Air Transport Services Group Annual Report 2020

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FY2020 Annual Report · Air Transport Services Group

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ANNUAL
ANNUAL
REPORT
REPORT
2020

Air Transport Services Group
145 Hunter Drive
Wilmington, OH 45177

atsginc.com

QUICK FACTS
QUICK FACTS
+ + + + + + + + +
ANNUAL REPORT

At ATSG, we believe in being resilient and

creative. With that mentality, we help our

customers rise beyond their challenges and

grow in their success. With over 40 years in the

industry, ATSG has become the global leader in

midsize freighter leasing and the A/CMI market.

5300
EMPLOYEES
WORLDWIDE
WORLDWIDE
+ + + + +

106106
AIRCRAFT
IN SERVICE

$1.571

BILLION IN
REVENUES, 2020

+ + + + +

STOCK INFORMATION

REGISTRAR &

NASDAQ: ATSG

Company documents

electronically filed with the SEC

also may be found at

www.atsginc.com

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

Louisville, KY 40233-5000

INVESTOR

INFORMATION

INVESTOR RELATIONS

INDEPENDENT AUDITORS

ANNUAL MEETING

Inquiries may be directed to

Deloitte & Touche LLP

investor.relations@atsginc.com

Cincinnati, OH

The annual meeting of stockholders will be May 26, 2021

at 11am EDT via a live audio webcast at

www.virtualshareholdermeeting.com/ATSG2021

JOSEPH C HETE

CEO of Air Transport Services

Group, Retired

RICHARD M BAUDOUIN

Senior Advisor for

Infinity Transportation, Retired

REVENUE
BY CUSTOMER

T
E
E
L
F

T
N
U
O
C

777-200:3
767-300:62
767-200:36
757-200:5

$497

MILLION ADJ
EBITDA, 2020*

*Adjusted EBITDA is a non-GAAP measure. For an
explanation and a reconciliation to GAAP measures, see
our 8-K filed on March 8, 2021.

ALL FIGURES AS OF 12/31/2020

ATSG ADVANTAGE

| Largest global lessor of freighter aircraft.

| Delivers integrated operational solutions to customers.

| Business model minimally exposed to trade disruption
or business cycle.

| Long-term leases and operating contracts with blue-chip
customer base.

| Markets include air cargo and air express (package)
transport, and ACMI and charter passenger transport for
commercial and government entities.

| Headquarters located at the Wilmington Air Park in Ohio,
which also serves as a regional air hub for Amazon.

/ATSGinc

@airtransportservicesgroup

/air-transport-services-group

/atsginc

PHYLLIS J CAMPBELL

Chairman of the Pacific

Northwest for JPMorgan

Chase & Co.

RICHARD F CORRADO

President & CEO of

Air Transport Services Group

RAYMOND E JOHNS, JR

US Air Force General,

Retired

LAURA PETERSON

Fellow, Stanford Distinguished

Careers Institute, and Vice

President, China Business

Development, Boeing Commercial

Airplanes, Retired

RANDY D RADEMACHER

Senior Vice President,

Strategy & Acquisitions at

Reading Rock, Inc., and former

President, Comair Holdings, LLC

J CHRISTOPHER TEETS

Founding Partner of Red

Mountain Capital Partners

LLC

JEFFREY J VORHOLT

Independent Consultant &

Private Investor, and former

Chief Financial Officer of

Structural Dynamics Research

Corporation

PAUL S WILLIAMS

Partner & Managing Director of

Major, Lindsey & Africa, LLC,

Retired

TO OUR
SHAREHOLDERS

In 2020, the resilience of your company’s
business model and the resourcefulness of
its people were put to the test – and both
excelled.

Our response to the COVID-19 pandemic was
comprehensive, creative, and safety-focused.
Your company’s leadership team focused
on providing a safe work environment with
open communication, increased sanitation
and cleaning, flexible scheduling to ensure
social distancing for those not able to work
remotely, mask requirements, and alternatives
to corporate travel and in-person meetings.
Even in the earliest stages of the pandemic,
our employees developed new ways to
complete critical missions while minimizing
their exposure. They prioritized movement
of medical supplies, essential goods, and
Americans stranded in high-risk countries

around the world. I could not be prouder
of the way they have stepped up to those
challenges, kept each other
safe, and delivered
record service
levels to our
customers.

IN 2020, THE
RESILIENCE OF
YOUR COMPANY’S
BUSINESS MODEL
AND THE
RESOURCEFULNESS
OF ITS PEOPLE
WERE PUT TO THE
TEST–AND BOTH
EXCELLED.

While our
businesses
are not
immune to the
disruptions the
pandemic has
caused, in 2020
they were able to
seize opportunities it
presented while adapting to
those it took away. On a consolidated basis,
2020 was a good year for your company,
with an eight percent increase in revenues
to $1.57 billion. Our earnings as measured
by Generally Accepted Accounting Principles
were down for the year, but primarily due to
non-cash losses and other non-operating
items.

Operating Cash Flow, a GAAP financial
measure that excludes the many non-
cash and non-recurring items affecting our
GAAP earnings, increased 29 percent to
a record $512 million last year. Gains and
losses in our liabilities for stock warrants we
began issuing to Amazon in 2016 as lease
incentives are the principal reason for wide
variances in our GAAP earnings since then.
Those effects reduced ATSG’s 2020 after-tax
earnings by $81.8 million and $0.4 million for
2020 and 2019, respectively.

Two other significant non-operating items
also affected our 2020 results. We wrote
down $39 million of value for our four
Boeing 757 freighter aircraft and related
assets in June, after DHL declined to extend

agreements for us to operate
three of them in its North
American network. We also
sought and received $76 million
in cash grant assistance from
the federal government under
provisions of the 2020 CARES
Act and other legislation
intended to offset the effects of
the pandemic on employment in
the passenger airline industry.
These funds enabled us to
retain employees who otherwise
might have been furloughed
due to pandemic-related
reductions in demand for our commercial
passenger services at Omni Air and Air
Transport International last year. We have
sought and received additional federal support
for our Omni workforce in 2021 that will help
us retain employees throughout the period
covered by the Act.

Reduced demand affected last year’s results
from our commercial passenger air operations,
particularly in the second half, but strong gains
from our cargo and other passenger flying still
led to a sharp increase in pretax earnings for
the ACMI Services segment overall. As the
year progressed, we also made strides toward
two key airline objectives: the extension of our
labor agreement with the union representing
our ABX Air pilots, and investments in new
software and other technology to improve
reliability and reduce fleet maintenance costs.

In December, the pilots at
ABX Air ratified a new

WE EXPECT
ANOTHER GOOD
YEAR FOR OUR
AIRLINES OVERALL
IN 2021.

six-year amendment
to our collective
bargaining

agreement,
and we
also began

to adopt new work processes and aircraft
performance monitoring systems that have
helped us better identify and proactively
address maintenance issues. On-time
performance at our cargo airlines was very
strong during the winter months, and we
expect significant performance benefits and
savings from these initiatives going forward.

We expect another good year for our airlines
overall in 2021 particularly in the second
half, with more CMI flying for Amazon and
ACMI operations for other customers. Our
passenger services will remain challenged
throughout the first half of 2021.

The foundation of our business is the long-term
cash flow we generate from freighter aircraft
we lease to express-delivery leaders like DHL
and merchandisers like Amazon. As such, we
could not have been better positioned for a
time when rapid delivery of packages to homes
became an essential service instead of a mere
convenience. We met that challenge by having
not only the right aircraft assets, but also the
services that make our Boeing 767 aircraft
the right asset in these challenging times.
We delivered eleven more 767 freighters to
customers in 2020 for a total of 73 aircraft

under lease to third-party customers at year-
end, more than the eight to ten deliveries we
had projected when the year began.

As a result, our leasing subsidiary, Cargo
Aircraft Management, grew larger, with an
eight percent increase in revenues to $309
million in 2020. It also became more profitable,
as pretax segment earnings for the year were
$77 million, up 13 percent. ATSG’s total fleet
consisted of 106 aircraft in service at the end
of the fourth quarter, eight more than at the
same point in 2019. Of those, CAM owned
100 aircraft.

Diversifying our customer base has been
a part of our strategy from our beginning in
2003, when a single contract with a single
customer accounted for nearly all our revenue
and earnings. In 2020, our largest customer,
the U.S. Department of Defense, accounted
for 31 percent of our revenues, down from 34
percent a year ago. Thirty percent came from
Amazon, and 12 percent from DHL.

We made significant progress toward
broadening our business base globally in
2020. CAM delivered cargo aircraft to seven
companies in five countries last year, including
our first deliveries to lease customers in

Mexico and
Kenya. We
expect that
progress to
continue in
2021, as our
order book
includes
more
deliveries to
customers in
Canada, Europe,
and Asia.

OUR 767
FREIGHTERS ARE
EXPECTED TO REMAIN
IN HIGH DEMAND FOR
MANY YEARS TO
COME, AND WE
INTEND TO REMAIN
THE MARKET LEADER
IN SUPPLYING
THEM.

Even as the pandemic begins to ease its grip
on air passenger transport in 2021, cargo
space aboard passenger aircraft remains in
very tight supply, and e-commerce product
demand continues to expand. Our 767
freighters are expected to remain in high
demand for many years to come, and we
intend to remain the market leader in supplying
them. At the same time, three-quarters of
our passenger transport business is with
the military and other government agencies.
Operations for those government customers
recovered quickly after an early troop rotation
freeze last year; our passenger/freighter
combination (“combi”) flying for the military

in a private offering at 4.75 percent fixed rate.
Proceeds from that unsecured offering reduced
pricing on our variable-rate senior secured
debt and extended our debt duration. In April
2021, we completed an add-on offering by
issuing $200 million more unsecured private
notes while taking advantage of low interest
rates and our recently upgraded credit rating.

Because of the volatility in our GAAP results,
we also project and compare our performance
via a cash-flow measure that excludes the
effect of warrant revaluations and other items
that trigger most of the GAAP-related volatility.
We have set a 2021 goal of about six percent
growth in that standard. That’s somewhat
slower growth in that measure than we
achieved in 2020. It principally reflects ongoing
effects of the pandemic on our passenger
operations, mainly in the first half.

In addition to all the progress we made in
2020, I need to mention recent highlights that
provide a starting point for an even greater
year in 2021.

On March 8, Amazon announced its intent
to exercise 14.9 million warrants it holds
for the purchase of ATSG shares, including
13.6 million for cash, which would yield $132
million in proceeds to the company. As a
result, following regulatory reviews, Amazon

remained scaled down, however, largely due
to travel restrictions at some international
destinations.

We had projected that

INCLUDING
ELEVEN WE
WILL DELIVER TO
AMAZON THIS YEAR,
OUR 2021 ORDER
BOOK FOR
ADDITIONAL LEASED
767 FREIGHTERS
STANDS AT A
RECORD FIFTEEN
TODAY, OF WHICH
FIVE HAVE BEEN
DELIVERED TO
DATE.

our capital spending
in 2020 would
decline from
the prior

year, as we
purchased
more
feedstock
passenger
aircraft
in 2019
for 2020
conversion
and delivery.

However, the
increase in demand

for our freighters and

our desire to continue to

profitably grow in this segment led to a record
$510 million in 2020 capex, as we purchased
eleven more feedstock aircraft and invested
more in spare engines and other components.
Including eleven we will deliver to Amazon
this year, our 2021 order book for additional
leased 767 freighters stands at a record fifteen
today, of which five have been delivered
to date. We already have customer
interest for nine more in 2022. As a
result, we are projecting another year
of capital spending in excess of $500
million.

Our outlook for higher freighter
demand, and historic lows in long-
term interest rates, led us to convert
some of our variable-rate borrowings
into longer-term, fixed rate debt last
year. In January 2020, we issued $500
million of eight-year unsecured notes

opportunities for all stakeholders. New
leadership development programs focused
on diversity and inclusion have provided the
foundation for a renewed focus on leadership
development throughout the ATSG companies;
ongoing sustainability efforts have reduced
fossil fuel use at our Wilmington location
by nearly 3,500 tons; and our employees
partnered with us to deliver more than
$400,000 in aid to charities serving those in
need in the communities we serve. Embracing
these and similar efforts will ensure ATSG
remains a powerful force for positive change in
2021 and into the future.

We are pleased about these early signs of
great achievements in 2021. Our principal
goal for the year is to continue the strong
growth trajectory we have established through
innovation, perseverance, and dedication to
superior customer service. We continue to
monitor and make investments in the safety
and good health of all our employees and
their families as they deliver the superior
performance you have come to expect from
your investment in ATSG.

Richard F. Corrado
President & CEO
Air Transport Services Group

expects to acquire shares amounting to 19.5

percent of ATSG’s common

outstanding, while still

holding warrants for
the acquisition of
an additional
21.8 million

ATSG
shares,
assuming
a cash
exercise.
We
welcome
Amazon’s

OUR
PRINCIPAL
GOAL FOR THE
YEAR IS TO
CONTINUE THE
STRONG GROWTH
TRAJECTORY WE HAVE
ESTABLISHED THROUGH
INNOVATION,
PERSEVERANCE, AND
DEDICATION TO
SUPERIOR
CUSTOMER
SERVICE.

decision
to reinforce

our five-
year business
partnership with a

substantial cash investment,
and we look forward to many more years of
successful growth for both companies working
together.

During the first half of 2021, the Federal
Aviation Administration is projected to approve
the Supplemental Type Certificate for the
Airbus A321 freighter conversion program we
launched more than three years ago. That
aircraft will replace older Boeing 757 freighters
and provide additional capacity for regional
air express networks in the U.S. and abroad.
We and our joint venture partner Precision
Aircraft Solutions expect to begin freighter
conversions for owners of A321 passenger
aircraft this summer. CAM will begin to explore
the market for A321 feedstock of our own
later this year, potentially for purchase and
conversion in 2022.

Finally, we continue to strengthen your
company’s culture of inclusivity, sustainability,
and community to deliver tremendous

[This page intentionally left blank]

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, 2020

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number 000-50368

________________________________________________________________

Air Transport Services Group, Inc.

(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 Exchange Act:

Title of each class
Common Stock, par value $0.01 per share

Trading Symbol

Name of each exchange on which registered

ATSG

NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Exchange 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 ☒ No ☐
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 ☐ No ☒
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 ☒ No ☐

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 ☒ No ☐

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 has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
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:
$1,298,013,542.

As of March 1, 2021, there were 59,563,415 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Stockholders scheduled to be held May 26, 2021 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 includes 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
2020 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

Item 5.

Item 6.

Item 7.

Item 7A.

Item 8.

Item 9.

Item 9A.

Item 9B.

Item 10.
Item 11.

Item 12.

Item 13.

Item 14.

Item 15.
Item 16.

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

PART I

PART II

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

Selected Consolidated Financial Data

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

Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

PART III

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

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules

Form 10-K Summary

PART IV

SIGNATURES

Page

99
99

100

108

109

[This page intentionally left blank]

PART I

ITEM 1. BUSINESS

Company Overview

Air Transport Services Group, Inc. leases aircraft and provides airline operations, ground handling services,
aircraft modification and maintenance services, and other support services to the air transportation and logistics
industries. We are a leading provider of aircraft leasing and air cargo transportation services in the United States and
internationally. In addition, we are the largest provider of passenger charter service to the United States Department
of Defense (“DoD”) and other governmental agencies. Our portfolio of freighter aircraft is focused on mid-sized air
freighters, which is the category of choice for express and e-commerce driven regional air networks operating both
within and outside the United States. Our freighter fleet is primarily Boeing 767 aircraft, which are in high demand
because of their reliability, cubic cargo capacity and durable performance. (When the context requires, we may use
the terms “Company,” "we," "our" and “ATSG” in this report to refer to the business of Air Transport Services
Group, Inc. and its subsidiaries on a consolidated basis.)

Our customers consist of e-commerce companies, air express integrators, freight forwarders, airlines and
governmental agencies. Our ability to offer our customers a bundle of customized and differentiated services,
including aircraft leasing, airline express operations, line and heavy maintenance, freighter conversions, material
handling equipment and ground handling services makes us unique from other service providers in the air
transportation industry. Through our decades of experience with express network airline operations, we offer best-
in-class, reliable services to customers including Amazon.com, Inc. (“Amazon”), DHL Network Operations (USA),
Inc. and its affiliates (“DHL”), and United Parcel Service in addition to the DoD.

Our strategy targets opportunities primarily for medium range and medium capacity airlift by investing in the
acquisition of used passenger aircraft. We convert most of these aircraft to a freighter configuration, where upon we
lease the converted freighters to customers for operations in specific networks and regional geographies. We
manage the conversion of passenger aircraft into freighters and bring freighter aircraft to market leveraging our
decades of experience as an airline. As a result, the aircraft can be deployed into regional markets more
economically than larger capacity aircraft, newly built aircraft or other competing alternatives. We customize the
interiors of our passenger aircraft for the DoD and commercial customers. In 2017, we launched a joint venture to
convert Airbus A321 passenger aircraft into freighters, which is intended to further support our ability to meet the
growing demand worldwide for narrow body air freighters. We modify our level of investment in growth assets
based on our perception of strength in market demand.

We are unique in our ability to offer a broad range of integrated, operational solutions to air cargo and express
package transportation companies and e-commerce companies, as well as charter passenger transport to
governmental and commercial entities. We have extensive experience in the express business. We know what it
takes to run a highly reliable air network and leverage our experience to help our customers with reliable on-time
service. Our charter operations maintain high availability and short advance times to perform missions around the
world. We also offer a broad range of ancillary services including engineering services, sort and gateway
operations, equipment installation, maintenance and leasing, and aircraft modifications which are tailored to the
needs of the customers. The breadth of integrated, complementary services we offer to customers distinguishes us
from other leasing and airline service companies and gives us a competitive advantage in our industry.

We have become a leader in an industry with established barriers to entry, possessing reliable airlift capability,
and strategic alignment with our key customers since being founded in 1980 as a airline subsidiary of Airborne
Express. We became an independent, publicly-owned company in August 2003, as a result of a spin-off by
Airborne Express prior to its acquisition by DHL. The spin-off was necessitated in large part due to restrictions
imposed by federal law on foreign ownership of U.S. airlines. Our headquarters are located at the Wilmington Air
Park in Wilmington, Ohio, which also serves as a regional air hub for Amazon. Our common shares are publicly
traded on the NASDAQ Stock Market under the symbol ATSG.

Principal Services

Our principal services fall into three general categories:

Aircraft leasing. We own and lease aircraft through our subsidiary, Cargo Aircraft Management, Inc. (“CAM”).
We are able to provide competitive lease rates for our cargo freighters by purchasing passenger aircraft, typically 15
to 20 years old, and converting them into cargo freighters, after which we anticipate an economic life of 20 years or
more. We monitor the global market for available passenger aircraft and only purchase aircraft for conversion that
meet our requirements for condition and technical specifications and that can be purchased and converted into
freighters at a price that will meet or exceed our targeted return on capital. Aircraft freighters that are converted from
passenger aircraft can be deployed into markets more economically in comparison to newly-built freighters.

Aircraft operations. We own and operate three separate airline subsidiaries: ABX Air, Inc. (“ABX”), Air
Transport International, Inc. (“ATI”), and Omni Air International, LLC (“OAI”). Each of these airlines is
independently certificated by the United States Department of Transportation ("DOT") and by the Federal Aviation
Administration, ("FAA"), a constituent agency of the DOT. Our airline subsidiaries offer different combinations of
aircraft, crews, maintenance and insurance to provide customized transportation capacity to our customers. We
specialize in carrying both freight and passengers for a variety of customers, including private sector companies and
governmental organizations. ABX operates all-cargo aircraft; ATI operates all-cargo and passenger/freighter
combination ("combi") aircraft; and OAI operates passenger aircraft.

Support services. We provide a wide range of air transportation related services to our customers including
aircraft maintenance and modification, ground handling and crew training. We offer these support services to
delivery companies, e-commerce companies, freight forwarders and other airlines. Our ground support services,
which are provided through our subsidiary, LGSTX Services, Inc. (“LGSTX”), consist of load transfer and sorting,
the design, installation and maintenance of material handling equipment, the leasing and maintenance of ground
support equipment, and general facilities maintenance. LGSTX has more than 30 years of experience in material
handling, facilities maintenance, equipment installation and maintenance, vehicle maintenance and repair, and jet
fuel and deicing services. Our aircraft maintenance and modification services, which are provided by our
subsidiaries, Airborne Maintenance and Engineering Services, Inc. (“AMES”) and Pemco World Air Services, Inc.
(“Pemco”), provide airframe modification and heavy maintenance, component repairs, engineering services and
aircraft line maintenance. Another subsidiary, AMES Material Services, Inc. ("AMS"), resells and brokers aircraft
parts. Our support services also involve the training of flight crews, which we offer through our subsidiary,
Airborne Training Services, Inc. ("ATS").

The business development and marketing activities of our operating subsidiaries are supported by our 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. AGS assists our subsidiaries in achieving their sales and marketing
plans by identifying their customers' business and operational requirements while providing sales leads.

For additional financial information about our operating segments see Note O of the accompanying audited

financial statements.

Major Customers

We have long-standing, strategic customer relationships with Amazon, DHL and the DoD in addition to

numerous other companies and government agencies that rely on aircraft services in their operations.

U.S. Department of Defense. Our airline subsidiaries have been providing services to the DoD since the
1990’s. The DoD comprised 31% of our consolidated revenues for 2020. Our business with the DoD and other
government agencies expanded significantly as a result of our November 2018 acquisition of OAI, which is
discussed below.

