UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period June 30, 2023
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period March 31, 2024
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

26-1631624

Delaware26-1631624

(State or other jurisdiction of Incorporation)incorporation or organization)

(I.R.S. Employer Identification No.)

145 Hunter Drive, Wilmington, OH45177
(Address of principal executive offices)(Zip Code)
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

Trading Symbol(s)

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

ATSG

ATSG

The Nasdaq Stock Market LLC

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.

Large accelerated filer

Accelerated filer

Smaller reporting company

Non-accelerated filer

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  

As of August 7, 2023,May 9, 2024, there were 70,761,24365,723,557 shares of the registrant’s common stock outstanding.




AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

Page

Page

PART I. FINANCIAL INFORMATION

Item 1.

Item 2.

Item 3.

Item 4.

PART II. OTHER INFORMATION

Item 1.

Item 1A.

Item 2.

Item 6.5.

Other Information

Item 6.

4038

SIGNATURES

39




FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION

The financial information, including the financial statements, included in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2023March 31, 2024 (the "Form 10-Q") should be read in conjunction with the audited consolidated financial statements and notes thereto of Air Transport Services Group, Inc. ("ATSG" or the "Company") included in ATSG's Annual Report on Form 10-K for the year ended December 31, 2022,2023, filed with the Securities and Exchange Commission ("SEC") on March 1, February 29, 2024 ("2023 ("2022 Form 10-K").

The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding ATSG at www.sec.gov. Additionally, ATSG's filings with the 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.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

The Private Securities Litigation Reform Act of 1995 (“Act”(the “Act”) provides a safe harbor for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statements. The Company wishes to take advantage of the safe harbor provisions of the Act.

This Quarterly Report on Form 10-Q, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in Part I, Item 2, contains forward-looking statements, within the meaning of the Act. Except for historical information contained in this Form 10-Q, the matters discussed herein contain forward-looking statements that involve inherent risks and uncertainties. Such statements are provided under the “safe harbor” protection of the Act.

Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and levels of assets under management, technological developments, economic trends, expected transactions and similar matters. The words “may,” “believe,” “expect,” “anticipate,” “target,” “goal,” “project,” “estimate,” “guidance,” “forecast,” “outlook,” “will,” “continue,” “likely,” “should,” “hope,” “seek,” “plan,” “intend” and variations of such words and similar expressions identify forward-looking statements. Similarly, descriptions of the Company’s objectives, strategies, plans, goals or targets are also forward-looking statements. Forward-looking statements are susceptible to a number of risks, uncertainties and other factors. While the Company believes that the assumptions underlying its forward-looking statements are reasonable, investors are cautioned that any of the assumptions could prove to be inaccurate and, accordingly, the Company’s actual results and experiences could differ materially from the anticipated results or other expectations expressed in its forward-looking statements.

A number of important factors couldmay cause the Company’s actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to: (i) unplanned changes in the market demand for itsthe assets and services of the Company, including the loss of customers or a reduction in the level of services it performs for customers; (ii) its operating airlines’ ability to maintain on-time service and control costs; (iii) the cost and timing with respect to which it is able to purchase and modify aircraft to a cargo configuration; (iv) fluctuations in the Company’s traded share price and in interest rates, which may result in mark-to-market charges on certain financial instruments; (v) the number, timing, and scheduled routes of its aircraft deployments to customers; (vi) its ability to remain in compliance with key agreements with customers, lenders and government agencies; (vii) the impact of current supply chain constraints both within and outside the UnitesUnited States, which may be more severe or persist longer than it currently expects; (viii) the impact of athe current competitive labor market, which could restrict its ability to fill key positions; and (ix) changes in general economic and/or industry-specific conditions, including inflation.inflation and regulatory changes; and (x) other uncontrollable factors such as geopolitical tensions or conflicts and human health crises.  Other factors that could cause the Company’s actual results to differ materially from those indicated by such forward-looking statements are discussed in “Risk Factors” in Item 1A to the 20222023 Form 10-K and are contained from time to time in ATSG’sthe Company's other filings with the SEC, including its annual reports on Form 10-K and quarterly reports on Form 10-Q.

Readers should carefully review this Form 10-Q and should not place undue reliance on the Company’s forward-looking statements. The forward-looking statements were based on information, plans and estimates as of the date of



this Form 10-Q. New risks and uncertainties arise from time to time, and factors that the Company currently deems immaterial may become material, and it is impossible for the Company to predict these events or how they may affect it. The forward-looking statements were based on information, plans and estimates as of the date of this Form 10-Q. Except as may be required by applicable law, the Company undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. The Company does not endorse any projections regarding future performance that may be made by third parties.

CERTAIN DEFINED TERMS IN THIS FORM 10-Q

ATSG and its subsidiaries may sometimes be referred to in this Form 10-Q individually or collectively as the “Company,” “we,” “our,” or “us.” ATSG’s outstanding common stock, par value $0.01 per share, is referred to in this Form 10-Q as “common stock,” “common shares,” “stock” or “shares.”




1



PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

STATEMENTS.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

  

March 31, 2024

  

December 31, 2023

 

ASSETS

        

CURRENT ASSETS:

        

Cash, cash equivalents and restricted cash

 $23,181  $53,555 

Accounts receivable, net of allowance of $1,193 in 2024 and $1,065 in 2023

  219,946   215,581 

Inventory

  49,847   49,939 

Prepaid supplies and other

  22,386   26,626 

TOTAL CURRENT ASSETS

  315,360   345,701 

Property and equipment, net

  2,866,335   2,820,769 

Customer incentive

  57,049   60,961 

Goodwill and acquired intangibles

  479,874   482,427 

Operating lease assets

  49,140   54,060 

Other assets

  123,979   118,172 

TOTAL ASSETS

 $3,891,737  $3,882,090 

LIABILITIES AND STOCKHOLDERS’ EQUITY

        

CURRENT LIABILITIES:

        

Accounts payable

 $249,828  $227,652 

Accrued salaries, wages and benefits

  55,271   56,650 

Accrued expenses

  9,786   10,784 

Current portion of debt obligations

  54,768   54,710 

Current portion of lease obligations

  18,947   20,167 

Unearned revenue

  31,075   30,226 

TOTAL CURRENT LIABILITIES

  419,675   400,189 

Long term debt

  1,663,006   1,707,572 

Stock obligations

  1,626   1,729 

Post-retirement obligations

  17,504   19,368 

Long term lease obligations

  31,250   34,990 

Other liabilities

  89,235   64,292 

Deferred income taxes

  288,016   285,248 

TOTAL LIABILITIES

  2,510,312   2,513,388 

Commitments and contingencies (Note H)

          

STOCKHOLDERS’ EQUITY:

        

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; 65,702,385 and 65,240,961 shares issued and outstanding in 2024 and 2023, respectively

  657   652 

Additional paid-in capital

  838,402   836,270 

Retained earnings

  597,828   589,209 

Accumulated other comprehensive loss

  (55,462)  (57,429)

TOTAL STOCKHOLDERS’ EQUITY

  1,381,425   1,368,702 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 $3,891,737  $3,882,090 
 June 30, 2023December 31, 2022
ASSETS
CURRENT ASSETS:
Cash, cash equivalents and restricted cash$43,150 $27,134 
Accounts receivable, net of allowance of $1,186 in 2023 and $939 in 2022218,312 301,622 
Inventory57,648 57,764 
Prepaid supplies and other32,387 31,956 
TOTAL CURRENT ASSETS351,497 418,476 
Property and equipment, net2,678,980 2,402,408 
Customer incentive69,109 79,650 
Goodwill and acquired intangibles487,534 492,642 
Operating lease assets60,808 74,070 
Other assets104,637 122,647 
TOTAL ASSETS$3,752,565 $3,589,893 
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable$269,805 $192,992 
Accrued salaries, wages and benefits51,509 56,498 
Accrued expenses11,061 12,466 
Current portion of debt obligations645 639 
Current portion of lease obligations21,771 23,316 
Unearned revenue and grants38,654 21,546 
TOTAL CURRENT LIABILITIES393,445 307,457 
Long term debt1,514,737 1,464,285 
Stock obligations1,762 695 
Post-retirement obligations32,612 35,334 
Long term lease obligations40,032 51,575 
Other liabilities54,565 62,861 
Deferred income taxes272,208 255,180 
TOTAL LIABILITIES2,309,361 2,177,387 
Commitments and contingencies (Note H)
STOCKHOLDERS’ EQUITY:
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; 70,761,243 and 72,327,758 shares issued and outstanding in 2023 and 2022, respectively708 723 
Additional paid-in capital951,463 986,303 
Retained earnings587,045 528,882 
Accumulated other comprehensive loss(96,012)(103,402)
TOTAL STOCKHOLDERS’ EQUITY1,443,204 1,412,506 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$3,752,565 $3,589,893 

See notes to the unaudited condensed consolidated financial statements.



AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

REVENUES

 $485,517  $501,095 

OPERATING EXPENSES

        

Salaries, wages and benefits

  171,482   176,715 

Depreciation and amortization

  90,380   84,728 

Maintenance, materials and repairs

  49,883   43,833 

Fuel

  63,545   66,755 

Contracted ground and aviation services

  15,706   17,788 

Travel

  30,446   29,553 

Landing and ramp

  4,030   4,124 

Rent

  7,532   8,112 

Insurance

  2,736   2,548 

Other operating expenses

  16,773   19,516 
   452,513   453,672 

OPERATING INCOME

  33,004   47,423 

OTHER INCOME (EXPENSE)

        

Interest income

  239   215 

Non-service component of retiree benefit costs

  (1,085)  (3,218)

Net gain (loss) on financial instruments

  2,355   (1,740)

Loss from non-consolidated affiliate

  (79)  (406)

Interest expense

  (21,988)  (15,705)
   (20,558)  (20,854)
         

EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

  12,446   26,569 

INCOME TAX EXPENSE

  (3,827)  (6,428)

EARNINGS FROM CONTINUING OPERATIONS

  8,619   20,141 

EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES

      

NET EARNINGS

 $8,619  $20,141 
         

BASIC EARNINGS PER SHARE

        

Continuing operations

 $0.13  $0.28 

Discontinued operations

      

TOTAL BASIC EARNINGS PER SHARE

 $0.13  $0.28 
         

DILUTED EARNINGS PER SHARE

        

Continuing operations

 $0.13  $0.25 

Discontinued operations

      

TOTAL DILUTED EARNINGS PER SHARE

 $0.13  $0.25 
         

WEIGHTED AVERAGE SHARES

        

Basic

  64,973   71,802 

Diluted

  67,235   83,057 
Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
REVENUES$529,339 $509,668 $1,030,434 $995,528 
OPERATING EXPENSES
Salaries, wages and benefits170,458 162,797 347,173 324,559 
Depreciation and amortization82,691 81,372 167,419 163,443 
Maintenance, materials and repairs50,436 39,407 94,269 75,116 
Fuel67,271 73,102 134,026 133,460 
Contracted ground and aviation services19,682 20,153 37,470 38,484 
Travel31,222 28,480 60,775 52,679 
Landing and ramp4,744 4,085 8,868 8,663 
Rent8,274 7,068 16,386 13,731 
Insurance2,684 2,326 5,232 4,878 
Other operating expenses22,136 20,361 41,652 40,204 
459,598 439,151 913,270 855,217 
OPERATING INCOME69,741 70,517 117,164 140,311 
OTHER INCOME (EXPENSE)
Interest income180 15 395 24 
Non-service component of retiree benefit (loss) gains(3,218)5,388 (6,436)10,776 
Net gain on financial instruments1,818 6,011 78 8,707 
Loss from non-consolidated affiliate(2,107)(3,220)(2,513)(4,623)
Interest expense(16,672)(9,461)(32,377)(20,860)
(19,999)(1,267)(40,853)(5,976)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES49,742 69,250 76,311 134,335 
INCOME TAX EXPENSE(11,720)(15,040)(18,148)(30,329)
EARNINGS FROM CONTINUING OPERATIONS38,022 54,210 58,163 104,006 
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES— 882 — 882 
NET EARNINGS$38,022 $55,092 $58,163 $104,888 
BASIC EARNINGS PER SHARE
Continuing operations$0.54 $0.73 $0.82 $1.41 
Discontinued operations— 0.01 — 0.01 
TOTAL BASIC EARNINGS PER SHARE$0.54 $0.74 $0.82 $1.42 
DILUTED EARNINGS PER SHARE
Continuing operations$0.49 0.61 $0.73 1.18 
Discontinued operations— 0.01 — 0.01 
TOTAL DILUTED EARNINGS PER SHARE$0.49 0.62 $0.73 1.19 
WEIGHTED AVERAGE SHARES
Basic70,722 73,980 71,259 73,934 
Diluted79,515 89,449 81,276 89,098 

See notes to unaudited condensed consolidated financial statements.



AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

NET EARNINGS

 $8,619  $20,141 

OTHER COMPREHENSIVE INCOME:

        

Defined Benefit Pension

  1,984   3,705 

Defined Benefit Post-Retirement

  (17)   
         

TOTAL COMPREHENSIVE INCOME, net of tax

 $10,586  $23,846 
Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
NET EARNINGS$38,022 $55,092 $58,163 $104,888 
OTHER COMPREHENSIVE INCOME:
Defined Benefit Pension3,665 241 7,370 483 
Defined Benefit Post-Retirement— — 18 
Foreign Currency Translation20 — 20 — 
TOTAL COMPREHENSIVE INCOME, net of tax$41,707 $55,342 $65,553 $105,389 

See notes to unaudited condensed consolidated financial statements.




