~~(Former name, former address and former fiscal year, if changed since last report)~~

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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).Yes ☒ 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 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 ☐ Non-accelerated filer ☐ Smaller reporting company ☐ 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 Exchange Act). Yes ☐ No ☒

As of ~~November 1, 2017,~~October 30, 2020, there were ~~25,283,100~~27,517,297 shares of the registrant’s Common Stock outstanding.


	September 30, 2017			December 31, 2016			September 30, 2020			December 31, 2019
Assets
Current Assets
Cash and cash equivalents	$	165,250		$	123,890		$	717,867		$	103,029
Restricted cash								11,466			10,401
Short-term investments		10,676			4,313			0			879
Restricted cash		11,030			14,360
Accounts receivable, net of allowance of $1,230 and $997, respectively		172,205			166,486
Prepaid maintenance		13,181			4,418
Prepaid expenses and other current assets		77,434			44,603
Accounts receivable, net of allowance of $776 and $1,822, respectively								268,376			290,119
Prepaid expenses, assets held for sale and other current assets								171,780			228,103
Total current assets		449,776			358,070			1,169,489			632,531
Property and Equipment
Flight equipment		4,267,704			3,886,714			5,001,481			4,880,424
Ground equipment		73,653			68,688			88,327			83,584
Less: accumulated depreciation		(670,443	)		(568,946	)		(1,113,964	)		(977,883	)
Flight equipment modifications in progress		228,040			154,226			49,246			67,101
Property and equipment, net		3,898,954			3,540,682			4,025,090			4,053,226
Other Assets
Long-term investments and accrued interest		19,234			27,951
Operating lease right-of-use assets								182,657			231,133
Deferred costs and other assets		210,611			204,647			373,074			391,895
Intangible assets, net and goodwill		108,727			116,029			72,334			76,856
Total Assets	$	4,687,302		$	4,247,379		$	5,822,644		$	5,385,641

Liabilities and Equity
Current Liabilities
Accounts payable	$	62,540		$	59,543		$	92,805		$	79,683
Accrued liabilities		421,670			320,887			645,094			481,725
Current portion of long-term debt and capital lease		196,509			184,748
Current portion of long-term debt and finance leases								296,112			395,781
Current portion of long-term operating leases								139,152			141,973
Total current liabilities		680,719			565,178			1,173,163			1,099,162
Other Liabilities
Long-term debt and capital lease		1,908,835			1,666,663
Long-term debt and finance leases								2,073,855			1,984,902
Long-term operating leases								281,394			392,832
Deferred taxes		318,171			298,165			145,952			74,040
Financial instruments and other liabilities		204,408			200,035			130,857			42,526
Total other liabilities		2,431,414			2,164,863			2,632,058			2,494,300
Commitments and contingencies
Equity
Stockholders’ Equity
Preferred stock, $1 par value; 10,000,000 shares authorized; no shares issued		-			-
Common stock, $0.01 par value; 100,000,000 shares authorized; 30,090,510 and 29,633,605 shares issued, 25,283,100 and 25,017,242 shares outstanding (net of treasury stock), as of September 30, 2017 and December 31, 2016, respectively		301			296
Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued								0			0
Common stock, $0.01 par value; 100,000,000 shares authorized; 31,497,228 and 31,048,842 shares issued, 26,138,539 and 25,870,876 shares outstanding (net of treasury stock), as of September 30, 2020 and December 31, 2019, respectively								315			310
Additional paid-in-capital		710,446			657,082			813,858			761,715
Treasury stock, at cost; 4,807,410 and 4,616,363 shares, respectively		(193,426	)		(183,119	)
Treasury stock, at cost; 5,358,689 and 5,177,966 shares, respectively								(217,786	)		(213,871	)
Accumulated other comprehensive loss		(4,249	)		(4,993	)		(2,126	)		(2,818	)
Retained earnings		1,062,097			1,048,072			1,423,162			1,246,843
Total equity		1,575,169			1,517,338
Total stockholders’ equity								2,017,423			1,792,179
Total Liabilities and Equity	$	4,687,302		$	4,247,379		$	5,822,644		$	5,385,641

