—

— $

(54,359)
(211,136)
(265,495)

— $

—

— $

At December 31, 2018 each stock warrant was valued at $13.76 using a risk-free interest rate of 2.5% and a stock
volatility of 37.5%, based on the time period corresponding with the expiration period of the warrants (see Note D).
At December 31, 2017, each stock warrant was valued at $14.24 using a risk-free rate of 2% and a stock volatility of
34%. At December 31, 2018 the value of the convertible note hedges and note conversion obligations were valued
was valued at $50.0 million and $50.8 million respectively using a risk free interest rate of 2.5% and stock volatility
of 36%. At December 31, 2017 the value of the convertible note hedges and note conversion obligations were valued
using a risk free interest rate of 2.3% and stock volatility of 34%.

As a result of higher market interest rates compared to the stated interest rates of the Company’s fixed rate debt
obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately
$6.0 million less than the carrying value, which was $1,401.3 million at December 31, 2018. As of December 31, 2017,
the fair value of the Company’s debt obligations was approximately $9.1 million more than the carrying value, which
was $515.8 million. The non-financial assets, including goodwill, intangible assets and property and equipment are
measured at fair value on a non-recurring basis.

NOTE F—PROPERTY AND EQUIPMENT

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

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

Flight equipment
Ground equipment
Leasehold improvements, facilities and office equipment
Aircraft modifications and projects in progress

Accumulated depreciation
Property and equipment, net

December 31,
2018
2,340,840
57,455
28,745
74,449
2,501,489
(946,484)
1,555,005

December 31,
2017
1,801,808
53,523
26,897
121,760
2,003,988
(844,026)
1,159,962

CAM owned aircraft with a carrying value of $803.7 million and $697.4 million that were under leases to external
customers as of December 31, 2018 and 2017, respectively. Minimum future payments from external customers for
leased aircraft and equipment as of December 31, 2018 is scheduled to be $142.3 million, $127.1 million, $124.3
million, $121.2 million and $87.1 million for each of the next five years ending December 31, 2023.

NOTE G—DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

Unsubordinated term loans

Revolving credit facility

Aircraft loan

Convertible debt

Total debt obligations

Less: current portion

Total long term obligations, net

December 31,

2018

2017

721,406

475,000

—

204,846

1,401,252
(29,654)
1,371,598

70,568

245,000

3,640

196,550

515,758
(18,512)
497,246

The Company executed a syndicated credit agreement ("Senior Credit Agreement") in May 2011 which includes
an unsubordinated term loan and a revolving credit facility. Effective November 9, 2018, in conjunction with the

acquisition of Omni, the Company amended its Senior Credit Agreement. The amendment continued the secured
revolving credit facility and the existing secured term loan while securing a second term loan of $675.0 million. The
amendment also increased the accordion feature such that the Company can draw up to an additional $400.0 million
subject to the lenders' consent. The Senior Credit Agreement expires May 30, 2023. Each year, through May 6, 2019,
the Company may request a one year extension of the final maturity date, subject to the lenders' consent. The Senior
Credit Agreement permits additional indebtedness of up to $300.0 million of which $258.8 million has been utilized
for the issuance of convertible notes. The Senior Credit Agreement limits the amount of dividends the Company can
pay and the amount of common stock it can repurchase to $100.0 million during any calender year, provided the
Company's total secured debt to earnings before interest, taxes, depreciation and amortization expenses ("EBITDA")
ratio is under 3.00 times, after giving effect to the dividend or repurchase. As of December 31, 2018, the unused revolving
credit facility totaled $57.9 million, net of draws of $475.0 million and outstanding letters of credit of $12.1 million.

The Senior Credit Agreement is collateralized by certain of the Company's Boeing 777, 767 and 757 aircraft. Under
the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 110% of
the outstanding balance of the term loans and the total funded revolving credit facility. The minimum collateral coverage
which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility
commitment which was $545.0 million.

During 2018, the aircraft loan was paid in full. The balance of the unsubordinated term loans is net of debt issuance
costs of $9.8 million and $0.7 million for the years ended December 31, 2018 and 2017, respectively. Under the terms
of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's 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 loans and revolving credit facility bear variable interest rates of
4.78%, 4.64% and 4.78%, respectively.

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.

In September 2017, the Company issued $258.8 million aggregate principal amount of 1.125% Convertible Senior
Notes due 2024 ("Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities
Act. The Notes bear interest at a rate of 1.125% per year payable semi-annually in arrears on April 15 and October 15
each year, beginning April 15, 2018. The Notes mature on October 15, 2024, unless repurchased or converted in
accordance with their terms prior to such date. The Notes are unsecured indebtedness, subordinated to the Company's
existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the Notes can
only occur upon satisfaction of certain conditions and during certain periods, beginning any calendar quarter
commencing after December 31, 2017 and thereafter, until the close of business on the second scheduled trading day
immediately preceding the maturity date. Upon the occurrence of certain fundamental changes, holders of the Notes
can require the Company to repurchase their notes at the cash repurchase price equal to the principal amount of the
notes, plus any accrued and unpaid interest.

The Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s
common shares, at the Company’s election. The initial conversion rate is 31.3475 common shares per $1,000 principal
amount of Notes (equivalent to an initial conversion price of approximately $31.90 per common share). If a “make-
whole fundamental change” (as defined in the offering circular with the Notes) occurs, the Company will, in certain
circumstances, increase the conversion rate for a specified period of time.

In conjunction with the Notes, the Company purchased convertible note hedges under privately negotiated
transactions for $56.1 million, having the same number of the Company's common shares, 8.1 million shares and same
strike price of $31.90, that underlie the Notes. The convertible note hedges are expected to reduce the potential equity
dilution with respect to the Company's common stock, and/or offset any cash payments in excess of the principal amount
due, as the case may be, upon conversion of the Notes. The Company's current intent and policy is to settle all Note
conversions through a combination settlement which satisfies the principal amount of the Notes outstanding with cash.
The Notes could have a dilutive effect on the computation of earnings per share in accordance with accounting principles

to the extent that the average traded market price of the Company’s common shares for a reporting period exceeds the
conversion price.

The conversion feature of the Notes required bifurcation from the principal amount under the applicable accounting
guidance. Settlement provisions of the Notes and the convertible note hedges required cash settlement of these
instruments until the Company's shareholders increased the number of authorized shares of common stock to cover the
full number of shares underlying the Notes. As a result, the conversion feature of the Notes and the convertible note
hedges were initially accounted for as liabilities and assets, respectively, and marked to market at the end of each period.
The fair value of the note conversion obligation at issuance was $57.4 million.

On May 10, 2018, the Company's shareholders increased the number of authorized shares of common stock to
cover the full number of shares underlying the Notes. The Company reevaluated the Notes and convertible note hedges
under the applicable accounting guidance including ASC 815, "Derivatives and Hedging," and determined that the
instruments, which meet the definition of derivative and are indexed to the Company's own stock, should be classified
in shareholder's equity. The fair value of the the conversion feature of the Notes and the convertible note hedges of
$51.3 million and $50.6 million, respectively on May 10, 2018 were reclassified to paid-in capital.

The net proceeds from the issuance of the Notes were approximately $252.3 million, after deducting initial issuance
costs. These unamortized issuance costs and discount are being amortized to interest expense through October 2024,
using an effective interest rate of approximately 5.15%. The carrying value of the Company's Convertible debt is shown
below.