AIR TRANSPORT SERVICES GROUP, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’STOCKHOLDERS EQUITY

(In thousands, except share data)

                  

Accumulated

     
          

Additional

     

Other

     
  

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

     
  

Number

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Total

 

BALANCE AT DECEMBER 31, 2022

  72,327,758  $723  $986,303  $528,882  $(103,402) $1,412,506 

Stock-based compensation plans

                        

Issuance of common shares, net of withholdings

  124,152   2   (1,555)          (1,553)

Forfeited restricted stock

  (300)                 

Purchase of common stock

  (1,000,000)  (10)  (22,127)          (22,137)

Amortization of stock awards and restricted stock

          1,405           1,405 

Total comprehensive income

              20,141   3,705   23,846 

BALANCE AT MARCH 31, 2023

  71,451,610  $715  $964,026  $549,023  $(99,697) $1,414,067 

             

Accumulated

   
Common StockAdditional
Paid-in
Capital
Accumulated Earnings (Deficit)Accumulated
Other
Comprehensive
Income (Loss)
Total       

Additional

    

Other

   
NumberAmount 

Common Stock

  

Paid-in

  

Accumulated

  

Comprehensive

     
BALANCE AT MARCH 31, 202274,337,226 $743 $1,035,029 $380,097 $(61,829)$1,354,040 
 

Number

  

Amount

  

Capital

  

Earnings

  

Income (Loss)

  

Total

 

BALANCE AT DECEMBER 31, 2023

 65,240,961  $652  $836,270  $589,209  $(57,429) $1,368,702 
Stock-based compensation plansStock-based compensation plans            
Grant of restricted stockGrant of restricted stock(1,200)— — —  427,400  4  (4)       
Issuance of common shares, net of withholdingsIssuance of common shares, net of withholdings36,912 (90)(89) 38,824  1  (464)      (463)
Forfeited restricted stockForfeited restricted stock(3,800)— — —  (4,800)           
Amortization of stock awards and restricted stockAmortization of stock awards and restricted stock2,200 2,200       2,600       2,600 
Total comprehensive incomeTotal comprehensive income55,092 250 55,342               8,619   1,967   10,586 
BALANCE AT JUNE 30, 202274,369,138 $744 $1,037,139 $435,189 $(61,579)$1,411,493 
BALANCE AT DECEMBER 31, 202174,142,183 $741 $1,074,286 $309,430 $(62,080)$1,322,377 
Stock-based compensation plans
Grant of restricted stock109,200 (1)— 
Issuance of common shares, net of withholdings122,255 (1,441)(1,439)
Forfeited restricted stock(4,500)— — — 
Cumulative effect in change in accounting principle(39,559)20,871 (18,688)
Amortization of stock awards and restricted stock3,854 3,854 
Total comprehensive income104,888 501 105,389 
BALANCE AT JUNE 30, 202274,369,138 $744 $1,037,139 435,189 (61,579)$1,411,493 

BALANCE AT MARCH 31, 2024

  65,702,385  $657  $838,402  $597,828  $(55,462) $1,381,425 

See notes to the unaudited condensed consolidated financial statements.


5

AIR TRANSPORT SERVICES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY, cont.
(In thousands, except share data)
 Common StockAdditional
Paid-in
Capital
Accumulated Earnings (Deficit)Accumulated
Other
Comprehensive
Income (Loss)
Total
 NumberAmount
BALANCE AT MARCH 31, 202371,451,610 $715 $964,026 $549,023 $(99,697)$1,414,067 
Stock-based compensation plans
Grant of restricted stock265,361 (3)— 
Issuance of common shares, net of withholdings(1,428)— (25)(25)
Forfeited restricted stock(4,300)— — — 
Purchase of common stock(950,000)(10)(15,096)(15,106)
Amortization of stock awards and restricted stock2,561 2,561 
Total comprehensive income38,022 3,685 41,707 
BALANCE AT June 30, 202370,761,243 $708 $951,463 $587,045 $(96,012)$1,443,204 
BALANCE AT DECEMBER 31, 202272,327,758 $723 $986,303 $528,882 $(103,402)$1,412,506 
Stock-based compensation plans
Grant of restricted stock265,361 (3)— 
Issuance of common shares, net of withholdings122,724 (1,580)(1,578)
Forfeited restricted stock(4,600)— — — 
Purchase of common stock(1,950,000)(20)(37,223)(37,243)
Amortization of stock awards and restricted stock3,966 3,966 
Total comprehensive income58,163 7,390 65,553 
BALANCE AT June 30, 202370,761,243 $708 $951,463 587,045 (96,012)$1,443,204 

See notes to the unaudited condensed consolidated financial statements.



AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
Six Months Ended
June 30,
 20232022
OPERATING ACTIVITIES:
Net earnings from continuing operations$58,163 $104,006 
Net earnings from discontinued operations— 882 
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization178,735 175,820 
Pension and post-retirement9,490 648 
Deferred income taxes14,919 29,840 
Amortization of stock-based compensation3,966 3,854 
Loss from non-consolidated affiliates2,513 4,623 
Net (gain) loss on financial instruments(78)(8,707)
Changes in assets and liabilities:
Accounts receivable82,597 (54,861)
Inventory and prepaid supplies1,052 (5,639)
Accounts payable55,834 13,211 
Unearned revenue18,323 (9,660)
Accrued expenses, salaries, wages, benefits and other liabilities(15,166)10,439 
Pension and post-retirement balances(4,363)(12,698)
Other2,591 (1,549)
NET CASH PROVIDED BY OPERATING ACTIVITIES408,576 250,209 
INVESTING ACTIVITIES:
Expenditures for property and equipment(412,925)(294,210)
Proceeds from property and equipment10,445 154 
Acquisitions and investments in businesses(800)(16,545)
NET CASH (USED IN) INVESTING ACTIVITIES(403,280)(310,601)
FINANCING ACTIVITIES:
Principal payments on long term obligations(90,317)(295,310)
Proceeds from revolving credit facilities140,000 450,000 
Payments for financing costs(511)— 
Repurchase of senior unsecured notes— (115,204)
Purchase of common stock(36,874)— 
Withholding taxes paid for conversion of employee stock awards(1,578)(1,439)
NET CASH PROVIDED BY FINANCING ACTIVITIES10,720 38,047 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS16,016 (22,345)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR27,134 69,496 
CASH AND CASH EQUIVALENTS AT END OF YEAR$43,150 $47,151 
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized$20,238 $22,198 
Federal and state income taxes paid$6,513 $507 
SUPPLEMENTAL NON-CASH INFORMATION:
Accrued expenditures for property and equipment$77,412 $51,228 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

OPERATING ACTIVITIES:

        

Net earnings from continuing operations

 $8,619  $20,141 

Adjustments to reconcile net earnings to net cash provided by operating activities:

        

Depreciation and amortization

  94,965   90,936 

Pension and post-retirement

  2,571   4,745 

Deferred income taxes

  2,276   4,768 

Amortization of stock-based compensation

  2,600   1,405 

Loss from non-consolidated affiliates

  79   406 

Net (gain) loss on financial instruments

  (2,355)  1,740 

Changes in assets and liabilities:

        

Accounts receivable

  (5,704)  74,500 

Inventory and prepaid supplies

  924   (1,361)

Accounts payable

  1,226   13,321 

Unearned revenue

  518   13,361 

Accrued expenses, salaries, wages, benefits and other liabilities

  23,311   (4,643)

Pension and post-retirement balances

  (2,437)  (2,452)

Other

  (173)  (489)

NET CASH PROVIDED BY OPERATING ACTIVITIES

  126,420   216,378 

INVESTING ACTIVITIES:

        

Expenditures for property and equipment

  (102,321)  (218,801)

Proceeds from property and equipment

  895   9,860 

Acquisitions and investments in businesses

  (9,800)  (800)

NET CASH (USED IN) INVESTING ACTIVITIES

  (111,226)  (209,741)

FINANCING ACTIVITIES:

        

Principal payments on long term obligations

  (140,105)  (25,214)

Proceeds from revolving credit facilities

  95,000   105,000 

Payments for financing costs

     (484)

Purchase of common stock

     (21,918)

Withholding taxes paid for conversion of employee stock awards

  (463)  (1,553)

NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES

  (45,568)  55,831 
         

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

  (30,374)  62,468 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

  53,555   27,134 

CASH AND CASH EQUIVALENTS AT END OF YEAR

 $23,181  $89,602 
         

SUPPLEMENTAL CASH FLOW INFORMATION:

        

Interest paid, net of amount capitalized

 $31,622  $11,652 

Federal and state income taxes paid

 $28  $60 

Restricted balance of cash

 $11,459  $1,997 

SUPPLEMENTAL NON-CASH INFORMATION:

        

Accrued expenditures for property and equipment

 $62,653  $68,338 

See notes to unaudited condensed consolidated financial statements.



AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


Page

Page


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


Nature of Operations

ATSG is a holding company whose subsidiaries lease aircraft and provide contracted airline operations as well as other support services mainly to the air transportation, e-commerce and package delivery industries.

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 a combination of aircraft, crews, maintenance and insurance services for its customers' transportation network through crew, maintenance and insurance ("CMI") agreements and aircraft, crew, maintenance and insurance ("ACMI") agreements and through charter contracts in which aircraft fuel is also included. The Company's subsidiary, LGSTX Services, Inc. ("LGSTX") provides for the management of aircraft ground services.

In addition to its aircraft leasing and airline services, the Company offers a range of complementary services to delivery companies, freight forwarders, airlines and government customers. These include aircraft maintenance and modification services, aircraft parts supply, equipment maintenance services and load transfer and package sorting services.

7

Basis of Presentation

The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with GAAP and such principles are applied on a basis consistent with the financial statements reflected in our 20222023 Form 10-K.10-K. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring



adjustments, necessary for the fair presentation of the Company's results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the air cargo industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year or any interim period. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. The accounting estimates reflect the best judgment of the management, but actual results could differ materially from those estimates.

The accompanying unaudited condensed consolidated financial statements include the accounts of ATSG and its wholly-owned subsidiaries. Inter-company balances and transactions are eliminated. 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 non-consolidated affiliate's income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment.

Accounting Standards Updates

In August 2020, November 2023, the Financial Accounting Standards Board ("FASB")FASB issued Accounting Standards Update (“ASU”ASU No.2023-07, "Segment Reporting (Topic 280) 2020-06, "Accounting: Improvements to Reportable Segment Disclosures." This standard requires disclosure of significant segment expenses and other segment items by reportable segment. This ASU becomes effective for Convertible Instrumentsannual periods beginning in 2024 and Contractsinterim periods in an Entity's Own Equity" ("ASU 2020-06"). This new standard removes the separation models for convertible debt with cash conversion or beneficial conversion features. It eliminates the "treasury stock" method for convertible instruments and requires application of the “if-converted” method for certain agreements.2025. The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective approach which resulted in the following adjustments:

(in thousands)December 31, 2021Adoption of ASU 2020-06January 1, 2022
Balance Sheet line item:
Principal value$(258,750)$— $(258,750)
Unamortized issuance cost$2,889 $— $2,889 
Unamortized discount$24,215 $(24,215)$— 
Convertible Debt$(231,646)$(24,215)$(255,861)
Net deferred tax liability$(217,291)$5,527 $(211,764)
Additional paid-in capital$(1,074,286)$39,559 $(1,034,727)
Retained earnings$(309,430)$(20,871)$(330,301)
After adopting ASU 2020-06, the Company's Convertible Notes due 2024 (as defined and discussed in Note F) are reflected entirely as a liability as the embedded conversion feature is no longer separately presented within stockholders' equity, which also eliminated the non-cash discount. Accordingly, earnings no longer reflect the discount amortization expense which was $6.4 million of interest expense, net of income taxes during 2021. After giving effect for the adoption, the effective interest rate on the Convertible Notes is 1.5%.
ASU 2020-06 requires the application of the more dilutive if-converted method when calculatingassessing the impact of this ASU and upon adoption expects that any impact would be limited to additional segment expense disclosures in the Convertible Notesfootnotes to its consolidated financial statements.

In December 2023, the FASB issued ASU No.2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This standard enhances disclosures related to income taxes, including the rate reconciliation and information on earnings per diluted share. income taxes paid. This ASU becomes effective January 1, 2025. The Company is assessing the impact of this ASU and upon adoption of ASU 2020-06 does not changeexpects to include certain additional disclosures in the accounting treatment of sharesfootnotes to be delivered by the convertible note hedges (see Note F) purchased by the Company that are designed to offset the shares issued to settle its Convertible Notes, which are anti-dilutive and not reflected in earnings per diluted share.


consolidated financial statements.


NOTE B—BGOODWILL, INTANGIBLES AND EQUITY INVESTMENTS

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

CAMACMI ServicesAll OtherTotal
Carrying value as of December 31, 2022$153,290 $234,571 $8,113 $395,974 
Carrying value as of June 30, 2023$153,290 $234,571 $8,113 $395,974 

  

CAM

  

ACMI Services

  

All Other

  

Total

 

Carrying value as of December 31, 2023

 $153,290  $234,571  $8,113  $395,974 

Carrying value as of March 31, 2024

 $153,290  $234,571  $8,113  $395,974 

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

AirlineAmortizing
CertificatesIntangiblesTotal
Carrying value as of December 31, 2022$9,000 $87,668 $96,668 
Amortization— (5,108)(5,108)
Carrying value as of June 30, 2023$9,000 $82,560 $91,560 

  

Airline

  

Amortizing

     
  

Certificates

  

Intangibles

  

Total

 

Carrying value as of December 31, 2023

 $9,000  $77,453  $86,453 

Amortization

     (2,553)  (2,553)

Carrying value as of March 31, 2024

 $9,000  $74,900  $83,900 

The airline certificates have an indefinite life and therefore are not amortized.  The Company amortizes finite-lived intangiblesintangible assets, including customer relationship and Supplemental Type Certificates ("STC") intangibles, over 42 to 1715 remaining years.

Stock warrants issued to Amazon.com, Inc. (“Amazon”) (see Note C) as an incentive for a subsidiary of Amazon to lease aircraft from the Company 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, 2022$79,650 
Amortization(10,541)
Carrying value as of June 30, 2023$69,109 

  

Lease

 
  

Incentive

 

Carrying value as of December 31, 2023

 $60,961 

Amortization

  (3,912)

Carrying value as of March 31, 2024

 $57,049 

The Company has a 49% ownership in a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200A321-200 aircraft. In April of 2022, the Company acquired a 40% ownership interest in the joint-venture company GA Telesis Engine Services, LLC to provide engine tear-down services to harvest and sell engine parts. The Company accounts for its investment in these joint ventures 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 the joint ventures totaled $21.0$32.4 million and $18.9$22.7 million at June 30, 2023March 31, 2024 and December 31, 2022,2023, 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.


9

NOTE C—CSIGNIFICANT 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 three month period ended March 31, 2024 and six month periods ending June 30, 2023 and 2022 are as follows:

Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
CustomerPercentage of RevenuePercentage of Revenue
U.S. Department of Defense ("DoD")32%29%30%29%
Amazon34%34%34%34%
DHL12%13%13%12%

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Customer

 

Percentage of Revenue

 

DoD

  28%  29%

Amazon

  34%  35%

DHL

  13%  14%

The accounts receivable from the Company's three largest customers as of June 30, 2023March 31, 2024 and December 31, 20222023 are as follows (in thousands):

June 30, 2023December 31, 2022
CustomerAccounts Receivable
DoD$64,834 $125,156 
Amazon76,665 86,607 
DHL10,058 19,644 

 

March 31, 2024

December 31, 2023

Customer

Accounts Receivable

DoD

$64,050$56,848

Amazon

 83,209 74,509

DHL

 9,777 8,040

DoD

The Company is a provider of cargo and passenger airlift services to the DoD.U.S. Department of Defense ("DoD"). The Company's airlines are eligible to bid for military charter operations for passenger and cargo transportation through contracts awarded by the DoD. The airlines draw from the Company's fleet of Boeing 757 combi, Boeing 777 passenger, Boeing 767 passenger and Boeing 767 freighter aircraft for the DoD operations. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes.

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 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. As of June 30, 2023,March 31, 2024, the Company leased 1214 Boeing 767 freighter aircraft to DHL comprised of one Boeing 767-200767-200 aircraft and eleven13 Boeing 767-300767-300 aircraft, with expirations between 20232025 and 2028.2031. Further, beginning in third quarter of 2022, the Company began to operate four Boeing 767 aircraft provided by DHL under an additional CMI agreement which currently runs through August 2027.