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019

Operating Revenue	$	535,748		$	448,015		$	1,528,508		$	1,309,902		$	809,886		$	648,539		$	2,278,641		$	1,992,140

Operating Expenses
Salaries, wages and benefits		114,505			125,978			330,080			321,365			194,265			145,987			534,600			432,911
Maintenance, materials and repairs														116,634			88,240			379,086			305,331
Aircraft fuel		74,048			65,409			239,966			189,982			118,113			123,132			309,673			351,611
Maintenance, materials and repairs		74,457			49,761			212,042			162,220
Depreciation and amortization		42,033			37,509			120,913			109,722			65,595			62,499			189,005			190,669
Travel		38,260			31,958			105,510			94,291			37,731			49,110			114,749			140,513
Aircraft rent		33,873			35,730			103,738			109,490
Navigation fees, landing fees and other rent		33,468			15,640			77,258			56,391			42,870			32,270			109,909			110,468
Passenger and ground handling services		28,491			21,673			77,187			64,571			36,266			34,453			98,355			97,138
Loss (gain) on disposal of aircraft		211			(11	)		64			(11	)
Aircraft rent														24,239			40,048			72,522			122,271
Gain on disposal of aircraft														(163	)		0			(6,878	)		0
Special charge		-			-			-			6,631			547			18,861			16,481			22,130
Transaction-related expenses		1,092			3,905			3,403			21,486			490			324			2,286			3,585
Other		42,598			34,465			123,121			106,885			54,107			54,494			157,929			160,548
Total Operating Expenses		483,036			422,017			1,393,282			1,243,023			690,694			649,418			1,977,717			1,937,175

Operating Income		52,712			25,998			135,226			66,879
Operating Income (Loss)														119,192			(879	)		300,924			54,965

Non-operating Expenses (Income)
Interest income		(1,688	)		(1,316	)		(4,286	)		(4,325	)		(225	)		(653	)		(929	)		(3,975	)
Interest expense		26,553			21,355			72,747			63,595			28,524			30,117			86,749			90,515
Capitalized interest		(1,922	)		(1,059	)		(5,633	)		(2,106	)		(203	)		(853	)		(528	)		(1,943	)
Loss on early extinguishment of debt		167			-			167			132			7			559			81			804
Unrealized loss (gain) on financial instruments		44,775			1,462			36,225			(25,013	)		43,604			(83,175	)		73,351			(78,900	)
Other income		(1,165	)		(180	)		(357	)		(372	)
Other (income) expense, net														(62,689	)		1,434			(112,081	)		(596	)
Total Non-operating Expenses (Income)		66,720			20,262			98,863			31,911			9,018			(52,571	)		46,643			5,905

Income (loss) from continuing operations before income taxes		(14,008	)		5,736			36,363			34,968
Income tax expense		10,187			13,237			21,479			21,079

Income (loss) from continuing operations, net of taxes		(24,195	)		(7,501	)		14,884			13,889

Income (loss) from discontinued operations, net of taxes		33			(445	)		(859	)		(790	)

Net Income (Loss)	$	(24,162	)	$	(7,946	)	$	14,025		$	13,099

Earnings (loss) per share from continuing operations:
Income before income taxes														110,174			51,692			254,281			49,060
Income tax expense (benefit)														36,120			(8,282	)		77,962			(68,072	)
Net Income													$	74,054		$	59,974		$	176,319		$	117,132
Earnings per share:
Basic	$	(0.96	)	$	(0.30	)	$	0.59		$	0.56		$	2.83		$	2.32		$	6.76		$	4.54