Principal value, Convertible Senior Notes, due 2024

Unamortized issuance costs

Unamortized discount

Convertible debt

December 31,

2018

2017

258,750
(5,799)
(48,105)
204,846

258,750
(6,685)
(55,515)
196,550

In conjunction with the offering of the Notes, the Company also sold warrants to the convertible note hedge
counterparties in separate, privately negotiated warrant transactions at a higher strike price and for the same number
of the Company’s common shares, subject to customary anti-dilution adjustments. The amount received for these
warrants and recorded in Stockholders' Equity in the Company’s consolidated balance sheets was $38.5 million. These
warrants could result in 8.1 million additional shares of the Company's common stock, if the Company's traded market
price exceeds the strike price which is $41.35 per share and is subject to certain adjustments under the terms of the
warrant transactions. The warrants could have a dilutive effect on the computation of earnings per shares to the extent
that the average traded market price of the Company's common shares for a reporting periods exceed the strike price.

The scheduled cash principal payments for the Company's debt obligations, as of December 31, 2018, for the next

five years are as follows (in thousands):

2019

2020

2021

2022

2023

2024 and beyond

Total principal cash payments

Less: unamortized issuance costs and discounts

Total debt obligations

Principal
Payments

31,875

48,750

45,000

1,031,875

258,750

1,465,000
(63,748)
1,401,252

NOTE H—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 the original term loan and twenty-
five percent of the outstanding balance of the second term loan issued in November 2018. Accordingly, the Company
entered into an additional interest rate swap in December 2018 having an initial value of $150.0 million and a forward
start date of December 31, 2018. The table below provides information about the Company’s interest rate swaps (in
thousands):

Expiration Date

May 5, 2021

May 30, 2021

December 31, 2021

March 31, 2022

December 31, 2018

December 31, 2017

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

Notional
Amount

Market
Value
(Liability)

1.090%

1.703%

2.706%

1.900%

1.950%

28,125

150,000

50,000

75,000

650

366
(1,138)
829

1,126

35,625

—

50,000

75,000

719

240

—

416

465

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 a net loss on derivatives of $8.0 thousand and net
gains of $1.4 million and $1.0 million for the years ending December 31, 2018, 2017 and 2016, respectively. The
liability for outstanding derivatives is recorded in other liabilities and in accrued expenses.

The Company recorded a net loss before the effects of income taxes of $0.1 million and a net gain before the effects
of income taxes of $0.6 million during the years ended December 31, 2018 and 2017, respectively, for the revaluation
of the convertible note hedges and the note conversion obligations to fair value before these instruments were reclassified
to paid-in-capital.

NOTE I—COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases portions of the air park in Wilmington, Ohio, under lease agreements with a regional port
authority, the terms of which expire in May of 2019 and June of 2036 with options to extend the leases. The leased
facilities include corporate offices, 310,000 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. The Company also leases and operates a 311,500 square foot, two hangar aircraft maintenance
complex in the Tampa International Airport in Florida. Additionally, the Company leases approximately 82,500 square
feet of office and warehouse space at the Tulsa International Airport in Oklahoma. The Company leases two Boeing
767 aircraft, certain equipment and airport facilities, office space, and maintenance facilities at locations outside of the
airpark in Wilmington.

The future minimum lease payments of the Company as of December 31, 2018 are scheduled below (in thousands):

2019

2020

2021

2022

2023

2024 and beyond

Total minimum lease payments

Purchase Commitments

Facility Leases

Aircraft and
Other Leases

10,898

9,903

8,348

5,233

3,140

10,461

6,607

5,515

4,355

1,502

1,501

2,001

47,983

21,481

The Company has agreements with Israel Aerospace Industries Ltd. ("IAI") for the conversion of Boeing 767
passenger aircraft into a standard configured freighter aircraft. The conversions primarily consist of the installation of
a standard cargo door and loading system. At December 31, 2018, the Company had commitments to acquire three
Boeing 767-300 passenger aircraft and complete the freighter modification of two aircraft, totaling $39.1 million.
Additionally, the Company placed non-refundable deposits of $29.4 million to purchase 20 more Boeing 767-300
passenger aircraft through 2021. The Company could incur a cancellation fee with IAI for unused modification part
kits.

Guarantees and Indemnifications

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

Other

In addition to the foregoing matters, the Company is also a party to legal proceedings in various federal and state
jurisdictions from time to time 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, the Company believes that its ultimate
liability, if any, arising from 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.

Employees Under Collective Bargaining Agreements

As of December 31, 2018, the flight crewmember employees of ABX, ATI and Omni and flight attendant employees

of ATI and Omni were represented by the labor unions listed below:

Airline

ABX

ATI

Omni

ATI

Omni

Percentage of
the
Company’s
Employees

6.5%

6.7%

6.9%

1.0%

8.2%

Labor Agreement Unit

International Brotherhood of Teamsters

Air Line Pilots Association

International Brotherhood of Teamsters

Association of Flight Attendants

NOTE J—PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit
pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also
sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded.
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. Benefits for covered individuals terminate upon
reaching age 65 under the post-retirement healthcare plans.

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.

On August 30, 2017, the Company transferred investment assets totaling $106.6 million from the pension plan trust
to purchase a group annuity contract from Mutual of America Life Insurance Company ("MUA"). The group annuity
contract transfers payment obligations for pension benefits owed to certain former, non-pilot retirees of ABX (or their
beneficiaries) to MUA. As a result of the transaction, the Company recognized pre-tax settlement charges of $5.3
million to continued operations and $7.6 million to discontinued operations due to the reclassification of $12.9 million
of pretax losses from accumulated other comprehensive loss.

Funded Status (in thousands):

Accumulated benefit obligation
Change in benefit obligation
Obligation as of January 1
Service cost
Interest cost
Curtailment gain
Plan transfers
Benefits paid
Curtailments and settlement
Actuarial (gain) loss
Obligation as of December 31

Change in plan assets

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

Funded status

Underfunded plans

Current liabilities
Non-current liabilities

Pension Plans

2018

690,729

740,783
—
29,135
—
1,603
(29,439)
—
(51,353)
690,729

681,573
(51,274)
1,603
963
22,220
(29,439)

— $
$

625,646

2017

740,783

791,182
—
33,585
8,483
2,643
(33,779)
(106,742)
45,411
740,783

715,885
99,090
2,643
—
4,476
(33,779)
(106,742) $
$
681,573

Post-retirement
Healthcare Plans

2018

2017

3,824

4,056
123
127
—
—
(365)
—
(117)
3,824

— $
—
—
—
365
(365)

— $
— $

4,056

4,231
158
142
—
—
(412)
—
(63)
4,056

—
—
—
—
412
(412)
—
—

(3,971) $
(61,112) $

(1,497) $
(57,713) $

(451) $
(3,373) $

(414)
(3,642)

$
$

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, 2018, 2017 and 2016, are as follows (in thousands):

Service cost

Interest cost

Expected return on plan assets

Curtailments and settlements

Amortization of prior service cost

Amortization of net (gain) loss

Net periodic benefit cost (income)

Pension Plans

Post-Retirement Healthcare Plan

2018

2017

2016

2018

2017

2016

— $

29,135

33,585

35,872

(42,093)

(42,080)

(41,056)

—

12,923

—

3,547

7,778

13,472

(9,411) $

12,206

8,288

123

127

—

219

469

158

142

—

(51)

283

532

123

170

—

(1,997)

(103)

160

(1,647)

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):

Unrecognized prior service cost

Unrecognized net actuarial loss

Pension Plans

Post-Retirement
Healthcare Plans

2018

2017

2018

2017

— $

126,192

88,689

1,210

—

1,547

Accumulated other comprehensive loss

$ 126,192

$ 88,689

1,210

1,547

The amounts of unrecognized net actuarial loss recorded in accumulated other comprehensive loss that is expected
to be recognized as components of net periodic benefit expense during 2019 is $15.5 million and $0.2 million for the
pension plans and the post-retirement healthcare plans, respectively.