10

The Company has been providing freighter aircraft, airline operations and services for cargo handling and logistical support for ASI, successor to Amazon.com Services, Inc.,LLC, ("ASI") a subsidiary of 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 LGSTX. As of June 30, 2023,March 31, 2024, the Company leased 3834 Boeing 767 freighter aircraft to ASI with lease expirations between 20232024 and 2031.

Amazon Investment Agreement

In conjunction with the execution of the ATSA,

On December 22, 2018, the Company and Amazon entered into an InvestmentAmended and Restated Air Transportation Services Agreement on March 8, 2016 (as amended, the “2016 Investment Agreement”("A&R ATSA") and a Stockholders Agreement on March 8, 2016. The 2016 Investment Agreement called forwith ASI, pursuant to which the Company, through CAM and its airline subsidiaries, agreed to issue warrants in three tranches granting 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 2016 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, granted Amazon the right to purchase approximately 1.59 million ATSG common shares. The third tranche of warrants vested on September 8, 2020, and granted 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 was $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 were exercisable in accordance with their terms through March 8, 2021 (subject to extension if regulatory approvals, exemptions, authorizations, consents or clearances have not been obtained by such date).

On March 5, 2021, Amazon exercised warrants from the 2016 Investment Agreement for 865,548 shares of ATSG's common stock through a cashless exercise by forfeiting 480,047 warrants from the 2016 Investment Agreement as payment. For the cashless exchange, ATSG shares were valued at $27.27 per share, its volume-weighted average price for the previous 30 trading days immediately preceding March 5, 2021. Also on March 5, 2021, Amazon notified the Company of its intent to exercise warrants from the 2016 Investment agreement for 13,562,897 shares of ATSG's common stock by paying $132.0 million of cash to the Company. This exercise was contingent upon the approval of the DOT, and the expiration or termination of any applicable waiting period pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976. After receiving all required regulatory approvals and clearances, Amazon remitted the funds to the Company on May 7, 2021, and the Company issued the corresponding shares of ATSG's common stock, completing the warrant exercise.
On December 22, 2018, the Company announced agreements with Amazon to 1)(1) lease and operate ten additional Boeing 767-300767-300 aircraft for ASI 2)under the A&R ATSA, (2) extend the term of the 12 Boeing 767-200767-200 aircraft currentlythen leased to ASI by two years to 2023 with an option for three more years, 3)(3) extend the term of the eight Boeing 767-300767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option for three more years, and 4)(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 767-300767-300 aircraft in 2020. In conjunction with the commitment for to lease ten additional Boeing 767-300 aircraft, leases, extensionsextend the duration of twenty20 existing Boeing 767 aircraft leases and the ATSA described above, Amazon and the Company entered into anotheran Investment Agreement on December 20, 2018 (the "2018(the "2018 Investment Agreement"). Pursuant to the 2018 Investment Agreement, the Company issued to Amazon warrants for 14.8 million ATSG common shares of ATSG. This groupATSG, all of warrants will expire if not exercised within seven years from their issuance date, in December of 2025 (subject to extension if regulatory approvals, exemptions, authorizations, consents or clearanceswhich have not been obtained by such date).vested. The warrants have an exercise price of $21.53 per share.
On May 6, 2024, this group of warrants was modified to extend their expiration date from December 2025 to December of 2029 in conjunction with the 3rd A&R ATSA described and defined below.

On May 29, 2020, the Company entered into a Second Amended and Restated Air Transportation Services Agreement (the "2nd A&R ATSA") with ASI, pursuant to which the Company agreed to lease twelve12 more Boeing 767-300767-300 aircraft fromto ASI for operation by the Company.Company's airline subsidiaries under the 2nd A&R ATSA. The first of these leases began in the second quarter of 2020 with the remaining eleven delivered in 2021. All twelve12 of these aircraft leases were for ten-yearten-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, all of which 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.




On May 6, 2024, this group of warrants was modified to extend their expiration date from December 2025 to December of 2029 in conjunction with the 3rd A&R ATSA described below under subsequent event.

Issued and outstanding warrants are summarized below as of June 30, 2023:

Common Shares in millions
Exercise priceVestedNon-VestedExpiration
2018 Investment Agreement$21.5314.80.0December 20, 2025
2018 Investment Agreement$20.407.00.0December 20, 2025
Additionally, March 31, 2024:

    

Common Shares in millions

  
 

Exercise price

 

Vested

 

Non-Vested

 

Expiration

           

2018 Investment Agreement

$21.53  14.8  0.0 

December 20, 2025

2018 Investment Agreement

$20.40  7.0  0.0 

December 20, 2025

Prior to May 6, 2024 Amazon cancould earn additional warrants for 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 ASI’s commitment to any such future aircraft leases willwould have had 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.

This right to earn warrants was replaced on May 6, 2024 as noted below.

For all outstanding 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 price.

The Company resumed repurchases of its own shares during October 2022 in conjunction with the expiration of certain government restrictions stemming from the Coronavirus Aid, Relief and Economic Security Act. As the Company repurchases its own shares, Amazon has the option to sell shares of ATSG's common stock to the Company to maintain its ownership percentage of less than 19.9% of the Company's outstanding shares pursuant to the terms of the 2016an Investment Agreement dated March 8, 2016, as amended. amended. On October 7, 2022, August 14, 2023 Amazon sold 250,0001,177,000 shares of ATSG'sATSG common stock back to the Company for cash of $5.9 million, pursuant to the terms of the 2016 Investment Agreement, as amended on March 5, 2021. Also on December 16, 2022, Amazon sold 260,000 shares of ATSG's common stock back to the Company for cash of $7.0$22.9 million. These transactions resulted in Amazon maintaining its ownership percentage of less than 19.9% of ATSG's outstanding common shares at the time.

11

The Company’s accounting for the warrants and the sale option have been determined in accordance with the financial reporting guidance for financial instruments. Warrants and the sale option are classified as liabilities and are marked to fair value at the end

As of June 30, 2023March 31, 2024 and December 31, 2022,2023, the Company's liabilities reflected warrants and Amazon sale options from the 2018 Amazon agreements having a fair value of $1.8$1.6 million and $0.7$1.7 million, respectively. During the three month and six month periodsperiod ended June 30, 2023,March 31, 2024, the re-measurements of warrants and sale options to fair value resulted in net non-operating lossesgains of $0.3$0.1 million and $1.1 million before the effect of income taxes, respectively, compared to net non-operating gainslosses of $0.1 million and $0.1$0.8 million in the corresponding periodsperiod in 2022.

2023.

Subsequent Event

On May 6, 2024, the Company entered into a Third Amended and Restated Air Transportation Services Agreement with ASI (the "3rd A&R ATSA") pursuant to which the Company, through its subsidiary air carriers, will sublease and operate ten additional Boeing 767-300 freighter aircraft to be provided by ASI, with the potential to add up to ten additional Boeing 767-300 freighter aircraft. The Company's subsidiary air carriers are scheduled to begin operating the first of those ten aircraft in June of this year with the remaining aircraft being delivered through November of this year. The initial term of the 3rd A&R ATSA runs through May 6, 2029, and may be extended by the parties for an additional five years subject to mutual agreement.  In conjunction with the execution of the 3rd A&R ATSA, the Company issued warrants to Amazon for up to 2.9 million common shares of ATSG (the “2024 Subsequent Warrant”).  The 2024 Subsequent Warrant vests in four equal tranches of 728,750 shares of ATSG common stock on its issue date and each of the firstthree anniversaries thereof; provided that, for each of the second, third and fourth tranches, Amazon has compensated ATSG for a certain number of flight hours in a specified period immediately preceding such anniversary.  The 2024 Subsequent Warrant has a term of seven years, and the exercise price is $12.96 per share of ATSG common stock.  As partial consideration for the 3rd A&R ATSA, the 2024 Subsequent Warrant was issued to replace Amazon’s prior warrant right under the 2018 Investment Agreement for 2.9 million common shares related to aircraft leases commitments. 

Also on May 6, 2024, in conjunction with the execution of the 3rd A&R ATSA, the Company and Amazon agreed upon the form of the warrant to be issued to purchase up to 2.9 million additional common shares (the “Third Subsequent Warrant”). The Third Subsequent Warrant will be issued by the Company upon the earlier of the first anniversary of the 3rd A&R ATSA and the date upon which the Company begins providing services to Amazon with the tenth aircraft to be placed into service by Amazon pursuant to the 3rd A&R ATSA.  The Third Subsequent Warrant will vest in (i) one tranche of 291,500 shares of ATSG common stock upon Amazon’s entry into each aircraft lease extension with ATSG for at least three years, and (ii) four equal tranches of 72,875 shares of ATSG common stock upon each placement by Amazon of additional aircraft into service with ATSG (i.e., aircraft beyond the tenth aircraft, up to a maximum of ten additional aircraft), with the first tranche vesting with the placement of the aircraft into service and the remaining tranches vesting on each of the firstthree anniversaries thereof; provided that, for each of the second, third and fourth tranches, Amazon has compensated ATSG for a certain number of flight hours in a specified period immediately preceding such anniversary plus a certain number of flight hours per additional aircraft placed into service during such specified period.  The Third Subsequent Warrant will have a term of seven years and the exercise price per share of ATSG common stock will be the volume weighted average price of ATSG's common stock for the 30 trading days preceding the warrant issue date.

Additionally, on May 6, 2024, the expiration dates for the two existing vested warrants totaling 21.8 million shares (the warrants issued on December 20, 2018 for 14.8 million shares and the warrants issued on May 29, 2020, for 7.0 million shares) issued pursuant to the 2018 Investment Agreement, were extended from December 2025 to December of 2029.

The Company's accounting for warrants issued to a customer is determined in accordance with the financial reporting guidance for equity-based payments to non-employees and for financial instruments.  Generally, warrants issued to a customer are recorded as an incentive asset using their fair value at the time of issuance if it is probable of vesting at the time of grant.  The incentive is amortized against revenues over the duration of related flight operations and leases.  The Company's earnings in future periods will be impacted by the re-measurements of warrant fair value, sale option 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 may differ from the guidance described abovethat used for financial reporting.


12

NOTE D—DFAIR 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 Notes (as defined in Note F), convertible note hedges and interest rate swaps are based on observable inputs (Level 2)2) from comparable market transactions.

The fair valuevalues of the stock warrant obligations to Amazon resulting from aircraft leased to ASI were determined using a Black-Scholes pricing model which considers various assumptions, including ATSG's common stock price, the volatility of ATSG'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 fair value of the sale option for Amazon to sell back shares to the Company under certain conditions was determined based on future share repurchase scenarios. Judgement was applied to determine the number of shares that would be repurchased by the Company at a certain price and the probability of each scenario. There is uncertainty regarding the future stock price at the time of repurchase which affects the magnitude of the gain or loss recognized (Level 3 inputs).

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

As of June 30, 2023Fair Value Measurement UsingTotal
 Level 1Level 2Level 3
Assets
Cash equivalents—money market$— $8,139 $— $8,139 
Interest rate swap— 1,823 — 1,823 
Total Assets$— $9,962 $— $9,962 
Liabilities
Sale option— — (1,258)$(1,258)
Stock warrant obligations— — (505)(505)
Total Liabilities$— $— $(1,763)$(1,763)

As of December 31, 2022Fair Value Measurement UsingTotal
 Level 1Level 2Level 3
Assets
Cash equivalents—money market$— $4,047 $— $4,047 
Interest rate swap— 677 — 677 
Total Assets$— $4,724 $— $4,724 
Liabilities
Stock warrant obligations— — (695)(695)
Total Liabilities$— $— $(695)$(695)

As of March 31, 2024

 

Fair Value Measurement Using

     
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets

                

Cash equivalents—money market

 $  $1,318  $  $1,318 

Interest rate swap

     1,723      1,723 

Total Assets

 $  $3,041  $  $3,041 

Liabilities

                

Sale option

        (1,258)  (1,258)

Stock warrant obligations

        (368)  (368)

Total Liabilities

 $  $  $(1,626) $(1,626)

As of December 31, 2023

 

Fair Value Measurement Using

     
  

Level 1

  

Level 2

  

Level 3

  

Total

 

Assets

                

Cash equivalents—money market

 $  $1,248  $  $1,248 

Interest rate swap

            

Total Assets

 $  $1,248  $  $1,248 

Liabilities

                

Interest rate swap

     (529)     (529)

Sale Option

        (1,258)  (1,258)

Stock warrant obligations

        (471)  (471)

Total Liabilities

 $  $(529) $(1,729) $(2,258)

As a result of higher market interest rates compared to the stated interest rates of the Company’s fixed rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $89.8$126.6 million less than the carrying value, which was $1,514.7$1,717.8 million at June 30, 2023.March 31, 2024. As of December 31, 2022,2023, the fair value of the Company’s debt obligations was approximately $48.3$97.6 million less than the carrying value, which was $1,464.9$1,762.3 million. The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.


13

NOTE E—EPROPERTY 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):

 June 30,
2023
December 31,
2022
Flight equipment$3,663,728 $3,506,134 
Ground equipment71,597 70,092 
Leasehold improvements, facilities and office equipment41,917 40,183 
Aircraft modifications and projects in progress680,944 445,633 
4,458,186 4,062,042 
Accumulated depreciation(1,779,206)(1,659,634)
Property and equipment, net$2,678,980 $2,402,408 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Flight equipment

 $4,055,379  $3,865,049 

Ground equipment

  72,653   72,463 

Leasehold improvements, facilities and office equipment

  43,659   42,120 

Aircraft modifications and projects in progress

  551,630   638,631 
   4,723,321   4,618,263 

Accumulated depreciation

  (1,856,986)  (1,797,494)

Property and equipment, net

 $2,866,335  $2,820,769 

CAM owned aircraft with a carrying value of $1,476.4$1,715.4 million and $1,474.6$1,640.9 million that were under lease to external customers as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.


NOTE F—FDEBT OBLIGATIONS

Debt obligations consisted of the following (in thousands):

 June 30, 2023December 31, 2022
Revolving credit facility670,000 620,000 
Senior notes578,334 578,094 
Convertible notes257,438 256,903 
Other financing arrangements9,610 9,927 
Total debt obligations1,515,382 1,464,924 
Less: current portion(645)(639)
Total long term obligations, net$1,514,737 $1,464,285 

  

March 31, 2024

  

December 31, 2023

 

Revolving credit facility

  685,000   730,000 

Senior notes

  578,694   578,574 

Convertible notes

  444,897   444,420 

Other financing arrangements

  9,183   9,288 

Total debt obligations

  1,717,774   1,762,282 

Less: current portion

  (54,768)  (54,710)

Total long term obligations, net

 $1,663,006  $1,707,572 

The Company is a party to a syndicated credit agreement (as amended, the "Senior Credit Agreement") which includes the ability to execute term loans and a revolving credit facility. On October 19, 2022, the Company amended theThe Senior Credit Agreement. This amendment i) increased the aggregate amount of theAgreement includes a revolving credit facility from $800 millionof up to $1 billion, ii) extended thehas a maturity date of the agreement from April 6, 2026 to October 19, 2027, iii) replaced LIBOR with SOFR as an interest rate benchmark, iv) reduced therequires a collateral to outstanding loan ratio to 1.15:1.00 from of 1.25:1:00 v) and permits cash dividends and share repurchases provided the secured leverage ratio is less than 3.00 to 1.00 and the total leverage ratio is less than 3.50 to 1.00, and removed the annual limitation on cash dividends and share repurchases which was $100 million.