Diluted													$	2.78		$	2.32		$	6.72		$	1.34
Weighted average shares:
Basic														26,135			25,854			26,077			25,814
Diluted	$	(0.96	)	$	(0.30	)	$	0.58		$	(0.49	)		26,619			25,854			26,256			26,909

Earnings (loss) per share from discontinued operations:
Basic	$	0.00		$	(0.02	)	$	(0.03	)	$	(0.03	)

Diluted	$	0.00		$	(0.02	)	$	(0.03	)	$	(0.03	)

Earnings (loss) per share:
Basic	$	(0.96	)	$	(0.32	)	$	0.56		$	0.53

Diluted	$	(0.96	)	$	(0.32	)	$	0.54		$	(0.52	)

Weighted average shares:
Basic		25,262			24,840			25,229			24,788

Diluted		25,262			24,840			25,822			25,116

	For the Nine Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2020			September 30, 2019

Operating Activities:
Income (loss) from continuing operations, net of taxes	$	14,884		$	13,889
Less: Loss from discontinued operations, net of taxes		(859	)		(790	)
Net Income		14,025			13,099		$	176,319		$	117,132

Adjustments to reconcile Net Income to net cash provided by operating activities:
Depreciation and amortization		142,042			124,198			240,826			241,284
Accretion of debt securities discount		(892	)		(968	)		(2	)		(237	)
Provision for allowance for doubtful accounts		304			267
Provision for (reversal of) expected credit losses								76			(83	)
Loss on early extinguishment of debt								81			804
Special charge, net of cash payments		-			6,631			16,481			22,130
Loss on early extinguishment of debt		167			132
Unrealized loss (gain) on financial instruments		36,225			(25,013	)		73,351			(78,900	)
Loss (gain) on disposal of aircraft		64			(11	)
Gain on disposal of aircraft								(6,878	)		0
Deferred taxes		21,106			20,794			75,331			(68,552	)
Stock-based compensation expense		17,030			27,919
Stock-based compensation								15,816			16,553
Changes in:
Accounts receivable		(12,004	)		32,767			23,072			1,397
Prepaid expenses, current assets and other assets		(53,343	)		(19,287	)		(39,823	)		(69,254	)
Accounts payable and accrued liabilities		30,382			(79,684	)
Accounts payable, accrued liabilities and other liabilities								208,058			11,016
Net cash provided by operating activities		195,106			100,844			782,708			193,290
Investing Activities:
Capital expenditures		(66,395	)		(36,872	)		(45,134	)		(107,594	)
Payments for flight equipment and modifications		(338,524	)		(237,093	)		(102,777	)		(153,706	)
Acquisition of business, net of cash acquired		-			(107,498	)
Proceeds from insurance								0			38,133
Proceeds from investments		3,247			8,843			881			14,367
Proceeds from disposal of aircraft								45,660			0
Net cash used for investing activities		(401,672	)		(372,620	)		(101,370	)		(208,800	)
Financing Activities:
Proceeds from debt issuance		447,865			84,790			401,419			93,723
Payment of debt issuance costs								(5,172	)		(1,316	)
Payments of debt and finance lease obligations								(353,795	)		(273,142	)
Proceeds from revolving credit facility		150,000			-			75,000			50,000
Payment of revolving credit facility		(150,000	)		-			(175,000	)		0
Customer maintenance reserves and deposits received		22,006			11,172			10,465			11,717
Customer maintenance reserves paid		(18,538	)		-			(14,437	)		(8,174	)
Proceeds from sale of convertible note warrants		38,148			-
Payments for convertible note hedges		(70,140	)		-
Purchase of treasury stock		(10,307	)		(11,071	)
Excess tax benefit from stock-based compensation expense		-			443
Payment of debt issuance costs		(11,146	)		(1,078	)
Payments of debt		(153,292	)		(135,843	)
Net cash provided by (used for) financing activities		244,596			(51,587	)
Treasury shares withheld for payment of taxes								(3,915	)		(9,336	)
Net cash used for financing activities								(65,435	)		(136,528	)
Net increase (decrease) in cash, cash equivalents and restricted cash		38,030			(323,363	)		615,903			(152,038	)
Cash, cash equivalents and restricted cash at the beginning of period		138,250			438,931			113,430			232,741
Cash, cash equivalents and restricted cash at the end of period	$	176,280		$	115,568		$	729,333		$	80,703