Assumptions

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

2018

4.65%

6.20%

Pension Plans

2017

4.00%

4.05%

6.25%

2016

4.50%

4.60%

6.25%

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 4.10%, 3.30% and 3.55% for pilots
at December 31, 2018, 2017 and 2016, respectively. Post-retirement healthcare plan obligations have not been funded.
The Company's retiree healthcare contributions have been fixed for each participant, accordingly, healthcare cost trend
rates do not effect the post-retirement healthcare obligations.

Plan Assets

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

Asset category
Cash
Equity securities
Fixed income securities

Composition of Plan Assets
as of December 31
2018

2017

1%
25%
74%
100%

1%
31%
68%
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 – 15% to 35%; fixed income securities – 60% to 80%; 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 2018 and 2017, the Company made contributions to its defined benefit plans of $22.2 million and $4.5 million,
respectively. The Company estimates that its contributions in 2019 will be approximately $8.1 million for its defined
benefit pension plans and $0.5 million for its post-retirement healthcare plans.

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

of the respective plans as follows (in thousands):

2019

2020

2021

2022

2023

Years 2024 to 2028

Fair Value Measurements

Pension
Benefits

Post-retirement
Healthcare
Benefits

35,680

36,175

38,835

41,192

43,347

232,465

451

492

530

529

550

2,009

The pension plan assets are stated 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.

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.

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.

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.

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

As of December 31, 2018

Fair Value Measurement Using

Level 1

Level 2

Total

Plan assets

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Benefit Plan Assets

Investments measured at net asset value ("NAV")

Total benefit plan assets

As of December 31, 2017

Plan assets

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Benefit Plan Assets

— $

3,961

13,142

48,645

2,065

—

91,085

462,149

63,852

557,195

3,961

13,142

139,730

464,214

621,047

4,599

625,646

Fair Value Measurement Using

Level 1

Level 2

Total

— $

3,792

17,361

53,391

3,926

—

113,426

462,480

74,678

579,698

3,792

17,361

166,817

466,406

654,376

27,197

681,573

Investments measured at net asset value ("NAV")

Total benefit plan assets

Investments that were measured at NAV per share (or its equivalent) as a practical expedient have not been classified
in the fair value hierarchy. These investments include hedge funds, private equity and real estate funds. Management’s
estimates are based on information provided by the fund managers or general partners of those funds.

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. These assets have been valued using NAV as a practical expedient.

The following table presents investments measured at fair value based on NAV per share as a practical expedient:

Fair Value

Redemption
Frequency

Redemption
Notice Period

Unfunded
Commitments

4,599

—

4,599

27,197

—

27,197

(1) (2)

(3)

90 days

(1) (2)

(3)

90 days

—

As of December 31, 2018

Hedge Funds & Private Equity

Real Estate

Total investments measured at NAV

As of December 31, 2017

Hedge Funds & Private Equity

Real Estate

Total investments measured at NAV

(1) Quarterly - hedge funds
(2) None - private equity
(3) Monthly

Defined Contribution Plans

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
$9.0 million, $7.8 million and $7.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

NOTE K—INCOME TAXES

The Company's deferred income taxes reflect the value of its net operating loss carryforwards and the tax effects
of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and
their amounts used for income tax calculations. Federal legislation known as the The Tax Cuts and Jobs Acts ("Tax
Act") was enacted on December 22, 2017. The Tax Act reduces the U.S. federal corporate tax rate from the previous
rate of 35% to 21% effective January 1, 2018. The Tax Act also made broad and complex changes to the U.S. tax code,
including, but not limited to a one time tax on earnings of certain foreign subsidiaries, limitations of net operating loss
carryforwards created in tax years beginning after December 31, 2017, bonus depreciation for full expensing of qualified
property, and limitations on the deductibility of certain executive compensation. At December 31, 2017, the Company
calculated the effects of the enactment of the Tax Act as written, and made an estimate of the effects on the existing
deferred tax balances. The re-measurement of deferred tax balances in 2017 using the lower federal rates enacted by
the Tax Act, resulted in a reduction in the Company's net deferred tax liability and the recognition of a deferred tax
benefit as depicted by the change in federal statutory tax rate included below. The Company continues to analyze and
monitor the effects of the Tax Act on its operations.

At December 31, 2018, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $253.8 million, which begin to expire in 2031 if not utilized before then. The
deferred tax asset balance includes $2.3 million net of a $0.3 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 and cash contributions for its defined benefit pension
plans. At December 31, 2018 and 2017, the Company determined that, based upon projections of taxable income, it
was more likely than not that the NOL CF’s will be realized prior to their expiration, accordingly, no allowance against
these deferred tax assets was recorded. The Company had alternative minimum tax credits of $3.1 million which will
be recovered over then the next four years.

The significant components of the deferred income tax assets and liabilities as of December 31, 2018 and 2017 are

as follows (in thousands):

Deferred tax assets:

December 31

2018

2017

Net operating loss carryforward and federal credits

55,760

17,021

Warrants

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)

7,314

13,777

8,751

2,374

4,389

4,713

97,078

3,974

8,716

9,229

1,739

3,016

4,317

48,012

(189,719)
(5,850)
(14,474)
(278)
(210,321)
(113,243) $

(129,201)
(5,858)
(12,119)
(278)
(147,456)
(99,444)

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

Years Ended December 31

2018

2017

2016

— $

—

1,043

15,642
(63)
2,973

—

18,552

19,595

434

590

27,625

—

3,396
(59,944)
(28,923)
(28,276) $
(1,848) $

820

—

151

11,338

—

1,085

—

12,423

13,394

1,384

Current taxes:

Federal

Foreign

State

Deferred taxes:

Federal

Foreign

State

Change in federal statutory tax rates

Total deferred tax expense
Total income tax expense (benefit) 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 warrant expense

Tax effect of stock compensation

Tax effect of other non-deductible expenses

Change in federal statutory tax rates

Change to state statutory tax rates

Other

Effective income tax rate

Years Ended December 31

2018

2017

2016

21.0 %

(0.1)%

(0.2)%

(1.5)%

(0.8)%

0.8 %

— %

3.8 %

(0.6)%

22.4 %

35.0 %

(0.5)%

(39.7)%

(485.0)%

21.7 %

(19.6)%

917.2 %

— %

3.5 %

432.6 %

35.0 %

— %

2.3 %

4.0 %

(3.4)%

1.6 %

— %

(0.6)%

38.9 %

The income tax deductibility of the warrant expense is less than the expense required by GAAP because for tax

purposes, the warrants are valued at a different time and under a different valuation method.

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
Change in federal statutory tax rates
Effective income tax rate

Years Ended December 31
2017

2018

2016

21.0%
2.6%
—%
23.6%

35.0%
1.3%
—%
36.3%

The Company files income tax returns in the U.S. federal jurisdiction and various international, state and local
jurisdictions. The returns may be subject to audit by the Internal Revenue Service (“IRS”) and other jurisdictional
authorities. International returns consist primarily 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, 2018, 2017 and 2016, 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 2018, 2017 and 2016.