1.00.The interest rate under the Senior Credit Agreement is a pricing premium added to SOFR based upon the ratio of the Company's debt to its earnings before interest, taxes, depreciation and amortization expenses ("EBITDA") as defined under the Senior Credit Agreement. 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 SOFR or prime rates. At the Company's debt-to-EBITDA ratio as of March 31, 2024, the SOFR-based financing for the revolving credit facility bears a variable interest rate of 6.68%.  As of June 30, 2023,March 31, 2024, the unused revolving credit facility available to the Company at the trailing twelve-monthtwelve-month EBITDA level was $418.6$403.7 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants.
On March 1, 2023,

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 entered intois required to maintain certain collateral coverage ratios set forth in the Senior Credit Agreement.  The Senior Credit Agreement contains covenants, including a maximum permitted total EBITDA to debt ratio, a fixed charge covenant ratio requirement, and 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.  The Company has an additional revolving credit facility domiciled in Ireland (the "Irish Facility").The terms and conditions of the Irish Facility are similar to the Senior Credit Agreement in the U.S.The Irish Facility has a maximum capacity of $100.0 million, including a $7.5 million letter of credit sub-facility, and has the ability to be upsized using the same accordion feature that is present in the Senior Credit Agreement.The maturity date of the Irish Facility is the same as the Senior Credit Agreement.

On August 14, 2023 the Company issued $400.0 million aggregate principal amount of Convertible Senior Notes due 2029 ("2023 Convertible Notes"). These notes were issued in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"). The 2023 Convertible Notes bear interest at a rate of 3.875% per year payable semi-annually in arrears on February 15 and August 15 each year, beginning February 15, 2024. The 2023 Convertible Notes mature on August 15, 2029, unless repurchased or converted in accordance with their terms prior to such date. The 2023 Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables.

14

Conversion of the 2023 Convertible Notes can only occur upon satisfaction of certain conditions and during certain periods, beginning any calendar quarter commencing after December 31, 2023 and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. The Company will settle the principal value of the notes in cash. The initial conversion rate is $31.2864 common shares per $1,000 principal amount of 2023 Convertible Notes (equivalent to an initial conversion price of approximately $31.28 per common share). If a “make-whole fundamental change” (as defined in the offering circular with the 2023 Convertible Notes) occurs, ATSG will, in certain circumstances, increase the conversion rate for a specified period of time. Upon the occurrence of certain fundamental changes, holders of the Convertible Notes can require the Company to repurchase their notes for a cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.

The Company used a portion of the proceeds from the 2023 Convertible Notes to repurchase 5,435,777 shares of its common stock concurrently with offering of the 2023 Convertible Notes. Additionally, the Company used a portion of the proceeds to repurchase $204.5 million principal amount of its outstanding 1.125% Convertible Senior Notes issued in 2017 (the “2017 Convertible Notes”). The Company used the remainder of the proceeds from the offering to satisfy fees and expenses associated with the offering, to repay a portion of the outstanding borrowings under its revolving credit facility and for general corporate purposes.

On January 28,2020, CAM completed a debt offering of $500.0 million in senior unsecured notes (the “Senior Notes”) that were guaranteed by ATSG and certain of its other subsidiaries. The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securitiesthe 1933 Act, of 1933, as amended (the “1933 Act”), and certain investors pursuant to Regulation S under the Securities1933 Act. The Senior Notes are senior unsecured obligations that bear interest at a fixed 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. On April 13, 2021, the Company, through a subsidiary, completed its offering of $200.0 million of additional notes ("Additional Senior Notes") under the existing Senior Notes. The Additional Senior Notes are fully fungible with the Senior Notes, treated as a single class for all purposes under the indenture governing the existing notes with the same terms as those of the existing notes (other than issue date and issue price).

During 2022, the Company repurchased Senior Notes having a principal value  The proceeds of $120.0 million in the open market at a 5.5% reducing the Senior Notes carrying value to $578.0 million. The Company recognized a net pre-tax gain of $4.5$205.5 million, net of fees, which was recorded under net gainscheduled interest payable, were issued, in conjunction with draws from the revolving credit facility to repay the unsubordinated term loans.  Upon retirement of financial instruments on the income statement duringunsubordinated term loans, the corresponding period.
Company expensed debt issuance costs of $6.5 million related to the unsubordinated term loans.

The balance of the Senior Notes is net of debt issuance costs of $4.8$4.0 million and $5.4$4.3 million as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively. Under the terms of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's EBITDA, its outstanding debt level and prevailing SOFR or prime rates. At the Company's debt-to-EBITDA ratio as of June 30, 2023, the SOFR-based financing for the revolving credit facility bears a variable interest rate of 6.51%. The Senior Notes do not require principal payments until maturity but prepayments are allowed without penalty beginning February 1, 2025.

15

The Senior Credit Agreement is collateralized by certain

In September 2017, ATSG issued $258.8 million aggregate principal amount of 1.125% Convertible Senior Notes due 2024 (" (the 2017Convertible Notes")Notes) in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities1933 Act. The2017 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. The2017 Convertible Notes mature on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The2017 Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the 2017Convertible 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 the2017 Convertible Notes can require the Company to repurchase their notes for a cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.

ATSG has the right to settle the2017 Convertible Notes in cash, ATSG common shares or a combination of cash and ATSG common shares. The initial conversion rate is 31.3475 common shares per $1,000$1,000 principal amount of2017 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, ATSG will, in certain circumstances, increase the conversion rate for a specified period of time.

In conjunction with the2017 Convertible Notes, the Company purchased convertible note hedges under privately negotiated transactions for $56.1 million, having the same number of ATSG common shares (8.1 million shares)shares at that time) and same strike price ($31.90) that underlie the2017 Convertible Notes. The convertible note hedges are expected to reduce



the potential equity dilution with respect to ATSG's common shares, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the2017 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 2017Convertible Notes outstanding with cash.
The conversion feature of the Convertible Notes required bifurcation from the principal amount under the applicable accounting guidance. On January 1, 2022 the Company adopted ASU 2020-06 using the modified retrospective approach as discussed in Note A which recombined the value of the previously bifurcated embedded feature with the convertible note and eliminated the discount.

The carrying value of the Company's convertible debt is shown below (in thousands):

June 30, 2023December 31, 2022
Principal value, Convertible Senior Notes, due 2024$258,750 $258,750 
Unamortized issuance costs(1,312)(1,847)
Convertible debt$257,438 $256,903 

  

2017 Convertible Notes

  

2023 Convertible Notes

  

Total Convertible Notes

 

Principal Value December 31, 2023

  54,225   400,000   454,225 

Unamortized issuance cost

  (110)  (9,218)  (9,328)

Convertible Debt March 31, 2024

  54,115   390,782   444,897 

In conjunction with the offering of the2017 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.

16

On August 14, 2023, the Company repurchased outstanding 2017 Convertible Notes having a principal value of $204.5 million in the open market, reducing the 2017 Convertible Notes carrying value to $54.2 million. The amount received for theseCompany recognized a net pre-tax gain of $1.3 million, net of fees, which was recorded under net gain of financial instruments on the income statement during the corresponding period. In conjunction with the repurchase of the 2017 Convertible Notes the Company settled a pro-rata portion of the related warrants and recordednote hedges and received $1.3 million 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 ATSG's common stock if the Company's traded market price exceeds the strike price, which is $41.35 pernet cash proceeds. The share and is subject to certain adjustments under the termsquantity of the warrant transactions. Theconvertible note hedges and warrants could have a dilutive effect on the computation of earnings per share to the extent the average traded market price of the Company's commonwere 1.7 million shares, for reporting periods exceeds the strike price.respectively at March 31, 2024.


NOTE G—GDERIVATIVE INSTRUMENTS

The Company maintains derivative instruments for protection from fluctuating interest rates. The table below provides information about the Company’s interest rate swaps (in thousands):

  June 30, 2023December 31, 2022
Expiration DateStated
Interest
Rate
Notional
Amount
Market
Value
(Liability)
Notional
Amount
Market
Value
(Liability)
March 31, 20232.425 %— — 125,625 677 
March 31, 20263.793 %50,000 830 — — 
March 31, 20263.836 %50,000 786 — — 
June 30, 20264.257 %50,000 54 — — 
June 30, 20264.185 %50,000 153 — — 

      

March 31, 2024

  

December 31, 2023

 
  

Stated

      

Market

      

Market

 
  

Interest

  

Notional

  

Value

  

Notional

  

Value

 

Expiration Date

 

Rate

  

Amount

  

(Liability)

  

Amount

  

(Liability)

 

March 31, 2026

  3.793%  50,000   665   50,000   237 

March 31, 2026

  3.836%  50,000   700   50,000   189 

June 30, 2026

  4.257%  50,000   116   50,000   (525)

June 30, 2026

  4.185%  50,000   242   50,000   (430)

The outstanding interest rate swaps are not designated as hedges for accounting purposes. The effects of future fluctuations in SOFR 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 pre-tax gains on derivatives of $2.1 million and $1.1$2.3 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to gainsa pre-tax loss of $1.4 million and $4.1$0.9 million for the corresponding periodsperiod in 2022.2023. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses.




NOTE H—HCOMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leasesleases property, aircraft, aircraft engines and other types of equipment under operating leases. The Company's airlines operate fifteen16 freighter aircraft provided by customers and fourfive passenger aircraft leased from external companies. Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and lease terms ranging from one month to nine 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 sixthree months ended June 30, 2023 March 31, 2024 and 2022,2023, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $1.0$0.5 million and $12.7$0.4 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 June 30, 2023March 31, 2024 and December 31, 20222023 was 3.5%4.1% and 3.2%4.0%, 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 4.13.8 years and 4.33.9 years as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively.

17

For the sixthree months ended June 30, 2023 March 31, 2024 and 2022,2023, cash payments against operating lease liabilities were $13.2$5.9 million and $11.0$6.6 million, respectively. As of June 30, 2023,March 31, 2024, the maturities of operating lease liabilities are as follows (in thousands):

Operating Leases
2023$12,754 
202419,998 
202512,931 
20268,482 
20274,210 
2028 and beyond8,650 
Total undiscounted cash payments67,025 
Less: amount representing interest(5,222)
Present value of future minimum lease payments61,803 
Less: current obligations under leases21,771 
Long-term lease obligation$40,032 

  

Operating Leases

 

2024

 $16,115 

2025

  15,659 

2026

  8,962 

2027

  4,673 

2028

  3,526 

2029 and beyond

  5,730 

Total undiscounted cash payments

  54,665 

Less: amount representing interest

  (4,468)

Present value of future minimum lease payments

  50,197 

Less: current obligations under leases

  18,947 

Long-term lease obligation

 $31,250 

Purchase Commitments

The Company has agreements with vendors for the conversion of Boeing 767-300,767-300, Airbus A321 and Airbus A330 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 June 30, 2023,March 31, 2024, the Company owned twentythirteen Boeing 767-300767-300 aircraft, six Airbus A321-200 aircraft and ninefive Airbus A321-200A330 aircraft that were in or awaiting the modification process. As of June 30, 2023,March 31, 2024, the Company has agreements to purchase ninethree more Boeing 767-300 passenger767-300 aircraft and sevenfive Airbus A330-300A330-300 passenger aircraft through 2024.2025. As of June 30, 2023,March 31, 2024, the Company's commitments to acquire aircraft and convert these aircraft totaled $576.6$478.1 million, including estimated payments of $150.0$116.7 million through the remainder of



2023, with2024 and the remaining payments due from 2024 through 2026. Actual conversion payments will be based on the achievement of progress milestones.
Hangar Foam Discharge
On August 7, 2022  The Company also has access to 20 additional slots for aircraft modifications with inductions between 2025 and the fire suppression system at oneend of2027.  The Company's costs related to such aircraft modifications could vary based on the Company's election to utilize the modification slot, the timing of such election, the aircraft maintenance hangars in Wilmington, Ohio malfunctioned and discharged a significant amount of expansive foam. The event impacted employees, three aircraft and equipment in and around the hangar at the time of discharge. The hangar resumed operations after approximately three weeks while the cause of the incident was investigatedtype and the hangar was cleaned and restored. While one aircraft was returned to service, the timeframes needed to return twovendor.

18

For the three and six month period ended June 30, 2023 the Company recognized charges in operating income for property damages and repairs, net of recorded insurance recoveries of less than $0.1 million. Through June 30, 2023, the Company has incurred $6.8 million for losses resulting from the incident and recorded $5.8 million for insurance recoveries. Insurance receivables were $3.3 million and $2.8 million as of June 30, 2023 and December 31, 2022, respectively.

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 ourits financial condition or results of operations.

Employees Under Collective Bargaining Agreements

As of June 30, 2023,March 31, 2024, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:

Percentage of

Airline

the Company’s

Airline

Labor Agreement Unit

Percentage of
the Company’s

Employees

ABX

International Brotherhood of Teamsters

5.2%5.1%

ATI

Air Line Pilots Association

9.5%11.7%

OAI

International Brotherhood of Teamsters

6.4%6.4%

ATI

Association of Flight Attendants

0.8%0.8%

OAI

Association of Flight Attendants

6.7%6.6%

In addition, OAI has less than 20 flight dispatchers that are represented by a recognized labor unit and are beginning to negotiate a collective bargaining agreement.




NOTE I—IPENSION 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 itsits ABX employees thatthat 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.

19

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

ABX’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for the three and six month periods ended June 30, 2023 March 31, 2024 and 2022,2023 are as follows (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
 Pension PlansPost-Retirement Healthcare PlanPension PlansPost-Retirement Healthcare Plan
 20232022202320222023202220232022
Service cost$— $— $13 $19 $— $— $26 $38 
Interest cost8,631 6,011 33 15 17,262 12,022 66 30 
Expected return on plan assets(10,192)(11,738)— — (20,384)(23,476)— — 
Amortization of net loss4,745 313 — 11 9,490 626 — 22 
Net periodic benefit cost (income)$3,184 $(5,414)$46 $45 $6,368 $(10,828)$92 $90 

  

Three Months Ended March 31,

 
  

Pension Plans

  

Post-Retirement Healthcare Plan

 
  

2024

  

2023

  

2024

  

2023

 

Service cost

 $  $  $5  $13 

Interest cost

  6,614   8,631   23   33 

Expected return on plan assets

  (8,122)  (10,192)      

Amortization of net loss

  2,594   4,745   (23)   

Net periodic benefit cost (income)

 $1,086  $3,184  $5  $46 

During the sixthree month period ending June 30, 2023,ended March 31, 2024, the Company made contributions to the pension plans of $1.2 million .$0.9 million. The Company expects to contribute an additional $0.1$0.5 million during the remainder of 2023.2024.