Noncash Investing and Financing Activities:

Acquisition of flight equipment included in Accounts payable and accrued liabilities	$	61,734		$	18,510
Acquisition of flight equipment under capital lease	$	32,380		$	10,650
Acquisition of property and equipment included in Accounts payable and accrued liabilities							$	11,357		$	55,610
Acquisition of property and equipment acquired under finance and operating leases							$	19,521		$	32,794
Customer maintenance reserves settled with sale of aircraft							$	6,497		$	0

Accumulated

Additional

Other

Total

Common

Treasury

Paid-In

Comprehensive

Retained

Stockholders'

Stock

Stock

Capital

Loss

Earnings

Equity

Balance at December 31, 2016

$
296

$
(183,119
)

$
657,082

$
(4,993
)

$
1,048,072

$
1,517,338

Net Income

-

-

-

-

14,025

14,025

Other comprehensive income

-

-

-

744

-

744

Stock-based compensation

-

-

17,030

-

-

17,030

Purchase of 191,047 shares of treasury stock

-

(10,307
)

-

-

-

(10,307
)
Issuance of 456,905 shares of restricted stock

5

-

(5
)

-

-

-

Equity component of convertible note, net of tax

-

-

43,256

-

-

43,256

Purchase of convertible note hedges, net of tax

-

-

(45,065
)

-

-

(45,065
)
Issuance of convertible note warrants

-

-

38,148

-

-

38,148

Balance at September 30, 2017

$
301

$
(193,426
)

$
710,446

$
(4,249
)

$
1,062,097

$
1,575,169

	As of and for the Three Months Ended September 30, 2020
						Additional							Total
	Common		Treasury			Paid-In		Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital		Comprehensive Loss			Earnings		Equity
Balance at June 30, 2020	$	315	$	(217,711	)	$	801,002	$	(2,347	)	$	1,349,108	$	1,930,367
Net Income		0		0			0		0			74,054		74,054
Other comprehensive income		0		0			0		221			0		221
Stock-based compensation		0		0			5,310		0			0		5,310
Issuance of warrants		0		0			7,546		0			0		7,546
Treasury shares of 1,306 withheld for payment of taxes		0		(75	)		0		0			0		(75	)
Balance at September 30, 2020	$	315	$	(217,786	)	$	813,858	$	(2,126	)	$	1,423,162	$	2,017,423

Accumulated

Additional

Other

Total

Common

Treasury

Paid-In

Comprehensive

Retained

Stockholders'

Stock

Stock

Capital

Loss

Earnings

Equity

Balance at December 31, 2015

$
290

$
(171,844
)

$
625,244

$
(6,063
)

$
1,006,556

$
1,454,183

Net Income

-

-

-

-

13,099

13,099

Other comprehensive income

-

-

-

817

-

817

Stock-based compensation

-

-

27,919

-

-

27,919

Purchase of 293,257 shares of treasury stock

-

(11,071
)

-

-

-

(11,071
)
Issuance of 665,747 shares of restricted stock

6

-

(6
)

-

-

-

Tax expense on restricted stock and stock options

-

-

(994
)

-

-

(994
)
Balance at September 30, 2016

$
296

$
(182,915
)

$
652,163

$
(5,246
)

$
1,019,655

$
1,483,953

	As of and for the Three Months Ended September 30, 2019
						Additional								Total
	Common		Treasury			Paid-In			Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital			Comprehensive Loss			Earnings		Equity
Balance at June 30, 2019	$	310	$	(213,728	)	$	746,725		$	(3,312	)	$	1,597,114	$	2,127,109
Net Income		0		0			0			0			59,974		59,974
Other comprehensive income		0		0			0			253			0		253
Stock-based compensation		0		0			6,527			0			0		6,527
Issuance of warrant		0		0			(462	)		0			0		(462	)
Treasury shares of 4,064 withheld for payment of taxes		0		(109	)		0			0			0		(109	)
Balance at September 30, 2019	$	310	$	(213,837	)	$	752,790		$	(3,059	)	$	1,657,088	$	2,193,292

Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries. AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting.