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. The returns for 2017, 2016 and 2015 related to the consolidated
group remain open to examination. The consolidated federal tax returns prior to 2015 remain open to federal examination
only to the extent of net operating loss carryforwards carried over from or utilized in those years. Pemco and Omni
filed returns on their own behalf prior to their acquisition by the Company. State and local returns filed for 2005 through
2017 are generally also open to examination by their respective jurisdictions, either in full or limited to net operating
losses. Th Company files tax returns with the Republic of Ireland for its leasing operations based in Ireland.

NOTE L—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

December 31, 2018, 2017 and 2016 (in thousands):

Balance as of January 1, 2016

Other comprehensive income (loss) before reclassifications:

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

Amounts reclassified from accumulated other comprehensive
income:

Defined
Benefit
Pension
(97,302)

18,424
—

Defined
Benefit Post-
Retirement

(315)

394
—

Foreign
Currency
Translation
(1,395)

Total
(99,012)

—
(126)

18,818
(126)

Plan curtailment and settlement

—

(1,997)

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

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2016

Other comprehensive income (loss) before reclassifications:

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

Amounts reclassified from accumulated other comprehensive
income:

Plan curtailment and settlement

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

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2017

Other comprehensive income (loss) before reclassifications:

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

Amounts reclassified from accumulated other comprehensive
income:

Actuarial costs (reclassified to salaries, wages and benefits)

Income Tax (Expense) or Benefit

Other comprehensive income (loss), net of tax
Balance as of December 31, 2018

13,472

—
(11,682)
20,214
(77,088)

3,116

—

12,923

7,778

—
(7,304)
16,513
(60,575)

(41,051)
—

3,547
9,037
(28,467)
(89,042)

160

(103)
560
(986)
(1,301)

—

283

—

—
44
(82)
(1,477)

—

195

—

(1,997)

13,632

(103)
(11,078)
19,146
(79,866)

3,179

195

12,923

8,061

(51)
(7,461)
16,846
(63,020)

(51)
(91)
204
(1,097)

—
(66)
129
(1,348)

117

—

219
(80)
256
(841)

—
(171)

(40,934)
(171)

—
40
(131)
(1,479)

3,766
8,997
(28,342)
(91,362)

NOTE M—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 and in May
2015. 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 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 vesting periods of approximately six or twelve months. 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

2018

2017

2016

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

873,849

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

304,795

(205,616)

(500)

(2,600)

969,928

463,422

12.30

24.18

12.74

28.38

26.76

15.89

10.25

1,040,569

9.97

1,157,659

243,940
(320,810)
(82,050)
(7,800)
873,849

441,424

17.52

9.47

9.22

13.55

12.30

7.61

314,060
(329,200)
(92,750)
(9,200)
1,040,569

472,294

7.52

15.47

7.32

7.44

10.23

9.97

6.60

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 $25.15, $16.72 and $14.39 for 2018, 2017 and 2016, 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 $31.60, $20.18 and $19.65 for 2018, 2017 and 2016, respectively. The market condition awards were
valued using a Monte Carlo simulation technique based on volatility over three years for the awards granted in 2018,
2017 and 2016 using daily stock prices and using the following variables:

Risk-free interest rate

Volatility

2018

2.4%

33.8%

2017

1.7%

34.7%

2016

1.1%

36.9%

For the years ended December 31, 2018, 2017 and 2016, the Company recorded expense of $5.0 million, $3.6
million and $3.2 million, respectively, for stock incentive awards. At December 31, 2018, there was $6.5 million of
unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average
period of 1.5 years. As of December 31, 2018, none of the awards were convertible, 326,928 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 1,204,978 additional outstanding shares of the Company’s common stock
depending on service, performance and market results through December 31, 2020.

NOTE N—COMMON STOCK AND EARNINGS PER SHARE

Earnings per Share

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

amounts):

Numerator:

Earnings from continuing operations - basic

Gain from stock warrants revaluation, net of tax

Earnings from continuing operations - diluted

Denominator:

Weighted-average shares outstanding for basic earnings per share

Common equivalent shares:

Effect of stock-based compensation awards and warrants

Weighted-average shares outstanding assuming dilution

Basic earnings per share from continuing operations

Diluted earnings per share from continuing operations

December 31

2018

2017

2016

67,883

21,740

21,060

(7,118)

—

60,765

21,740

21,060

58,765

58,907

61,330

9,591

68,356

1.16

0.89

779

59,686

0.37

0.36

1,664

62,994

0.34

0.33

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 329,600 shares, 241,000 shares and 327,700 shares of restricted stock for 2018, 2017 and 2016,
respectively, which are accounted for as part of diluted weighted average shares outstanding in diluted earnings per
share.

The determination of diluted earnings per share requires the exclusion of the fair value re-measurement of the stock
warrants recorded as a liability (see Note D), if such warrants have a anti-dilutive effect on earnings per share. The
dilutive effect of the weighted-average diluted shares outstanding is calculated using the treasury method for periods
in which equivalent shares have a dilutive effect on earnings per share. Under this method, the number of diluted shares
is determined by dividing the assumed proceeds of the warrants recorded as a liability by the average stock price during
the period and comparing that amount with the number of corresponding warrants outstanding.

The underlying warrants recorded as a liability as of December 31, 2018 and 2017 would have resulted in 14.8
million and 14.8 million additional shares of the Company's common stock, respectively, if the warrants were settled
by tendering cash.

The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution
because their effect would have been anti-dilutive, were 7.8 million and 1.9 million for the years ended December 31,
2017 and 2016, respectively.

Purchase of Common Stock

The Company repurchased common stock during 2017, including 380,637 shares on June 6, 2017 from an underwriter
in conjunction with an underwritten secondary offering by its largest shareholder, Red Mountain Partners, L.P., a fund
that is affiliated with Red Mountain Capital Partners, LLC (“Red Mountain”), a related party, for an aggregate purchase
price of $8.5 million. The share price of $22.42 was equal to the price per share paid by the underwriter to Red Mountain.

NOTE O—SEGMENT AND REVENUE INFORMATION

The Company operates in three reportable segments. The CAM segment consists of the Company's aircraft leasing
operations and its segment earnings include an allocation of interest expense. The ACMI Services segment consists
of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service
agreements that the Company has with its customers. The MRO Services segment provides airframe maintenance
services, aircraft modifications and other maintenance services. The MRO Services became reportable during 2018
due to the size of its revenues. Prior periods presented below have been prepared by separating MRO Services from
"All other" for comparative purposes. The Company's ground services and other activities, which include load transfer
and sorting service, maintenance services for ground equipment, facilities and material handling equipment, the sales
of aviation fuel and other services, are not large enough to constitute reportable segments and are combined in All other.
Intersegment revenues are valued at arms-length market rates.

The Company's segment information from continuing operations is presented below (in thousands):

Total revenues:

CAM

ACMI Services

MRO Services

All other

Eliminate inter-segment revenues

Total

Customer revenues:

CAM

ACMI Services

MRO Services

All other (primarily ground services)

Total

Year Ended December 31
2017

2016

2018

228,956

209,560

548,839

207,539

79,040

614,741

205,401

227,807

195,092

492,859

111,913

150,117

(172,029)

(189,309)

(181,111)

892,345

1,068,200

768,870

156,516

140,434

548,804

117,832

69,193

614,721

106,767

206,278

892,345

1,068,200

117,642

492,859

40,754

117,615

768,870

The Company adopted Topic 606 for revenue recognition using a modified retrospective approach, under which
financial statements are prepared under the revised guidance for the year of adoption, but not for prior years. The effects
of Topic 606 on the Company's customer revenues and earnings are summarized below:

For the year ended December 31, 2018
Without
Topic 606

Increase
(decrease)

As Reported

Revenue

CAM

ACMI Services

MRO Services

All other

Total Revenue

Operating Expense

Earnings (Loss) from Continuing Operations before Income
Taxes

156,516

548,804

117,832

69,193

892,345

781,327
87,478

743,112

100,790

249,222

1,249,640

1,138,462
87,638

—
(194,308)
17,042
(180,029)
(357,295)
(357,135)
(160)

Income Tax Benefit (Expense)

Income from Continuing Operations

(19,595)
67,883

(19,559)
68,079

(36)
(196)

ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, the
amount of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over
time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include
provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis
and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an
obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's
cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI
and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain
other flight expenses. When functioning as the customers' agent for arranging such services, the Company records
amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter
agreements the Company's airline is obligated to provide full services for one or more flights having specific origins
and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all
flight services, the related costs are recorded in operating expenses. ACMI Services are invoiced monthly or more
frequently. (There are no customer rewards programs associated with services offered by the Company nor does the
Company sell passenger tickets or issue freight bills.)