Amazon. We have been providing freighter aircraft and cargo handling and logistics support services to
Amazon.com Services, LLC (“ASI”), the successor to Amazon.com Services, Inc., a subsidiary of Amazon, since
September 2015. Revenues from our commercial arrangements with ASI comprised approximately 30% of our
consolidated revenues for 2020. Our CAM subsidiary has leased 31 Boeing 767 freighter aircraft to ASI as of

December 31, 2020, with eleven additional aircraft to be leased in 2021. We also provide flight crew and aircraft
maintenance services for those aircraft under an Air Transportation Services Agreement with ASI.

DHL. We have provided aircraft services to DHL under multi-year contracts since August 2003. DHL
accounted for 12% of our consolidated revenues for 2020. As of December 31, 2020, we were leasing 14 of our
Boeing 767 aircraft to DHL under multi-year contracts. We operate eight of these aircraft for DHL under a separate
operating agreement. We provide ground equipment and maintenance services to DHL in the U.S.

Business Development

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 ASI. We provided cargo handling and logistical

support as the network grew to five dedicated Boeing 767 freighter aircraft during 2015.

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 provided 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 Services Inc. ("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 on the part of ASI to extend the lease term 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 on
the part of ASI to extend the lease term for three more years and (4) extend the ATSA by five years through March
2026, with an option on the part of ASI to extend the term for an additional three years. In January 2019, we entered
into lease amendments which formalized the lease extensions described in (2), (3) and (4) above. As of December
31, 2020, we had executed leases with ASI for all ten of these Boeing 767-300 aircraft and we were operating them
under the ATSA.

On May 29, 2020, Amazon agreed to lease twelve more Boeing 767-300 aircraft from the Company. The first of
these leases began in the second quarter of 2020 with the remaining eleven to be delivered in 2021. All of these
additional Boeing 767-300 aircraft leases will be for ten years. We expect all of these aircraft will be operated under
the ATSA.

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. Pursuant to the Investment Agreement, the Company
issued warrants in three tranches granting 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. These warrants, which total 14.9 million common shares for all three tranches, are fully vested, have an
exercise price of $9.73 per share and will expire on March 8, 2021, unless Amazon has not obtained by such date all
regulatory approvals, exemptions, authorizations, consents or clearances (including the expiration or termination of
any waiting periods) required to purchase the shares underlying such warrants, in which case the expiration date is
extended.

In conjunction with Amazon's commitment for ten additional Boeing 767-300 aircraft leases, extensions of
twenty existing Boeing 767 aircraft leases and additional aircraft operations under the ATSA, Amazon and the
Company entered into a new investment agreement on December 20, 2018 (the "2018 Investment Agreement").
Pursuant to the 2018 Investment Agreement, the Company issued additional warrants to Amazon for 14.8 million

common shares, all of which had vested as of December 31, 2020 in conjunction with the leases and operation of the
aircraft under the ATSA. These warrants have an exercise price of $21.53 per share and will expire if not exercised
December 20, 2025, subject to extension if all regulatory approvals, exemptions, authorizations, consents or
clearances have not been obtained by such date.

In conjunction with Amazon's commitment in May of 2020 to lease twelve additional Boeing 767-300 aircraft,
Amazon was issued warrants for 7.0 million common shares, pursuant to the 2018 Investment Agreement, of which
0.6 million common shares have vested as of December 31, 2020. These warrants will expire if not exercised by
December 20, 2025, subject to extension if all regulatory approvals, exemptions, authorizations, consents or
clearances have not been obtained by such date. The exercise price of these warrants is $20.40 per share.

Additionally, Amazon can earn incremental warrant rights under the 2018 Investment Agreement by leasing up
to five 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 based on the volume-weighted average
price of the Company's shares during the 30 trading days immediately preceding the contractual commitment for
each lease.

Through the 2016 and 2018 Investment Agreements, Amazon can potentially own approximately 39.9% of the
Company if all issued and issuable warrants vest and are settled with cash. For all warrants vested, Amazon may
select a cash exercise option or a cashless exercise option. Assuming ATSG’s stock price at the time of exercise is
above the warrant exercise price, Amazon would receive fewer shares in exchange for any warrants exercised under
the cashless option. Instead, Amazon would receive the number of ATSG shares equivalent in market value at the
time of exercise to the appreciation above the exercise price of the warrants.

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. 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. In March 2019, the expiring Boeing 767 aircraft leases and CMI agreement with DHL were renewed
under terms similar to the previous agreements. On April 30, 2019, we extended the leases for four of the 767-300
aircraft and one of the 767-200 aircraft leased to DHL through April 2022.

Through CAM and the acquisition of Omni, we have expanded our combined fleet of Boeing 777, and 767
aircraft in recent years. Since the beginning of 2016, CAM has managed the modification of 39 Boeing 767-300
passenger aircraft to a freighter configuration and acquired two Boeing 767 freighter aircraft. 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. We have agreements to acquire 13 more
Boeing 767-300 extended-range aircraft, ten of which we anticipate being delivered during 2021 and the remaining
three in 2022. Most, if not all, of these will be converted into freighters. Additionally we own eight Boeing
767-300 aircraft that were being prepared for cargo service as of December 31, 2020. A complete list of the
Company's aircraft is included in Item 2, Properties.

On February 1, 2019, we acquired a group of companies under common control, referred to as TriFactor.
TriFactor resells material handling equipment and provides engineering design solutions for warehousing, retail
distribution and e-commerce operations. TriFactor is managed through our LGSTX business.

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 an
FAA supplemental type certificate in March of 2021. We expect to make contributions equal to our 49% ownership
percentage of the program's total costs over the next year and account for our investment in the joint venture 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. 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.

We seek to take advantage of business acquisition opportunities of complementary and adjacent businesses that

enhance or extend our current value proposition or, alternatively, diversify our customer base.

Description of Businesses

CAM

CAM leases aircraft to ATSG's airlines and to external customers, including DHL and ASI, 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.

ACMI Services

ACMI Services consists of the operations of the Company's three airline subsidiaries. Through these airlines,
we provide airlift operations to DHL, ASI, 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, catering, passenger handling
fees, ground and cargo handling expenses and other operating expenses for an all-inclusive price.

We provide contracted transportation capacity to our customers. We do not sell individually ticketed passenger
service, nor do we sell to the public individually air-billed 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.

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. 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, at the election of the
USTC, through September 2024.

Approximately 12% of the Company's consolidated revenues for 2020 were derived from providing airline
operations for customers other than DHL, ASI and the DoD. These ACMI and charter operations are typically
provided to delivery companies, freight forwarders, vacation businesses and other airlines.

Demand for air cargo 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
increases the need for air transportation. E-commerce growth is a strong indicator of growth in the express and
network flying businesses which we enable with our assets and services. 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, 737-300, 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 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.

We currently provide mail sorting services to the United States Postal Service ("USPS") at two locations in the
U.S. Under each of these contracts, we are compensated at a firm price for fixed costs and an additional amount
based on the volume of mail handled at each sort center. We also provide international mail forwarding services
through the John F. Kennedy International Airport and the O'Hare International Airport. We formerly provided mail
sorting services at five other USPS locations between September 2004 and September 2018, but the contracts for
these locations were not renewed with us after they expired during September 2018. LGSTX also arranged similar
load transfer services to support ASI at certain locations, but the contracts for these services were terminated as of
August 2019.

Flight Support

ATS is certificated under Part 142 of the Federal Aviation Regulations to offer flight crew training to customers.
ATS also offers Boeing 757 and Boeing 767 flight simulators which can be rented by customers for use in
conjunction with their flight training programs. The simulators allow airlines to qualify flight crewmembers under
FAA requirements without performing check flights in an aircraft.

Competitive Conditions

Competition for aircraft lease placements is generally affected by aircraft type, aircraft availability and lease
rates. The aircraft in our fleet provide cost-effective air transportation for medium range requirements. We target
our leases to cargo airlines and delivery companies seeking medium widebody airlift. We believe our fleet gives us
the ability to offer our customers a superior value proposition. Competitors in the aircraft leasing markets include
GE Capital Aviation Services and Altavair Aviation Leasing, among others. The Airbus A300-600 and A330
aircraft can provide capabilities similar to the Boeing 767 for medium wide-body airlift.

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 aircraft capacity competing for commercial cargo and passenger
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.

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 the three airlines by the
FAA and the 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 minimum 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 length of 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,
engine parts, 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 which provide for extensive security
practices and procedures that must be followed. The security plan provides for the conducting of background checks
on persons 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, and for ATI's passenger/freighter "combi" operations, additional
requirements apply under the carriers' respective security programs, 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 and passengers are generally prohibited
from carrying "Hazardous Materials" or “Dangerous Goods” in their baggage. Notwithstanding these procedures,
our airline subsidiaries could unknowingly transport contraband or undeclared hazardous materials for customers, or
could unknowingly transport an unauthorized passenger or a passenger in 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.

Human Capital

Description

As of December 31, 2020, our workforce was composed of 5,305 full-time and part-time employees. We
employed approximately 1,015 flight crewmembers, 400 flight attendants, 215 flight support personnel, 1,940
aircraft maintenance managers and technicians, 1,210 employees for ground equipment and logistics services, 45
employees for sales and marketing and 480 employees for administrative functions. In addition to full time and part
time employees, we often employ contractors and temporary employees to assist in aircraft line maintenance and
package sortation during peak operational times. On December 31, 2019, the Company had approximately 4,380
full-time and part-time employees. Over 99% of our workforce is based in the United States.

The Company’s flight crewmembers and flight attendants are unionized employees. The table below summarizes

the representation of the Company’s flight crewmembers at December 31, 2020.

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
1/1/2027
3/21/2021
4/1/2021
11/14/2023
12/1/2021

Percentage of
the Company’s
Employees
4.4%
8.2%
6.6%
0.7%
6.9%

Under the Railway Labor Act (“RLA”), as amended, 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.

Objectives

Our employees are critical to the on-going success of the Company. Our approach to managing human capital
includes the following: maintaining the health and safety of our employees; attracting and retaining skilled
individuals; continuously improving the skills of our workforce; promoting inclusive and engaging work
environments; and compensating and treating all employees fairly.

To attract and retain skilled employees, we offer competitive compensation and benefits, including medical care,
paid time off, retirement savings, mental health counseling and other employee benefits. Further, we are committed
to training and supporting our employees' continuous development of professional, technical and management skills.
We develop technical training programs which facilitate the licensure and certification of flight crews, aviation
mechanics and other skilled jobs. We partner with third parties to assist employees in developing leadership skills
and valuing diversity in our workforce. In 2020, our voluntary employee resignation rate was approximately 11%.

We have taken precautions to prevent, detect and limit the spread of the Covid-19 virus in the workplace. These
practices include daily temperature checks, requiring face masks, periodically sanitizing facilities, frequent cleaning
of high touch surfaces, supporting remote working, implementing travel restrictions, promoting social distancing and
frequent hand washing, contact tracing, quarantining, and other practices prescribed by the Centers for Disease
Control and Prevention. We have not experienced a wide-spread outbreak at any location. The virus positivity rate
is approximately 11% of our workforce.

Pursuant to payroll support programs under the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”) and the Consolidated Appropriations Act, 2021 (the “PSP Extension Law”) the Company has received funds
to protect employees’ jobs by offsetting payroll expenses. In light of these payroll support programs, we have not
implemented and do not anticipate implementing pay cuts or furloughs through March 2021.

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 requires initial and recurrent training for most flight and maintenance personnel. Quality control
inspectors must also be licensed and qualified to perform maintenance inspections on Company operated and
maintained aircraft. The majority of our aircraft mechanics have one or more FAA licenses. Our subsidiaries pay
for all of the required recurrent training and provide training for their ground service personnel as well. 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 Supplemental Type Certificates ("STCs") and similar approvals 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 for data processing, communications
and regulatory compliance. We rely on critical computerized systems for aircraft maintenance records, flight
planning, crew scheduling, employee training, financial records, cyber-security 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 our information systems, we track aircraft 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 software applications, hosted technologies, data transmissions
and cybersecurity safe-guards provided by or in conjunction with third parties. To remain competitive, we must
continue to deploy new technologies while controlling costs and maintaining regulatory compliance and security
safeguards.

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, 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. In January 2021, the EPA issued a final rule regarding GHG emissions standards for
new aircraft engines consistent with ICAO standards that were adopted in 2017. The EPA final rule does not apply
to engines on aircraft that are already in service, as is also the case with the ICAO standards. However, the
administration of President Biden has stated that it plans to review the EPA emissions standards issued by the prior
Administration and, further, the EPA standards have been challenged by several states and environmental
organizations. We cannot predict the results of the Biden administration's review or the outcome of legal challenges
to the EPA's final rules. Our subsidiaries’ aircraft meet all currently applicable requirements for engine emission
levels.

Under the Clean Air Act, individual states or the EPA may also 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 produces 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, followed by a first phase of the program beginning in 2024 that is also voluntary, and full mandatory
participation is scheduled to begin in 2027. The United States has agreed to participate in the two voluntary phases.
ICAO continues to develop details regarding implementation, but compliance with CORSIA will increase our
operating costs.

The U.S. has also recently re-entered the Paris climate accord, an agreement among 196 countries to reduce
GHG emissions, and the effect of the re-entry by the U.S. 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. 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 to 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
to 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 approximately 130 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 a liberal ("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. In 2019, the DOT also issued OAI
exemption authority to engage in scheduled foreign air transportation of property and mail between the U.S. and all
existing and future countries with an open-skies air service agreement with the U.S.

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. Periodically, the DOT re-examines a
company’s managerial competence, financial resources and plans, compliance disposition and citizenship in order to
determine whether the carrier remains fit, willing and able to engage in the transportation services it is authorized to
provide.

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
their current operations and that each continues 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 or 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 our airline subsidiaries and other operators to take
certain actions, including but not limited to, grounding aircraft, reducing cargo loads, strengthening any structure or
component found 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. At this point, we do not foresee a situation in which we would seek
an extension from the FAA for an aircraft.

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 require airlines to adopt and comply with standard aircraft operator
security programs, including 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, the airlines' operating rights are governed 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. Foreign laws, rules, regulations and licensing requirements governing air
transportation are generally similar, in principle, to the regulatory scheme of the United States as described above,
although in some cases foreign requirements are comparatively less onerous and in others, more onerous. 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 the protection of 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 U.S. Centers for Disease Control and Prevention has authority to impose requirements related to the
mitigation of communicable diseases such as requiring masking on aircraft, negative test results,
collection of passenger data for contact tracing, quarantine requirements, etc.

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; and

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.

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.

Regulatory and Compliance Risk

Failure to comply with the provisions of payroll support programs could result in the Company being required to
repay government funds and also being subject to other remedies.

Two of the Company's airline subsidiaries, OAI and ATI, have been granted government funds totaling $113.1
million pursuant to the payroll support program agreement under the Coronavirus Aid, Relief, and Economic
Security Act (“CARES Act”) and Subtitle A of Title IV of Division N of the Consolidated Appropriations Act, 2021
(the “PSP Extension Law”).

In conjunction with the payroll support program agreements entered into under the CARES Act, the airlines
agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through
September 30, 2020. OAI further agreed as a condition of receiving payroll support funds under the PSP Extension
Law, to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through March
31, 2021. The airlines agreed to limit, on behalf of themselves and certain of their affiliates, executive compensation
through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by
the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal
controls and records relating to the funds and comply with certain reporting requirements. OAI further agreed as a
condition of receiving payroll support funds under the PSP Extension Law, to limit, on behalf of itself and certain
affiliates, as applicable, executive compensation through October 1, 2022. In addition, the Company may not pay
dividends or repurchase its shares through March 31, 2022.

If we do not comply with the provisions of the CARES Act, the PSP Extension Law and the payroll support
program agreements, the Company may be required to repay the government funds and also may be subject to other
remedies.

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, TSA and other government agencies can
initiate announced or unannounced investigations of our subsidiary air carriers, repair stations and other entities 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.

Failure to maintain the operating certificates and authorities of our airlines would adversely affect our business.

Our 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 in our 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 National Mediation Board could determine that two or more of the Company's airline subsidiaries constitute a
single transportation system.

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 OAI 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
collective bargaining agreement ("CBA") negotiations. While it is unlikely that the NMB would reconsider or find
that ABX and ATI, or that ABX, ATI and OAI, constitute a single transportation system, the case-by-case analysis
used by the NMB makes such predictions uncertain. Such a finding could have material adverse consequences to
the Company.

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 and on
certain organizations and individuals. 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, incur additional costs for compliance programs and may be subject to enforcement

actions or penalties for noncompliance. In recent years, the U.S. government has increased its 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 of this report. 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. 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.

The Company may be affected by global climate change or by legal, regulatory or market responses to such 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. If we exceed the airlines'
emission allowances, we will be required 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, followed by a first phase of the program beginning in 2024 that
is also voluntary, and full mandatory participation is scheduled to begin in 2027. The United States has agreed to
participate in the two voluntary phases. 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 has sought to regulate 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. In January 2021, the EPA issued a final rule regarding
GHG emissions standards for new aircraft engines consistent with ICAO standards that were adopted in 2017. The
EPA final rule does not apply to engines on aircraft that are already in service, as is also the case with the ICAO
standards. However, the administration of President Biden has stated that it plans to review the EPA emissions
standards issued by the prior Administration and, further, the EPA standards have been challenged by several states
and environmental organizations. We cannot predict the results of the Biden administration's review or the outcome
of legal challenges to the EPA's final rules. The U.S. also recently re-entered the Paris climate accord, an
agreement among 196 countries to reduce GHG emissions, and the effect of the U.S. re-entering the Paris climate
accord on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulations is uncertain.
The extent to which the U.S. and other countries implement the agreement could have an adverse impact on our
Company.

The cost to comply with new and potential environmental 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, among other things. We cannot predict the effect on the Company’s cost structure or operating results of
complying with future environmental laws and regulations in the U.S. and in foreign jurisdictions until the timing,
scope and extent of such laws and regulations becomes better known. 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.

We are required to safeguard 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 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. 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 and states have enacted or are enacting privacy and 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.

Operational Risk

Our operating results will continue to be impacted by the coronavirus pandemic.

The COVID-19 pandemic has had an impact on our operations and financial results and is expected to continue
to affect our operations and financial results. The extent of the impact that the coronavirus pandemic will have on
our future operations and financial results will depend on future developments, including the duration, spread,
severity and any recurrence of the COVID-19 virus; the availability and effectiveness of vaccines, the duration and
scope of government orders and local restrictions; and the extent of the continued impact of the pandemic on overall
economic conditions. These are highly uncertain and cannot reasonably be predicted.

We expect that our future operating results will be significantly impacted by the coronavirus pandemic during
2021 and possibly thereafter. Since February of 2020, the DoD has reduced normal personnel movements while
most of our other passenger service customers suspended their operations and demand for commercial passenger
charters significantly declined. The DoD and other government agencies contracted for special airlift capacity
which may not be needed in the months ahead. As a result, we expect the passenger revenues of ACMI Services to
decline in 2021. It is difficult to reasonably predict when flights will resume, the frequency with which flights will

resume, and the length of time necessary before passenger flights substantially recover to pre-pandemic levels. The
economic downturn resulting from the coronavirus pandemic has also resulted in the reduction of demand for other
types of services including aircraft maintenance services.

Our airline operations rely on flight crews, aircraft maintenance technicians, flight support personnel and
aircraft loading personnel. Maintaining the health of our employees during the pandemic is essential for us to
operate safely and maintain customers' networks. We have added extra precautions and redundancies related to crew
reserves, employee travel protocols, sanitation and other measures. However, flight delays and the additional costs
associated with such precautions and redundancies could become significant. We rely on a skilled workforce to
perform scheduled aircraft maintenance. We staff personnel near airports to sort customer packages, load aircraft
and maintain related equipment. A coronavirus outbreak at one of our maintenance facilities, or at customer sorting
centers could result in workforce shortages and facility closures.

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, 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 DoD for the transportation of DoD personnel, a
downturn in the DoD's need for such services could adversely affect OAI's operating results.

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

Our combined aircraft fleet is concentrated in three aircraft types. If any of these aircraft types encounter
technical difficulties that result in significant FAA airworthiness directives or grounding, our ability to lease the
aircraft would be adversely impacted, as would our airlines' operations.

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.

Our operating results could be adversely impacted by negotiations regarding collective bargaining agreements
("CBAs") 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"). During the negotiation of CBA amendments, the airline and the union are
each required to maintain the status quo 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 a union could result in reduced flexibility for scheduling crewmembers and higher
operating costs for the airlines, making the Company's airlines less competitive. If amendments to a CBA increases
our costs and we cannot recover such increases, our operating results would be negatively impacted. In such event,
it may be necessary for us to terminate customer contracts or curtail planned growth.

The rate of aircraft deployments may impact the Company’s operating results and financial condition.

Our 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 such FAA approvals are delayed.

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.

Customers and Market Risk

The COVID-19 pandemic may have a long term impact on the demand for aviation services and our operating
results.

Due to the COVID-19 pandemic, passenger air travel has declined sharply and many passenger airlines have
temporarily removed a significant portion of their aircraft from service. The demand for passenger air travel could
remain low for an extended period of time and accordingly, the value of airframes and engines could decline for the
foreseeable future. If the COVID-19 pandemic persists or reemerges, our expectations of related operating cash
flows could significantly decline. If such circumstances occur or appear likely to occur, we may need to impair the
carrying value of certain recorded assets. If the coronavirus pandemic persists, we may need to terminate or furlough
airline employees.

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 in the risk factor below, certain key customers have the ability to terminate their agreements
in advance of the expiration date.