The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.

We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) contractual service arrangements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), as well as those through which we provide crew, maintenance and insurance, but not the aircraft (“CMI”); (ii) cargo and passenger charter services (“Charter”); and (iii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).

The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, which includes additional disclosures and a summary of our significant accounting policies. The December 31, ~~2016~~2019 balance sheet data was derived from that Annual Report. In our opinion, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to fairly state the financial position of AAWW and its consolidated subsidiaries as of September 30, ~~2017,~~2020, the results of operations for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, comprehensive income for the three and nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, cash flows for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, and ~~shareholders’~~stockholders’ equity as of and for the three and nine months ended September 30, ~~2017~~2020 and ~~2016.~~2019.

Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic (see Note 3 for further discussion), and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

Except for per share data, all dollar amounts are in thousands unless otherwise noted.

Common stock warrants that are classified as a liability are marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized loss (gain) on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the warrant liability, which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others. Our earnings are affected by changes in our common stock price due to the impact those changes have on the fair value of our warrant liability (see Note 5 for further discussion).

Except ~~for engines used on our 747-8F aircraft,~~as described in the paragraph below, we account for heavy maintenance costs for airframes and engines ~~used in our ACMI and Charter segments~~ using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.

We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required. Amortization of deferred maintenance expense included in Depreciation and amortization was ~~$1.8~~$12.5 million and ~~zero~~$5.5 million for the three months ended September 30, ~~2017~~2020 and ~~September 30, 2016,~~2019, respectively, and was ~~$3.7~~$30.8 million and ~~zero~~$15.2 million for the nine months ended September 30, ~~2017~~2020 and ~~September 30, 2016,~~2019, respectively.

Deferred maintenance included within Deferred costs and other assets is as follows:

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:

In ~~March 2016,~~November 2019, the Financial Accounting Standards Board (“FASB”) amended its accounting guidance for share-based payment awards issued to a customer. The amended guidance requires share-based payment awards issued to a customer to be recorded as a reduction of the transaction price in revenue based on the fair value at grant date and to be classified on the balance sheet using accounting guidance for stock-based compensation. The amended guidance was effective for fiscal years beginning after December 15, 2019. Effective January 1, 2020, we adopted the amended guidance and applied the modified retrospective approach to the most current period presented. As a result, $14.6 million, or approximately 60% of our customer warrant liability of $24.3 million related to revenue contracts, which was included in Financial instruments and other liabilities as of December 31, 2019, was reclassified as Additional paid-in-capital within Total stockholders’ equity on January 1, 2020. As a result, these customer warrants are no longer marked-to-market at the end of each reporting period with changes ~~how companies account for certain aspects of share-based payment awards to employees, including~~in fair value recorded as an unrealized loss (gain) on financial instruments. The amended guidance did not impact the accounting for ~~income taxes, forfeitures, and statutory tax withholding requirements,~~the remaining portion of our customer warrant liability related to Dry Lease contracts, which was approximately $9.7 million or approximately 40% of the total customer warrant liability as ~~well as classification in~~of December 31, 2019. The new guidance did not impact how we account for the ~~statement~~amortization of ~~cash flows. We adopted this amended guidance on January 1, 2017 on a prospective basis. As a result, we recognized $1.8 million of excess tax benefits during~~ the nine months ended September 30, 2017 as a reduction of income tax expense in our consolidated statements of operations. Excess tax benefits were previously recognized within equity. Additionally, our consolidated statements of cash flows present such excess tax benefits, which were previously presented as a financing activity, as an operating activity.customer incentive asset (see Note 5 for further discussion).