NOTE J—JINCOME TAXES

The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through June 30, 2023March 31, 2024 have been estimated utilizing a rate of 23.9%29% based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants and other items as well as our leasing efforts with our Irish subsidiary, have an impact on the effective rate during a period.

As a result of these differences in which expenses and benefits for tax purposes are different than required by GAAP, the Company's effective tax rate for the sixthree months ended June 30, 2023March 31, 2024 was 23.8%31%. The final effective tax rate for the year 20232024 will depend on the actual amount of pre-tax book results by the Company for the full year, the additional conversions of employee stock awards, stock warrant valuations, executive compensation and other items.



The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, cash payments for income taxes will be limited through 2025. The Company is required to pay some federal tax due to loss carryforward usage limitations and certain state and local income taxes.

20

NOTE K—KACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following items by components for the three and six month periods ended June 30, 2023 March 31, 2024 and 20222023 (in thousands):

Defined Benefit PensionDefined Benefit Post-RetirementForeign Currency TranslationTotal
Balance as of March 31, 2022(61,589)(220)(20)(61,829)
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)313 11 — 324 
Income Tax (Expense) or Benefit(72)(2)— (74)
Other comprehensive income (loss), net of tax241 — 250 
Balance as of June 30, 2022(61,348)(211)(20)(61,579)
Balance as of January 1, 2022
Amounts reclassified from accumulated other comprehensive income:(61,831)(229)(20)(62,080)
Actuarial costs (reclassified to salaries, wages and benefits)626 22 — 648 
Income Tax (Expense) or Benefit(143)(4)— (147)
Other comprehensive income (loss), net of tax483 18 — 501 
Balance as of June 30, 2022(61,348)(211)(20)(61,579)
Balance as of March 31, 2023(99,713)36 (20)(99,697)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment— — 20 20 
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)4,745 — — 4,745 
Income Tax (Expense) or Benefit(1,080)— — (1,080)
Other comprehensive income (loss), net of tax3,665 — 20 3,685 
Balance as of June 30, 2023(96,048)36 — (96,012)
Balance as of January 1, 2023(103,418)36 (20)(103,402)
Other comprehensive income (loss) before reclassifications:
Foreign currency translation adjustment— — 20 20 
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)9,490 — — 9,490 
Income Tax (Expense) or Benefit(2,120)— — (2,120)
Other comprehensive income (loss), net of tax7,370 — 20 7,390 
Balance as of June 30, 2023(96,048)36 — (96,012)

  

Defined Benefit

  

Defined Benefit

  

Foreign Currency

     
  

Pension

  

Post-Retirement

  

Translation

  

Total

 

Balance as of January 1, 2023

 $(103,418) $36  $(20) $(103,402)

Amounts reclassified from accumulated other comprehensive income:

                

Actuarial costs (reclassified to salaries, wages and benefits)

  4,745         4,745 

Income Tax (Expense) or Benefit

  (1,040)        (1,040)

Other comprehensive income (loss), net of tax

  3,705         3,705 

Balance as of March 31, 2023

 $(99,713) $36  $(20) $(99,697)

Balance as of January 1, 2024

 $(57,931) $502  $  $(57,429)

Amounts reclassified from accumulated other comprehensive income:

                

Actuarial costs (reclassified to salaries, wages and benefits)

  2,594   (23)     2,571 

Income Tax (Expense) or Benefit

  (610)  6      (604)

Other comprehensive income (loss), net of tax

  1,984   (17)     1,967 

Balance as of March 31, 2024

 $(55,947) $485  $  $(55,462)

21


NOTE L—LSTOCK-BASED COMPENSATION

ATSG's

The Company's Board of Directors has granted stock-based incentive awards to certain employees and directors 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 restricted stock, non-vested stock units with performance conditions, and non-vested stock units with market conditions. 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 grant date. The non-vested stock units will be converted into a number of ATSG common shares depending on the satisfaction of the performance conditions or market conditions at the end of a specified service period, which is typically three years from the grant date. The performance condition awards will be converted into a number of ATSG common shares 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 common shares depending on the appreciation of ATSG common shares compared to the Nasdaq Transportation Index. Directors have been granted time-based awards that vest after a period of twelve months. Under each of the stock-based incentive awards, the restrictions may lapse sooner than the stated settlement period upon (1)(1) the participant's death or disability, (2)(2) an employee participant's qualification for retirement or (3)(3) a change in control, in the case of an employee participant under the 2015 long-term incentive plan, or a business combination, in the case of a director participant under the 2005 or 2015 long-term incentive plan. The Company expects to settle all of the stock unit awards by issuing new ATSG common shares. The table below summarizes award activity for the sixthree months ended June 30, 2023 March 31, 2024 and 2022:

 Six Months Ended
 June 30, 2023June 30, 2022
 Number of
Awards
Weighted
average
grant-date
fair value
Number of
Awards
Weighted
average
grant-date
fair value
Outstanding at beginning of period929,205 $21.83 978,188 $17.49 
Granted577,598 21.35 283,467 35.44 
Converted(192,028)21.04 (170,560)22.09 
Expired(1,600)22.03 (3,000)40.02 
Forfeited(9,200)25.35 (9,000)26.06 
Outstanding at end of period1,303,975 $21.70 1,079,095 $21.34 
Vested346,565 $9.78 322,156 $9.76 
2023:

  

March 31, 2024

  

March 31, 2023

 
      

Weighted

      

Weighted

 
      

average

      

average

 
  

Number of

  

grant-date

  

Number of

  

grant-date

 
  

Awards

  

fair value

  

Awards

  

fair value

 

Outstanding at beginning of period

  1,066,784  $20.19   929,205  $21.83 

Granted

  926,984   12.37       

Converted

  (71,359)  25.71   (186,828)  20.87 

Expired

            

Forfeited

  (9,600)  26.90   (600)  36.93 

Outstanding at end of period

  1,912,809  $16.16   741,777  $22.04 

Vested

  496,838  $10.80   298,928  $8.02 

The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 20232024 was $20.78,$12.19, 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 in 20232024 was $23.28.$12.95. The market condition awards granted in 20232024 were valued using a Monte Carlo simulation technique based on daily stock prices over three years and using the following variables:

2024

2023

Risk-free interest rate

3.7%4.4%

Volatility

37.1%43.0%

For the sixthree months ended June 30, 2023 March 31, 2024 and 2022,2023, the Company recorded expense of $4.2$2.6 million and $3.9$1.4 million respectively, for stock-based incentive awards. At June 30, 2023,March 31, 2024, there was $16.8$18.7 million of unrecognized expense related to the stock-based incentive awards that is expected to be recognized over a weighted-average period of 1.591.8 years. As of June 30, 2023, March 31, 2024, none of the awards were convertible, 346,565496,838 units of the directors' time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in the issuance of a maximum number of 1,660,5252,449,584 additional outstanding shares of ATSG's common stock depending on service, performance and market results through December 31, 2025.


2026.

22


NOTE M—MCOMMON STOCK AND EARNINGS PER SHARE

Earnings per Share

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

Three Months EndedSix Months Ended
June 30,June 30,
 2023202220232022
Numerator:
Earnings from continuing operations - basic$38,022 $54,210 $58,163 $104,006 
Gain from stock warrants revaluation, net of tax$— $(107)$(148)$(50)
Convertible debt interest charge, net of tax$780 $762 $1,556 $1,522 
Earnings from continuing operations - diluted$38,802 $54,865 $59,571 $105,478 
Denominator:
Weighted-average shares outstanding for basic earnings per share70,722 73,980 71,259 73,934 
Common equivalent shares:
Effect of stock-based compensation awards and warrants682 7,358 1,906 7,053 
Effect of convertible debt8,111 8,111 8,111 8,111 
Weighted-average shares outstanding assuming dilution79,515 89,449 81,276 89,098 
Basic earnings per share from continuing operations$0.54 $0.73 $0.82 $1.41 
Diluted earnings per share from continuing operations$0.49 $0.61 $0.73 $1.18 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Numerator:

        

Earnings from continuing operations - basic

 $8,619  $20,141 

Gain from stock warrants revaluation, net of tax

 $  $(108)

Convertible debt interest charge, net of tax

 $159  $776 

Earnings from continuing operations - diluted

 $8,778  $20,809 
         

Denominator:

        

Weighted-average shares outstanding for basic earnings per share

  64,973   71,802 

Common equivalent shares:

        

Effect of stock-based compensation awards and warrants

  562   3,144 

Effect of convertible debt

  1,700   8,111 

Weighted-average shares outstanding assuming dilution

  67,235   83,057 

Basic earnings per share from continuing operations

 $0.13  $0.28 

Diluted earnings per share from continuing operations

 $0.13  $0.25 

Basic weighted average shares outstanding for purposes of basic earnings per share are less than the shares outstanding due to 482,010700,271 shares and 375,139226,149 shares of restricted stock for 20232024 and 2022,2023, 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 C), 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.

23


NOTE N—NSEGMENT AND REVENUE INFORMATION

The Company operates in two reportable segments: CAM and ACMI Services.segments. The CAM segment consists of the Company's aircraft and engine 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 support 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):

Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Total revenues:
CAM$111,378 $109,674 $223,422 $216,579 
ACMI Services366,187 347,498 700,314 677,588 
All other110,789 107,879 221,377 210,414 
Eliminate inter-segment revenues(59,015)(55,383)(114,679)(109,053)
Total$529,339 $509,668 $1,030,434 $995,528 
Customer revenues:
CAM$84,194 $80,800 $167,352 $157,491 
ACMI Services366,179 347,478 700,292 677,562 
All other78,966 81,390 162,790 160,475 
Total$529,339 $509,668 $1,030,434 $995,528 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Total revenues:

        

CAM

 $105,549  $112,044 

ACMI Services

  323,824   334,127 

All other

  109,040   110,588 

Eliminate inter-segment revenues

  (52,896)  (55,664)

Total

 $485,517  $501,095 

Customer revenues:

        

CAM

 $79,591  $83,158 

ACMI Services

  323,711   334,113 

All other

  82,215   83,824 

Total

 $485,517  $501,095 

The Company's external customer revenues from other activities for the three month period ended March 31, 2024, and six month periods ended June 30, 2023 and 2022 are presented below (in thousands):

Three Months EndedSix Months Ended
June 30,June 30,
2023202220232022
Aircraft maintenance, modifications and part sales$39,165 $34,621 $81,238 $72,161 
Ground services24,987 26,970 48,652 52,071 
Other, including aviation fuel sales14,814 19,799 32,900 36,243 
Total customer revenues$78,966 $81,390 $162,790 $160,475 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Aircraft maintenance, modifications and part sales

 $40,348  $42,073 

Ground services

  23,221   23,665 

Other, including aviation fuel sales

  18,646   18,086 

Total customer revenues

 $82,215  $83,824 

During the three and six month periods ending June 30, 2023,period ended March 31, 2024, the Company recognized $12.2 million and $6.5$3.9 million, respectively, of non-lease revenue that was reported as deferred revenue at the beginning of the applicable period, compared to $3.3$6.5 million and $3.9 million, respectively, for the comparable periodsperiod in the prior year.2023. Current deferred revenue of $9.9$9.1 million and $17.0$4.5 million as of June 30, 2023March 31, 2024 and December 31, 2022,2023, respectively, for contracts with customers is derived from other activities as described above. Revenue related to deferred revenue will be recognized based on percentage of completion. Customers are required to pay deposits and may be required to make milestone payments for these services resulting in deferred revenue. Long-term contract assets were $0.7$8.2 million as of June 30, 2023March 31, 2024 compared to $0.0$8.7 million as of December 31, 2022.2023. Cash will be collected over the term of the multi-year agreement based on number cycles per period while revenue is recognized as parts are provided for engine maintenance services. This may result in a contract asset or liability based on the timing of engine maintenance services.

24

CAM's leases do not contain residual guarantees. Approximately 10%16% of CAM's leases to external customers contain purchase options at projected market values. As of June 30, 2023,March 31, 2024, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $141.4$217.4 million for the remainder of 2023,2024, and $247.3$267.0 million, $227.2$235.1 million, $203.5$206.8 million and $172.3$171.9 million, respectively, for each of the next four years ending December 31, 2027 2028 and $313.9$254.3 million thereafter. CAM's external customer revenues for non-lease activities were $8.7$4.8 million and $15.4$6.7 million for the three and six month period ended June 30, March 31, 2024  and 2023, respectively, for engine services and the sale of spare engine parts compared to $7.4 million and $17.3 million, respectively, during the comparable periods in the prior year.




parts.

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

Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Depreciation and amortization expense:
CAM$58,091 $56,421 $118,488 $112,712 
ACMI Services23,835 24,248 47,456 49,438 
All other765 703 1,475 1,293 
Total$82,691 $81,372 $167,419 $163,443 
Interest expense
CAM10,908 6,224 20,930 13,929 
ACMI Services5,058 2,648 10,016 6,026 
Segment earnings (loss):
CAM$31,020 $39,617 $65,220 $74,612 
ACMI Services24,054 21,837 21,643 44,002 
     All other(1,299)191 (645)1,742 
Net unallocated interest expense(526)(574)(1,036)(881)
Net gain (loss) on financial instruments1,818 6,011 78 8,707 
Other non-service components of retiree benefit costs, net(3,218)5,388 (6,436)10,776 
Loss from non-consolidated affiliate(2,107)(3,220)(2,513)(4,623)
Pre-tax earnings from continuing operations$49,742 $69,250 $76,311 $134,335 

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Depreciation and amortization expense:

        

CAM

 $65,373  $60,397 

ACMI Services

  24,249   23,621 

All other

  758   710 

Total

 $90,380  $84,728 

Interest expense

        

CAM

  15,280   10,022 

ACMI Services

  5,493   4,958 

Segment earnings (loss):

        

CAM

 $13,409  $34,200 

ACMI Services

  (3,485)  (2,411)

All other

  2,307   654 

Net unallocated interest expense

  (976)  (510)

Net gain (loss) on financial instruments

  2,355   (1,740)

Other non-service components of retiree benefit costs, net

  (1,085)  (3,218)

Loss from non-consolidated affiliate

  (79)  (406)

Pre-tax earnings from continuing operations

 $12,446  $26,569 

The amortization of customer incentives included in revenue for CAM was $3.9 million and $8.9 million$3.1 for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $5.0 million and $10.1 million, respectively, for the corresponding periodsperiod in 2022.2023. The amortization of customer incentives included in revenue for ACMI Services was $0.8 million and $1.6 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $0.8 million and $1.6 million in the corresponding periodsperiod of 2022.

2023.

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

June 30,December 31,
 20232022
Assets:
CAM$2,743,731 $2,510,559 
ACMI Services839,091 921,522 
All other169,743 157,812 
Total$3,752,565 $3,589,893 

  

March 31,

  

December 31,

 
  

2024

  

2023

 

Assets:

        

CAM

 $2,929,853  $2,885,508 

ACMI Services

  829,133   828,703 

All other

  132,751   167,879 

Total

 $3,891,737  $3,882,090 

During the sixthree months ended June 30, 2023,March 31, 2024, the Company had capital expenditures for property and equipment of $47.4$20.7 million and $363.5$82.1 million for the ACMI Services and CAM, respectively.