MRO Services revenues for customer contracts for airframe maintenance and aircraft modification services that do
not have an alternative use and for which the Company has an enforceable right to payment are generally recognized
over time based on the percentage of costs completed. Other MRO Services revenues for aircraft part sales, component
repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the
the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts
include assurance warranties that are not sold separately. Effective January 1, 2018 the Company records revenues
and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the percentage-
of-completion cost input method. For such services, the Company estimates the earnings on a contract as the difference
between the expected revenue and estimated costs to complete a contract and recognizes revenues and earnings based
on the proportion of costs incurred compared to the total estimated costs. The Company's estimates consider the timing
and extent of the services, including the amount and rates of labor, materials and other resources required to perform
the services. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up
method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the
adjustment is identified. The Company's external customer revenues for providing load transfer and sorting services
and related equipment maintenance were $66.6 million, $204.1 million and $114.8 million for 2018, 2017 and 2016
respectively. During 2018, the Company netted $180.0 million of customer reimbursable revenues against the related
expenses when functioning as the customers' agent for arranging ground services. These revenues are reported in All
other. The Company's external customer revenues from providing load transfer and sorting services are recognized as
the services are performed for the customer over time. Revenues from related equipment maintenance services are
recognized over time and at a point in time depending on the nature of the customer contracts. For customers that are
not a governmental agency or department, the Company generally receives partial payment in advance of services,
otherwise customer balances are typically paid within 30 to 60 days of service. The Company recognized $9.3 million
of non lease revenue that was reported in deferred revenue at the beginning of the year. Deferred revenue was $3.1
million and $9.5 million at December 31, 2018 and 2017, respectively, for contracts with customers.

CAM's aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of
the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in
advance.

The Company had revenues of approximately $231.8 million, $170.1 million and $168.2 million for 2018, 2017
and 2016, respectively, derived primarily from aircraft leases in foreign countries, routes with flights departing from
or arriving in foreign countries or aircraft maintenance and modification services performed in foreign countries. All
revenues from the CMI agreement with DHL and the ATSA agreement with ASI are attributed to U.S. operations. As
of December 31, 2018 and 2017, the Company had 23 and 16 aircraft, respectively, deployed outside of the United
States.

The Company's other segment information from continuing operations is presented below (in thousands):

Depreciation and amortization expense:

CAM

ACMI Services

MRO Services

All other

Total

Segment earnings (loss):

CAM

ACMI Services

MRO Services

All other

Inter-segment earnings eliminated

Net unallocated interest expense

Net gain (loss) on financial instruments

Transaction fees

Other non-service components of retiree benefit costs, net

Loss from non-consolidated affiliate
Pre-tax earnings from continuing operations

Year Ended December 31
2017

2016

2018

126,856

108,106

49,068

3,397

(426)

41,929

3,324

1,197

92,396

41,487

1,477

136

178,895

154,556

135,496

65,576

61,510

17,717

14,499

9,107

(12,436)

(6,729)

7,296

(5,264)

8,180

(10,468)

8,557

19,741

5,590

(11,583)

(1,322)

(79,789)

—

(6,105)

(3,135)

68,608

(25,016)

12,308

9,519

(5,498)

(545)

(18,107)

—

(6,815)

—

87,478

(6,536) $

34,454

The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in

Assets - All other..

Assets:

CAM

ACMI Services

MRO Services

All other

Total

December 31

2018

2017

2016

1,577,182

1,192,890

759,131

108,244

26,028

189,379

87,177

79,398

971,986

164,489

77,918

44,937

2,470,585

1,548,844

1,259,330

Interest expense allocated to CAM was $21.8 million, $15.6 million and $10.6 million for the years ending

December 31, 2018, 2017 and 2016, respectively.

During 2018, the Company had capital expenditures for property and equipment of $38.9 million, $249.4 million

and $2.2 million for the ACMI Services, CAM and MRO Services segments, respectively.

NOTE P—DISCONTINUED OPERATIONS

The Company's results of discontinued operations consist primarily of changes in liabilities related to benefits for
former employees previously associated with ABX's former hub operation for DHL. The Company may incur expenses
and cash outlays in the future related to pension obligations, self-insurance reserves for medical expenses and wage
loss for former employees. Carrying amounts of significant assets and liabilities of the discontinued operations are
below (in thousands):

Liabilities

Employee compensation and benefits
Post-retirement

Total Liabilities

December 31

2018

2017

16,807
846
17,653

17,880
4,652
22,532

During 2018, pre-tax earnings from discontinued operations were $1.8 million. Pre-tax results from discontinued

operations were losses of $5.1 million and earnings of $3.8 million during 2017 and 2016, respectively.

NOTE Q—INVESTMENTS IN NON- CONSOLIDATED AFFIITATES (Unaudited)

As described in Note C, the Company has investments in two non-consolidated affiliates. These investments are
intended to expand the Company's freighter aircraft lease portfolio internationally and bring a freighter aircraft variant
to market. While management considers the Company's participation in these non-consolidated affiliates as potentially
beneficial to future operating results, such participation is not essential to the Company. The Company shares in the
earnings (losses) of these non-consolidated affiliates generally in accordance with the respective equity interests. The
following table presents combined condensed information from the statements of operations of the Company's non-
consolidated affiliates (in thousands):

Revenues

Expenses

Income (Loss)

Year Ended December 31,

2018

2017

2016

202,028
(228,169)
(26,141) $

172,526
(196,334)
(23,808) $

157,945
(170,317)
(12,372)

The following table presents combined condensed balance sheet information for our unconsolidated joint ventures

(in thousands):

Current assets

Non current assets

Current liabilities

Non current liabilities

Equity

December 31,

2018

2017

64,262

80,724
(38,938)
(102,657)

(3,391) $

50,516

103,174
(33,315)
(117,338)
(3,037)

NOTE R—QUARTERLY RESULTS (Unaudited)

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

2018 (1)
Revenues from continuing operations

Operating income from continuing operations

Net earnings (loss) from continuing operations

Net earnings from discontinued operations
Weighted average shares:

Basic

Diluted

Earnings (loss) per share from continuing operations

Basic
Diluted

2017 (3)
Revenues from continuing operations

Operating income from continuing operations

Net earnings (loss) from continuing operations (2)
Net earnings (loss) from discontinued operations

Weighted average shares:

Basic

Diluted

Earnings (loss) per share from continuing operations

Basic

Diluted

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

203,040

203,607

204,919

$ 280,779

27,643

15,682

196

58,840

59,558

0.27
0.26

237,917

17,930

9,796

192

59,133

64,949

$
$

23,898

24,464

170

58,739

68,363

0.42
0.21

253,211

23,125
(53,918)
192

26,827

32,933

170

58,739

68,323

32,650
(5,196)
866

58,740

$
$

0.56
0.24

$
$

(0.09)
(0.09)

254,101

$ 322,971

24,452
(28,229)
(4,655)

33,893

94,091

1,026

58,733

68,987

59,035

58,733

0.17

0.13

(0.91) $
(0.91) $

(0.48) $
(0.48) $

1.60

1.11

$
$

1. During 2018, the Company recorded a $0.9 million loss, a $11.7 million gain, a $17.9 million gain and a $21.4 million
loss on the remeasurement of financial instruments, primarily related to the warrants issued to Amazon for the quarters
ended March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018, respectively.