In ~~February~~June 2016, the FASB amended its accounting guidance for ~~leases.~~the measurement of credit losses on financial instruments. The guidance requires ~~a lessee~~entities to utilize an expected credit loss model for certain financial instruments, including most trade receivables, which replaces the incurred credit loss model previously used. Under this new model, we are required to recognize ~~assets~~estimated credit losses expected to occur over time using a broad range of information including historical information, current conditions and ~~liabilities~~reasonable and supportable forecasts. Receivables related to lease contracts are not within the scope of this amended guidance. Effective January 1, 2020, we adopted the amended guidance under the modified retrospective approach and it did not have a material impact on our consolidated financial statements and related disclosures (see Note 6).

In August 2020, the ~~balance sheet arising from leases with terms greater than twelve months. While lessor~~FASB amended its accounting guidance ~~is relatively unchanged,~~for certain ~~amendments were made~~financial instruments with characteristics of liabilities and equity, including convertible debt instruments. For convertible debt with a cash conversion feature, the amended guidance removes the current accounting model to ~~conform with changes made to lessee accounting~~separately account for the liability and amended revenue recognition guidance. The new guidance will continue to classify leases as either finance or operating, with classification affecting the presentation and pattern of expense and income recognition,equity components, which currently results in the ~~statement~~amortization of ~~operations. It~~a debt discount to interest expense. Under this amended guidance, such convertible debt will be accounted for as a single debt instrument with no amortization of a debt discount, unless certain other conditions are met. The amended guidance also requires ~~additional quantitative and qualitative disclosures about leasing arrangements.~~the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The amended guidance is effective as of the beginning of ~~2019,~~2022, with early adoption ~~permitted. While we are still assessing~~permitted no earlier than the impact the amended guidance will have on our financial statements, we expect that recognizing the right-of-use asset and related lease liability will impact our balance sheet materially. We have developed and are implementing a plan for adopting this amended guidance.

~~In May 2014, the FASB amended its accounting guidance for revenue recognition. Subsequently, the FASB has issued several clarifications and updates. The fundamental principles~~beginning of the new guidance are that companies should recognize revenue in a manner that reflects the timing of the transfer of services to customers and consideration that a company expects to receive for the services provided. It also requires additional disclosures necessary for the financial statement users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.2021. The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, or the modified retrospective approach, under which the guidance is applied only to the most current period presented. While we ~~believe~~are still assessing the impact the amended guidance will ~~not~~ have ~~a material effect~~ on our financial statements, we expect ~~that revenue currently recognized based on flight departure~~it will ~~be recognized over time as the services are performed.~~result in a material reclassification from equity to debt and a reduction in interest expense. In addition, we expect that revenue under certain ACMI and CMI contracts, such as revenue related to contracted minimum block hour guarantees, will be recognized in later periods and that some revenue adjustments related to meeting or exceeding on-time performance targets will be recognized in earlier periods. The implementation of our plan to adopt thisthe amended guidance is ~~progressing~~expected to result in a material reduction of diluted earnings per share.

In December 2019, COVID-19 was first reported in China and has since spread to most other regions of the world. In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization. During the first three quarters of 2020, this public health crisis disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in flight cancellations by our ACMI customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as ~~expected~~the military took precautionary measures to limit the movement of personnel. A reduction of available cargo capacity in the market and increased demand for transporting goods due to the COVID-19 pandemic also resulted in increased commercial charter cargo yields, net of fuel, during the first three quarters of 2020. We have incurred and expect to incur significant additional costs, including premium pay; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates resulting from our recent interim agreement with our pilots. In addition, the availability of hotels and restaurants; evolving COVID-19-related travel restrictions and health screenings; and cancellations of passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position employees to operate our aircraft.