25

ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS.

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") has been prepared with reference to the historical financial condition and results of operations of ATSG and its subsidiaries. The MD&A describes the principal factors affecting our results of operations, financial condition, cash flow, liquidity and capital resources. The MD&A should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP")(GAAP) contained in this Form 10-Q and the audited consolidated financial statements and related notes prepared in accordance with GAAP contained in our 20222023 Form 10-K.

BACKGROUND

OVERVIEW

We leaseprovide aircraft leasing and provide airline operations, aircraft modification and maintenance services, ground services, and other support services to the air cargo transportation and related services. To support the needs of our leasing customers in the aviation and logistics industries. Through ATSG's subsidiaries,industries at large, we offer a range of complementary services to delivery companies, freight forwarders, e-commerce operators, airlines and government customers. Our principal subsidiaries include our aircraft leasing company (CAM) and three independently certificated airlines (ABX, ATI and OAI).

We haveprimarily operate through two reportable operating segments:

segments, CAM and ACMI Services:

CAM offers aircraft leasing and related services to external customers and also leases aircraft internally to our 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. CAM currently leases Boeing 767, 757 and 777 aircraft, Airbus A321 aircraft and aircraft engines.

engines, and is in the process of adding Airbus A330 freighter aircraft to its fleet.

ACMI Services includesconsists of the cargo and passenger transportation operations of our three airlines.airline subsidiaries. Our airlines operate under contracts to provide a combination of aircraft, flight crews, aircraft maintenance, aircraft hull and liability 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.

We also

Our other business operations, which primarily 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 providetransportation industry, include providing aircraft maintenance and modification services to customers, cargo load transfer and sell aircraft parts. We also provide mail sorting parcel handling and logistical support to United States Postal Service (USPS) facilities and similar services to certain ASI hub and gateway locations in the United States. We provideas well as related equipment maintenance for ground equipment, facilities and material handling equipment and we resell aviation fuel in Wilmington, Ohio. Additionally, we provide flight training services. TheThese operations described in this paragraph do not constitute a separate reportable segmentsegments and are reported in “All"All other.

"

At June 30, 2023,March 31, 2024, we owned 106109 Boeing aircraft and three Airbus aircraft that were in revenue service. We owned three Boeing 767-300 freighter aircraft and one Boeing 767-200 freighter aircraft not in revenue service having been returned from lease and that are expected to be re-leased in 2024 or 2025.  We also owned twentythirteen Boeing 767-300 aircraft, and ninesix Airbus 321-200 aircraft and five Airbus A330 aircraft, either undergoing or awaiting induction into the freighter conversion process at June 30, 2023.March 31, 2024. In addition to these aircraft, we leased fourfive passenger aircraft from third parties and operated fifteen16 freighter aircraft provided by customers for whom we provide services under CMI agreements.

Customers

Our largest customers are ASI, which is a subsidiary of Amazon, the DoD and DHL. Revenues from our commercial arrangements with ASI comprised approximately 34% and 34%35% of our consolidated revenues during the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively. As of June 30, 2023,March 31, 2024, we leased 3834 Boeing 767 freighter aircraft to ASI with lease expirations between 20232024 and 2031 and we operate those aircraft for ASI.2031.  The aircraft lease terms typically range from 5 to 10 years. WeUnder a separate air transportation services agreement, we operate ninethose aircraft for ASI and we operate ten other Boeing 767 aircraft provided by ASI. We also provide ground services and aircraft maintenance services to ASI.

On May 6, 2024, we entered an agreement with ASI to operate ten additional Boeing 767-300 freighter aircraft to be provided by ASI, with the potential to add up to ten additional Boeing 767-300 freighter aircraft.  The agreement extends the expiration date of the air transportation services agreement from March 2026 to May 2029 with renewal options.  Also on May 6, 2024, in conjunction with the agreement, we agreed to issue additional warrants to Amazon and modify provisions of certain existing warrants.  See Note C of the accompanying consolidated financial statements for additional information regarding the agreements with ASI.

DHL comprised 13% and 12%14% of our consolidated revenues during the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively. As of June 30, 2023,March 31, 2024, we leased 1214 Boeing 767 freighter aircraft to DHL comprised ofcomprising one Boeing 767-200 aircraft and eleven13 Boeing 767-300 aircraft, with expirations between 20232025 and 2029.2031. Ten of the



12 14 Boeing 767 aircraft were being operated by our airlines for DHL. Additionally, we operated six Boeing 767 aircraft that were provided by DHL. In February 2022, the Company and DHL agreed to a six-year extension of its dry leases for five Boeing 767 freighters as well as an extension of the CMI agreement with DHL for ABX to operate aircraft through April 2028. The CMI agreement was expanded to include two additional 767 freighters.

The DoD comprised 30%28% and 29% of our consolidated revenues during the sixthree month periods ended June 30,March 31, 2024 and 2023 and 2022 respectively, derived primarily from operating passenger and combi charter flights. We utilize our fleet of fourteen15 passenger aircraft to operate troop movement flights for the DoD. We also operate our four combi aircraft for the DoD, which are capable of simultaneously carrying cargo and passengers on the main deck. We have been providing services to the DoD since the 1990’s, typically under one-year agreements.


RESULTS OF OPERATIONS

Revenue and Earnings Summary

External customer revenues from continuing operations increaseddecreased by $19.7$15.6 million, or 4%3%, to $529.3 million and $34.9 million, or 4%, to $1,030.4$485.5 million during the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to the same periodsperiod in 2022.2023. Customer revenues increaseddecreased from Boeing 767-200 aircraft leases, engine power revenues and flying for customers' delivery networks during the first sixthree months of 2023 for aircraft contracted airline services, charter flights, aircraft leasing and aircraft maintenance services, compared to the previous year periods.

2024

The consolidated earningsconsolidated earnings from continuing operations were $38.0 million and $58.2$8.6 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $54.2 million and $104.0$20.1 million for the corresponding periodsperiod in the prior year. The pre-tax earnings from continuing operations were $49.7 million and $76.3$12.4 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $69.3 million and $134.3$26.6 million for the corresponding periodsperiod in the prior year. Earnings werewas affected by the following events and items that do not directly reflect our underlying operations among the periods presented. Pre-tax earnings from continuing operations:

included gains of $2.4 million for the three month period ended March 31, 2024 for financial instrument valuations, including interest rate swaps and instruments granted to Amazon compared to losses of $1.7 million for the same period in the prior year.

were also reduced to $3.9 million for the three month period ended March 31, 2024 for the amortization of customer lease incentives given to Amazon in the form of warrants compared to $5.8 million for the same period in the prior year.

included losses of $1.1 million for the three month period ended March 31, 2024 for non-service components of retiree benefit plans compared to $3.2 million for the same period in the prior year.

included losses of $0.1 million for the three month period ended March 31, 2024 for our share of joint venture results, including engineering costs for the development of an aircraft modification for the Airbus A321 aircraft type compared to losses of $0.4 million for the same period in the prior year.

included losses of less than $0.1 million for the three month period ended March 31, 2023, net related insurance recoveries for the costs which occurred as a direct result of a foam release after a hangar's fire suppression system malfunctioned during 2022.

27

were also reduced by $4.7 million and $10.5 million for the three and six month periods ended June 30, 2023, respectively, for the amortization of customer lease incentives given to Amazon in the form of warrants compared to $5.8 million and $11.6 million for the same periods in the prior year.
included losses of $3.2 million and $6.4 million for the three and six month periods ended June 30, 2023, respectively, for settlement charges, curtailments and other non-service components of retiree benefit plans compared to gains of $5.4 million and $10.8 million for the same periods in the prior year.
included losses of $2.1 million and $2.5 million for the three and six month periods ended June 30, 2023, respectively, for our share of joint venture results, including engineering costs for the development of an aircraft modification for the Airbus A321 compared to losses of $3.2 million and $4.6 million for the same periods in the prior year.
included gains of less than $0.1 million and losses of $0.1 million for the three and six month periods ended June 30, 2023, respectively, for net related insurance recoveries for the costs which occurred as a direct result of a foam release after a hangar's fire suppression system malfunctioned during 2022.

After removing the effects of these events and items, adjusted pre-tax earnings from continuing operations, a non-GAAP financial measure (see the reconciliation of adjusted pre-tax earnings from continuing operations to pre-tax earnings from continuing operations in the following table), were $57.9 million and $95.7$15.2 million for three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $66.9 million and $131.1$37.8 million for the corresponding periodsperiod in 2022.

2023.  Adjusted pre-tax earnings from continuing operations for the three monthsmonth period ended June 30, 2023March 31, 2024 decreased $9.0$22.6 million primarily due to reduced numberlower earnings from Boeing 767-200 aircraft leases and related engine power programs, as well as higher interest expense and depreciation expense, most of aircraft leases. The decreasewhich are reflected in the six month period ended June 30, 2023 of $35.4 million is primarily due to aour CAM segment.  Additionally, lower level of passenger operations withinrevenues and block hours flown for customers' delivery networks resulted in lower earnings for ACMI Services incompared to the first quarter and fewer aircraft under lease with customers.


same period of the previous year. 

A summary of our revenues from continuing operations, pre-tax earnings from continuing operations and adjusted pre-tax earnings from continuing operations, as well as a reconciliation of adjusted pre-tax earnings from continuing operations to pre-tax earnings from continuing operations, is shown below:

  

Three Months Ended

 
  

March 31,

 
  

2024

  

2023

 

Revenues from Continuing Operations:

        

CAM

        

Aircraft leasing and related services

 $108,645  $117,074 

Lease incentive amortization

  (3,096)  (5,030)

Total CAM

  105,549   112,044 

ACMI Services

  323,824   334,127 

Other Activities

  109,040   110,588 

Total Revenues

  538,413   556,759 

Eliminate internal revenues

  (52,896)  (55,664)

Customer Revenues

 $485,517  $501,095 
         

Pre-Tax Earnings from Continuing Operations:

        

CAM, inclusive of interest expense

 $13,409  $34,200 

ACMI Services, interest expense

  (3,485)  (2,411)

Other Activities

  2,307   654 

Net unallocated interest expense

  (976)  (510)

Net financial instrument re-measurement (loss) gain

  2,355   (1,740)

Other non-service components of retiree benefits costs, net

  (1,085)  (3,218)

Loss from non-consolidated affiliate

  (79)  (406)

Pre-Tax Earnings from Continuing Operations

  12,446   26,569 

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

  1,085   3,218 

Add charges for non-consolidated affiliates

  79   406 

Add lease incentive amortization

  3,912   5,822 

Add net loss (gain) on financial instruments

  (2,355)  1,740 

Add net charges for hangar foam incident

     41 

Adjusted Pre-Tax Earnings from Continuing Operations (non-GAAP)

 $15,167  $37,796 

28

Three Months EndedSix Months Ended
 June 30,June 30,
 2023202220232022
Revenues from Continuing Operations:
CAM
Aircraft leasing and related services$115,281 $114,703 $232,355 $226,638 
Lease incentive amortization(3,903)(5,029)(8,933)(10,059)
Total CAM111,378 109,674 223,422 216,579 
ACMI Services366,187 347,498 700,314 677,588 
Other Activities110,789 107,879 221,377 210,414 
Total Revenues588,354 565,051 1,145,113 1,104,581 
Eliminate internal revenues(59,015)(55,383)(114,679)(109,053)
Customer Revenues$529,339 $509,668 $1,030,434 $995,528 
Pre-Tax Earnings from Continuing Operations:
CAM, inclusive of interest expense$31,020 $39,617 $65,220 $74,612 
ACMI Services, interest expense24,054 21,837 21,643 44,002 
Other Activities(1,299)191 (645)1,742 
Net unallocated interest expense(526)(574)(1,036)(881)
Net financial instrument re-measurement (loss) gain1,818 6,011 78 8,707 
Other non-service components of retiree benefits costs, net(3,218)5,388 (6,436)10,776 
Loss from non-consolidated affiliate(2,107)(3,220)(2,513)(4,623)
Pre-Tax Earnings from Continuing Operations49,742 69,250 76,311 134,335 
Add other non-service components of retiree benefit costs, net3,218 (5,388)6,436 (10,776)
Add charges for non-consolidated affiliates2,107 3,220 2,513 4,623 
Add lease incentive amortization4,719 5,822 10,541 11,620 
Add net loss (gain) on financial instruments(1,818)(6,011)(78)(8,707)
Add net charges for hangar foam incident(28)— 13 — 
Adjusted Pre-Tax Earnings from Continuing Operations (non-GAAP)$57,940 $66,893 $95,736 $131,095 

We define adjusted pre-tax earnings from continuing operations, a non-GAAP financial measure, as pre-tax earnings from continuing operations 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 including warrants issued to Amazon; (iii) customer lease incentive amortization; (iv) gains and losses from non-consolidated joint ventures; and (v) charges related to the discharge of a fire suppression system in the Company's aircraft hangar, net of related insurance recoveries. We exclude these items from pre-tax earnings from continuing operations because they are distinctly different in their predictability or not closely related to our on-goingongoing operating activities. Management uses adjusted pre-tax earnings from continuing operations to compare the performance of core operating results between periods. Presenting this non-GAAP financial measure provides management and investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods. Adjusted results should not be considered in isolation or as a substitute for analysis of the Company's results as calculated and reported under GAAP.

Aircraft Fleet Summary

Our fleet of cargo and passenger aircraft is summarized in the following table as of June 30, 2023,March 31, 2024, and December 31, 2022.2023. 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 June 30, 2023,March 31, 2024, we owned 2013 Boeing 767-300 aircraft, and ninesix Airbus A321-200 aircraft and five Airbus A330 aircraft that were either already undergoing or awaiting induction into the freighter conversion process.
  As of March 31, 2024, we also owned three Boeing 767-300 freighter aircraft and one Boeing 767-200 freighter aircraft staging for future lease.

Aircraft fleet activity during the first sixthree months of 20232024 is listed below:

CAM completed the modification of four Boeing 767-300 freighter aircraft purchased in the previous year. The aircraft are leased to external customers under multi-year leases.

External customers returned three Boeing 767-200 freighter aircraft to CAM.  One of these aircraft was leased to ABX.  The remaining aircraft have currently been removed from service and their parts and engines will be used to support the fleet, re-leased to customers or possibly sold.

An external customer returned one Boeing 767-300 freighter aircraft to CAM.  This aircraft has been leased to ABX.

OAI began a short term lease of one Boeing 767-300 passenger aircraft from an external lessor.

CAM purchased three Boeing 767-300 passenger aircraft. These aircraft are expected to be converted into standard freighter configuration and leased to external customers during 2025 or 2026.

CAM purchased two Airbus A330 passenger aircraft for the purpose of converting them into a standard freighter configuration. These aircraft are expected to be leased to an external customer during 2025.