2. During 2017, the Company recorded a $59.9 million deferred tax gain during the quarter ended December 31, 2017 due

to the enactment of lower U.S. federal corporate tax rates.

3. During 2017, the Company recorded a 1.9 million gain, a 67.6 million loss, a 34.4 million loss and a 20.4 million gain on
the remeasurement of financial instruments, primarily related to the warrants issued to Amazon for the quarters ended
March 31, 2017, June 30, 2017, September 30, 2017 and December 31, 2017, respectively.

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, 2018, 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

Except for the internal controls of Omni, which was acquired on November 9, 2018, there were no changes in
internal control over financial reporting during the most recently completed fiscal year 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, 2018. 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 (2013). The
Company’s assessment of and conclusion on the effectiveness of its internal control over financial reporting did not
include the internal controls of Omni which was acquired on November 9, 2018 and was included in the 2018
consolidated financial statements. The Omni acquisition constituted 23% of the Company’s total assets as of December
31, 2018, and 7% of total net revenues, for the year end December 31, 2018.

Based on management’s assessment of those criteria, management believes that, as of December 31, 2018, the

Company’s internal control over financial reporting was effective.

The effectiveness of our internal controls over financial reporting as of December 31, 2018 has been audited by

our independent registered accounting firm as stated in its attestation report that follows this report.

March 1, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the stockholders and the Board of Directors of Air Transport Services Group, Inc.

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Air Transport Services Group, Inc. and subsidiaries
(the “Company”) as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion,
the Company maintained, in all material respects, effective internal control over financial reporting as of December
31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended
December 31, 2018, of the Company and our report dated March 1, 2019, expressed an unqualified opinion on those
consolidated financial statements and financial statement schedule and includes an explanatory regarding the Company's
three principal customers and an explanatory paragraph regarding the Company's adoption of the new revenue
accounting standard.

As described in Management’s Annual Report on Internal Controls over Financial Reporting, management excluded
from its assessment the internal control over financial reporting at Omni Air International, Inc. and subsidiaries, which
was acquired on November 9, 2018, and whose financial statements constitute 23% of total assets and 7% of revenues
of the consolidated financial statement amounts as of and for the year ended December 31, 2018. Accordingly, our
audit did not include the internal control over financial reporting at Omni Air International, Inc. and subsidiaries.

Basis for Opinion

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 are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. 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.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process 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. 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 its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.

/s/ DELOITTE & TOUCHE LLP

Cincinnati, Ohio
March 1, 2019

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 2019 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 Operating Officer, Air Transport Services Group, Inc., since
September 2017. President of Cargo Aircraft Management Inc., since
April 2010. President of Airborne Global Solutions, Inc. since July
2010. Mr. Corrado was Chief Commercial Officer, Air Transport
Services Group, Inc., from April 2010 to September 2017

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.

Chief Legal Officer & Secretary, Air Transport Services Group, Inc.,
since May 2016; 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.

Name

Michael L. Berger

Age

Information

Chief Commercial Officer, Air Transport Services Group, Inc. and
President of Airborne Global Solutions since February 2018. Before
joining ATSG, Mr. Berger was Chief Commercial Officer for Dicom
Transportation group of Canada from March 2017 through February
2018. Mr. Berger was Global Head of Sales for TNT Express based
in Amsterdam from September 2014 through February 2017.

Mr.Berger joined Airborne Express in 1986 and worked 28 years for
Airborne Express and its successor, DHL Express where he held
many roles including Head of Sales for the United States.

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 2019 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 2019
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 2019 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 2019 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, 2018
December 31, 2017
December 31, 2016

Schedule II—Valuation and Qualifying Account

Balance at
beginning
of period

Additions
charged to
cost and expenses

Deductions

Balance at end
of period

2,445,310
1,264,211
415,336

596,000
1,184,099
1,006,307

1,597,505
3,000
157,432

1,443,805
2,445,310
1,264,211

All other schedules are omitted because they are not applicable or are not required, or because the required

information is included in the consolidated financial statements or notes thereto.

(3)

Exhibits

The following exhibits are filed with or incorporated by reference into this report.

Exhibit No.

Description of Exhibit
Articles of Incorporation

3.1

3.2

4.1

4.2

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

Restated Certificate of Incorporation of Air Transport Services Group, Inc. (31)

Amended and Restated Bylaws of Air Transport Services Group, Inc., reflecting amendments
through May 10, 2013. (16)

Instruments defining the rights of security holders

Indenture, dated September 29, 2017, by and between Air Transport Services Group, Inc. and
U.S. Bank National Association. (28)

Form of 1.125% Convertible Senior Note due 2024 (included in Exhibit 4.1). (28)

Material Contracts

Director compensation fee summary. (8)

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)

Aircraft Loan and Security Agreement and related promissory note, dated October 26, 2007, by
and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (7)

Aircraft Loan and Security Agreement and related promissory note, dated December 19, 2007,
by and among ABX Air, Inc. and Chase Equipment Leasing, Inc. (7)

Guaranty by Air Transport Services Group, Inc. in favor of DHL Express (USA), Inc., dated
May 8, 2009 (6), as amended by Amendment to the Guaranty dated as of January 14, 2015 (20)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group, Inc.
2005 Amended and Restated Long-Term Incentive Plan. (9)

10.10

10.11

10.12

10.13

10.14

10.15

10.16

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2005 Amended and Restated Long-Term Incentive Plan. (9)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2005
Amended and Restated Long-Term Incentive Plan. (18)

Conversion Agreement dated August 3, 2010, between Cargo Aircraft Management, Inc., M&B
Conversions Limited and Israel Aerospace Industries Ltd. (10)

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. (11)

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. (11)

Amendment to Confidentiality and Standstill Agreement, dated as of June 11, 2012, between
Air Transport Services Group, Inc. and Red Mountain Capital Partners LLC. (12)

Form of amended and restated change-in-control agreement in effect between Air Transport
Services Group, Inc. and its executive officers. (14)

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. (13)

Amended and Restated Lease Agreement, dated December 27, 2012, between Clinton County
Port Authority and Air Transport Services Group, Inc. (15)

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. (15)

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. (15)

Lease Agreement for the Jump Hangar Facility, dated December 1, 2012, between Clinton
County Port Authority and Air Transport International, LLC. (15)

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. (15)

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. (15)

Air Transport Services Group, Inc. Nonqualified Deferred Compensation Plan, dated October
31, 2013. (17)

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. (17)

10.26

10.27

10.28

10.29

10.30

10.31

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

Third Amendment to Credit Agreement and First Amendment to Guarantee and Collateral
Agreement, dated May 6, 2014, by and among Cargo Aircraft Management, Inc., as Borrower,
Air Transport Services Group, Inc., each of the Guarantors party thereto, each of the financial
institutions party thereto as "Lenders", and SunTrust Bank as Administrative Agent. (19)