Our ability to continue to service our debt and meet our lease and other obligations as they come due is dependent on our continued ability to generate earnings and cash flows. To mitigate the impact of any continuation or worsening of the COVID-19 pandemic disruptions, we have:

If we are unable to implement these or additional initiatives, or comply with the requirements under the PSP Agreement, it could have a material adverse effect on our financial position, results of operations, and cash flows. We believe the Company will generate sufficient liquidity to satisfy its obligations over the next twelve months.

As of May 29, 2020 (the “PSP Closing Date”), Atlas and Southern Air (the “PSP Recipients”) entered into a PSP Agreement with the U.S. Treasury. As of the PSP Closing Date, AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with Atlas and Southern Air as guarantors.

In connection with the Payroll Support Program, we are required to comply with the relevant provisions of the CARES Act, including the requirement that funds provided pursuant to the PSP Agreement be used exclusively for the payment of certain employee wages, salaries and benefits of the PSP Recipients. The Payroll Support Program subjects the PSP Recipients and certain of their affiliates to a number of restrictions, including prohibitions against reductions in certain employee salaries, wages and benefits, and certain involuntary terminations and furloughs of employees through September 30, 2020, prohibitions of repurchasing shares in the open market of, or making dividend payments with respect to, our common stock through September 30, 2021, as well as certain limitations on executive compensation until March 24, 2022. Under the PSP Agreement, we must also maintain certain internal controls and records relating to the payroll support funding and we ~~plan~~are subject to ~~adopt~~additional reporting obligations.

Pursuant to the ~~new guidance~~PSP Agreement, the U.S. Treasury provided us with payroll support funding in 3 installments totaling $406.8 million. The first installment of $203.4 million was received on ~~its~~June 1, 2020, the second installment of $101.7 million was received on June 29, 2020 and the third installment of $101.7 million was received on July 30, 2020.

As compensation for payroll support funding under the PSP Agreement, we issued the Promissory Note to the U.S. Treasury, which provides for our unconditional promise to pay to the U.S. Treasury $199.8 million.

The Promissory Note bears interest on the outstanding principal amount at a rate of 1.00% per annum until the fifth anniversary of the PSP Closing Date and the applicable Secured Overnight Financing Rate (“SOFR”) plus 2.00% per annum thereafter, and interest accrued thereon will be payable in arrears on the last business day of March and September of each year, beginning on September 30, 2020. The aggregate principal amount outstanding under the Promissory Note, together with all accrued and unpaid interest thereon and all other amounts payable under the Promissory Note, will be due and payable in May 2030. The Promissory Note contains customary representations and warranties, covenants and events of default provisions. Interest expense is recognized using the effective interest method over the term of the Promissory Note.

We may, at any time and from time to time, voluntarily prepay amounts outstanding under the Promissory Note, in whole or in part, without penalty or premium. If certain change of control triggering events occur, we would be required ~~effective~~to prepay the aggregate outstanding principal amount of the Promissory Note within 30 days, together with any accrued interest or other amounts owing under the Promissory Note.

As compensation for payroll support funding under the PSP Agreement, we also entered into a Warrant Agreement pursuant to which we granted the U.S. Treasury warrants to acquire shares of our common stock. In connection with the three payroll support funding installments from the U.S. Treasury, we issued warrants to acquire up to 625,452 shares of our common stock.

The Warrant Agreement provides the U.S. Treasury certain registration rights with respect to each warrant and the underlying common stock. Each warrant is exercisable at an exercise price of $31.95 per share of common stock (which was the closing price of

our common stock on the Nasdaq Global Select Market on May 1, 2020) and will expire on the fifth anniversary of the issue date of ~~January 1, 2018~~such warrant. Each warrant may be settled through net share settlement or net cash settlement, at our option. Each warrant includes customary antidilution provisions and is freely transferable with registration rights. The U.S. Treasury is not permitted to vote any shares it acquires upon exercise of each warrant. The grant date fair value, as determined using the ~~modified retrospective approach.~~Black-Scholes model, of each warrant was recognized as Additional paid-in-capital and totaled $14.4 million. Each warrant will not be remeasured as long as it continues to meet the conditions for equity classification. As of September 30, 2020, 0 portion of the warrants has been exercised.