29

CAM purchased eight Boeing 767-300 passenger aircraft for the purpose of converting the passenger aircraft into a standard freighter configuration. These aircraft are expected to be leased to external customers during 2024.
CAM purchased two Airbus A321-200 passenger aircraft for the purpose of converting the passenger aircraft into a standard freighter configuration. These aircraft are expected to be leased to an external customer during 2023 and 2024.
External customers returned eight Boeing 767-200 freighter aircraft to CAM. Two of these aircraft are being staged for future deployment. The other six have currently been removed from service and their parts and engines will be used to support the fleet, re-leased to customers or possibly sold.
ATI began to operate two customer-provided Boeing 767-300 freighter aircraft.
June 30, 2023December 31, 2022
ACMI
Services
CAMTotalACMI
Services
CAMTotal
In-service aircraft
Aircraft owned
Boeing 767-200 Freighter18 22 26 30 
Boeing 767-200 Passenger— — 
Boeing 767-300 Freighter68 70 65 67 
Boeing 767-300 Passenger— — 
Boeing 777-200 Passenger— — 
Boeing 757-200 Combi— — 
20 86 106 20 91 111 
Operating lease
Boeing 767-200 Passenger— — 
Boeing 767-300 Passenger— — 
Boeing 767-200 Freighter— — 
Boeing 767-300 Freighter13 — 13 11 — 11 
Total19 — 19 17 — 17 
Other aircraft
Owned Boeing 767-300 under modification— 20 20 — 15 15 
Owned Airbus A321-200 under modification— — 

  

March 31, 2024

  

December 31, 2023

 
  

ACMI

          

ACMI

         
  

Services

  

CAM

  

Total

  

Services

  

CAM

  

Total

 

In-service aircraft

                        

Aircraft owned

                        

Boeing 767-200 Freighter

  5   13   18   4   16   20 

Boeing 767-200 Passenger

  2      2   2      2 

Boeing 767-300 Freighter

  3   74   77   2   71   73 

Boeing 767-300 Passenger

  5      5   5      5 

Boeing 777-200 Passenger

  3      3   3      3 

Boeing 757-200 Combi

  4      4   4      4 

Airbus A321-200 Freighter

     3   3      3   3 
   22   90   112   20   90   110 

Operating lease

                        

Boeing 767-200 Passenger

  1      1   1      1 

Boeing 767-300 Passenger

  4      4   3      3 

Boeing 767-200 Freighter

  2      2   2      2 

Boeing 767-300 Freighter

  14      14   14      14 

Total

  21      21   20      20 

Other aircraft

                        

Owned Boeing 767-300 under or awaiting modification

     13   13      14   14 

Owned Airbus A321-200 under or awaiting modification

     6   6      6   6 

Owned Airbus A330 under or awaiting modification

     5   5      3   3 

Boeing 767 available for lease

     4   4      4   4 

As of June 30, 2023,March 31, 2024, ABX, ATI and OAI were leasing 2022 in-service aircraft internally from CAM for use in ACMI Services. Of CAM's 1813 externally leased Boeing 767-200 freighter aircraft, eightfour were leased to ASI and operated by ABX or ATI, one was leased to DHL and operated by ABX and nineeight were leased to other external customers. Of the 6874 externally leased Boeing 767-300 freighter aircraft, 30 were leased to ASI and operated by ABX or ATI, nine were leased to DHL and operated by ABX, twofour were leased to DHL and were being operated by a DHL-affiliated airline and 2731 were leased to other external customers. The carrying values of the total in-service fleet as of June 30, 2023March 31, 2024 and December 31, 20222023 were $1,736.1$1,994.1 million and $1,741.7$1,898.7 million, respectively.



Additionally, we ownedown several Boeing 767-200767 airframes that have been removed fromare not in service and whichcondition. These aircraft are being used to support our in-service Boeing fleet with engines and aircraft parts.
parts or are being marketed.

CAM

CAM's revenues from external customers totaled $84.2 million and $167.4$79.6 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to $80.8 million and $157.5$83.2 million for the same periodsperiod in the prior year. CAM's revenues from our airlines totaled $27.2 million and $56.1$26.0 million during the three and six month periodsperiod ended June 30, 2023March 31, 2024 compared to $28.9 million and $59.1 million for the same periodsperiod in the prior year. CAM's aircraft leasing and related services revenues, which exclude customer lease incentive amortization, increased $0.6 million and $5.7 milliondecreased $8.4 for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024, compared to the corresponding periodsperiod in 2022, as a result of new aircraft leases in 2023 and 2022, offset2023. Revenues during 2024 were reduced by the returnscheduled returns of Boeing 767-200 freighter aircraft from lease.lease and lower hours flown by engines in our Boeing 767-200 engine power program. Since JulyApril 1, 2022,2023, CAM added five12 Boeing 767-300 freighter aircraft and three Airbus A321-200 freighters to its portfolio and placed all 15 of these five aircraft with external customers under long-term leases. Additionally, since July 1, 2022, tenDuring that same time period, 12 767-200 freighters and four 767-300 freighters were returned from lease. CAM is currently prepping two of these 767-200 freighters for re-lease, and has re-leased another 767-200 freighter to anleases from external customer.customers. CAM's revenues from its 767-200 engine power program hashave decreased $1.9 million and $2.9$7.3 million for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to the corresponding periodsperiod of 2022,2023, due primarily to the reduction in leased 767-200 aircraft.

CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $31.0 million and $65.2was $13.4 million for the three and six months ended June 30, 2023March 31, 2024 compared to $39.6 million and $74.6$34.2 million for the same periodsperiod in the prior year. Pre-taxCAM's earnings reflects four fewer aircraft, netting additional 767-300 leases withwas negatively impacted by the reduction in 767-200 freighter returns since July 1, 2022.lease and engine power program revenues.  Additionally, depreciation expense increased $1.7 million and $5.8 million for the three and six month periods ended June 30, 2023, respectively, primarily duereduced earnings compared to the new aircraft placed into service. Reduced earnings alsoprior year period included $4.7 million and $7.0$5.3 million more internally allocated interest expense due to higher company-wide interest expense.

Asexpense and  $5.0 million more depreciation expense primarily due to the new aircraft placed into service. Pre-tax earnings reflects the same amount of June 30, 2023, CAM's fleet included 20 Boeingaircraft, netting additional 767-300 aircraft and nine Airbus A321-200 aircraft which were in or awaiting the modification process. Six of these aircraft have already begun long-term leases with external customers in767-200 freighter returns since April 1, 2023.  Additionally, depreciation expense increased $5.0 million for the third quarter with ten more scheduled to begin long-term leases with external customers later in 2023, 12 inthree month period ended March 31, 2024 and one in 2025. During the remainder of 2023, three more Boeing 767-200 aircraft leases are scheduled to expire and may be offered for resale or re-leased.
CAM expects to begin the passenger-to-freighter conversion of Airbus A330 aircraft in 2023 and expects to begin leasing the Airbus A330 freighter aircraft in 2024. CAM has agreements to purchase nine more Boeing 767-300 aircraft and seven Airbus A330-300 aircraft during 2023 and 2024. Eight of these aircraft are scheduled to be leased with external customers in 2024, six in 2025 and two in 2026. If

CAM's future market conditions affect the demand for modified aircraft or the projected returns on our fleet expansion, we have the flexibility to reduce planned growth investments in 2024 and beyond.

CAM's operating results will depend on its continuinga number of factors including the continued demand from lessees for mid-sized widebody freighters, our ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers. customers and the lease rates under which aircraft are redeployed or renewed. Our CAM fleet projections for 2024 are described below by aircraft type:

CAM plans to remove five more Boeing 767-200's from service during the remainder of 2024 and retire most of these aircraft for a combination of parts to support our fleet and part sales to third parties.

In addition to three Boeing 767-300 freighter aircraft available for lease and 13 Boeing 767-300 aircraft subject to freighter modification as of March 31, 2024, CAM has commitments to purchase one more Boeing 767-300 passenger aircraft during 2024 for freighter modification.  CAM plans to complete the modification of five more Boeing 767-300 aircraft during 2024.  CAM has leased four aircraft through March 31, 2024 and currently has inter-ATSG assignments for one more aircraft lease during the remainder of 2024.  The other seven aircraft are being marketed for lease during 2024.  During the remainder of 2024, CAM has three Boeing 767-300 aircraft leases scheduled to expire.

CAM expects to complete the freighter modification of the six Airbus A321 aircraft that were subject to freighter modification as of March 31, 2024. CAM is currently marketing these six for lease to external customers for leases to begin in 2024. CAM does not have commitments to acquire more Airbus A321 aircraft at this time. The U.S. FAA, the Civil Aviation Administration of China and aviation regulators in Europe have certified the design of the modified Airbus A321 that CAM utilizes to convert the passenger aircraft to a freighter via its joint venture. 

In addition to the five Airbus A330 aircraft that CAM owned at March 31, 2024, CAM is scheduled to purchase three more Airbus A330 passenger aircraft during 2024. CAM expects to complete the freighter modification for two of these Airbus A330 aircraft during 2024 and they are being marketed for lease.

CAM's future operating results will also depend on lease rates underdepreciation expense for newly modified aircraft as an aircraft reaches service condition, the sale price of aircraft which aircraft are redeployed. The U.S. FAA has certifiedcould be sold, interest expense, revenues from the designutilization of the modified Airbus A321engines that CAM utilizes to convertpower our Boeing 767-200 aircraft and other factors. Further, certain airline customers serving international routes have in recent times experienced and could further experience a weakness in demand from the passenger aircraftlarge integrators and markets they serve. This could lead to a freighter. Our joint venture is working with regulatorsdisruption in Europeour expected revenues and cash remittances from one or more customers. CAM's pre-tax earnings are subject to changes from market interest rates and our level of debt. Changes to market conditions could affect the demand for modified aircraft or the projected returns on remaining issues to certify the Airbus A321 to operate there. Prolonged delays in that certification process could impact our Airbus 321 aircraft fleet expansion in future years.

from the outcomes currently expected, and further, management may take additional actions such as the further deferral or cancellation of planned growth investments or the divestiture of certain aircraft.

ACMI Services

Total revenues from ACMI Services increased $18.7 million and $22.7decreased $10.3 million compared to 20222023 for the three and six month period ended June 30, 2023March 31, 2024 to $366.2 million and $700.3 million, respectively, while block hours flown for customers increased 1% for$323.8 million. During the same comparison periods. The increase in revenues reflects additional aircraft operated andthree month period ended March 31, 2024, block hours flown for our customers' delivery networks decreased 3% compared to the prior year periods. Duringcorresponding period in 2023 reflecting to the three and six month periods ended June 30, 2023, block hours flown for our customers' delivery networks increased 1% and 3%, respectively, including more U.S. continental. block hoursremoval of certain Boeing 767-200 aircraft and fewer inter-continental block hours compared for the corresponding periods in 2022. We are operating three more freighter aircraft in ACMI Services since July 1, 2022.international flights. Block hours for DoD and other passenger services during the three and six month periodsperiod ended June 30, 2023,March 31, 2024, including operation of Boeing 757 combi aircraft, declined 2% and 9%,



respectively,were flat compared to the corresponding periodsperiod of 2022. Declines in revenue generated from lower passenger block hours were offset by increased revenues during 2023 for higher prices2023. 

31

ACMI Services had pre-tax earningslosses of $24.1 million and $21.6$3.5 million during the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to pre-tax earningslosses of $21.8 million and $44.0$2.4 million for the corresponding periodsperiod of 20222023 inclusive of internally allocated interest expense. ACMI Services was impacted by additional internally allocated interest expense of $2.4 million and $4.0$0.5 million for the three and six month period ended June 30, 2023, respectively,March 31, 2024, compared to the corresponding periodsperiod in 20222023 due to higher interest rates and debt balances in 2023.2024. The decline in year-to-date earnings during 2023 also included2024 reflects the reduced passenger services revenues and higher operating expenses experienced inoperations for our customers delivery networks' during 2024 compared to the first quarterthree months of 2023. During the second quarter of 2023, passenger services revenue rebounded driven by additional charter and nonmilitary flightsWe operated three fewer freighter aircraft in which certain operating expenses are contractually passed through to the customer.

ACMI Services since April 1, 2023.

Maintaining profitability in ACMI Services will depend on a number of factors, including the impact of inflation on operating expenses, customer billing rates, customer flight schedules, crewmember productivity and pay, employee attrition, employee benefits, aircraft maintenance schedules and the number of aircraft we operate.  Recruiting, trainingOur airlines are planning to add eleven customer provided aircraft into operations during the remainder of 2024. These additions will require start-up expenses and retaining employeesmay impact our operational performance in the near term.  The war in Israel and contractors are important factors toconflicts in other parts of the world may also impact our success. Ifoperations, reducing the number of flights that we experience a shortage of qualified employees, ACMI Services' financial results could be detrimentally impacted.

operate for the DoD and other customers. 

Other Activities

External customer revenues from all other activities decreased $2.4$1.6 million and increasedfor the three month period ended March 31, 2024 compared to the corresponding period of 2023.  External aircraft maintenance revenues declined during the first quarter of 2024 compared to 2023 while aircraft maintenance resources were applied to more internally billed projects.  Pre-tax earnings from other activities were $2.3 million for the three and six month periodsperiod ended June 30, 2023, respectively, to $79.0 million and $162.8 million compared to the corresponding periods of 2022. During 2023, increases in aircraft maintenance services were offset by lower fuel revenues and one fewer ground hub service location compared to 2022. Aviation fuel revenues can fluctuate significantly among periods due volatility of fuel prices. Pre-tax losses from other activities were $1.3 million and $0.6 million for the three and six month periods ended June 30, 2023March 31, 2024 compared to pre-tax earnings of $0.2 million and $1.7$0.7 million for the same periodsperiod in the prior year. The decreaseincrease in earnings reflectedduring 2024 reflects a revenue mix of higher labor and administrative costs.margin airframe maintenance contracts instead of lower margin line maintenance revenues.  Additionally, lower overhead expense during 2024 contributed to improved earnings compared to the previous year. 

Expenses from Continuing Operations

Salaries, wages and benefits expense increased $7.7decreased $5.2 million or 5% and $22.6 million or 7%3% during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periodsfirst quarter of 2022. These expenses have been impacted by higher wage rates, increased personnel, including more pilots and benefit costs, higher employee attrition rates and more overtime pay.2023.  The decline in expense is due primarily to the decrease in total employees in the first quarter of 2024 compare to 2023. Inflationary pressures and employee attrition may continue to impact wages in the future.

Depreciation and amortization expense increased $1.3 million and $4.0$5.7 million during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periodsfirst quarter of 2022.2023. The increase reflects incremental depreciation for five15 newly converted aircraft added to its operating fleet since JulyApril 1, 2022. Since July 1, 2022, airframes2023. Increased depreciation from newly converted aircraft was partially offset by lower depreciation for sevenour fleet of Boeing 767-200 aircraft have become fully depreciated.aircraft.  We expect depreciation expense to continue to increase during future periods in conjunction with our fleet expansion, engine programs and capital spending plans.