Amended and Restated Air Transportation Services Agreement between DHL Network
Operations (USA), Inc., ABX Air, Inc. and Cargo Aircraft Management, Inc., dated January 14,
2015. 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. (20)

Fifth Amendment to Credit Agreement, dated May 8, 2015, by and among Cargo Aircraft
Management, Inc., as Borrower, Air Transport Services Group, Inc., each of the Guarantors
party thereto, each of the financial institutions party thereto as "Lenders" and SunTrust Bank, in
its capacity as Administrative Agent. (21)

Air Transportation Services Agreement, dated as of March 8, 2016, by and between Airborne
Global Solutions, Inc. and Amazon Fulfillment Services Inc. 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. (22)

Investment Agreement, dated as of March 8, 2016, by and between Air Transport Services
Group, Inc., and Amazon.com, Inc. 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. (22)

Warrant to Purchase Common Stock, issued March 8, 2016, by and between Air Transport
Services Group, Inc. and Amazon.com. Those portions of the Warrant marked with an [*] have
been omitted pursuant to a request for confidential treatment and have been filed separately with
the SEC. (22)

Stockholders Agreement, dated as of March 8, 2016, by and between Air Transport Services
Group, Inc., and Amazon.com, Inc. 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. (22)

Amended and Restated Credit Agreement, dated as of May 31, 2016, among Cargo Aircraft
Management, Inc., as Borrower, Air Transport Services Group, Inc., the Lenders from time to
time party hereto, 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. (23)

Guarantee and Collateral Agreement made by Cargo Aircraft Management, Inc. and certain of
its Affiliates in favor of SunTrust Bank, as Administrative Agent, dated as of May 31, 2016.
(23)

Air Transport Services Group, Inc. Executive Incentive Compensation Plan, last modified
August 5, 2016. (23)

Form of Time-Based Restricted Stock Award Agreement under Air Transport Services Group,
Inc. 2015 Amended and Restated Long-Term Incentive Plan. (24)

Form of Performance-Based Stock Unit Award Agreement under Air Transport Services Group,
Inc. 2015 Amended and Restated Long-Term Incentive Plan. (24)

Form of Restricted Stock Unit Award Agreement under Air Transport Services Group, Inc. 2015
Amended and Restated Long-Term Incentive Plan. (24)

Stock Purchase Agreement, dated June 21, 2016, between Air Transport Services Group, Inc.
and Red Mountain Partners, L.P. (25)

First Amendment to the Amended and Restated Credit Agreement, dated as of March 31, 2017,
among Cargo Aircraft Management, Inc., as Borrower, Air Transport Services Group, Inc., the
Lenders from time to time party hereto, 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. (26)

10.41

10.42

10.43

10.44

10.45

10.46

10.47

10.48

10.49

10.50

10.51

10.52

10.53

10.54

10.55

10.56

10.57

10.58

10.59

10.60

10.61

Underwriting Agreement, dated May 31, 2017, by and among Air Transport Services Group,
Inc., Red Mountain Partners, L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. (27)

Second Amendment to the Amended and Restated Credit Agreement, entered into on September
25, 2017, by and among Air Transport Services Group, Inc., Cargo Aircraft Management, Inc.,
as borrower, the guarantors party thereto, the lenders party thereto and SunTrust Bank, as
Administrative Agent. (29)

Purchase Agreement, dated September 25, 2017, by and among Air Transport Services Group,
Inc. and Goldman Sachs & Co. LLC and SunTrust Robinson Humphrey, Inc., as representatives
of the initial purchasers named therein. (28)

Base Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air Transport
Services Group, Inc., and Goldman Sachs & Co. LLC. (28)

Base Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air Transport
Services Group, Inc., and Bank of America, N.A. (28)

Base Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air Transport
Services Group, Inc., and JPMorgan Chase Bank, National Association, London Branch. (28)

Base Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air Transport
Services Group, Inc., and Bank of Montreal. (28)

Additional Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air
Transport Services Group, Inc., and Goldman Sachs & Co. LLC. (28)

Additional Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air
Transport Services Group, Inc., and Bank of America, N.A. (28)

Additional Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air
Transport Services Group, Inc., and JPMorgan Chase Bank, National Association, London
Branch. (28)

Additional Convertible Bond Hedge Confirmation, dated September 25, 2017, between Air
Transport Services Group, Inc., and Bank of Montreal. (28)

Bank Warrant Confirmation, dated September 25, 2017, between Air Transport Services Group,
Inc., and Goldman Sachs & Co. LLC. (28)

Bank Warrant Confirmation, dated September 25, 2017, between Air Transport Services Group,
Inc., and Bank of America, N.A. (28)

Bank Warrant Confirmation, dated September 25, 2017, between Air Transport Services Group,
Inc., and JPMorgan Chase Bank, National Association, London Branch. (28)

Bank Warrant Confirmation, dated September 25, 2017, between Air Transport Services Group,
Inc., and Bank of Montreal. (28)

Additional Warrant Confirmation, dated September 25, 2017, between Air Transport Services
Group, Inc., and Goldman Sachs & Co. LLC. (28)

Additional Warrant Confirmation, dated September 25, 2017, between Air Transport Services
Group, Inc., and Bank of America, N.A. (28)

Additional Warrant Confirmation, dated September 25, 2017, between Air Transport Services
Group, Inc., and JPMorgan Chase Bank, National Association, London Branch. (28)

Additional Warrant Confirmation, dated September 25, 2017, between Air Transport Services
Group, Inc., and Bank of Montreal. (28)

Air Transport Services Group, Inc. Severance Plan for Senior Management. (30)

Confirmation Agreement, dated August 23, 2017, between Mutual of America Life Insurance
Company and ABX Air, Inc., relating to the ABX Air Retirement Income Plan. (30)

10.62

10.63

10.64

10.65

10.66

10.67

14.1

21.1

23.1

31.1

31.2

32.1

32.2

Second Amended and Restated Credit Agreement, dated as of November 9, 2018, 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; Bank of America, N.A. and
PNC Bank, National Association, as Co-Syndication Agents; and Regions Bank, JPMorgan
Chase Bank, N.A. and Branch Banking and Trust Company, as Co-Documentation Agents, filed
herewith

Second Amended and Restated Guarantee and Collateral Agreement made by Cargo Aircraft
Management, Inc. and certain of its Affiliates in favor of SunTrust Bank, as Administrative
Agent, dated as of November 9 2018, filed herewith.

Purchase and Sale Agreement, by and among Air Transport Services Group, Inc. and the Sellers
and the Sellers' Representative Named Herein, dated as of October 1, 2018. Pursuant to Item
601(b)(2) of Regulation S-K, certain exhibits and schedules have been omitted from this filing.
The registrant agrees to furnish the Commission on a supplemental basis a copy of any omitted
exhibit or schedule, filed herewith.

Investment Agreement, dated as of December 20, 2018, by and between Air Transport Services
Group, Inc. and Amazon.com, Inc., filed herewith. Those portions of the Agreement marked
with an [*] have been omitted pursuant to a request for confidential treatment and have been
filed separately with the SEC.

Warrant to Purchase Common Stock, issued December 20, 2018, by and between Air Transport
Services Group, Inc. and Amazon.com, Inc., filed herewith. Those portions of the Warrant
marked with an [*] have been omitted pursuant to a request for confidential treatment and have
been filed separately with the SEC.

Amended and Restated Stockholders Agreement, dated as of December 20, 2018, by and
between Air Transport Services Group, Inc. and Amazon.com, Inc., filed herewith. Those
portions of the Agreement marked with an [*] have been omitted pursuant to a request for
confidential treatment and have been filed separately with the SEC.