The actual demand for Boeing 777, 767, 757 and Airbus A321 aircraft 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 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.

Under the terms of our airline operating and aircraft lease agreements, customers may be able to terminate the
agreements prior to their expiration date.

Customers can typically terminate for convenience one or more of the aircraft we operate for them under an
airline operating agreement 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 CMI agreement in its entirety after providing 180 days of advance notice and paying a

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.

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 redeploy the aircraft in a subsequent
lease, any of which could have an adverse effect on our results of operations and financial condition.

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, ASI 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.

On occasion, declines in demand may stem from other uncontrollable factors such as geopolitical tensions or
conflicts, trade embargoes or tariffs, and human health crises. 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.

Customer demand for aircraft maintenance facilities could negatively impact our financial results.

We lease and operate a 310,000 square foot, three-hangar 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.

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 investments
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.

Risk Related to Business Interruptions and Cybersecurity Incidents

Our operating results have been and will continue to be impacted by the COVID-19 pandemic

Some of our employees and employees of suppliers and service providers have tested positive for, or have been
suspected of having, COVID-19. Additional instances of actual or perceived risk of infection among our employees,
or our suppliers' or service providers’ employees, could further negatively impact our operations. We rely on a
skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer
packages, load aircraft and maintain related equipment. In addition to our own employees, we rely on services from
suppliers and customers to operate efficiently and safely. Measures restricting the ability of airport personnel or
flight crews to work may result in flights reductions. Our operations could be negatively affected if our own
personnel or those of our suppliers and customers are quarantined or sickened as a result of exposure to COVID-19,
or if they are subject to governmental curfews or “shelter in place” health orders. A COVID-19 outbreak at certain
maintenance facilities, customer sorting centers or airports could result in workforce shortages or closures causing
reduced revenues and higher expenses.

In addition to workforce shortages, the COVID-19 pandemic may result in parts shortages, maintenance delays,
shortages of transportation and hotel accommodations for flight crews, any of which could result in reduced
revenues and additional expenses. Similarly, the effects of the COVID-19 pandemic could result in the slower
completion of aircraft freighter conversions which in turn would disrupt our aircraft leasing operations. Our
customer base for aircraft maintenance revenues includes passenger airlines. Our operating results have been
impacted and may continue to be impacted by the COVID-19 pandemic as passenger airlines reduce their needs for
scheduled heavy airframe maintenance.

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, ransomware attacks, malware attacks,
cyberattacks, natural disasters, power failures, telecommunication outages, or other causes. Hackers, foreign
governments, cyber-terrorists and cyber-criminals, acting individually or in coordinated groups, may launch
distributed denial of service attacks or other coordinated attacks that may cause service outages, gain inappropriate
or block legitimate access to systems or information, or result in other interruptions to our business. In addition, the
foregoing breaches in security could expose us and our customers, or the individuals affected, to a risk of loss,
disclosure or misuse of proprietary information and sensitive or confidential data, including personal information of
customers, employees and others. 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.

We also depend on and interact with the information technology networks and systems of third parties for some
aspects of our business operations, including our customers and service providers, such as cloud service providers.
These third parties may have access to information we maintain about our company, operations, customers,
employees and vendors, or operating systems that are critical to or can significantly impact our business operations.
Like us, these third parties are subject to risks imposed by data breaches and IT systems disruptions like those
described above, and other events or actions that could damage, disrupt or close down their networks or systems.
Security processes, protocols and standards that we have implemented and contractual provisions requiring security
measures that we may have sought to impose on such third parties may not be sufficient or effective at preventing
such events. These events could result in unauthorized access to, or disruptions or denials of access to, misuse or
disclosure of, information or systems that are important to our business, including proprietary information, sensitive
or confidential data, and other information about our operations, customers, employees and suppliers, including
personal information. Any of these events that impact our information technology networks or systems, or those of
customers, service providers or other third parties, could result in disruptions in our operations, the loss of existing
or potential customers, damage to our brand and reputation, regulatory scrutiny, and litigation and potential liability
for us.

Among other consequences, our customers’ confidence in our ability to protect data and systems and to provide
services consistent with their expectations could be impacted, further disrupting our operations. Similarly, an actual
or alleged failure to comply with applicable U.S. or foreign data protection regulations or other data protection
standards may expose us to litigation, fines, sanctions or other penalties.

Severe weather or other natural or man-made disasters and epidemics could adversely affect our business.

Severe weather conditions and other natural or man-made 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 of 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.

Third-Party Reliance Risk

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 an unplanned replacement of Delta TechOps is
required due to the deterioration of their performance or some other reason, our operations and financial results may
be adversely impacted.

Financial Risk

Our Senior Credit Agreement and our Senior Notes include covenants that could limit our operating and financial
flexibility.

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 115% of the outstanding balance of the term loan and the

total funded revolving credit facility. Our Senior Notes and related Indenture also include a number of restrictions
and covenants including limitations on our ability to incur additional indebtedness, grant liens, make investments,
repurchase or redeem capital stock, pay dividends, enter into transactions with affiliates, merge with other entities or
transfer or sell assets. The covenants under the Senior Notes, which are generally no more restrictive than those set
forth in the Senior Credit Agreement, are subject to exceptions and qualifications as described in the Indenture.
Complying with these covenants in the Senior Credit Agreement and the Senior Notes may impair our ability to
finance our operations or capital needs or to take advantage of other business opportunities. Our ability to comply
with these covenants will depend on our future performance, which may be affected by events beyond our control.
Our failure to comply with these covenants would represent an event of default. An event of default under the Senior
Credit Agreement or the Senior Notes could result in all indebtedness thereunder being declared due and payable
immediately.

Operating results may be affected by fluctuations in interest rates.

We enter into interest rate derivative instruments from time to time in conjunction with our 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 variable interest rates of 1.4%. 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 Company's future earnings and earnings per share, as reported under generally accepted accounting principles,
will be impacted by the Amazon stock warrants.

The Amazon warrants are subject to fair value measurements during periods that they are outstanding.
Accordingly, future fluctuations in the fair value of the warrants are expected to adversely impact the Company's
reported earnings measures from time to time. See Note D in the accompanying consolidated financial statements of
this report 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
ownership 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 of this report for further information about the fair value of
our financial instruments.

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 our 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 reduce 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).

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 "Convertible Notes") and the
exercise by the initial purchasers of their option to purchase additional Convertible 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 Convertible 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
Convertible 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 Convertible 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 Convertible 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 Convertible 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 Convertible
Notes or such exercise of the warrants could adversely affect prevailing market prices of our common stock. In

addition, the existence of the Convertible Notes may encourage short selling by market participants because the
conversion of the Convertible Notes could depress the price of our common stock.

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.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

We lease portions of an air park in Wilmington, Ohio, under lease agreements with a regional port authority, the
terms of which expire in June 2026 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. We lease a facility having approximately 335,000 square feet in
Chicago, Illinois and another facility having approximately 100,000 square feet in Orlando, Florida for our USPS
mailing handling contracts. 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, 2020, our in-service aircraft fleet consisted of 100 owned aircraft and six aircraft leased
from external companies. The majority of these 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, 2020

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)

Total in-service

106

100

—

1982 - 1987

85,000 - 100,000

1,700 - 5,300

2001

63,000 - 73,000

6,500 - 7,600

1988 - 1999

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

68,000

58,000

2,100 - 4,800

2,600 - 4,300

____________________
(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 deck.

(2)

In addition, as of December 31, 2020, CAM had one Boeing 767-200 passenger aircraft and three 757-200 PCF
aircraft that are not reflected in the table above. CAM also owns eight Boeing 767-300 aircraft which were
undergoing or preparing to undergo modification to a standard freighter configuration and are expected to be
completed in 2020.

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 of this report, 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 $26.69 on March 1, 2021.

Holders

On March 1, 2021, there were approximately 1,325 stockholders of record of ATSG’s common stock.

Dividends

We currently do not pay a dividend. Future dividends, if any, and the timing of declaration of any such
dividends, will be at the discretion of the Board and will depend upon many factors including, but not limited to,
certain restrictions that we have on our ability to pay dividends. We are restricted from paying dividends on our
common stock in excess of $100.0 million during any calendar year under the provisions of the Senior Credit
Agreement. Additionally, the Senior Notes and related Indenture generally restrict our ability to pay dividends on or
make distributions in respect of capital stock or make certain other restricted payments or investments, subject to
certain exceptions therein including, upon the satisfaction of certain conditions, the making of permitted dividends
up to $100.0 million during any calendar year and other additional permitted dividends, investments and other
restricted payments not to exceed the amounts set forth therein. We have also agreed to suspend the payment of
dividends on our shares through March 31, 2022, in connection with our receipt of funding under the CARES Act
and PSP Extension Law.

Securities authorized for issuance under equity compensation plans

For the response to this Item, see Item 12 of this report.

Purchases of equity securities by the issuer and affiliated purchasers

The Senior Credit Agreement limits the amount of common stock the Company can repurchase to $100.0
million during any calendar year, provided the Company's total debt to EBITDA ratio is under 3.50 times, after
giving effect to the repurchase.

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 2020. As of December 31, 2020, 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.

The share repurchase program has been suspended until the CARES Act and PSP Extension Law restrictions on
the repurchase of shares have lapsed. For more information, see Note I of the accompanying consolidated financial
statements in this report.

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,
2015 and ending on December 31, 2020.

12/31/2015

12/31/2016

12/31/2017

12/31/2018

12/31/2019

12/31/2020

Air Transport Services Group, Inc.

NASDAQ Composite Index

NASDAQ Transportation Index

100.00

158.33

108.87

122.20

229.56

141.13

150.56

226.69

137.12

135.68

232.74

187.44

163.91

310.91

271.64

167.87

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.

2020

As of and for the Years Ended December 31
2018
(In thousands, except per share data)

2019

2017

2016

OPERATING RESULTS:

Revenues from continuing operations (1)
Operating expenses (6) (7)
Net interest expense and other non operating charges (3)
Financial instrument (gain) loss (2)
Earnings (loss) from continuing operations before
income taxes
Income tax gain (expense) (4)
Earnings from continuing operations
Earnings (loss) from discontinued operations, net of
taxes (3)
Consolidated net earnings

EARNINGS PER SHARE FROM CONTINUING
OPERATIONS:

Basic
Diluted

FINANCIAL DATA:

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

$ 1,570,575 $ 1,452,183 $ 892,345 $ 1,068,200 $ 768,870
698,307
781,327
1,364,185
18,002
30,836
64,226
18,107
(7,296)
100,771
34,454
87,478
41,393

968,800
26,147
79,789
(6,536)

1,275,186
93,123
12,302
71,572

(16,314)
25,079
7,036

(11,589)
59,983
1,219

(19,595)
67,883
1,402

28,276
21,740
(3,245)

(13,394)
21,060
2,428

$ 32,115 $ 61,202 $ 69,285 $ 18,495 $ 23,488

$
$

0.42 $
0.42 $

1.02 $
0.78 $

1.16 $
0.89 $

0.37 $
0.36 $

0.34
0.33

$ 39,719 $ 46,201 $ 59,322 $ 32,699 $ 16,358
1,000,992
1,555,005
1,939,776
535,359
516,290
45,586
1,259,330
2,470,585
3,001,745
79,528
68,907
36,862
458,721
1,401,252
1,479,077
122,532
113,243
141,265
311,902
436,438
855,497

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

1,766,020
527,654
2,820,178
40,971
1,484,384
127,476
460,342

____________________
(1)

Beginning in 2018, 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.
During 2020, 2019, 2018, 2017 and 2016, the re-measurement of financial instrument fair values, primarily for
warrants granted to a customer, resulted in losses of $100.8 million and $12.3 million, gains of $7.3 million, losses of
$79.8 million and losses of $18.1 million, respectively, before income taxes. (See Note D to the accompanying
consolidated financial statements.)
Effective December 31, 2016, ABX modified its unfunded, non-pilot retiree medical plan to terminate benefits to all
participants. As a result, ABX recorded a pre-tax gain of $2.0 million to continued operations. On August 30, 2017,
ABX recorded pre-tax settlement charges of $5.3 million to continued operations and $7.6 million to discontinued
operations due to the purchase of a group annuity contract for pension benefits.
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.)
During 2020, two of the Company's airlines was granted government funds of $75.8 million pursuant to the payroll
support program under the Coronavirus Aid, Relief and Economic Security Act. The Company has recognized $47.2
million of the grants into operating expenses during 2020. (See Note I to the accompanying consolidated financial
statements.)
In 2020, the Company recorded an impairment charge of $39.1 million on aircraft and related assets. (See Note F to the
accompanying consolidated financial statements.)

(2)

(3)

(4)

(5)

(6)

(7)

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 accompanying 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.

INTRODUCTION

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).

The health and safety of our employees is paramount. Maintaining the health of our employees during the /
COVID-19 pandemic is essential for us to operate safely and maintain our customers' networks. We have taken
precautions to prevent, detect and limit the spread of the COVID-19 virus in the workplace. These practices include
daily temperature checks, requiring face masks, periodically sanitizing facilities, frequent cleaning of high touch
surfaces, supporting remote working, travel restrictions, promoting social distancing and frequent hand washing,
contact tracing, quarantining, and other practices prescribed by the Centers for Disease Control and Prevention. Our
airline operations rely on flight crews, aircraft maintenance technicians, flight support personnel and aircraft loading
personnel. We rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near
airports to sort customer packages, load aircraft and maintain related equipment. We have added extra precautions
and redundancies related to crews reserves, employee travel protocols, sanitation and other measures. We have not
experienced a wide-spread outbreak at any location. However, a COVID-19 outbreak among our flight crews, at
one of our maintenance facilities, at customer sorting centers or an airport could result in workforce shortages,
facility closures and significant numbers of flight cancellations. In such event, flight delays and additional costs
could become significant. A COVID-19 outbreak at one of our maintenance facilities, or at customer sorting centers
could result in workforce shortages and facility closures.

We have two reportable segments: CAM, which leases Boeing 777, 767, and 757 aircraft and aircraft engines,
and ACMI Services, which includes the cargo and passenger transportation operations of the three airlines. Our
other business operations, which primarily provide support services to the transportation industry, include providing
aircraft maintenance and modification services to customers, load transfer and sorting services as well as related
equipment maintenance services. These operations do not constitute reportable segments. 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, 2020, we owned 100 Boeing aircraft that were in revenue service. At December 31, 2020,
CAM also owned eight Boeing 767-300 aircraft either already undergoing or awaiting induction into the freighter
conversion process. In addition to these aircraft, we leased two freighter aircraft provided by a customer and four
passenger aircraft. Our largest customers are the U.S. Department of Defense (DoD), ASI, which is a subsidiary of
Amazon, and DHL.

The DoD comprised 31%, 34% and 15% of the Company's consolidated revenues during the years ended
December 31, 2020, 2019 and 2018, respectively. The Company's airlines have been providing passenger and cargo
airlift services to the U.S. DoD since the mid 1990's. 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, at the election
of the DoD, through September 2024 and the contract with ATI to provide combi aircraft operations, runs through
December 2021. Due to the acquisition of OAI, the DoD comprises a larger portion of our 2020 and 2019
consolidated revenues compared to previous years.

Revenues from our commercial arrangements with ASI comprised approximately 30%, 23% and 27% of our
consolidated revenues during the years ended December 31, 2020, 2019 and 2018, respectively. On March 8, 2016,
we entered into an Air Transportation Services Agreement (as amended, the “ATSA”) with ASI pursuant to which
we lease Boeing 767 freighter aircraft to ASI, operate the aircraft via our airline subsidiaries and provide ground

handling services by our subsidiary, LGSTX. Under the ATSA, we operate 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. The
operating term of the ATSA runs through March of 2024 and is thereafter subject to renewal provisions. The aircraft
lease terms range from 5 to 10 years. For more information about the ATSA, including its amendments, see Item 1
of this report.

The table below summarizes aircraft lease placements and commitments with Amazon as of December 31,

2020.

Leased

Boeing 767-200

Boeing 767-300

Lease Commitments

Boeing 767-300

Amazon

Year of

# of Leases

Commencement

Expiration

2016

2017

2019

2020

2021

2023

2026

2027

2029

2030

2031

In conjunction with the execution of the ATSA and its amendments, the Company and Amazon entered into an
Investment Agreement and a Stockholders Agreement on March 8, 2016 (the 2016 Investment Agreement) and a
second Investment Agreement on December 20, 2018 (the 2018 Investment Agreement). Pursuant to these
Investment Agreements, the Company issued warrants to Amazon in conjunction with aircraft leases. Through the
2016 and 2018 Investment Agreements and the exercise of the warrants granted thereunder, Amazon could
potentially own approximately 39.9% of the Company if all the issued and issuable warrants vest and are settled in
full with cash.

Our accounting for the warrants issued to Amazon has been determined in accordance with the financial
reporting guidance 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. The Company's earnings are impacted by
the fair value re-measurement of the Amazon warrants classified in liabilities at the end of each reporting period,
customer incentive amortization and the related income tax effects. For income tax calculations, the value and
timing of related tax deductions will differ from the guidance described below for financial reporting.

For additional information about the warrants, see Note D to the accompanying consolidated financial

statements in this report.

DHL accounted for 12%, 14% and 26% of the Company's consolidated revenues, excluding directly reimbursed
revenues, during the years ended December 31, 2020, 2019 and 2018, respectively. Under a 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 aircraft leased to DHL that it operates. As of December
31, 2020, the Company, through CAM, leased 14 Boeing 767 aircraft to DHL comprised of seven Boeing 767-200
aircraft and seven Boeing 767-300 aircraft, expiring between 2021 and 2024. Eight of the 14 Boeing 767 aircraft
were being operated by the Company's airlines for DHL. We also operated four CAM-owned Boeing 757 aircraft
under other operating arrangements with DHL during 2019 and the first half of 2020. During 2020, DHL terminated
operating agreements for three of the Boeing 757 aircraft. The decline in the percentage of revenues from DHL
primarily reflects the removal of the Boeing 757 operations and increased revenues from other customers compared
to last year.

RESULTS OF OPERATIONS

Revenue and Earnings Summary

External customer revenues from continuing operations increased by $118.4 million, or 8%, to $1,570.6 million
during 2020 compared to 2019. Customer revenues increased in 2020 for contracted airline services, charter flights,
aircraft leasing and aviation fuel sales, compared to the previous year periods. Beginning in late February 2020, our
revenues were disrupted due to the COVID-19 pandemic. The DoD and other customers began canceling scheduled
passenger flights as a result of the pandemic. The decline in revenues from these cancellations was offset by an
increase in flying for our customers' package delivery networks and charter flight operations during 2020. Revenues
for 2018 were $892.3 million and included only a few weeks of revenue for OAI which was acquired on November
9, 2018.

The consolidated net earnings from continuing operations were $25.1 million for 2020 compared to $60.0
million for 2019 and $67.9 million for 2018. The pre-tax earnings from continuing operations were $41.4 million
for 2020 compared to $71.6 million for 2019 and $87.5 million for 2018. Earnings were affected by the following
specific events and certain adjustments that do not directly reflect our underlying operations among the years
presented.

On a pre-tax basis, earnings included net losses of $100.8 million and $12.3 million and net gains of $7.3 million for
the years ended December 31, 2020, 2019 and 2018, respectively, for the re-measurement of financial instruments,
including warrant obligations granted to Amazon.

•

Pre-tax earnings were also reduced by $20.7 million, $17.2 million and $16.9 million for the years ended
December 31, 2020, 2019 and 2018, respectively, for the amortization of customer incentives given to ASI
in the form of warrants.

Pre-tax earnings from continuing operations included expenses of $12.0 million, gains of $9.4 million and
expenses of $8.2 million for the years ended December 31, 2020, 2019 and 2018, respectively, for
settlement charges, curtailments and other non-service components of retiree benefit plans.

Pre-tax earnings included losses of $13.6 million, $17.4 million and $10.5 million for the years ended
December 31, 2020, 2019 and 2018, respectively, for the Company's share of development costs for a joint
venture and the partial sale of an airline investment.

Pre-tax earnings for the year ending December 31, 2020 were decreased by an impairment charge of $39.1
million for our four Boeing 757 freighter aircraft and related assets.

During 2020, the Company recognized $47.2 million of government grants from the Coronavirus Aid,
Relief, and Economic Security Act (“CARES Act”).

Pre-tax earnings for 2019 and 2018 also included expense of $0.4 million and $5.3 million, respectively, for
acquisition fees incurred during the Company's acquisition of Omni.

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
$156.2 million for 2020 compared to $128.3 million for 2019 and $104.6 million for 2018.

Adjusted pre-tax earnings from continuing operations for 2020 improved by 21.8% compared to 2019, driven
by increased revenues primarily from CAM and the ACMI Services segments. While improved, our results in 2020,
particularly for commercial passenger flying, DoD flying and aircraft maintenance services, were detrimentally
impacted by the COVID-19 pandemic. Adjusted pre-tax earnings from continuing operations for 2019 improved by
22.6% compared to 2018, driven primarily by additional revenues and the improved financial results of our airline
operations, including Omni, which we acquired in November 2018. Adjusted pre-tax earnings for 2019 also
improved due to additional aircraft leases and the expansion of gateway ground operations for ASI. Pre-tax earnings
for 2019 included additional interest expense of $37.8 million due to the acquisition of Omni and the expansion of
the fleet.