Maintenance, materials and repairs expense increased by $11.0$6.1 million or 28% and $19.2 million or 25%14% during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periodsfirst quarter of 2022.2023. This expense line includes the cost of materials and repairs to maintain aircraft and engines, as well as similar costs for providing maintenance services to customers. The increase reflects an increase in scheduled airframe maintenance, part repairs and partengine repairs. 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.

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 $2.1 million during the first quarter of 2024 compared to the first quarter of 2023.  Contracted ground and aviation services vary with the level of passenger airline operations.  The decrease corresponded to decreased flying volumes.

Fuel expense decreased by $5.8 million and increased by $0.6$3.2 million during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periodsfirst quarter of 2022.2023. Fuel expense includes the cost of fuel to operate DoD flights, fuel used to position aircraft for service and for maintenance purposes, as well as the cost of fuel we resell to customers at the airport in Wilmington, Ohio. For the sixthree month period ended June 30 2023, total fuel expense increased slightly compared toMarch 31, 2024, the prior year period reflecting a higher cost per gallon for DoD required fuel, largely offset by a reduction in hours flown for the DoD and a lower average cost of aviation fuel that



we resell to customers. The decrease in fuel expense for the second quarter of 2023 compared to the second quarter of 2022 additionally reflects a greater declinedecrease in block hours flown and a decrease in the average cost per gallonprice of aviation fuel that we resold to our customers compared to the second quarter of 2022.
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 servicesfuel.

Other operating expenses decreased $0.5 million and $1.0 million during the three and six month periods ended June 30, 2023, respectively, compared to the corresponding periods of 2022. The reduction reflects the net effect of operating fewer passenger hours and higher vendor fee rates.

Travel expense increased by $2.7 million and $8.1 million during the three and six month periods ended June 30, 2023, respectively, compared to the corresponding periods of 2022. In addition to the increased number of crew members, travel expense increased during 2023 due to significantly higher airfares and hotel rates compared to the prior year.
Landing and ramp expense, which includes the cost of deicing chemicals, increased by $0.7 million and $0.2 million during the three and six month periods ended June 30, 2023, respectively, compared to the corresponding periods of 2022, due to higher rates charged by airports.
Rent expense increased by $1.2 million and $2.7 million during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periodsfirst quarter of 2022 due2023.  Other operating expenses for 2024 include decreases for professional fees and precautionary expense related to additional aircraft engines and facility locations under lease.
COVID prevention.

Non-Operating Income, Adjustments and Expenses

Interest expense increased by $7.2 million and $11.5$6.3 million during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to the corresponding periods 2022. Debt balances and interestfirst quarter of 2023.  Interest rates under our Senior Credit Agreement increased year over year. We expectAdditionally, during August 2023 we issued $400.0 million of unsecured convertible notes bearing interest expenseat 3.875%, proceeds from which were used in part to increasereplace $204.5 million of convertible notes bearing 1.125% which were set to mature in future periods due to increases in our revolver balances as we expand CAM's fleet and increased interest rates that float with prevailing SOFR under our Senior Credit Agreement.2024.  

We recorded unrealized pre-tax gains on financial instrument re-measurements of $1.8 million and $0.1$2.4 million during the three and six month periods ended June 30, 2023, respectively,first quarter of 2024 compared to pre-tax gainslosses of $6.0 million and $8.7$1.7 million for the corresponding periodsfirst quarter in 2022.2023. The gains and losses include the re-valuing, as of June 30,March 31, 2024 and 2023, and 2022, the stock warrants and ATSG stock sale option granted to Amazon and interest rate swaps that we hold. Generally, the warrant values increase or decrease with corresponding increasesdecreases or decreasesincreases in the ATSG common stock price during the measurement period. Additionally, the value of warrants depends partially on the probability that warrants will vest upon the execution of aircraft leases. Increases in the probability of a warrants vesting and the sales option exercise price being above the traded ATSG price results in higher liabilities and losses. Also, during the three month period ended June 30, 2022, ATSG repurchased $120.0 million of its Senior Notes par value in the open market resulting in a net pre-tax gain of $4.5 million, net of fees which was recorded under net gain on financial instruments on the income statement during the corresponding period.

Non-service components of retiree benefits resulted in net losses of $3.2$1.1 million and $6.4 million forduring the three and six month period ended June 30, 2023, respectively,first quarter of 2024 compared to gainslosses of $5.4 million and $10.8$3.2 million for the corresponding periodsperiod in 2022.2023. The non-service component gain and losses of retiree benefits are determined by actuaries 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.

The provision for income taxes for interim periods is based on management's best estimateestimates of the effective income tax raterates expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through June 30, 2023March 31, 2024 have been estimated utilizing a 24% rate based uponon year-to-date income and projected results for the full year. The effective rate can be impacted by a number of factors, including the continued impact of the apportionment of income among taxing jurisdictions, employee compensation limitations, the return of the meals and per diem deductibility limitations and our leasing efforts in our Ireland-based subsidiary.



The effective rate from continuing operations for the sixthree month period ended June 30, 2023March 31, 2024 was 24%31%. The effective tax rate is affected by the discrete tax items in which expense and benefits for tax purposes are different than required by generally accepted accounting principles.  The effective rate can be impacted by a number of factors, including the apportionment of income among taxing jurisdictions, deductibility limitations on employee compensation, deductibility limitations on meals and per diems and the results of our Ireland-based subsidiary.  The Company's effective tax rate before including the effects of the warrant re-measurement of financial instruments, incentive amortizations and other adjustments for adjusted pre-tax earnings from continuing operations (see items in the table above) was 23% and 23%29% for the three and six month periodsperiod ended June 30, 2023, respectively,March 31, 2024 compared to 22%24% for 2023.  The increase in the effective tax rate for 2024 is due to an increase in non-deductible items on lower pre-tax earnings and 23% foran increase in the corresponding periodsportion of pre-tax earnings occurring in 2022.


tax jurisdictions with higher rates. 

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $408.6$126.4 million and $250.2$216.4 million for the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively. The increase in operatingOperating cash flows during the first three months of 2023 were higher due to the collection of large amounts of customer receivables from previous periods. Cash payments for interest expense increased $19.7 million to $32.9 million for the first three months of 2024 compared to the same period of 2023 was driven by faster payments from customers and lower customer accounts receivable balances.due to increased interest rates. Cash outlays for pension contributions were $1.2$0.9 million and $1.1$0.8 million for the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, 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 $412.9$102.3 million and $294.2$218.8 million for the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively. Capital expenditures for the first halfthree months of 20232024 included $303.2$71.9 million for the acquisition of eightthree Boeing 767-300 aircraft, two Airbus A330 aircraft and freighter modification costs; $28.1 million for required heavy maintenance; and $2.3 million for other equipment. Capital expenditures in the first three months of 2023 included $164.6 million for the acquisition of five Boeing 767-300 aircraft, two Airbus A321-200 aircraft and freighter modification costs; $103.9$51.8 million for required heavy maintenance; and $5.8$2.4 million for other equipment. Capital expenditures in the first half

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Cash proceeds of $10.4$0.9 million and $0.2$9.9 million were received during the sixthree month periods ended June 30,March 31, 2024 and 2023, and 2022, respectively, primarily for the sale of aircraft engines.

During the six-monththree month period ended June 30, 2023March 31, 2024 we spent $0.8$9.8 million to invest in joint ventures compared to $16.5$0.8 million during the corresponding period in 2022.2023. Our joint venture with Precision Aircraft Solutions, LLC, developed a passenger-to-freighter conversion program for Airbus A321-200 aircraft and our joint venture with GA Telesis Engine Services, LLC provides engine tear-down services to harvest and sell engine parts.

Net cash provided byused in financing activities was $10.7$45.6 million during the sixthree month period ended June 30, 2023 andMarch 31, 2024 compared to $55.8 million net cash provided by financing activities was $38.0 million during the corresponding period in 2022. 2023.

During the first halfthree months of 2023, we made debt principal payments of $90.3 million and2024, we drew $140.0$95.0 million from the revolving credit facility under the Senior Credit Agreement.Agreement and repaid $140.1 million on the revolving credit and other financing arrangements. During the corresponding period in the prior year, we made debt principal payments of $295.3$25.2 million and we drew $450.0$105.0 million from the revolving credit facility.

Commitments

As of June 30, 2023,March 31, 2024, we had 2924 aircraft that were in or awaiting modification to a freighter configuration. Additionally, we placed non-refundable deposits and have agreements to purchase ninethree more Boeing 767-300 aircraft and five Airbus A330 passenger aircraft and seven Airbus A330 aircraft through 2024. We expect to purchase additional aircraft for modification in 2023 and 2024.2025. We outsource a significant portion of the aircraft freighter modification process to non-affiliated third parties. The modification process primarily consists of the installation of a standard cargo door and loading system. We estimate that total capital expenditures for 20232024 will be approximately $785$410 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 whether customer demand supports our return requirements as well as aircraft acquisitions, maintenance and modification processes.

Liquidity and Capital Resources

At June 30, 2023,March 31, 2024, we had $43.2$23.2 million of cash balances and $418.6$403.7 million available from the unused portion of the revolving credit facility under the Senior Credit Agreement as described in Note F of the accompanying consolidated financial statements. We expect our operations to continue to generate significant net cash in-flows after deducting required spending of approximately $240$165 million for heavy maintenance and other sustaining capital expenditures. To expand our fleet, we estimate that capital expenditures for aircraft purchases and freighter modifications will total $545$245 million for 2023.2024. We believe that our current cash balance, forecasted cash flows



provided from customer leases and operating agreements, combined with the Senior Credit Agreement, will be sufficient to fund the expansion and maintenance of our fleet while meeting our contractual obligations, other commitments and working capital requirements for at least the next twelve months.
Continued global disruptions in See Note F of the supplies chainsaccompanying consolidated financial statements for additional information regarding our credit facilities and labor shortages may delay aircraft modification projects, pushing contractual obligations into later periods and could decrease the projected amountoutstanding debt obligations.

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CRITICAL ACCOUNTING ESTIMATES

The MD&A and certain other disclosures included elsewhere in this Form 10-Q are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of the 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 applied. 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 by management 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. By their nature, these judgments are subject to uncertainty. Actual results may differ from these estimates under different assumptions or conditions.

For information regarding recently issued accounting pronouncements and the expected impact on our annual statements, see Note A in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q. Except as provided in Note A, our critical accounting policies and estimates have not changed materially from those disclosed in our 20222023 Form 10-K.


ITEM3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

RISK.

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

Market risks have not materially changed from those disclosed in Item 7A of the Company's 20222023 Form 10-K




10-K.

ITEM4. CONTROLS AND PROCEDURES

PROCEDURES.

Evaluation of Disclosure Controls and Procedures

As of June 30, 2023,March 31, 2024, 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")) as of the end of the period covered by this Form 10-Q (the "Evaluation Date"). Based upon the evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, 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. In designing and evaluating the disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, the Company’s management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company's "internal control over financial reporting" (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during its most recently completed fiscal quarter ended June 30, 2023March 31, 2024 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.




PART II. OTHER INFORMATION


ITEM1. LEGAL PROCEEDINGS

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.


 In addition, we carry various forms of aviation, commercial, property and casualty, cybersecurity, product liability, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us.

For more information on various legal proceedings, see the discussion in Note H to our Consolidated Financial Statements included in Part I, Item 1, of this Form 10-Q. The information set forth therein related to legal proceedings is incorporated into this Item 3 by reference.

ITEM 1A. RISK FACTORS

FACTORS.

The Company faces risks that could adversely affect its condition or results of operations.  There have been no material changes to the Company's risk factors from the information disclosed in Item 1A of the Company's 20222023 Form 10-K.

Other risks that are currently unknown to management or are currently considered immaterial or unlikely, could also adversely affect the Company.

ITEM2. UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS

AND ISSUER PURCHASES OF EQUITY SECURITIES.

On July 27, 2023, the Board authorized the repurchase of up to $120.0 million of ATSG's outstanding common stock (the "2023 Repurchase Program") exclusively in conjunction with a convertible bond offering that the Company was marketing at that time. The 2023 Repurchase Program is separate from the 2022 Repurchase Program described below. The Company subsequently purchased shares in August 2023. The remaining available authorization under the 2023 Repurchase Program is $1.5 million which can only be used in conjunction with the repurchase of our 2017 Convertible Notes.

In addition, on November 29, 2022, the Board of Directors of ATSG (the "Board") authorized the repurchase of up to $150.0 million of ATSG's outstanding common stock (the "2022 Repurchase Program"). The 2022 Repurchase Program does not require the repurchase of a specific number of shares or establish a time frame for any repurchase and the Board may terminate the 2022 Repurchase Program at any time. Repurchases may be made under the 2022 Repurchase Program from time to time in the open market or in privately negotiated transactions. There is no expiration date for the 2022 Repurchase Program. We repurchased $15.0 million inThe Company did not purchase any ATSG common stock under the 2022 Repurchase Program during the secondfirst quarter of 2023.2024. As of June 30, 2023,March 31, 2024, the remaining available authorization under the 2022 Repurchase Program was $103.5 million.

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The following table summarizes our repurchases

ITEM 5. OTHER INFORMATION

During the 2022 Repurchase Program during the second quarter ended June 30, 2023:March 31, 2024, no director or officer (as defined under Rule 16a-1 of the Exchange Act) of the Company adopted or terminated any Rule 10b5-1 trading arrangements or any non-Rule 10b5-1 trading arrangements (in each case, as defined in Item 408(a) of Regulation S-K).

PeriodTotal Number of Shares PurchasedAverage Price paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramMaximum Dollar Value of Shares That May Yet Be Purchased Under the Program
April 1, 2023 through April 30, 2023— $— — $118,463,910 
May 1, 2023 through May 31, 2023950,000 $15.74 950,000 $103,507,738 
June 1, 2023 through June 30, 2023— $— — $103,507,738 
Total for the quarter950,000 $15.74 950,000 $103,507,738 



ITEM6. EXHIBITS

EXHIBITS.

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

ExhibitNo.

Exhibit No.

Description of Exhibit

10.1

Material Contracts

10.2

10.1

10.3
10.4
10.5
10.6
10.7

101.INS

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Labels Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

104

Cover Page Interactive Date File (formatted as inline XBRL and contained in Exhibit 101).


(1)

Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on February 23, 2024.

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(1)Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on March 3, 2023.
(2)Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on April 6, 2021.
(3)Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 20, 2022.
(4)Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on May 26, 2023.


SIGNATURES

Pursuant to the requirements 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.

AIR TRANSPORT SERVICES GROUP, INC.,

a Delaware Corporation

Registrant

/S/ RICHARD F. CORRADOJOSEPH C. HETE

Richard F. Corrado

Joseph C. Hete

Chief Executive Officer (Principal Executive Officer)

Date:

August 7, 2023

May 9, 2024

/S/  QUINT O. TURNER

Quint O. Turner

Chief Financial Officer (Principal Financial Officer

Date:

August 7, 2023May 9, 2024

and Principal Accounting Officer)


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