Code of Ethics

Code of Ethics—CEO and CFO. (1)

List of Significant Subsidiaries

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

Consent of experts and counsel

Consent of independent registered public accounting firm, filed herewith.

Certifications

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Labels Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

____________________
(1)
(2)

The Company's Code of Ethics can be accessed from the Company's Internet website at www.atsginc.com.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on November 9, 2006.
Incorporated by reference to the Company’s Annual Report on Form 10-K/A filed on August 14, 2007 with
the Securities and Exchange Commission.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q/A, filed with the Securities and
Exchange Commission on August 14, 2007.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 14, 2007.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on August 10, 2009.
Incorporated by reference to the Company’s Annual Report on 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 2018 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 30, 2018 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.
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 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 Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 8, 2013.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 6, 2013.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 12, 2014.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 5, 2014.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 8, 2015, as amended by the Company's Quarterly Report on Form 10-Q/A
filed with the Securities and Exchange Commission on August 7, 2015.

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

(27)

(28)

(29)

(30)

(31)

Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2015.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 10, 2016.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 8, 2016.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on March 15, 2016.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on June 27, 2016.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 8, 2017.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on June 2, 2017.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on September 29, 2017.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on September 25, 2017.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on November 9, 2017.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 8, 2018

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

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

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

SIGNATURES

Air Transport Services Group, Inc.

Signature

Title

Date

/S/ JOSEPH C. HETE
Joseph C. Hete

President and Chief Executive Officer (Principal
Executive Officer)

March 1, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the

following persons in the capacities and on the date indicated:

Signature

Title

Date

/S/ RANDY D. RADEMACHER
Randy D. Rademacher

/S/ RICHARD M. BAUDOUIN
Richard M. Baudouin

/S/ ROBERT K. CORETZ
Robert K. Coretz

/S/ JOSEPH C. HETE
Joseph C. Hete

/S/ RAYMOND E. JOHNS JR.
Raymond E. Johns, Jr.

/S/ LAURA J. PETERSON
Laura J. Peterson

/S/ J. CHRISTOPHER TEETS
J. Christopher Teets

/S/ JEFFREY J. VORHOLT
Jeffrey J. Vorholt

/S/ QUINT O. TURNER
Quint O. Turner

Director and Chairman of the Board

March 1, 2019

Director

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

Director

March 1, 2019

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

March 1, 2019

[THIS PAGE INTENTIONALLY LEFT BLANK]

Air Transport Services Group 2018 Annual Report

To Our Shareholders

Investor Information

In 2018, we completed several important

Our November acquisition of Omni Air

initiatives that substantially advance our

International was a major step forward in that

business goals around customer diversification,

diversification. Omni brought us a thirteen-

an assured supply of additional aircraft assets,

aircraft fleet of Boeing 767 and Boeing 777

and stable customer relationships for long-term

passenger aircraft, and a leading role in

growth. While achieving those goals, we produced

providing efficient passenger movement for our

another year of strong financial results and laid

nation’s armed forces. Our primary focus when

the groundwork for even better years ahead.

deciding among capital allocation alternatives is

The first initiative I mentioned – diversifying

to select those that create value by generating

our customer base – has been a major

objective ever since our spin-off from

the DHL/Airborne merger 15 years

ago, when we were dependent on

a single contract for nearly all of

our revenue. Back then, we

charted a course that would

lead us into new markets by

leveraging our airline roots

while emphasizing our

dedicated-aircraft model. Today,

DHL is one of three principal

ATSG customers, along with many

others that are important sources of

our revenues.

Other

32%

Amazon

27%

strong sustainable cash flows. This is why we

invest in the Boeing 767 freighter

aircraft, which are preferred by the

operators of e-commerce-driven

regional air networks worldwide.

But sourcing, converting, and

deploying significant numbers of

aircraft can be a lengthy process.

Our acquisition of Omni jump-

starts the realization of strong

sustainable cash flow benefits. To

generate a similar scale of cash flow

contribution would have otherwise

required incremental 767 fleet growth of

more than 30 aircraft and several years

DoD

15%

DHL

26%

Revenue by

Customer

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
P.O. Box 505000
462 South 4th Street, Ste 1600
Lousville, KY 40233-5000

Independent Auditors
Deloitte & Touche LLP
Cincinnati, Ohio

Annual Meeting
The annual meeting of stockholders
will be May 9, 2019, at 11 a.m.
local time at The Roberts Centre,
123 Gano Road, Wilmington, Ohio.

Investor Relations
Inquiries may be directed to
investor.relations@ATSGinc.com.

Board of Directors

Randy D. Rademacher
Sr. Vice President, Strategy & Acquisitions,
for Reading Rock, Inc., since 2018. He was the
Sr. Vice President, Chief Financial Officer, of
Reading Rock, Inc. from 2008 to 2018. He also
served as President of Comair Holdings LLC
from 1999 to 2005. Mr. Rademacher has been a
Director of the Company since December 2006
and Chairman of the Board since May 2015.
He serves on the Audit Committee and the
Compensation Committee.

Richard M. Baudouin
Senior Advisor for Infinity Transportation since
2016. Prior to his current role, Mr. Baudouin
was a principal of Infinity Aviation Capital,
LLC, from 2011 to 2016, and was a co-founder
and former managing director of Aviation
Capital Group from 1989 to 2010. Mr.
Baudouin has been a Director of the Company
since January 2013. He is the Chairman of the
Nominating and Governance Committee and
serves on the Audit Committee.

Robert K. Coretz
Principal and founder of 10 Tanker Air Carrier.
Mr. Coretz is the founder and former
chairman of Omni Air International,
Omni Aviation Leasing, and T7 Leasing.
Mr. Coretz has been a Director of the
Company since February 2019.

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.

Raymond E. Johns, Jr. (General USAF Ret.)
Co-Chief Executive Officer, President, Government
and Manufacturing, of FlightSafety International Inc.,
since 2018. Prior to his retirement from the U.S. Air
Force, Mr. Johns led the Air Mobility Command at
Scott Air Force Base in Illinois. Mr. Johns has been a
Director of the Company since October 2017.
He serves on the Audit Committee and the
Nominating and Governance Committee.

Laura Peterson
Vice President, China Business Development, for
Boeing Commercial Airplanes, from 2012 to 2016.
Prior to that, Ms. Peterson held a series of executive
positions at Boeing from 1994 to 2012. Ms. Peterson
has been a Director of the Company since June 2018.
She serves on the Compensation Committee and the
Nominating and Governance Committee.

J. Christopher Teets
Partner of Red Mountain Capital Partners LLC,
an investment management firm, since 2005.
Mr. Teets has been a Director of the Company since
February 2009. He is the Chairman of the
Compensation Committee and serves on the
Nominating and Governance Committee.

Jeffrey J. Vorholt
Independent consultant and private investor.
Mr. Vorholt was formerly a full-time faculty member at
Miami University (Ohio) and concurrently an Adjunct
Professor of Accountancy at Xavier University (Ohio)
from 2001 to 2006. A CPA and attorney, he was
the Chief Financial Officer of Structural Dynamics
Research Corporation from 1994 until its
acquisition by EDS in 2001. Mr. Vorholt has been a
Director of the Company since January 2004.
He is the Chairman of the Audit Committee and
is a member of the Compensation Committee.

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INSIDE FRONT COVER

INSIDE BACK COVER

2018 Annual Report

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

OUTSIDE BACK COVER

OUTSIDE FRONT COVER