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

Other Activities

Total Revenues

Eliminate internal revenues

Customer Revenues

Years Ending December 31
2019

2018

2020

327,170 $

301,984 $

245,860

(18,509)

308,661

1,147,279

334,300

(16,708)

285,276

1,078,288

314,014

(16,904)

228,956

548,839

286,579

1,790,240
(219,665)

1,677,578
(225,395)

1,064,374
(172,029)

1,570,575 $

1,452,183 $

892,345

Pre-Tax Earnings (Loss) from Continuing Operations:

CAM, inclusive of interest expense

77,424 $

68,643 $

ACMI Services

Other Activities

Net unallocated interest expense

Government grants

Impairment of aircraft and related assets

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 (Loss) from Continuing Operations

Add other non-service components of retiree benefit costs, net

Less government grants

Add impairment of aircraft and related assets

Add charges for non-consolidated affiliates

Add lease incentive amortization

Add transaction fees

Add net loss (gain) on financial instruments

66,897

(5,933)

(2,825)

47,231
(39,075)

(100,771)

—

12,032

(13,587)

41,393

(12,032)

(47,231)

39,075

13,587

20,671

—

100,771

32,055

13,422

(3,024)

—
—

(12,302)

(373)

(9,404)

(17,445)

71,572

9,404

—

17,445

17,178

373

12,302

65,576

11,448

11,170

(460)

—
—

7,296

(5,264)

8,180

(10,468)

87,478

(8,180)

—

10,468

16,904

5,264

(7,296)

Adjusted Pre-Tax Earnings from Continuing Operations

156,234 $

128,274 $

104,638

Adjusted pre-tax earnings from continuing operations, a non-GAAP measure, is pre-tax earnings excluding the
following: (i) settlement charges and other non-service components of retiree benefit costs; (ii) gains and losses for
the fair value re-measurement of financial instruments; (iii) customer incentive amortization; (iv) the transaction fees
related to the acquisition of Omni; (v) the start-up costs of a non-consolidated joint venture; (vi) the sale of an airline
investment and (vii) impairment charges for aircraft and related assets. 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. We also excluded the recognition of government grants from adjusted earnings to improve
comparability between periods. 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.

Aircraft Fleet Summary

Our fleet of cargo and passenger aircraft is summarized in the following table as of December 31, 2020, 2019
and 2018. Our CAM-owned operating aircraft fleet has increased by 12 aircraft since the end of 2018, driven by
customer demand for the Boeing 767-300 converted freighter. 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, 2020, the Company
owned eight Boeing 767-300 aircraft that were either already undergoing or awaiting induction into the freighter
conversion process.

Aircraft fleet activity during 2020 is summarized below:

•

CAM completed the modification of seven Boeing 767-300 freighter aircraft purchased in the previous year
and began to lease six of these aircraft to external customers under a multi-year lease. ATI operates two of
these aircraft for the customer. CAM leased the seventh aircraft to ATI.

CAM completed the modification of two Boeing 767-300 freighter aircraft purchased in 2020 and began to
lease one of these aircraft to an external customer under a multi-year lease. CAM leased the other aircraft to
ATI.

CAM leased two Boeing 767-300 freighter aircraft purchased during 2020 to an external customer under a
multi-year lease. ATI operates these aircraft for the customer.

CAM leased two Boeing 767-200 freighter aircraft to external customers under a multi-year lease.

CAM sold one Boeing 767-300 freighter aircraft to an external customer.

An external customer returned one Boeing 737-400 freighter aircraft to CAM. CAM sold the Boeing
737-400 aircraft to another external customer during the second quarter of 2020.

An external customer returned one Boeing 767-200 freighter aircraft to CAM. This aircraft was leased to
an external customer under a multi-year lease.

CAM purchased two Boeing 767-300 freighter aircraft and nine Boeing 767-300 passenger aircraft for the
purpose of converting the passenger aircraft into a standard freighter configuration. Four of these aircraft
were leased to customers as noted above. The remaining aircraft are expected to be leased to external
customers during 2021.

ABX returned two Boeing 767-200 freighter aircraft and one Boeing 767-300 freighter aircraft to CAM.
CAM leased the Boeing 767-300 aircraft to an external customer under a multi-year lease and the two
Boeing 767-200 freighters were retired.

ATI returned three Boeing 757-200 freighter aircraft to CAM and the aircraft were retired.

ATI returned one Boeing 767-300 freighter aircraft to CAM. CAM leased the Boeing 767-300 aircraft to
an external customer under a multi-year lease. ATI operates this aircraft for the customer.

OAI began to lease two Boeing 767-300 passenger aircraft from an external lessor.

2020

2019

2018

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

2 —

7 —

3 —

1 —

4 —

2 —

7 —

3 —

4 —

Boeing 737-400 Freighter

— — —

—

2 —

6 —

3 —

4 —

—

Total

Operating lease

Boeing 767-200 Passenger

Boeing 767-300 Passenger

Boeing 767-300 Freighter

Total

Other aircraft

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

100

1 —

3 —

2 —

6 —

1 —

2 —

4 —

1 —

— — —

2 —

8
—
— — —

—
—

8
2

—
—

5
1

As of December 31, 2020, ABX, ATI and OAI were leasing 27 in-service aircraft internally from CAM for use
in ACMI Services. Of CAM's 28 externally leased Boeing 767-200 freighter aircraft, 12 were leased to ASI and
operated by ABX or ATI, one was leased to DHL and operated by ABX, six were leased to DHL and were being
operated by a DHL-affiliated airline and nine were leased to other external customers. Of the 45 Boeing 767-300
freighter aircraft, 19 were leased to ASI and operated by ABX or ATI, seven were leased to DHL and operated by
ABX, and 19 were leased to other external customers, one of which was operated by ATI. The carrying values of
the total in-service fleet as of December 31, 2020, 2019 and 2018 were $1,535.3 million, $1,387.6 million and
$1,334.9 million, respectively.

The table above does not reflect one Boeing 767-200 passenger aircraft and three Boeing 757 aircraft that are

being marketed for sale.

2020 and 2019

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 ten years.

As of December 31, 2020 and 2019, CAM had 73 and 62 aircraft under lease to external customers,
respectively. CAM's revenues grew by $23.4 million during 2020 compared to 2019, primarily as a result of
additional aircraft leases. Revenues from external customers totaled $205.0 million and $168.1 million for 2020 and
2019, respectively. CAM's revenues from the Company's airlines totaled $103.6 million during 2020, compared to
$117.2 million for 2019. CAM's aircraft leasing and related services revenues, which exclude customer lease
incentive amortization, increased $25.2 million in 2020 compared to 2019, as a result of new aircraft leases in 2020.

During 2020, CAM added 11 Boeing 767-300 aircraft to its portfolio and placed 11 Boeing 767-300 aircraft to
external customers under long-term leases.

CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $77.4 million and $68.6 million
during 2020 and 2019, respectively. Increased pre-tax earnings reflect the eleven aircraft placed into service in
2020, offset by a $1.0 million increase in internally allocated interest expense due to higher debt levels and a $13.5
million increase in depreciation expense driven by the addition of eleven Boeing aircraft in 2020 compared to 2019.

In addition to the eight Boeing 767-300 aircraft which were in the modification process at December 31, 2020,
CAM has agreements to purchase five more Boeing 767-300 aircraft and expects to complete their modifications
through 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. We expect to lease at least twelve
newly modified Boeing 767-300 freighters and re-deploy four Boeing 767-300 freighters during 2021, comprising
eleven to Amazon and five to other external customers. CAM's future operating results will also depend on the
timing and lease rates under which aircraft are redeployed when leases expire. During 2021, three leases for Boeing
767-200 aircraft are expected to be returned. CAM's future operating results will also be impacted by the additional
amortization of warrant incentives as incremental long-term aircraft leases to ASI commence.

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.

Total revenues from ACMI Services increased $69.0 million during 2020 compared with 2019 to $1,147.3
million. Improved revenues were driven by a 14% increase in billable block hours during 2020. Increased revenues
for 2020 included additional aircraft operations for ASI and DHL, while block hours flown for the DoD declined.

Revenues for the year ending December 31, 2020 were impacted by the COVID-19 pandemic. In late February
2020, the DoD began canceling combi aircraft flights and in March, commercial customers began canceling
scheduled passenger flights as a result of the pandemic. Combined block hours flown for contracted commercial
passenger and combi flights declined 39% for the year ended December 31, 2020, compared to December 31, 2019
due to the pandemic. The decline in revenues from these cancellations was mitigated by increased flying for
customer e-commerce networks and passenger charter flights for the DoD and other governmental agencies,
including flights to return people to the United States who were stranded abroad as a result of the pandemic.
Operations during the year ending December 31, 2020 also included additional transoceanic flights to replace cargo
capacity normally serviced in the belly-hold of passenger aircraft.

ACMI Services had pre-tax earnings of $66.9 million during 2020, compared to $32.1 million for 2019
inclusive of internally allocated interest expense. Improved pre-tax results in 2020 compared to 2019 were a result
of expanded revenues from ASI and DHL and ad hoc passenger charters. During 2020, we began to operate five
more CAM-owned Boeing 767-300 aircraft under the Amazon ATSA. ACMI Services benefited from reduced
travel costs including lower airfares during 2020 compared to 2019. Internally allocated interest expense decreased
to $20.5 million for 2020 compared to $25.0 million for 2019.

As of December 31, 2020, ACMI Services included 73 in-service aircraft as follows:

•

Twelve passenger aircraft, four combi aircraft and eleven freighter aircraft leased internally from CAM.

Four passenger aircraft leased from an external lessor

Eight CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the DHL
CMI agreement

31 CAM-owned freighter aircraft which are under lease to ASI and operated by ATI and ABX under the
ATSA. Two ASI provided freighter aircraft operated by ATI under the ATSA

One CAM-owned freighter leased to a customer and operated by ATI

Maintaining profitability in ACMI Services will depend on a number of factors, including the impact of the
COVID-19 pandemic, customer flight schedules, crewmember productivity and pay, employee benefits, aircraft
maintenance schedules and the number of aircraft we operate. We expect our operating results from commercial
passenger and combi flights to continue to be detrimentally impacted by the pandemic during 2021. The DoD has
reduced normal personnel movements while most of our other passenger service customers have suspended their
operations and demand for commercial passenger charters has significantly declined. During 2020, the DoD and
other government agencies contracted for special airlift capacity and missions which may not continue to occur near
the same level in the months ahead. Similarly, customers may find alternatives for the incremental e-commerce
routes we operate. While it is difficult to predict, we expect lower revenues from passenger operations during 2021
than we had in 2020. In December 2020, ABX and its pilots union amended the collective bargaining agreement.
While the changes in the amendment are expected to positively impact productivity, we expect compensation costs
to increase between $7 million to $8 million for ABX pilots in 2021.

We expect Amazon to lease at least eleven additional Boeing 767-300 aircraft from CAM in 2021 and contract
the operation of those aircraft through our existing ATSA. We also expect Amazon to contract with us to operate at
least two more Amazon-provided aircraft under the ATSA in 2021.

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 our FAA certificated
maintenance and repair subsidiaries, we sell aircraft parts and provide aircraft maintenance and modification
services. We also arrange and perform logistical services and package sorting services for certain ASI gateway
locations in the U.S. We provide maintenance for ground equipment, facilities and material handling equipment and
we resell aviation fuel in Wilmington, Ohio. Additionally, we provide flight training services.

External customer revenues from all other activities increased $12.3 million in 2020 compared to 2019
primarily due to more aviation fuel sales as customer operations at the Wilmington, Ohio air hub expanded.
Revenues from ground services increased due to the addition, since mid-2020, of operating contracts for two new
USPS mail facilities as well as increased volumes at two ASI package gateways we service. Ground services
revenues during 2020 included reductions for equipment and facility maintenance revenues compared to 2019 as
customers chose to in-source some of these services. Revenues from aircraft maintenance and part sales declined
during 2020 as passenger airlines reduced their needs for services during the pandemic. The pre-tax earnings from
other activities decreased by $19.4 million to a pretax loss of $5.9 million in 2020. Reduced earnings for 2020 are a
result of reductions in revenues from higher margin ground maintenance and aircraft maintenance services.
Additionally, we incurred start-up costs for two USPS mail facility contracts we were awarded during 2020. These
reductions were partially offset by additional aviation fuel sales which earn a lower margin.

Our customer base for aircraft maintenance revenues includes passenger airlines. We expect the adverse impact

on our aircraft maintenance business to continue in the near term due to the COVID-19 pandemic.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased $85.4 million, or 20% during 2020 compared to 2019 driven by
higher employee headcount for flight operations, maintenance operations and package sorting services. The total
headcount increased 20% as of December 31, 2020 compared to December 31, 2019. The increases during 2020
include additional flight crewmembers, aircraft maintenance technicians and other personnel to support increased
block hours.

Depreciation and amortization expense increased $20.5 million during 2020 compared to 2019. The increase
reflects incremental depreciation for eleven Boeing 767-300 aircraft and additional aircraft engines added to the
operating fleet since the beginning of 2020, 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 $9.2 million during 2020 compared to 2019.
Increased maintenance expense for 2020 was driven by increased flight hours and higher costs for unscheduled
engine repairs at our airlines. The 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 $6.7 million during 2020 compared to 2019. Fuel expense includes the cost of fuel
to operate DoD charters, fuel used to position aircraft for service and for maintenance purposes, as well as the cost
of fuel sales. Fuel expense decreased during 2020 compared to 2019 due to lower prices for aviation fuel during the
pandemic.

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
$0.5 million during 2020 compared to 2019. Since mid-2019, certain customers chose to in-source some ground
services that we had been performing on their behalf.

Travel expense decreased by $13.6 million during 2020 compared to 2019. The decrease in travel expense was

due to less employee travel and the lower costs of air travel during the pandemic.

Landing and ramp expense, which includes the cost of deicing chemicals, increased by $1.3 million during 2020

compared to 2019, driven by increased block hours and network locations.

Rent expense increased by $3.3 million during 2020 compared to 2019 due to an additional aircraft partially

offset by lower facility rents during 2020.

Insurance expense increased by $2.6 million during 2020 compared to 2019. Aircraft fleet insurance has

increased due to additional aircraft operations and higher insurance rates during 2020 compared to 2019.

Other operating expenses decreased by $4.0 million during 2020 compared to 2019. Other operating expenses
include professional fees, employee training, utilities, commission expense to our CRAF team for DoD revenues and
other expenses.

Asset impairment charges were recorded during the second quarter of 2020, in conjunction with management's
decision to retire four Boeing 757 freighter aircraft. Three of the 757 airframes have been removed from service and
are available for sale. One remains in service through the first quarter of 2021. Impairment charges totaling $39.1
million were recorded, primarily reflecting the fair value of these assets as well as other surplus engines and parts.

Operating results included a pre-tax contra expense of $47.2 million during 2020 to recognize grants received
from the U.S. government under the CARES Act. For additional information about the CARES Act grants, see Note
I of the unaudited condensed consolidated financial statements included in this report.

Non Operating Income, Adjustments and Expenses

Interest expense decreased by $3.8 million during 2020 compared to 2019. Interest expense during 2020
decreased compared to the previous year due to lower interest rates on our borrowings under the Senior Credit
Agreement and lower debt balances outstanding during the year.

The Company recorded unrealized pre-tax losses on financial instruments re-measurements of $100.8 million
during the year ended December 31, 2020, compared to $12.3 million for 2019. The gains and losses include the
results of re-valuing, as of December 31, 2020 and 2019, the fair value of the stock warrants granted to Amazon.
Generally, the warrant value increases or decreases with corresponding increases or decreases in the ATSG share
price during the measurement period. Warrant losses for 2020 reflect a 34% increase in the traded price of ATSG
shares. Additionally, the value of certain warrants depend partially on the probability that warrants will vest upon
the execution of aircraft leases. Increases in the traded value of ATSG shares and increases in the probability of
vested warrants each result in an increase to the warrant value and resulted in warrant losses recorded to financial
instruments for 2020.

Non service components of retiree benefits were a net loss of $12.0 million for 2020 compared to a net gain of
$9.4 million for 2019. 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 of retiree
benefits can vary 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 $4.7 million for 2020 compared to
2019. Income taxes included deferred income tax effects for the gains and losses from warrant re-measurements and
the amortization of the customer incentive. The income tax effects of the warrant re-measurements and the

amortization of the customer 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 recognition of discrete tax items, such as the conversion of employee stock awards,
the issuance of stock warrants and other items have an impact on the effective rate during a period. The effective tax
rate, before including the warrant revaluations and incentive amortization, was 22% for 2020 compared to 19% for
the year ended December 31, 2019. Income tax expense for 2019 reflects a tax benefit of $4.9 million to re-measure
deferred state income taxes using lower blended state tax rates than previously estimated.

The effective rate for 2021 will be impacted by a number of factors, including the apportionment of income
among taxing jurisdictions and 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 2021, before applying the
deductibility of the stock warrant re-measurement and related incentive amortization and the benefit of the stock
compensation, will be approximately 23%.

As of December 31, 2020, the Company had operating loss carryforwards for U.S. federal income tax purposes
of approximately $316.5 million which do not expire but the use of which is limited to 80% of taxable income in any
given year. 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 certain federal 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
pursuant to which ABX performed package sorting services for DHL. Pre-tax gains related to the former sorting
operations were $9.1 million for 2020 compared to $1.6 million for 2019. Pre-tax earnings during 2020 and 2019
were a result of reductions in self-insurance reserves for former employee claims and pension credits.

2019 compared to 2018

Fleet Summary 2019 & 2018

As of December 31, 2019, ABX, ATI and OAI were leasing 32 in-service aircraft internally from CAM for use
in ACMI Services. As of December 31, 2019, one of CAM's 26 Boeing 767-200 freighter aircraft shown in the fleet
table above and seven of the 35 Boeing 767-300 freighter aircraft were leased to DHL and operated by ABX.
Additionally, 12 of CAM's 26 Boeing 767-200 freighter aircraft and 14 of CAM's 35 Boeing 767-300 freighter
aircraft were leased to ASI and operated by ABX or ATI. CAM leased the other 13 Boeing 767-200 freighter
aircraft and 14 Boeing 767-300 aircraft to external customers, including six Boeing 767-200 aircraft to DHL that
were being operated by a DHL-affiliated airline. The table above does not reflect one Boeing 767-200 passenger
aircraft owned by CAM that was not in service condition or the process of freighter modification.

Aircraft fleet activity during 2019 is summarized below:

•

CAM completed the modification of four Boeing 767-300 freighter aircraft purchased in the previous year
and three Boeing 767-300 freighter aircraft purchased in 2019. After leasing one aircraft to ATI for a short
period, CAM began to lease that aircraft to an external customer under a multi-year lease. CAM leased
four other aircraft to an external customer under multi-year leases. ATI operates all five of these aircraft
for the customer. CAM leased the last two aircraft to another external customer under multi-year leases.

ATI returned one Boeing 767-300 freighter and CAM began to lease this aircraft to an external customer
under a multi-year lease. ATI operates the aircraft for the customer.

External customers returned three Boeing 767-200 freighter aircraft, one Boeing 767-300 freighter aircraft
and one Boeing 737-400 freighter aircraft to CAM. CAM leased two of the Boeing 767-200 aircraft to
ABX and the Boeing 767-300 aircraft to ATI. CAM sold the Boeing 737-400 aircraft to an external
customer.

•

ATI began to operate two Boeing 767-300 freighter aircraft provided by our customer, ASI.

CAM purchased ten Boeing 767-300 passenger aircraft and one Boeing 767-300 freighter aircraft for the
purpose of converting nine of the passenger aircraft into a standard freighter configuration. CAM leased
one of these aircraft to Omni as a passenger aircraft.

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 aircraft shown in the aircraft fleet
table above and seven of the 28 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 28 Boeing 767-300 aircraft were leased to ASI and
operated by ABX or ATI. CAM leased the other 14 Boeing 767-200 aircraft and 13 Boeing 767-300 aircraft to
external customers, including six Boeing 767-200 aircraft to DHL that were being operated by a DHL-owned airline.
The table above does not reflect one Boeing 767-200 passenger aircraft owned by CAM that was not in service
condition or the process of freighter modification.

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
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.

•

CAM

As of December 31, 2019 and 2018, CAM had 62 and 59 aircraft under lease to external customers,
respectively. CAM's revenues grew by $56.3 million during 2019 compared to 2018, primarily as a result of
additional aircraft leases. Revenues from external customers totaled $168.1 million and $156.5 million for 2019 and
2018, respectively. CAM's revenues from the Company's airlines totaled $117.2 million during 2019, compared to
$72.4 million for 2018, 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 $56.1 million in 2019 compared to 2018, primarily as a result of the addition of the
eleven passenger aircraft acquired with Omni in November 2018 and new aircraft leases in 2019. Since the
beginning of 2019, CAM has added eight Boeing 767-300 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 $68.6 million and $65.6 million
during 2019 and 2018, respectively. Increased pre-tax earnings reflect the eleven passenger aircraft leased to Omni
as well as the eight aircraft placed into service in 2019, offset by a $16.5 million increase in internally allocated
interest expense due to higher debt levels and $31.6 million more depreciation expense driven by the addition of
eight Boeing aircraft in 2019 compared to 2018.

During 2019, CAM purchased ten Boeing 767-300 passenger aircraft for freighter conversion and one Boeing
767-300 freighter aircraft. Three of the passenger aircraft were converted to freighters and leased to external
customers during 2019 and one of the passenger aircraft was leased internally as a passenger aircraft. As of
December 31, 2019 CAM had eight Boeing 767-300 aircraft being modified from passenger to freighter
configuration.

ACMI Services

As of December 31, 2019, ACMI Services included 71 in-service aircraft, including 12 passenger aircraft and
20 freighter aircraft leased internally from CAM, eight CAM-owned freighter aircraft which are under lease to DHL
and operated by ABX under a DHL CMI agreement, 26 CAM-owned freighter aircraft which are under lease to ASI
and operated by ATI and ABX under the ATSA, two freighter aircraft from an external lessor under lease to ASI
and operated by ATI under the ATSA, another CAM-owned freighter leased to a customer and operated by ATI and
two passenger aircraft leased from an external lessor.

As of December 31, 2019, ACMI Services revenues included the operation of seven more CAM-owned aircraft
compared to December 13, 2018. Total revenues from ACMI Services increased $529.4 million during 2019
compared with 2018 to $1,078.3 million. Improved revenues were driven by the acquisition of OAI and a 40%
increase in billable block hours. Increased revenues for 2019 included additional aircraft operations for ASI and the
DoD. On a combined basis, ACMI Services revenues for the year ended December 31, 2019 would have been
$980.6 million with the inclusion of OAI.

ACMI Services had pre-tax earnings of $32.1 million during 2019, compared to $11.4 million for 2018
inclusive of internally allocated interest expense. Improved pre-tax results in 2019 compared to 2018 were bolstered
by expanded revenues from the acquisition of OAI and the timing of scheduled airframe maintenance events.
Scheduled airframe maintenance expense decreased by $2.9 million during 2019 compared to 2018. Airframe
maintenance expense varies depending upon the number of C-checks and the scope of the checks required for those
airframes scheduled for maintenance. Internally allocated interest expense increased to $25.0 million for 2019
compared to $6.3 million for 2018 as a result of acquiring OAI. ACMI Services' results were negatively impacted
by unscheduled engine repairs and the training costs of new flight crew members to keep pace with customers'
expanding flight schedules. 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.

Other Activities

External customer revenues from all other activities increased $18.9 million in 2019. Declines in USPS revenue
during 2019 were offset by additional facility maintenance services, ground support services and fuel sales provided
by ASI. The pre-tax earnings from other activities increased by $2.3 million to $13.4 million in 2019, primarily due
to additional ground services and fuel sales to ASI.

Expenses from Continuing Operations

Salaries, wages and benefits expense increased $133.0 million during 2019 compared to 2018 driven by higher
headcount for flight operations, maintenance services and package sorting services. The increase in expense for
2019 included $100.4 million for Omni, acquired in November 2018. The increase during 2019 also included higher
flight crew wages in conjunction with an amendment to the collective bargaining agreement with the ATI
crewmembers, and additional aircraft maintenance technician time to support increased block hours. Increases in
salaries, wages and benefits expense were partially offset by personnel reductions due to the expiration of the USPS
contracts.

Depreciation and amortization expense increased $78.6 million during 2019 compared to 2018. The increase in
depreciation expense included $56.5 million for Omni assets acquired in November 2018. The increase also reflects
incremental depreciation for 12 Boeing 767-300 aircraft and additional aircraft engines added to the operating fleet
since mid-2018, as well as capitalized heavy maintenance and navigation technology upgrades.

Maintenance, materials and repairs expense increased by $23.5 million during 2019 compared to 2018. The
increase in expense for 2019 included $15.6 million for Omni, acquired in November 2018. Increased maintenance

expense for 2019 included unscheduled engine repairs and additional costs to support increased block hours that
were flown for cargo customers.

Fuel expense increased by $115.7 million during 2019 compared to 2018. Fuel expense includes the cost of
fuel to operate DoD charters, fuel used to position aircraft for service and for maintenance purposes, as well as the
cost of fuel sales. The increase for 2019 included $95.8 million for Omni and $14.8 million for increased fuel sales.
The remainder of the increase was due to increased fuel for more cargo block hours flown for the DoD in 2019.

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 increased
$47.4 million during 2019 compared to 2018. This increase included $45.7 million due to the inclusion of Omni,
since its acquisition in November of 2018.

Travel expense increased by $56.6 million during 2019 compared to 2018. The increase for 2019 included $50.5

million for Omni.

Landing and ramp expense, which includes the cost of deicing chemicals, increased by $5.2 million during 2019

compared to 2018. The increase included $5.7 million for Omni.

Rent expense increased by $2.1 million during 2019 compared to 2018. This increase included $5.1 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 $1.2 million during 2019 compared to 2018. Aircraft fleet insurance has

increased due to additional aircraft operations during 2019 compared to 2018.

Other operating expenses increased by $35.4 million during 2019 compared to 2018. Other operating expenses
include professional fees, employee training, utilities, commission expense to our CRAF team for DoD revenues and
other expenses. The increase for 2019 included $27.4 million for Omni which was acquired in November 2018 and
over $6.5 million related to employee training for additional flight crews necessary to support revenue growth.

The following table provides pro forma operating expenses (in thousands) for the Company after giving effect
to the Omni acquisition. This information is based on adjustments to the historical consolidated financial statements
of Omni using the purchase method of accounting for business combinations. The pro forma adjustments do not
include any of the cost savings and other synergies anticipated to result from the acquisition. These pro forma
expenses 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 quarter presented had the acquisition taken place on such date or
at the beginning of the quarter indicated, or to project the Company’s financial position or results of operations
which may be reported in the future. The pro forma results exclude non-recurring charges recorded by Omni that
were directly related to the acquisition by the Company.

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

Total Operating Expenses

Year Ended December 31, 2018

Actual
ATSG

Actual Omni

Pro Forma
Adjustments

Pro Forma
Results

300,514 $

85,316 $

(2,880) $

382,950

178,895

146,692

39,293

16,640

34,443

5,968

13,899

6,112

5,264

33,607

54,118

14,525

89,653

44,898

39,101

6,171

6,471

1,724

—

21,012

9,960

242,973

(467)

160,750

—

(5,264)

128,946

61,538

73,544

12,139

20,370

7,836

—

54,619

781,327 $

362,989 $

1,349 $ 1,145,665

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 year ended December
31, 2018.

Adjustment to reflect estimated additional depreciation and amortization expense of $10.0 million for the
year ended December 31, 2018, resulting from the fair value adjustments to Omni’s intangible and tangible
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.

Non Operating Income, Adjustments and Expenses

Interest expense increased by $37.8 million during 2019 compared to 2018. Interest expense increased due to a
higher average debt level, including additional financing 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.

The Company recorded unrealized pre-tax losses on financial instrument re-measurements of $12.3 million
during the year ended December 31, 2019, compared to unrealized pre-tax net gains of $7.3 million for 2018. The
gains and losses include the results of re-valuing, as of December 31, 2019 and 2018, the fair value of the stock
warrants granted to Amazon. Increases in the traded value of ATSG shares and increases in the probability of vested
warrants each result in an increase to the warrant value and resulted in warrant losses recorded to financial
instruments for 2019. Warrant losses for 2019 were a results of a 3% increase in the traded value of ATSG shares
and an increase in the probabilities of additional aircraft leases. The decrease in the fair value of the warrant
obligation between December 31, 2017 and December 31, 2018 corresponded to a decrease in the traded price of
ATSG's shares and resulted in a gain in 2018.

Non service components of retiree benefits were a net loss of $9.4 million for 2019 compared to a net gain of
$8.2 million for 2018. 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 of retiree
benefits can vary 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 $8.0 million for 2019 compared to
2018. Income taxes included deferred income tax effects for the gains and losses from warrant re-measurements and
the amortization of the customer incentive. The income tax effects of the warrant re-measurements and the
amortization of the customer 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 recognition of discrete tax items, such as the conversion of employee stock awards,
the issuance of stock warrants and other items have an impact on the effective rate during a period. The effective tax
rate, before including the warrant revaluations and incentive amortization was 19% for 2019 compared to 24% for
the year ended December 31, 2018. The adjusted effective tax rate declined for 2019 compared to 2018 due to a
higher percentage of our revenues and earnings occurring in states and other tax jurisdictions with lower tax rates
than previously estimated for the services and leases that we provide. Income tax expense for 2019 reflects a tax
benefit of $4.9 million to re-measure deferred state income taxes using lower blended state tax rates than previously
estimated.

Discontinued Operations

Pre-tax gains related to the former sorting operations were $1.6 million for 2019 compared to $1.8 million for
2018. Pre-tax earnings during 2019 and 2018 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 $512.3 million, $396.9 million and $298.0 million in 2020,
2019 and 2018, respectively. Improved cash flows generated from operating activities during 2020 and 2019
included additional aircraft leases to customers and increased operating levels of the ACMI Services segment.
Operating cash flows for 2020 include the receipt of $75.8 million of grant funds from the CARES Act. Cash
outlays for pension contributions were $10.8 million, $5.4 million and $22.2 million in 2020, 2019 and 2018,
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 $510.4 million, $453.5 million and $292.9
million in 2020, 2019 and 2018, respectively. Capital expenditures in 2020 included $353.4 million for the
acquisition of eleven Boeing 767-300 aircraft and freighter modification costs; $76.0 million for required heavy
maintenance; and $81.0 million for other equipment, including purchases of aircraft engines and rotables. Capital
expenditures in 2019 included $328.0 million for the acquisition of eleven Boeing 767-300 aircraft and freighter
modification costs; $76.1 million for required heavy maintenance; and $49.4 million for other equipment, including
the purchases of aircraft engines and rotables. Our 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.

Cash proceeds of $24.6 million, $10.8 million and $17.6 million were received in 2020, 2019 and 2018,

respectively, for the sale of aircraft engines and airframes.

During 2020, 2019 and 2018, we spent $13.3 million, $24.4 million and $866.6 million, respectively, for
acquisitions and investments in other businesses. Spending in 2018 included $855.1 million for the acquisition of
Omni, net of cash acquired. During 2020, 2019 and 2018, we contributed $13.3 million, $12.3 million and $11.4
million, respectively, for 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. In 2019, we acquired a
group of companies that had been under common control referred to as TriFactor, a material handling systems
integrator.

Net cash used in financing activities was $19.6 million in 2020 and net cash provided by financing activities was
$57.0 and $870.5 million in 2019 and 2018, respectively. Our financing activities in 2020 included a debt offering
of $500 million in senior unsecured notes (the "Senior Notes"). The net proceeds of $500.0 million from the Senior
Notes were used to pay down the revolving credit facility. During 2020, we drew a total of $180.0 million from the
revolving credit facility. We made debt principal payments of $689.4 million including the pay down of the
revolving credit facility.

On November 9, 2018, in conjunction with the Omni acquisition, the Company amended its Senior Credit
Agreement to include a term loan of $675.0 million and drew an additional $180.0 million from the revolving credit
facility. In addition to the acquisition of Omni, borrowing was required to purchase and modify aircraft for
deployment into air cargo markets.

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.

Commitments

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

thousands) as of December 31, 2020.

Contractual Obligations
Debt obligations, including interest payments

Facility leases

Aircraft and modification obligations

Aircraft and other leases

Total contractual cash obligations

Payments Due By Year

Total

2021

2022 and
2023

2024 and
2025

2026 and
after

$ 1,749,348 $ 53,882 $ 138,401 $ 998,758 $ 558,307

33,558

9,525

13,809

195,390

—

39,703

9,935

15,316

9,128

—

12,199

1,096

—

2,253

$ 2,017,999 $ 268,732 $ 167,526 $ 1,020,085 $ 561,656

The long-term debt bears interest at 1.125% to 4.75% per annum at December 31, 2020. For additional
information about the Company's debt obligations, see Note G of the accompanying financial statements in this
report.

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 $2.1 million expected to be
funded in 2021. For additional information about the Company's pension obligations, see Note J of the
accompanying financial statements in this report.

As of December 31, 2020, the Company had eight aircraft that were in or awaiting the modification process.
Additionally, we placed non-refundable deposits to purchase five more Boeing 767-300 passenger aircraft through
2021. We expect to purchase additional aircraft for modification in 2021. We estimate that capital expenditures for
2021 will total $500 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 flows 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 in this report.

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 2021. We expect to make contributions equal to the Company's 49%
ownership percentage of the program's total costs during 2021.

Liquidity

We have a Senior Credit Agreement with a consortium of banks that includes an unsubordinated term loan of
$612.2 million, net of debt issuance costs, and a revolving credit facility from which the Company has drawn $140.0
million, net of repayments, as of December 31, 2020. The Senior Credit Agreement expires in November 2024 if
certain liquidity measures are maintained during 2024 and contains an incremental accordion capacity based on debt
ratios. As of December 31, 2020, the unused revolving credit facility totaled $446.1 million and additional
permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited
to $250.0 million.

On January 28, 2020, we completed a debt offering of $500 million in senior unsecured notes (the “Senior
Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule
144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to
Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate
of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1,
2020. The Senior Notes will mature on February 1, 2028. The Senior Notes contain customary events of default and
covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement.

The Senior Credit Agreement is collateralized by our fleet of Boeing 777, 767 and 757 freighter aircraft. Under
the terms of the Senior Credit Agreement, we are required to maintain collateral coverage equal to 115% 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 $600.0 million.

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. The Senior Notes contain customary events of
default and covenants which are generally no more restrictive than those set forth in 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,
the Senior Notes and the revolving credit facility bear variable interest rates of 1.4%, 4.75% and 1.4%, respectively.

At December 31, 2020, the Company had $39.7 million of cash balances. We believe that the Company's current
cash balances and forecasted cash flows provided from its customer leases and 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.

As described in Note D of the accompanying audited consolidated financial statements in this report, the
Company has issued warrants to Amazon. Vested warrants for 14.9 million shares expiring on March 8, 2021,
subject to extension if required to obtain regulatory approvals, exemptions, authorizations, consents or clearances
(including the expiration or termination of any waiting periods), have a cash purchase price of $145 million if
Amazon elects to exercise these warrants entirely in cash. Alternatively, Amazon may choose to settle the warrants
in a cashless exchange.

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, 2020 and 2019, 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

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, 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. The Company typically records revenues and
estimated earnings for its airframe maintenance and aircraft modification contracts using the percentage-of-
completion cost input method. 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.

Based on our analysis, the individual fair values of each reporting unit having goodwill exceeded their
respective carrying values as of December 31, 2020. 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 and OAI separately, using multiples of EBITDA and revenues from comparable publicly traded companies.
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. We are assuming that demand for commercial passenger
flying will resume to pre-pandemic levels in 2023. Our key assumptions used for Pemco's and TriFactor's goodwill
testing includes the level of revenues that customers will seek and the cost of labor, parts and contract resources
expected to be utilized. 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, reduced demand due to an extended duration of the pandemic,
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 claims 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. Based upon projections of taxable income, we determined that it was more likely than
not that the NOL CFs will be realized. 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 5.75%. 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, 2020 was 30% equities, 69% fixed
income and 1% cash. The pension trust includes $0.4 million of investments (less than 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 5.75% 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 2020 would be increased by approximately $8.3 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 in this

report), but also affects the succeeding year’s pension and post-retirement healthcare expense. The discount rates
selected for December 31, 2020, based on the method described above, were 2.55% for crewmembers and 2.75% for
non-crewmembers. If we were to lower our discount rates by a hypothetical 50 basis points, pension expense in
2020 would be increased by approximately $12.0 million.

Our mortality assumptions at December 31, 2020, 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):

Effect of change

December 31, 2020

2020
Pension
expense

Pension
obligation

Accumulated
other
comprehensive
income (pre-tax)

8,263 $

— $

11,993

20,256

(56,337)

—

56,337

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

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 twenty-five percent of the outstanding balance of the term loan issued in
November 2018. Accordingly, the Company has entered into interest rate swap instruments. 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 $430.6 million as of December 31, 2020.
See Note H in the accompanying consolidated financial statements in this report for a discussion of our accounting
treatment for these hedging transactions.

As of December 31, 2020, the Company has $715.8 million of fixed interest rate debt and $752.2 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 $3.9 million for the
year ended December 31, 2020.

The convertible debt and Senior Note issued at fixed interest rates are exposed to fluctuations in fair value
resulting from changes in market interest rates. Fixed interest rate risk can be quantified by estimating the change in
fair value of our long term convertible debt and Senior Note through a hypothetical 20% increase in interest rates.
As of December 31, 2020, a 20% increase in interest rates would have decreased the book value of our fixed interest
rate convertible debt and Senior Notes by approximately $29.2 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, 2020, the Company's liabilities reflected stock warrants issued to a customer. The fair value
of the stock warrants obligation is re-measured at the end of each reporting period and marked to market. The fair
value of the stock warrants 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 in this report 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, 2020, ABX's
defined benefit pension plans had total investment assets of $843.9 million under investment management. See Note
J in the accompanying consolidated financial statements in this report 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 the Company's 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

Note A - Summary of Financial Statement Preparation and Significant Accounting Policies

Note B - Acquisition of Omni

Note C - Goodwill, Intangibles and Equity Investments
Note D - Significant Customers

Note E - Fair Value Measurements

Note F - Property and Equipment

Note G - Debt Obligations

Note H - Derivative Instruments

Note I - Commitments and Contingencies

Note J - Pension and Other Post-Retirement Benefit Plans

Note K - Income Taxes

Note L - Accumulated Other Comprehensive Income (Loss)

Note M - Stock-Based Compensation

Note N - Common Stock and Earnings Per Share

Note O - Segment and Revenue Information

Note P - Discontinued Operations

Note Q - Investments in Non-Consolidated Affiliates (Unaudited)

Note R - Quarterly Results (Unaudited)

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, 2020 and 2019, 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, 2020, and the related notes and the schedule listed in the Index at Item 15(a)(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, 2020 and 2019, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2021, expressed an unqualified opinion
on the Company's internal control over financial reporting.

Changes in Accounting Principles

As discussed in Note A to the financial statements, the Company changed its method of accounting for stock warrant
obligations in fiscal year 2019 due to the adoption of amendments to the standard for share-based payments to non-
employees. The Company adopted this amended standard using the modified retrospective approach.

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.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial
statements that was communicated or required to be communicated to the audit committee and that (1) relates to
accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion
on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Fair Value Measurements - Level 3 Liabilities - Refer to Notes D and E to the financial statements

Critical Audit Matter Description

In conjunction with a lease incentive agreement entered into with a customer on December 20, 2018, the Company
conditionally granted to the customer warrants to purchase Company common stock, which vest as additional

aircraft leases are executed. The unvested warrants are reported in the financial statements at fair value as a liability.
These warrants do not have readily determinable market values and were valued at $94.4 million as of December 31,
2020, based on a pricing model using several inputs. Those inputs include significant observable and unobservable
inputs.

We identified the valuation of these unvested warrants to purchase the Company’s stock, conditionally granted to a
customer, as a critical audit matter because of the significant unobservable input management uses to estimate fair
value. Valuation of these warrants included the use of a warrant valuation model with adjustments for the
probability of the future vesting events occurring. A high degree of auditor judgment and an increased extent of
effort were required to audit the probabilities of the future vesting events occurring.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the significant unobservable inputs used in management’s estimate of fair value of
the conditionally granted unvested warrants included the following, among others:

• We tested the effectiveness of management’s controls over the valuation of these warrants, which included a

control over the significant unobservable input.

• We evaluated the reasonableness of management’s estimate of the probability that future vesting events will
occur by comparing the assumptions in the warrant valuation with the assumptions in the Company’s forecast of
aircraft leases and extensions, its projected aircraft availability, its internal and external communications, and
the customer’s projected revenue growth.

• We performed a retrospective review of management’s ability to accurately estimate the probability of future
vesting events occurring by comparing initial aircraft availability estimates prepared by management for the
Company’s prior lease agreements to the actual results.

• We assessed the consistency by which management has applied business assumptions to the significant

unobservable inputs.

/s/ Deloitte & Touche LLP

Cincinnati, Ohio
March 1, 2021

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)

December 31, December 31,

2020

2019

ASSETS
CURRENT ASSETS:

Cash, cash equivalents and restricted cash
Accounts receivable, net of allowance of $997 in 2020 and $975 in 2019
Inventory
Prepaid supplies and other
TOTAL CURRENT ASSETS

Property and equipment, net
Customer incentive
Goodwill and acquired intangibles
Operating lease assets
Other assets

TOTAL ASSETS

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:

Accounts payable
Accrued salaries, wages and benefits
Accrued expenses
Current portion of debt obligations
Current portion of lease obligations
Unearned revenue and grants
TOTAL CURRENT LIABILITIES

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

TOTAL LIABILITIES

Commitments and contingencies (Note I)
STOCKHOLDERS’ EQUITY:

39,719 $
153,511
40,410
39,096
272,736
1,939,776
126,007
516,290
68,824
78,112

46,201
162,870
37,397
20,323
266,791
1,766,020
146,678
527,654
44,302
68,733
$ 3,001,745 $ 2,820,178

141,425 $
56,506
19,005
13,746
17,784
53,522
301,988
1,465,331
103,474
35,099
51,128
47,963
141,265
2,146,248

141,094
59,429
17,586
14,707
12,857
17,566
263,239
1,469,677
383,073
36,744
30,334
49,293
127,476
2,359,836

Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior
Participating Preferred Stock
Common stock, par value $0.01 per share; 150,000,000 shares authorized;
59,560,036 and 59,329,431 shares issued and outstanding in 2020 and 2019,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
TOTAL STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

—

596
855,547
78,010
(78,656)
855,497

593
475,720
45,895
(61,866)
460,342
$ 3,001,745 $ 2,820,178

See notes to consolidated financial statements.

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

Year Ended December 31
2019

2020

$ 1,570,575 $ 1,452,183 $

518,961
278,067
179,315
148,383
63,564
77,382
12,468
19,299
9,903
64,999
(47,231)
39,075
—

433,518
257,532
170,151
155,033
64,076
90,993
11,184
16,006
7,342
68,978
—
—
373

1,364,185
206,390

1,275,186
176,997

222
12,032
(100,771)
(13,587)
(62,893)
(164,997)

41,393
(16,314)

25,079
7,036

370
(9,404)
(12,302)
(17,445)
(66,644)
(105,425)

71,572
(11,589)

59,983
1,219

2018
892,345

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

781,327
111,018

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

87,478
(19,595)

67,883
1,402

32,115 $

61,202 $

69,285

0.42 $
0.12
0.54 $

0.42
0.12
0.54

1.02 $
0.02
1.04 $

0.78 $
0.01
0.79 $

1.16
0.02
1.18

0.89
0.02
0.91

59,128
59,931

58,899
69,348

58,765
68,356

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
Other operating expenses
Government grants
Impairment of aircraft and related assets
Transaction fees

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

EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES
NET EARNINGS

BASIC EARNINGS PER SHARE

Continuing operations
Discontinued operations
TOTAL BASIC EARNINGS PER SHARE

DILUTED EARNINGS PER SHARE

Continuing operations
Discontinued operations
TOTAL DILUTED EARNINGS PER SHARE

WEIGHTED AVERAGE SHARES

Basic
Diluted

See notes to consolidated financial statements.

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

Years Ended December 31
2019

2018

2020

NET EARNINGS
OTHER COMPREHENSIVE INCOME (LOSS):

Defined Benefit Pension

Defined Benefit Post-Retirement

Foreign Currency Translation

32,115 $

61,202 $

69,285

(16,941)

27,890

(28,467)

153

(2)

139

1,467

256

(131)

TOTAL COMPREHENSIVE INCOME, net of tax

15,325 $

90,698 $

40,943

See notes to consolidated financial statements.

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

Years Ended December 31
2019

2020

2018

OPERATING ACTIVITIES:

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

25,079 $
7,036

59,983 $ 67,883
1,402
1,219

Depreciation and amortization
Pension and post-retirement
Deferred income taxes
Amortization of stock-based compensation
Loss from non-consolidated affiliates
Net (gain) loss on financial instruments
Impairment of aircraft and related assets

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 balances
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES

INVESTING ACTIVITIES:

310,317
3,888
18,492
7,477
13,587
100,771
39,075

285,353
15,700
10,478
7,002
17,445
12,302
—

204,559
3,766
18,986
5,047
10,468
(7,296)
—

9,359
(27,825)
5,584
36,922
(5,226)
(28,198)
(4,036)

512,302

(14,551)
(6,493)
3,340
1,446
13,390
(12,132)
2,456
396,938

25,380
(3,273)
10,724
(3,824)
3,605
(35,293)
(4,109)
298,025

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

NET CASH (USED IN) INVESTING ACTIVITIES

(510,417)
24,583
(13,333)
(499,167)

(453,502) (292,915)
10,804
17,570
(24,360) (866,558)
(467,058) (1,141,903)

FINANCING ACTIVITIES:

Principal payments on long term obligations
Proceeds from borrowings
Payments for financing costs
Proceeds from bond issuance
Purchase of common stock
Withholding taxes paid for conversion of employee stock awards
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES

(689,380)
180,000

(7,507)

500,000
—
(2,730)
(19,617)

(39,500)
100,018

(1,081)
—
—
(2,438)
56,999

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

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR

(6,482)
46,201
39,719 $

26,623
(13,121)
32,699
59,322
46,201 $ 59,322

SUPPLEMENTAL CASH FLOW INFORMATION:

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

SUPPLEMENTAL NON-CASH INFORMATION:
Accrued expenditures for property and equipment
Accrued consideration for acquisition

$
$

41,343 $
1,139 $

57,546 $ 17,278
1,213
1,294 $

37,880 $
— $

38,396 $ 11,234
7,845

— $

See notes to consolidated financial statements.

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

BALANCE AT DECEMBER 31, 2017 59,057,195 $
Stock-based compensation plans

Common Stock

Number

Amount

Additional
Paid-in
Capital
591 $ 471,456 $

Accumulated
Earnings
(Deficit)

Accumulated
Other
Comprehensive
Income (Loss)

Total

(13,748) $

(63,020) $ 395,279

—

(2,329)

—

(3,580)

(50,435)

50,999

514

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

—

(2,438)

—

(71,358)

—

(2,730)

—
375,083

7,477
15,325
(16,790)
(78,656) $ 855,497

(71,358)

61,202
45,895 $

7,002
29,496
90,698
(61,866) $ 460,342

5,047

591 $ 471,158 $

514

69,285
56,051 $

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

198,900

36,378

(1,300)

(157,000)

—

(2)

(2,329)

—

(3,578)

(50,435)

50,999

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2018 59,134,173 $
Stock-based compensation plans

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

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

151,300

46,958

(3,000)

—

(2)

(2,438)

—

7,002

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2019 59,329,431 $
Stock-based compensation plans

593 $ 475,720 $

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

Reclassification of warrant liability
Amortization of stock awards and
restricted stock

201,400

31,005

(1,800)

—

(2)

(2,731)

—
375,083

7,477

Total comprehensive income (loss)
BALANCE AT DECEMBER 31, 2020 59,560,036 $

596 $ 855,547 $

32,115
78,010 $

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 lease aircraft, provide contracted
airline operations, ground services, aircraft modification and maintenance services and other support services mainly
to the air transportation, e-commerce 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 Company's airlines, ABX Air, Inc.
(“ABX”), Air Transport International, Inc. (“ATI”) and 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. Inter-company balances and transactions are eliminated. The consolidated
financial statements are prepared in accordance with accounting principles generally accepted in the United States of
America ("GAAP").

Investments in affiliates in which the Company has significant influence but does not exercise control are
accounted for using the equity method of accounting. Under the equity method, the Company’s share of the
nonconsolidated 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. Investments
in affiliates in which the Company does not exercise control or have significant influence are reflected at cost less
impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the
identical or a similar investment of the same issuer.

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.

COVID-19 Uncertainties

Beginning in late 2019, an outbreak of a coronavirus, COVID-19, was identified and has since spread globally,
becoming a pandemic. The pandemic has had an impact on the Company's operations and financial results.
Beginning in late February 2020, revenues were disrupted when customers cancelled scheduled passenger flights
and aircraft maintenance services and the Company began to incur additional costs, including expenses to protect
employees. Additionally, disruptions to the Company's operations, such as shortages of personnel, shortages of
parts, maintenance delays, shortages of transportation and hotel accommodations for flight crews, facility closures
and other issues may be caused by the pandemic.

The extent of the impact that the pandemic will have on future financial and operational results will depend on
developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and
scope of government orders and restrictions; the availability and effectiveness of vaccines on the virus and the extent
of the pandemic on overall economic conditions. These are highly uncertain. If the pandemic persists or reemerges,
operating cash flows could decline significantly and the value of airframes, engines and certain intangible assets
could decline significantly.

Currently, the pandemic has not had a significant adverse financial impact on the Company's leasing operations
or its airline operations for customers' freight networks. Management believes that the Company's current cash
balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its
Senior Credit Agreement, will be sufficient to fund operations, capital spending and scheduled debt payments for at
least the next 12 months.

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 $0.4 million as of December 31, 2020 and $10.6 million as of December 31,
2019. Restricted cash consists of 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,
delivery companies and freight forwarders. The Company estimates expected credit losses over the lifetime of the
customer receivables that are not past due. The Company also 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 allowances for amounts that are not expected to be received. Account balances are written off against the
allowances 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
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 assesses, during the fourth quarter of each year, whether it is more likely than not that an
indefinite-lived intangible asset is impaired by considering all relevant events and circumstances that could affect the
significant inputs used to determine the fair value of the indefinite-lived intangible asset.

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 and 757 aircraft and flight equipment

Ground equipment
Leasehold improvements, facilities and office equipment

7 to 18 years

2 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 are 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 a "power by the cycle" agreement 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. 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 $2.8 million, $3.7 million and $1.8 million for the
years ended December 31, 2020, 2019 and 2018, 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 $9.3 million and $16.1 million at December 31, 2020 and
December 31, 2019, 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 plans 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 expense
using a corridor approach. The Company's corridor approach amortizes into earnings variances in plan assets and
benefit obligations that are a result of the previous measurement assumptions 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. Cost 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. The plan's investment returns, interest
expense, settlements and other non-service cost components of retiree benefits are reported in other income and
expense included in earnings before income taxes.

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.

As described in Note I, the Company is prohibited from repurchasing its common shares through March 31,

2022.

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 of issuance. The lease incentive is
amortized against revenues over the duration of related aircraft leases. The unexercised warrants that are classified
in liabilities are 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 by customers through airline service agreements, including consumption of aircraft fuel, are
generally recognized net of the corresponding expenses, 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. The
Company typically records revenues and estimated earnings over time for its airframe maintenance and aircraft
modification contracts based on the percentage of costs completed. 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
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.

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 required the Company to record a one-time
adjustment to retained earnings for the cumulative effect that the standard had on open contracts at the time of
adoption. In conjunction with the 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.

Effective January 1, 2019, the Company adopted the FASB's ASU No. 2016-02, “Leases (Topic 842)” which
superseded previous lease guidance ASC 840, Leases. Topic 842 is a new lease model that requires a company to
recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company adopted the standard
using the modified retrospective approach that does not require the restatement of prior year financial statements.
The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations
and consolidated statement of cash flows. The adoption of Topic 842 resulted in the recognition of ROU assets and

corresponding lease liabilities as of January 1, 2019 in the amount of $52.6 million for leases classified as operating
leases. Topic 842 also applies to the Company's aircraft lease revenues, however, the adoption of Topic 842 did not
have a significant impact on the Company's accounting for its customer lease agreements.

The Company adopted the package of practical expedients and transition provisions available for expired or
existing contracts, which allowed the Company to carryforward its historical assessments of 1) whether contracts are
or contain leases, 2) lease classification, and 3) initial direct costs. Additionally, for real estate leases, the Company
adopted the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single
lease component. The Company also elected the hindsight practical expedient to determine the reasonably certain
lease term for existing leases. Further, the Company elected the short-term lease exception policy, permitting it to
exclude the recognition requirements for leases with terms of 12 months or less. See Note I for additional
information about leases.

In February 2018, the FASB issued ASU No. 2018-02 “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. ASU 2018-02 is effective for years beginning after December 15, 2018 and interim periods within those fiscal
years. The Company elected to retain stranded tax effects in accumulated other comprehensive income.

In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-based Payment
Accounting" ("ASU 2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC
718"), with the intent of simplifying the accounting for share-based payments granted to non-employees for goods
and services and aligning the accounting for share-based payments granted to non-employees with the accounting
for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2019 using the
modified retrospective approach as required. ASU 2018-07 replaced ASC 505-50, "Equity-Based Payments to
Nonemployees" ("ASC 505-50") which was previously applied by the Company for warrants granted to
Amazon.com, Inc. ("Amazon") as customer incentives. As a result of ASU 2018-07, the Company applied
accounting guidance for financial instruments to the unvested warrants conditionally granted to Amazon in
conjunction with an investment agreement reached with Amazon on December 22, 2018. Applying ASU 2018-07 as
of January 1, 2019, through the modified retrospective approach, resulted in the recognition of $176.9 million for
unvested warrant liabilities, $100.1 million for customer incentive assets and cumulative-effect adjustments of $71.4
million, net of tax, to reduce retained earnings for customer incentives that were not probable of being realized. The
adoption of ASU 2018-07 on January 1, 2019 did not have an impact on the accounting for vested warrants.

The Company adopted "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on
Financial Instruments" ("ASU 2016-13") on January 1, 2020. Under ASU 2016-13, an entity is required to utilize an
“expected credit loss model” on certain financial instruments, including trade receivables. This model requires an
entity to estimate expected credit losses over the lifetime of the financial asset including trade receivables that are
not past due. Operating lease receivables are not within the scope of Topic 326. The Company's adoption of ASU
2016-13 did not have a material impact on the consolidated financial statements or related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in
an Entity's Own Equity" ("ASU 2020-06"). This new standard changes the accounting and measurement of
convertible instruments. It eliminates the treasury stock method for convertible instruments and requires application
of the “if-converted” method for certain agreements. This standard is effective for the Company beginning January
1, 2022. The Company is currently evaluating the impact of ASU 2020-06 on its interest expense and earnings (loss)
per share calculation under the "if-converted" method related to its convertible debt.

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 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

Revenues for 2018 reflect the adoption of Topic 606 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. 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 ten and one half months
ended November 9, 2018 respectively.

Adjustment to reflect estimated additional depreciation and amortization expense of $10.0 million for the ten
and one half months ended November 9, 2018, 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 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 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 rate of 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 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.

On February 1, 2019, the Company acquired a group of companies under common control, referred to as
TriFactor. TriFactor resells material handling equipment and provides engineering design solutions for
warehousing, retail distribution and e-commerce operations. Revenues and operating expenses include the activities
of TriFactor for periods since its acquisition by the Company. The excess purchase price over the estimated fair

value of net assets acquired was recorded as goodwill. The acquisition of TriFactor did not have a significant impact
on the Company's financial statements or results of operations.

As of December 31, 2020, 2019 and 2018, the goodwill amounts for reporting units that have goodwill were
separately tested for impairment. To perform the goodwill impairment test, the Company determined the fair value
of the reporting units using industry market multiples and discounted cash flows utilizing a market-derived cost of
capital (level 3 fair value inputs). The goodwill amounts were not impaired. The carrying amounts of goodwill are
as follows (in thousands):

Carrying value as of December 31, 2018

$ 153,290 $ 234,571 $

2,884 $ 390,745

Acquisition of TriFactor

Carrying value as of December 31, 2019

Carrying value as of December 31, 2020

—

5,229

$ 153,290 $ 234,571 $

8,113 $ 395,974

$ 153,290 $ 234,571 $

8,113 $ 395,974

CAM

ACMI
Services

All Other

Total

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

Carrying value as of December 31, 2018

Amortization

Right of use asset

Carrying value as of December 31, 2019

Amortization

Carrying value as of December 31, 2020

Airline

Amortizing

Certificates

Intangibles

Total

9,000 $

135,614 $

144,614

—

(11,434)

(1,500)

(11,434)

(1,500)

9,000 $

122,680 $

131,680

—

(11,364)

9,000 $

111,316 $

120,316

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 5 to 18 remaining years. The
Company recorded intangible amortization expense of $11.4 million, $11.4 million and $2.7 million for the years
ending December 31, 2020, 2019 and 2018, respectively. Estimated amortization expense for the next five years is
$10.6 million, $10.6 million, $10.6 million, $10.6 million and $9.8 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 obligations 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):

Lease

Incentive

Carrying value as of December 31, 2018

63,780

Adoption of ASU 2018-07

Amortization

100,076

(17,178)

Carrying value as of December 31, 2019

146,678

Amortization

(20,671)

Carrying value as of December 31, 2020

126,007

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, 2020, the Company expects to record amortization, as a reduction to the
lease revenue, of $22.6 million, $22.7 million, $18.1 million, $15.1 million and $15.2 million for each of the next
five years ending December 31, 2025.

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg,
Sweden ("West"). West, through its two airlines, West Atlantic UK and West Atlantic Sweden, 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. In April
2019, West issued additional shares to a new investor in conjunction with a capital investment and purchase
agreement which reduced the Company's ownership to approximately 10% and reduced the Company's influence
over West. In 2020, the Company sold its remaining interest to the same investor.

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 2021. 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 2020, 2019
and 2018 years, the Company contributed $13.3 million, $12.3 million and $11.4 million to the joint venture,
respectively. The Company accounts for its investment in 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 $10.7 million and $10.9 million at December 31, 2020
and 2019, respectively, and are reflected in “Other Assets” in the Company’s consolidated balance sheets. 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

Three customers each account for a significant portion of the Company's consolidated revenues. The percentage
of the Company's revenues for the Company's three largest customers, for the years ended December 31, 2020, 2019
and 2018 are as follows:

Customer

DoD

Amazon

DHL

Year Ended December 31,

2020

2019

2018

Percentage of Revenue

31%

30%

12%

34%

23%

14%

15%

27%

26%

The accounts receivable from the Company's three largest customers as of December 31, 2020 and 2019 are as

follows (in thousands):

Customer

DoD

Amazon

DHL

Year Ending December 31,

2020

2019

Accounts Receivable

32,625 $

55,997

10,471

44,513

50,036

12,688

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 include revenues for Omni beginning November 9, 2018.

Amazon

The Company has been providing freighter aircraft and services for cargo handling and logistical support for
Amazon.com Services, LLC ("ASI"), successor to Amazon.com 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 Boeing 767 freighter aircraft to ASI. The ATSA
also provides for the operation of aircraft by the Company’s airline subsidiaries, and the management of ground
services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). The aircraft leases have terms which
expire between March of 2023 and October of 2030.

DHL

The Company has had long term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL")
since August 2003. 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 additional air cargo transportation services for DHL through 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.

Amazon Investment Agreement

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 vested on
September 8, 2020, and grants Amazon the right to purchase an additional 0.5 million ATSG common shares to
bring Amazon’s ownership, after the exercise in full of the three tranches of warrants, 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 2016 Investment Agreement and after giving effect to the
warrants granted. The exercise price of the 14.9 million warrants issued under the 2016 Investment Agreement 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 (subject to extension
if regulatory approvals, exemptions, authorizations, consents or clearances have not been obtained by such date).

In accordance with the 2016 Investment Agreement, on September 8, 2020, the final number of shares issuable
under the third tranche of warrants was determined to be 0.5 million common shares. As a result, under US GAAP,
the value of the entire grant was remeasured on September 8, 2020, and their fair value of $221 million was
reclassified from balance sheet liabilities to paid-in-capital. This group of warrants for 14.9 million common shares
of ATSG is fully vested and expires on March 8, 2021 (subject to extension if regulatory approvals, exemptions,
authorizations, consents or clearances have not been obtained by such date). Amazon has the option to settle the
warrants for cash of $145 million and receive all 14.9 million shares, or it may choose a cashless settlement option
and receive a lesser number of shares equivalent in market value of the stock's appreciation above the exercise price.

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 leased all
ten of the 767-300 aircraft in 2020.

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 and the Company entered into another Investment
Agreement on December 20, 2018. Pursuant to the 2018 Investment Agreement, Amazon was 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. In October 2020 upon the execution of the 10th
aircraft lease, all the warrants for 14.8 million shares were vested. As a result, under US GAAP, the value of the
entire grant was remeasured on October 1, 2020, and their fair value of $154 million was reclassified from balance
sheet liabilities to paid-in-capital. This group of warrants will expire if not exercised within seven years from their
issuance date (subject to extension if regulatory approvals, exemptions, authorizations, consents or clearances have
not been obtained by such date). They have an exercise price of $21.53 per share. Amazon has the option to settle
the warrants for cash of $319 million and receive all 14.8 million shares, or it may choose a cashless settlement
option and receive a lesser number of shares by surrendering the number of shares with a market value equal to the
exercise value.

On May 29, 2020, Amazon agreed to lease twelve more Boeing 767-300 aircraft from the Company. The first
of these leases began in the second quarter of 2020 with the remaining eleven to be delivered in 2021. All twelve of
these aircraft leases will be for ten year terms. Pursuant to the 2018 Investment Agreement, as a result of leasing 12
aircraft, Amazon was issued warrants for 7.0 million common shares of which 0.6 million common shares have
vested. These warrants will expire if not exercised by December 20, 2025 (subject to extension if regulatory
approvals, exemptions, authorizations, consents or clearances have not been obtained by such date). The exercise
price of these warrants is $20.40 per share.

Issued and outstanding warrants are summarized below as of December 31, 2020:

2016 Investment Agreement
2018 Investment Agreement
2018 Investment Agreement

Common Shares in millions

Exercise
price

$9.73
$21.53
$20.40

Vested

Non-Vested

Expiration

14.9
14.8
0.6

0.0
0.0
6.4

March 8, 2021
December 20, 2025
December 20, 2025

Additionally, Amazon can earn incremental warrants rights up to 2.9 million common shares under the 2018
Investment Agreement by leasing up to five 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 based on the volume-weighted average price of the Company's shares during the 30 trading days immediately
preceding the contractual commitment for each lease.

Through the 2016 and 2018 Investment Agreements, Amazon can potentially own approximately 39.9% of the
Company if all the issued and issuable warrants vest and are settled in full with cash. As a result, the outstanding
shares of the Company's common stock would increase by approximately 39.6 million shares. For all warrants
vested, Amazon may select a cashless conversion option. Assuming ATSG’s stock price at the time of conversion is
above the warrant exercise price, Amazon would receive fewer shares in exchange for any warrants exercised under
the cashless option by surrendering the number of shares with a market value equal to the exercise value.

The Company’s accounting for the warrants has been determined in accordance with the financial reporting
guidance for financial instruments. Warrants classified as liabilities are marked to fair value at the end of each
reporting period. The value of warrants is recorded as a customer incentive asset if it is probable of vesting at the
time of grant and further changes in the fair value of warrant obligations are recorded to earnings. Upon a warrant
vesting event, the customer incentive asset is amortized as a reduction of revenue over the duration of the related
revenue contract.

As of December 31, 2020, the Company's liabilities reflected warrants from the 2018 Amazon agreements
having a fair value of $103.5 million. As of December 31, 2019, the Company's liabilities reflected warrants from
the 2016 Amazon agreements and the 2018 Amazon agreements having a fair value of $383.1 million. During the
years ended December 31, 2020, 2019 and 2018 the re-measurements of warrants to fair value resulted in net non-
operating losses of $95.5 million, $2.3 million and net gain of $7.4 million before the effect of income taxes,
respectively.

The Company's earnings in future periods will be impacted by 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.

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 comparable transactions. The fair value of the Company’s
money market funds, 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 resulting from aircraft leased to Amazon were determined using a
Black-Scholes pricing model which considers various assumptions, including the Company’s common stock price,
the volatility of the Company’s common stock, the expected dividend yield, exercise price and the risk-free interest
rate (Level 2 inputs). The fair value of the stock warrant obligations for unvested stock warrants, conditionally
granted to Amazon for the execution of incremental, future aircraft leases, include additional assumptions including
the expected exercise prices and the probabilities that future leases will occur (Level 3 inputs).

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

thousands):

As of December 31, 2020

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

Assets

Cash equivalents—money market

Total Assets

Liabilities

Interest rate swap

Stock warrant obligations

Total Liabilities

As of December 31, 2019

Assets

Cash equivalents—money market

Interest rate swap

Total Assets

Liabilities

Interest rate swap

Stock warrant obligation

Total Liabilities

— $

20,389 $

— $

20,389

— $

(13,414) $

— $

(13,414)

—

(9,058)

(94,416)

(103,474)

— $

(22,472) $

(94,416) $

(116,888)

Fair Value Measurement Using

Level 1

Level 2

Level 3

Total

— $

—

— $

—

1,129 $

111

1,240 $

— $

—

— $

1,129

111

1,240

(8,237) $

— $

(8,237)

(340,767)

(42,306)

(383,073)

— $

(349,004) $

(42,306) $

(391,310)

At December 31, 2020, vested stock warrants from the 2018 Amazon agreements having an exercise price of
$20.40 were valued at $15.49 each using a risk-free interest rate of 0.36% and a stock volatility of 40%, based on the
time period corresponding with the expiration period of the warrants. At December 31, 2019, vested stock warrants

from the 2016 Amazon agreements having an exercise price of $9.73 were valued at $13.93 each using a risk-free
interest rate of 1.6% and a stock volatility of 35%, based on the time period corresponding with the expiration period
of the warrants. At December 31, 2019, vested stock warrants from the 2018 Amazon agreements having an
exercise price of $21.53 were valued at $9.30 each, using a risk-free interest rate of 1.8% and a stock volatility of
35.0%, based on the time period corresponding with the expiration period of the warrants. At December 31, 2020
and 2019, unvested stock warrants from the 2018 Amazon agreement were valued using additional assumptions for
an expected grant date, expected exercise price, the risk free rate to the expected grant date and the probabilities that
future leases will occur.

As a result of lower 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 $70.8 million more than the carrying value, which was $1,479.1 million at December 31, 2020. As of
December 31, 2019, the fair value of the Company’s debt obligations was approximately $2.7 million less than the
carrying value, which was $1,484.4 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,
2020
2,856,142 $
65,857
36,193
231,451
3,189,643
(1,249,867)
1,939,776 $

December 31,
2019
2,598,113
59,628
33,649
220,827
2,912,217
(1,146,197)
1,766,020

CAM owned aircraft with a carrying value of $1,097.6 million and $889.3 million that were under lease to

external customers as of December 31, 2020 and 2019, respectively.

During the second quarter, the Company decided to retire its four Boeing 757 freighter aircraft as a result of
customer preferences for other aircraft types. Three of the Boeing 757 freighter airframes have been removed from
service and are available for sale. One remained in service through January 2021. The Pratt and Whitney engines
that power these aircraft remain in use for lease to external customers. Separating the Boeing 757 freighters and
engines while marketing the airframes, triggered a fair value assessment. As a result, an impairment charge totaling
$39.1 million was recorded primarily to reflect the market value of these assets as well as other surplus engines and
parts. Fair values were determined using Level 3 inputs based primarily on independent appraisals and recent
market transactions as well as the Company’s assessment of existing market conditions based on industry
knowledge.

NOTE G—DEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

Unsubordinated term loans

Revolving credit facility

Senior notes

Convertible debt

Other financing arrangements

Total debt obligations

Less: current portion

Total long term obligations, net

December 31,

2020

2019

612,169 $

140,000

493,376

222,391

11,141

626,277

632,900

—

213,461

11,746

1,479,077

1,484,384

(13,746)

(14,707)

1,465,331 $

1,469,677

The Company utilizes a syndicated credit agreement ("Senior Credit Agreement") which includes
unsubordinated term loans and a revolving credit facility. The Senior Credit Agreement has a maturity date of
November 2024 provided certain liquidity measures are maintained during 2024 and has incremental accordion
capacity based on debt ratios. The interest rate is a spread of LIBOR based financing at various ratios of the
Company's debt to its earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). The
maximum revolver capacity is $600.0 million. As of December 31, 2020, the unused revolving credit facility
available to the Company at the trailing twelve month EBITDA level was $446.1 million, and additional permitted
indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0
million.

On January 28, 2020, the Company, through a subsidiary, completed a debt offering of $500.0 million in senior
unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the
United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and
certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured
obligations that bear interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1
of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The Senior Notes
contain customary events of default and certain covenants which are generally no more restrictive than those set
forth in the Senior Credit Agreement. The net proceeds of $495.0 million from the Senior Notes were used to pay
down the revolving credit facility. The Senior Notes did not require principal payments in 2020.

The balance of the unsubordinated term loan is net of debt issuance costs of $7.0 million and $8.7 million for
the years ended December 31, 2020 and 2019, respectively. The balance of the Senior Notes is net of debt issuance
costs of $6.6 million as of December 31, 2020. 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 loan and revolving credit facility bear variable interest rates of 1.4% and 1.4%, respectively. The Senior Notes
bear a fixed rate of 4.75%.

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
115% of the outstanding balance of the term loan 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 of $600.0 million.

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 calendar year, provided the Company's total debt to EBITDA
ratio is under 3.50 times and the secured debt to EBITDA ratio is under 3.1 times, after giving effect to the dividend
or repurchase. The Senior Credit Agreement contains covenants, including a maximum permitted total EBITDA to
debt ratio, a fixed charge covenant ratio requirement, limitations on certain additional indebtedness, and on
guarantees of indebtedness. 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 (" Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule
144A under the Securities Act. The Convertible 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 Convertible Notes mature
on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The
Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured
indebtedness and other liabilities, including trade payables. Conversion of the Convertible 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 Convertible 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 Convertible 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 Convertible 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 Convertible
Notes) occurs, the Company will, in certain circumstances, increase the conversion rate for a specified period of
time.

In conjunction with the Convertible 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 Convertible 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 Convertible 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 Convertible Notes outstanding with cash. The Convertible 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 Convertible Notes required bifurcation from the principal amount under the
applicable accounting guidance. Settlement provisions of the Convertible 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 Convertible Notes. As a result, the
conversion feature of the Convertible 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 Convertible Notes. The Company reevaluated the Convertible 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. On May 10, 2018, the fair value of the
conversion feature of the Convertible Notes and the convertible note hedges of $51.3 million and $50.6 million,
respectively, were reclassified to paid-in capital and are no longer remeasured to fair value.

The net proceeds from the issuance of the Convertible Notes was 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,

2020

2019

258,750

(3,894)

(32,465)

222,391

258,750

(4,864)

(40,425)

213,461

In conjunction with the offering of the Convertible 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 share 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, 2020, for the

next five years are as follows (in thousands):

2021

2022

2023

2024

2025

2026 and beyond

Total principal cash payments

Less: unamortized issuance costs and discounts

Total debt obligations

Principal
Payments

16,491

32,378

32,389

939,150

661

507,947

1,529,016

(49,939)

1,479,077

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 twenty-five percent of the outstanding balance of the term loan
issued in November 2018. Accordingly, the Company entered into additional interest rate swaps in December 2018
and January 2019 having initial values of $150.0 million and $150.0 million, respectively, and forward start dates of
December 31, 2018 and June 28, 2019. 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
March 31, 2022
March 31, 2023

December 31, 2020

December 31, 2019

Stated
Interest
Rate

Notional
Amount

Market
Value
(Liability)

Notional
Amount

Market
Value
(Liability)

1.090 %

1.703 %

2.706 %

1.900 %

1.950 %

2.425 %

13,125

138,750

50,000

75,000

140,625

(41)

(80)

(3,551)

(1,116)

(1,722)

(6,904)

20,625

146,250

50,000

75,000

148,125

111

(25)

(3,242)

(408)

(696)

(3,866)

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 $5.3 million,
$10.0 million and $8.0 thousand for the years ending December 31, 2020, 2019 and 2018, 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 during the year ended
December 31, 2018 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

CARES Act and Payroll Support Program Extension

During 2020, two of the Company's airline subsidiaries, OAI and ATI, received government funds totaling $75.8
million pursuant to payroll support program agreements under the Coronavirus Aid, Relief, and Economic Security
Act (“CARES Act”). The grants are not required to be repaid if the Company complies with provisions of the
CARES Act and the payroll support program agreements. The grants are recognized over the periods in which the
Company recognizes the related expenses for which the grants are intended to compensate. The Company
recognizes the grants as contra-expense during the periods in which passenger flight operations and combi flight
operations levels are expected to be negatively impacted by the pandemic. During the year ended December 31,
2020, the Company recognized $47.2 million of the grants and deferred recognition of $28.5 million. The Company
expects to recognize all of the CARES Act funds by June of 2021.

In February 2021, OAI was approved for $37.4 million of additional non-repayable government funds pursuant
to a payroll support program agreement under Subtitle A of Title IV of Division N of the Consolidated
Appropriations Act, 2021 (the “PSP Extension Law”). The grants are not required to be repaid if the Company
complies with provisions of the PSP Extension Law and the payroll support program agreements. OAI has received
$18.7 million and expects the remainder to be received by March 31, 2021.

In conjunction with the payroll support program agreements, the airlines agreed to refrain from conducting
involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020. OAI further
agreed to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through
March 31, 2021. The airlines agreed to limit, on behalf of themselves and certain of their affiliates, executive
compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be

required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain
certain internal controls and records relating to the funds and comply with certain reporting requirements. OAI
further agreed to limit, on behalf of themselves and certain of their affiliates, executive compensation through
October 1, 2022. In addition, the Company may not pay dividends or repurchase its shares through March 31, 2022.

Lease Commitments

The Company leases property, six aircraft, aircraft engines and other types of equipment under operating leases.
Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and
lease terms ranging from one month to six years. The Company is obligated to pay the lessor for maintenance, real
estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are
not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable lease
expense when incurred and are not material. Equipment leases include ground support and industrial equipment as
well as computer hardware with fixed rent payments and terms of one month to five years.

The Company records the initial right-to-use asset and lease liability at the present value of lease payments
scheduled during the lease term. For the year ended December 31, 2020 and 2019, non-cash transactions to
recognize right-to-use assets and corresponding liabilities for new leases were $46.5 million and $17.0 million,
respectively. Unless the rate implicit in the lease is readily determinable, the Company discounts the lease payments
using an estimated incremental borrowing rate at the time of lease commencement. The Company estimates the
incremental borrowing rate based on the information available at the lease commencement date, including the rate
the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company's
weighted-average discount rate for operating leases at December 31, 2020 and 2019 was 2.9% and 4.7%,
respectively. Leases often include rental escalation clauses, renewal options and/or termination options that are
factored into the determination of lease payments when appropriate. Although not material, the amount of such
options is reflected below in the maturity of operating lease liabilities table. Lease expense is recognized on a
straight-line basis over the lease term. Our weighted-average remaining lease term is 4.5 years and 4.6 years as of
December 31, 2020 and 2019, respectively.

For the year ended December 31, 2020 and 2019, cash payments against operating lease liabilities were $17.3
million and $19.7 million, respectively. As of December 31, 2020, the maturities of operating lease liabilities are as
follows (in thousands):

2021

2022

2023

2024

2025

2026 and beyond

Total undiscounted cash payments

Less: amount representing interest

Present value of future minimum lease payments

Less: current obligations under leases

Long-term lease obligation

Purchase Commitments

Operating Leases

19,460

15,183

13,941

12,637

8,691
3,348

73,260

(4,348)

68,912

17,784

51,128

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. As of December 31, 2020, the Company had eight aircraft that were in
or awaiting the modification process. As of December 31, 2020, the Company had placed non-refundable deposits of
$19.9 million to purchase five more Boeing 767-300 passenger aircraft through 2021. As of December 31, 2020, the
Company's commitments to acquire and convert aircraft totaled $195.4 million through 2022.

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, 2020, 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

OAI

ATI

OAI

Labor Agreement Unit

International Brotherhood of Teamsters

Air Line Pilots Association

International Brotherhood of Teamsters

Association of Flight Attendants

Percentage of
the
Company’s
Employees

4.4%

8.2%

6.6%

0.7%

6.9%

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 crewmembers, 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 obligations. The
assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related
expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other
assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results
and future changes in these assumptions could result in future costs significantly higher than those recorded in our
results of operations.

ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding
ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated
benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current
employees.

Funded Status (in thousands):

Accumulated benefit obligation
Change in benefit obligation
Obligation as of January 1
Service cost
Interest cost
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
Employer contributions
Benefits paid
Settlement payments
Fair value as of December 31

Funded status

Overfunded plans, net asset
Underfunded plans

Current liabilities
Non-current liabilities

Pension Plans

Post-retirement
Healthcare Plans

2020

2019

2020

2019

873,826 $

779,031 $

3,484 $

3,707

779,031 $
—
27,880
2,895
(34,218)
(2,435)

100,673
873,826 $

746,763 $
120,057
2,895
10,833
(34,218)
(2,435) $
843,895 $

690,729 $
—
31,299
3,313
(31,718)

—
85,408

779,031 $

625,646 $
144,108
3,313
5,414
(31,718)
— $
746,763 $

3,707 $
139
91
—
(362)
(17)
(74)
3,484 $

— $
—
—
362
(362)
— $
— $

3,824
107
148
—
(365)
—
(7)
3,707

—
—
—
365
(365)
—
—

3,447 $

4,996 $

— $

—

(1,348) $
(32,030) $

(3,796) $
(33,468) $

(415) $
(3,069) $

(431)
(3,276)

$
$

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, 2020, 2019 and 2018, 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

2020

2019

2018

2020

2019

2018

— $

139 $

27,880

31,299

29,135

(44,673)

(37,907)

(42,093)

(424)

—

3,763

15,528

3,547

—

(17)

—

124

107

148

—

172

$ (13,454) $

8,920 $

(9,411) $

337 $

427 $

123

127

—

219

469

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

Accumulated other comprehensive loss

Pension Plans

Post-Retirement
Healthcare Plans

2020

2019

2020

2019

— $

111,820
$ 111,820 $ 89,871 $

89,871

— $

833
833 $

—

1,031
1,031

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 2021 is $7.1 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

2020

2.55%

2.75%

5.75%

Pension Plans

2019

3.65%

3.70%

6.10%

2018

4.65%

6.20%

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 1.30%, 2.60% and 4.10% for
pilots at December 31, 2020, 2019 and 2018, 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 affect 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
2020

2019

1 %
30 %
69 %
100 %

— %
26 %
74 %
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 2020 and 2019, the Company made contributions to its defined benefit plans of $10.8 million and $5.4
million, respectively. The Company estimates that its contributions in 2021 will be approximately $1.7 million for
its defined benefit pension plans and $0.4 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):

2021

2022

2023

2024

2025
Years 2026 to 2030

Fair Value Measurements

Pension
Benefits

Post-retirement
Healthcare
Benefits

38,035 $

41,229

43,907

45,804

47,565

242,354

415

462

512

499

467

1,390

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, 2020

Fair Value Measurement Using

Plan assets

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Benefit Plan Assets

Level 1

Level 2

Total

— $

5,055 $

19,852

—

545

501

237,063

580,476

20,397 $

823,095 $

5,055

20,353

237,063

581,021

843,492

Investments measured at net asset value ("NAV")

Total benefit plan assets

403

843,895

As of December 31, 2019

Fair Value Measurement Using

Plan assets

Common trust funds

Corporate stock

Mutual funds

Fixed income investments

Benefit Plan Assets

Level 1

Level 2

Total

— $

3,467 $

14,553

59,710

—

442

117,067

549,441

74,263 $

670,417 $

3,467

14,995

176,777

549,441

744,680

Investments measured at net asset value ("NAV")

Total benefit plan assets

2,083

746,763

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 tradable and have valuations that are not
based on readily observable data inputs. The fair value of these assets is estimated based on information provided by
the fund managers or the general partners. 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

As of December 31, 2020

Hedge Funds & Private Equity

Real Estate

Total investments measured at NAV

As of December 31, 2019

Hedge Funds & Private Equity

Real Estate

Total investments measured at NAV

403

—

403

2,083

—

2,083

(1) (2)

(3)

90 days

(1) (2)

(3)

90 days

—

(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 $15.4 million, $12.6 million and $9.0 million for the years ended December 31, 2020, 2019 and 2018,
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.

At December 31, 2020, the Company had cumulative net operating loss carryforwards (“NOL CFs”) for federal
income tax purposes of approximately $316.5 million, which do not expire but whose use may be limited to 80% of
taxable income in any given year. The deferred tax asset balance includes $3.8 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, the timing of amortization related to Amazon warrants and cash contributions for its benefit plans. At
December 31, 2020 and 2019, the Company determined that, based upon projections of taxable income, it was more
likely than not that the Federal NOL CF’s will be utilized, accordingly, no allowance against these deferred tax
assets was recorded. The Company had alternative minimum tax credits of $3.1 million which were recovered in
2020.

The significant components of the deferred income tax assets and liabilities as of December 31, 2020 and 2019

are as follows (in thousands):

December 31

2020

2019

Deferred tax assets:

Net operating loss carryforward and federal credits

71,762 $

Operating lease obligation

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

Operating lease assets

Goodwill

State taxes

Valuation allowance against deferred tax assets

Deferred tax liabilities

Net deferred tax (liability)

14,472

33,940

7,140

8,545

2,288

12,608

9,366

160,121

40,467

9,070

17,174

6,355

9,435

2,055

5,132

9,309

98,997

(257,765)

(192,651)

(6,044)

(14,264)

(9,877)

(11,143)

(2,293)

(6,088)

(9,051)

(4,916)

(12,355)

(1,412)

(301,386)

(226,473)

(141,265) $

(127,476)

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

Years Ended December 31

2020

2019

2018

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
$

(1,332) $

1,332 $

—

1,235

19,701

—

138

14,155

—

(1,209)

(3,677)

—

18,492

—

10,478

16,314 $

11,589 $

2,081 $

360 $

—

1,043

15,642

(63)

2,973

—

18,552

19,595

434

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 to state statutory tax rates

Other

Effective income tax rate

Years Ended December 31

2020

2019

2018

21.0 %

— %

5.1 %

16.6 %

— %

3.2 %

(5.4) %

(1.1) %

39.4 %

21.0 %

— %

1.4 %

(2.9) %

— %

1.7 %

(5.4) %

0.4 %

16.2 %

21.0 %

(0.1) %

(0.2) %

(1.5) %

(0.8) %

0.8 %

3.8 %

(0.6) %

22.4 %

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
2019

2018

2020

21.0 %
1.8 %
— %
22.8 %

21.0 %
2.6 %
— %
23.6 %

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, 2020, 2019 and 2018, 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 2020, 2019 and
2018.

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 2019, 2018 and 2017 related to the
consolidated group remain open to examination. The consolidated federal tax returns prior to 2017 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 2019 are generally also open to examination by their respective jurisdictions, either in
full or limited to net operating losses. The 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, 2020, 2019 and 2018 (in thousands):

Balance as of January 1, 2018

Other comprehensive income (loss) before reclassifications:

Defined
Benefit
Pension
(60,575)

Defined
Benefit Post-
Retirement

Foreign
Currency
Translation

(1,097)

(1,348)

Total
(63,020)

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

(41,051)

—

117
—

—
(171)

(40,934)
(171)

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

Other comprehensive income (loss) before reclassifications:

3,547
9,037

(28,467)
(89,042)

219
(80)

256
(841)

—
40

3,766
8,997

(131)
(1,479)

(28,342)
(91,362)

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

20,793

—

20,800

(18)

Amounts reclassified from accumulated other comprehensive
income:

Foreign currency loss

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, 2019

Other comprehensive income (loss) before reclassifications:

—

2,253

15,528
(8,431)

27,890
(61,152)

172
(40)

139
(702)

—
(768)

1,467

(12)

2,253

15,700
(9,239)

29,496
(61,866)

Actuarial gain (loss) for retiree liabilities

Foreign currency translation adjustment

(25,712)

—

(25,638)

(2)

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, 2020

3,763
5,008

(16,941)

(78,093)

124
(45)

153

(549)

—
—

3,887
4,963

(2)

(16,790)

(14)

(78,656)

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

2020

2019

2018

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Weighted
average
grant-date
fair value

Number of
Awards

Outstanding at beginning of period

963,832 $

17.67

969,928 $

15.89

873,849 $

12.30

Granted

Converted

Expired

Forfeited
Outstanding at end of period

Vested

437,054

(278,163)

(34,100)

(3,600)

18.85

21.34

19.40

21.62

302,596

(291,064)

(7,900)

(9,728)

23.22

17.14

23.78

23.37

304,795

(205,616)

(500)

(2,600)

24.18

12.74

28.38

26.76

1,085,023 $

17.14

963,832 $

17.67

969,928 $

15.89

460,685 $

13.00

476,389 $

11.11

463,422 $

10.25

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 $18.39, $22.80 and $25.15 for 2020, 2019 and 2018, 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 $20.41, $24.75 and $31.60 for 2020, 2019 and 2018, respectively. The market
condition awards were valued using a Monte Carlo simulation technique based on volatility over three years for the
awards granted in 2020, 2019 and 2018 using daily stock prices and using the following variables:

Risk-free interest rate

Volatility

2020

0.7%

35.0%

2019

2.5%

35.6%

2018

2.4%

33.8%

For the years ended December 31, 2020, 2019 and 2018, the Company recorded expense of $7.5 million, $7.0
million and $5.0 million, respectively, for stock incentive awards. At December 31, 2020, there was $6.8 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, 2020, none of the awards were convertible, 353,023 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 1,360,198 additional outstanding shares of the Company’s
common stock depending on service, performance and market results through December 31, 2022.

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

2020

2019

2018

25,079 $

59,983 $

67,883

—

(6,219)

(7,118)

25,079 $

53,764 $

60,765

59,128

58,899

58,765

803

59,931

10,449

69,348

0.42 $

0.42

1.02 $

0.78 $

9,591

68,356

1.16

0.89

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares
outstanding due to 365,100 shares, 317,600 shares and 329,600 shares of restricted stock for 2020, 2019 and 2018,
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 an 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.

NOTE O—SEGMENT AND REVENUE INFORMATION

The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft
leasing operations. 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 Company's aircraft maintenance services, aircraft modification services, ground services 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

All other

Eliminate inter-segment revenues

Total

Customer revenues:

CAM

ACMI Services

All other

Total

Year Ended December 31
2019

2018

2020

308,661 $

285,276 $

1,147,279

1,078,288

334,300

(219,665)

314,014

(225,395)

228,956

548,839

286,579

(172,029)

1,570,575 $

1,452,183 $

892,345

205,047 $

168,106 $

1,147,252

1,078,143

218,276

205,934

1,570,575 $

1,452,183 $

156,516

548,804

187,025

892,345

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. Any sales commissions paid for charter agreements are generally expensed when incurred
because the amortization period is less than one year. 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.)

The Company's 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. Services for airframe maintenance and aircraft
modifications typically have project durations lasting a few weeks to a few months. Other 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 services are completed. For airframe maintenance, aircraft modifications and aircraft
component repairs, contracts include assurance warranties that are not sold separately.

The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft
modification contracts using the costs to costs 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.
Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of
progress toward contract obligations. 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. These
production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs
closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project.
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 ground services revenues include load transfer and sorting services, facility and equipment
maintenance services. These revenues are recognized as the services are performed for the customer over time.
Revenues from related facility and equipment maintenance services are recognized over time and at a point in time
depending on the nature of the customer contracts.

The Company's external customer revenues from other activities for the years ending December 31, 2020, 2019

and 2018 are presented below (in thousands):

Year Ended December 31,

2020

2019

2018

Aircraft maintenance, modifications and part sales

114,425 $

117,772 $

117,832

Ground services

Other, including aviation fuel sales

Total customer revenues

73,949

29,902

69,596

18,566

66,567

2,626

218,276 $

205,934 $

187,025

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. CAM's leases do not contain residual guarantees. Approximately 14% of CAM's leases to external
customers contain purchase options at projected market values. As of December 31, 2020, minimum future
payments from external customers for leased aircraft and equipment were scheduled to be $222.4 million, $195.5
million, $150.5 million, $99.8 million and $90.7 million, respectively, for each of the next 5 years ending December
31, 2025 and $202.2 million thereafter.

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 $2.8 million of non lease revenue that was reported in deferred revenue at the beginning of the
year, compared to $2.8 million in 2019. Deferred revenue was $3.0 million and $3.0 million at December 31, 2020
and 2019, respectively, for contracts with customers.

The Company had revenues of approximately $699.2 million, $716.9 million and $231.8 million for 2020, 2019
and 2018, 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, 2020 and 2019, the Company had 22 and 20 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

All other

Total
Interest expense

CAM

ACMI Services

Segment earnings (loss):

CAM

ACMI Services

All other

Net unallocated interest expense

Government grants

Impairment of aircraft and related assets

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,
2019

2018

2020

172,003 $

158,470 $

126,856

101,748

4,316

96,191

2,871

49,068

2,971

278,067 $

257,532 $

178,895

39,304

20,542

38,300

24,950

77,424 $

68,643 $

66,897

(5,933)

(2,825)

47,231

(39,075)

(100,771)

—

12,032

(13,587)

32,055

13,422

(3,024)

—

(12,302)

(373)

(9,404)

21,819

6,269

65,576

11,448

11,170

(460)

—

7,296

(5,264)

8,180

41,393 $

71,572 $

87,478

(17,445)

(10,468)

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

All other

Total

December 31

2020

2019

2018

2,037,628 $

1,857,687 $

1,577,182

811,516

152,601

830,620

131,871

759,131

134,272

3,001,745 $

2,820,178 $

2,470,585

During 2020, the Company had capital expenditures for property and equipment of $73.4 million and $429.6

million for the ACMI Services and CAM, 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. For the years ending December 31, 2020 and 2019, the Company had
liabilities of $7.2 million and $15.2 million, respectively, for employee compensation and benefits. During 2020,
2019 and 2018, pre-tax earnings from discontinued operations were $9.1 million, $1.6 million and $1.8 million,
respectively.

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

As described in Note C, the Company had investments in two non-consolidated affiliates. 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 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,

2020

2019

2018

133 $

(19,166)

(19,033) $

114,265 $

(143,775)

(29,510) $

202,028

(228,169)

(26,141)

The following table presents combined condensed balance sheet information for our unconsolidated affiliates (in

thousands):

Current assets

Non current assets

Current liabilities

Non current liabilities

Equity

December 31,

2020

2019

10,154 $

495

(1,127)

—

(9,522) $

64,392

213,940

(155,451)

(123,837)

956

NOTE R—QUARTERLY RESULTS (Unaudited)

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

2020 (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

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

389,277 $

377,794 $

404,146 $ 399,358

49,807

133,733

3,772

59,040

67,947

23,178

73,970

59,435

(105,162)

(5,745)

236

154

2,253

2,874

59,130

59,146

59,195

70,074

Basic

Diluted

2.27 $

0.84 $

(1.78) $

(0.10) $

0.04

0.03

2019 (2)
Revenues from continuing operations

Operating income from continuing operations

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

Weighted average shares:

Basic

Diluted

348,183 $

334,576 $

366,073 $ 403,351

46,528

22,634

58,838

60,437

37,482

40,766

52,221

(26,632)

105,085

(41,104)

243

914

58,909

58,919

68,718

58,929

Earnings (loss) per share from continuing operations

Basic

Diluted

0.38 $

0.25 $

(0.45) $

1.78 $

0.19 $

(0.70)

1. During 2020, the Company recorded a $107.0 million gain, a $109.7 million loss, a $53.4 million loss and a $44.7
million loss on the remeasurement of financial instruments, primarily related to the warrants issued to Amazon for the
quarters ended March 31, 2020, June 30, 2020, September 30, 2020 and December 31, 2020, respectively. During
2020, the Company recorded an impairment charge of $39.1 million on aircraft and related assets for the quarter ended
September 30, 2020. Also during 2020, the Company has recognized $9.8 million, $21.7 million and $15.7 million of
the government grants pursuant to the payroll support program under the Coronavirus Aid, Relief and Economic
Security Act into operating expenses for the quarters ended June 30, 2020, September 30, 2020 and December 31,
2020.

2. During 2019, the Company recorded a $4.5 million gain, a $35.9 million loss, a $92.0 million gain and a $72.9 million
loss on the remeasurement of financial instruments, primarily related to the warrants issued to Amazon for the quarters
ended March 31, 2019, June 30, 2019, September 30, 2019 and December 31, 2019, 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, 2020, the Company carried out an evaluation, under the supervision and with the
participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the
design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon the
evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective to ensure that information required to be disclosed by the
Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and
reported within time periods specified in the Securities and Exchange Commission rules and forms and is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There were no changes in internal control over financial reporting during the most recently completed fiscal
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, 2020. 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).

Based on management’s assessment of those criteria, management believes that, as of December 31, 2020, the

Company’s internal control over financial reporting was effective.

The effectiveness of our internal controls over financial reporting as of December 31, 2020 has been audited by

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

March 1, 2021

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, 2020, 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, 2020, 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, 2020, of the Company and our report dated March 1, 2021, expressed an unqualified opinion on those
consolidated financial statements and financial statement schedule.

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, 2021

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 2021
Annual Meeting of Stockholders under the captions “Election of Directors,” “Beneficial Ownership of Common
Shares --Delinquent Section 16(a) Reports” 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
Richard F. Corrado

Age
61

Quint O. Turner

Information
President and Chief Executive Officer, Air Transport Services
Group, Inc., since May 2020 and President of Air Transport Services
Group, Inc. since September 2019.

Chief Operating Officer, Air Transport Services Group, Inc., from
September 2017 to September 2019. 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 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.

Edward J. Koharik

W. Joseph Payne

Michael L. Berger

Chief Operating Officer, Air Transport Services Group, Inc. since
September 2019. Before joining ATSG, Mr. Koharik served as Vice
President of FlightSafety International, a global provider of flight
training for commercial, business and military aviation professionals
and flight simulation equipment, from January 2019 to September
2019. He was the General Manager and Executive Director of
FlightSafety International Visual Systems from 2015 to 2018. He
served as the Enterprise Readiness Center Chief for the U.S.
Transportation Command from 2011 to 2015.

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.
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 and serve at the pleasure of the Board of Directors. 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 2021

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 2021
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 2021

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 2021

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, 2020
December 31, 2019
December 31, 2018

Schedule II—Valuation and Qualifying Account

Balance at
beginning
of period

Additions
charged to
cost and expenses

Deductions

Balance at end
of period

974,882 $

880,967 $

858,989 $

1,443,805
2,445,310

2,277,217
596,000

2,746,140
1,597,505

996,860
974,882
1,443,805

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

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

(3)

Exhibits

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

Exhibit No.

Description of Exhibit
Articles of Incorporation

3.1

3.2

3.3

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

First Amendment to Restated Certificate of Incorporation of Air Transport Services Group, Inc.
(34)

Amended and Restated Bylaws of Air Transport Services Group, Inc. (16)

100

4.1

4.2

4.3

4.4

4.5

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8

10.9

10.10

10.11

10.12

10.13

10.14

10.15

10.16

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 Notes due 2024 (included in Exhibit 4.1). (28)

Description of Capital Stock registered under the Securities Exchange Act. (38)

Indenture, dated January 28, 2020, by and among Cargo Aircraft Management, Inc., Air
Transport Services Group, Inc., the guarantors named therein and Regions Bank, as trustee (37)

Form of 4.750% Senior Notes due 2028 (included in Exhibit 4.4). (37)

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)

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)

101

10.17

10.18

10.19

10.20

10.21

10.22

10.23

10.24

10.25

10.26

10.27

10.28

10.29

10.30

10.31

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)

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)

102

10.32

10.33

10.34

10.35

10.36

10.37

10.38

10.39

10.40

10.41

10.42

10.43

10.44

10.45

10.46

10.47

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)

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)

103

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

10.62

10.63

10.64

10.65

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)

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. (32)

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. (32)

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. (32)

Investment Agreement, dated as of December 20, 2018, 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. (32)

104

10.66

10.67

10.68

10.69

10.70

10.71

10.72

10.73

10.74

10.75

Warrant to Purchase Common Stock, issued December 20, 2018, by and between Air Transport
Services Group, Inc. and Amazon.com, Inc. 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. (32)

Amended and Restated Stockholders Agreement, dated as of December 20, 2018, 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. (33)

First Amendment to Second Amended and Restated Credit Agreement, dated as of February 13,
2019, by and among Cargo Aircraft Management, Inc., as Borrower; Air Transport Services
Group, Inc.; each of the Guarantors party hereto; each of the financial institutions party hereto
as "Lenders"; and SunTrust Bank, in its capacity as Administrative Agent. (35)

Second Amendment to Second Amended and Restated Credit Agreement, dated as of May 24,
2019, by and among Cargo Aircraft Management, Inc., as Borrower; Air Transport Services
Group, Inc.; each of the financial institutions party hereto as "Lenders"; and SunTrust Bank, in
its capacity as Administrative Agent. (35)

Third Amendment to Second Amended and Restated Credit Agreement, dated as of November
4, 2019, by and among Cargo Aircraft Management, Inc., as Borrower; Air Transport Services
Group, Inc.; each of the financial institutions party hereto as "Lenders"; and SunTrust Bank, in
its capacity as Administrative Agent. (36)

Fourth Amendment to Second Amended and Restated Credit Agreement, dated as of January
28, 2020, by and among Cargo Aircraft Management, Inc., as Borrower; Air Transport Services
Group, Inc.; each of the financial institutions party thereto as Lenders; and SunTrust Bank, in its
capacity as Administrative Agent. (37)

Payroll Support Program Agreement, dated May 20, 2020, by and between Omni Air
International, LLC and the U.S. Department of Treasury under the Coronavirus Aid, Relief and
Economic Security Act. (39)

Payroll Support Program Agreement, dated May 29, 2020, by and between Air Transport
International, Inc. and the U.S. Department of Treasury under the Coronavirus Aid, Relief and
Economic Security Act. (39)

Warrant to Purchase Common Stock, issued May 29, 2020, by and between Air Transport
Services Group, Inc. and Amazon.com, Inc. Those portions of this Agreement marked with an
[*] have been excluded because the information is both (i) not material and (ii) would be
competitively harmful if publicly disclosed. (39)

Amendment to Warrants to Purchase Common Stock, issued December 14, 2020, by and
between Air Transport Services Group, Inc. and Amazon.com, Inc., filed herewith.

105

14.1

21.1

23.1

31.1

31.2

32.1

32.2

Code of Ethics

Code of Ethics—CEO and CFO. (1)

List of Significant Subsidiaries

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

Consent of experts and counsel

Consent of independent registered public accounting firm, filed herewith.

Certifications

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

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

101.INS

101.SCH

101.CAL

101.DEF

101.LAB

101.PRE

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Labels Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

____________________
(1)
(2)

The Company's Code of Ethics can be accessed from the Company's Internet website at www.atsginc.com.
Incorporated by reference to the Company’s Quarterly Report on Form 10-Q, filed with the Securities and
Exchange Commission on 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 2019 Annual Meeting of Stockholders,
Corporate Governance and Board Matters, filed March 29, 2019 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.

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

106

(12)

(13)

(14)

(15)

(16)

(17)

(18)

(19)

(20)

(21)

(22)

(23)

(24)

(25)

(26)

(27)

(28)

(29)

(30)

(31)

(32)

(33)

(34)

(35)

(36)

(37)

Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on June 18, 2012.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on July 24, 2012.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 2, 2012.
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 4, 2013. Those portions of the Agreement marked with an [*] have been
omitted pursuant to a request for confidential treatment and have been filed separately with the SEC.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on March 24, 2020.
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.
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.
Incorporated by reference to the Company's Annual Report on Form 10-K filed with the Securities and
Exchange Commission on March 1, 2019.
Incorporated by reference to the Company's Annual Report on Form 10-K/A filed with the Securities and
Exchange Commission on March 29, 2019.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 6, 2019.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on May 29, 2019.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on November 6, 2019.
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission
on January 28, 2020.

107

(38)

(39)

Incorporated by reference to the Company's Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on March 2, 2020.
Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2020.

ITEM 16. FORM 10-K SUMMARY

None.

108

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/ RICHARD F. CORRADO

Richard F. Corrado

Chief Executive Officer (Principal Executive
Officer)

March 1, 2021

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

following persons in the capacities and on the date indicated:

Signature

/S/ JOSEPH C. HETE
Joseph C. Hete

Title

Director and Chairman of the Board

/S/ RICHARD M. BAUDOUIN
Richard M. Baudouin

/S/ PHYLLIS J. CAMPBELL
Phyllis J. Campbell

Director

Date

March 1, 2021

/S/ RICHARD F. CORRADO
Richard F. Corrado

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

/S/ LAURA J. PETERSON
Laura J. Peterson

/S/ RANDY D. RADEMACHER
Randy D. Rademacher

/S/ J. CHRISTOPHER TEETS
J. Christopher Teets

/S/ JEFFREY J. VORHOLT
Jeffrey J. Vorholt

/S/ PAUL S. WILLIAMS
Paul S. Williams

/S/ QUINT O. TURNER
Quint O. Turner

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

March 1, 2021

Director

March 1, 2021

Lead Independent Director

March 1, 2021

Director

March 1, 2021

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

March 1, 2021

109

[This page intentionally left blank]

QUICK FACTS

+ + + + + + + + +

ANNUAL REPORT

At ATSG, we believe in being resilient and

creative. With that mentality, we help our

customers rise beyond their challenges and

grow in their success. With over 40 years in the

industry, ATSG has become the global leader in

midsize freighter leasing and the A/CMI market.

5300

EMPLOYEES

WORLDWIDE

+ + + + +

106106

AIRCRAFT

IN SERVICE

$1.571

BILLION IN

REVENUES, 2020

+ + + + +

REVENUE

BY CUSTOMER

777-200:3

767-300:62

767-200:36

757-200:5

ALL FIGURES AS OF 12/31/2020

$497

MILLION ADJ

EBITDA, 2020*

*Adjusted EBITDA is a non-GAAP measure. For an

explanation and a reconciliation to GAAP measures, see

our 8-K filed on March 8, 2021.

ATSG ADVANTAGE

| Largest global lessor of freighter aircraft.

| Delivers integrated operational solutions to customers.

| Business model minimally exposed to trade disruption

or business cycle.

customer base.

| Long-term leases and operating contracts with blue-chip

| Markets include air cargo and air express (package)

transport, and ACMI and charter passenger transport for

commercial and government entities.

| Headquarters located at the Wilmington Air Park in Ohio,

which also serves as a regional air hub for Amazon.

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

REGISTRAR &
REGISTRAR &
TRANSFER AGENT
TRANSFER AGENT
Computershare Investor Services
Computershare Investor Services
877.581.5548 or 781.575.2879
877.581.5548 or 781.575.2879
www.computershare.com/investor
www.computershare.com/investor
P.O. Box 505000
P.O. Box 505000
462 South 4th Street, Ste 1600
462 South 4th Street, Ste 1600
Louisville, KY 40233-5000
Louisville, KY 40233-5000

INVESTOR RELATIONS
INVESTOR RELATIONS
Inquiries may be directed to
Inquiries may be directed to
investor.relations@atsginc.com
investor.relations@atsginc.com

INDEPENDENT AUDITORS
INDEPENDENT AUDITORS
Deloitte & Touche LLP
Deloitte & Touche LLP
Cincinnati, OH
Cincinnati, OH

INVESTOR
INVESTOR
INVESTOR
INVESTOR
INFORMATION
INFORMATION

ANNUAL MEETING
ANNUAL MEETING
The annual meeting of stockholders will be May 26, 2021
The annual meeting of stockholders will be May 26, 2021
at 11am EDT via a live audio webcast at
at 11am EDT via a live audio webcast at
www.virtualshareholdermeeting.com/ATSG2021
www.virtualshareholdermeeting.com/ATSG2021

JOSEPH C HETE
JOSEPH C HETE
CEO of Air Transport Services
CEO of Air Transport Services
Group, Retired
Group, Retired

RICHARD M BAUDOUIN
RICHARD M BAUDOUIN
Senior Advisor for
Senior Advisor for
Infinity Transportation, Retired
Infinity Transportation, Retired

PHYLLIS J CAMPBELL
PHYLLIS J CAMPBELL
Chairman of the Pacific
Chairman of the Pacific
Northwest for JPMorgan
Northwest for JPMorgan
Chase & Co.
Chase & Co.

RICHARD F CORRADO
RICHARD F CORRADO
President & CEO of
President & CEO of
Air Transport Services Group
Air Transport Services Group

RAYMOND E JOHNS, JR
RAYMOND E JOHNS, JR
US Air Force General,
US Air Force General,
Retired
Retired

LAURA PETERSON
LAURA PETERSON
Fellow, Stanford Distinguished
Fellow, Stanford Distinguished
Careers Institute, and Vice
Careers Institute, and Vice
President, China Business
President, China Business
Development, Boeing Commercial
Development, Boeing Commercial
Airplanes, Retired
Airplanes, Retired

RANDY D RADEMACHER
RANDY D RADEMACHER
Senior Vice President,
Senior Vice President,
Strategy & Acquisitions at
Strategy & Acquisitions at
Reading Rock, Inc., and former
Reading Rock, Inc., and former
President, Comair Holdings, LLC
President, Comair Holdings, LLC

J CHRISTOPHER TEETS
J CHRISTOPHER TEETS
Founding Partner of Red
Founding Partner of Red
Mountain Capital Partners
Mountain Capital Partners
LLC
LLC

JEFFREY J VORHOLT
JEFFREY J VORHOLT
Independent Consultant &
Independent Consultant &
Private Investor, and former
Private Investor, and former
Chief Financial Officer of
Chief Financial Officer of
Structural Dynamics Research
Structural Dynamics Research
Corporation
Corporation

PAUL S WILLIAMS
PAUL S WILLIAMS
Partner & Managing Director of
Partner & Managing Director of
Major, Lindsey & Africa, LLC,
Major, Lindsey & Africa, LLC,
Retired
Retired

/ATSGinc

@airtransportservicesgroup

/air-transport-services-group

/atsginc

ANNUAL

REPORT

2021

Air Transport Services Group
145 Hunter Drive
Wilmington, OH 45177

atsginc.com