3.We recognized deferred grant income within Accrued liabilities for the difference between the PSP proceeds received and the amounts recognized for the Promissory Note and the Warrant Agreement for each installment. Grant income is subsequently recognized within Other (income) expense, net in the consolidated statement of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits are paid. For the three and nine months ended September 30, 2020, we recognized grant income of $64.2 million and $84.4 million, respectively. We expect to recognize the remainder of the grant income through the first quarter of 2021.

AAWW has a 51% equity interest and 75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, ~~(“DP”),~~ holds a 49% equity interest and a 25% voting interest in Polar. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL. Under a 20-year blocked space agreement, ~~(the “BSA”),~~which began in 2008, Polar provides air cargo capacity to DHL. Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another. We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.

~~GATS~~In addition to the amounts in the table above, Atlas recognized revenue of $48.0 million and $23.8 million for the three months ended September 30, 2020 and 2019, respectively, and $158.5 million and $70.2 million for the nine months ended September 30, 2020 and 2019, respectively, from Charter flying on behalf of Polar.

We hold a ~~50%~~10% interest in ~~GATS GP (BVI) Ltd. (“GATS”),~~ a joint venture with an unrelated third ~~party. As of September 30, 2017~~party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio. Through Titan, we provide aircraft and ~~December 31, 2016, our~~lease management services to the joint venture for fees based upon aircraft assets under management, among other things. Our investment in ~~GATS~~the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December 2022. Our investment in the joint venture was ~~$22.1~~$0.5 million and ~~$22.2 million, respectively. We had Accounts payable to GATS of $0.3~~$1.5 million as of September 30, ~~2017~~2020 and ~~$2.4~~December 31, 2019, respectively, and our maximum exposure to losses from the entity is limited to our investment. The joint venture does not currently have any third-party debt obligations and 0 capital contributions have been made as of September 30, 2020. We had Accounts receivable from the joint venture of $1.5 million as of ~~December 31, 2016.~~

On April 7, 2016, we completed the acquisition of Southern Air and its subsidiaries, including Southern Air Inc. and Florida West International Airways, Inc. (“Florida West”). The acquisition of Southern Air provided us with immediate entry into 777 and 737 aircraft operating platforms, with the potential for developing additional business with existing and new customers. We believe this augments our ability to offer the broadest array of aircraft and services for domestic, regional and international operations. For the three and nine months ended September 30, ~~2017, we incurred Transaction-related~~2020 related to the reimbursement of certain expenses ~~of $1.1 million and $3.4 million, respectively. For~~by the three and nine months ended September 30, 2016, we incurred Transaction-related expenses of $3.1 million and $17.2 million, respectively. Transaction-related expenses are primarily related to: compensation costs, including employee termination benefits; professional fees; and integration costs associated with the acquisition.

~~The unaudited estimated pro forma operating revenue for AAWW, including Southern Air,~~joint venture. We have recognized 0 service fee income for the three and nine months ended September 30, ~~2016~~2020.

We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and provide repair services for

those parts, primarily for 747-8F aircraft. Our investment in the joint venture is accounted for under the equity method of accounting. As of September 30, 2020 and December 31, 2019, our investment in the joint venture was ~~$448.0~~$20.7 million and ~~$1,337.0~~$20.0 million, ~~respectively, including adjustments~~respectively. We had Accounts payable to ~~conform with our accounting policies. The earnings~~the joint venture of ~~Southern Air were not material for the three and nine months ended~~$1.1 million as of September 30, ~~2016~~2020 and ~~accordingly, pro forma and actual earnings information have not been presented.~~

~~As part~~$0.5 million as of integrating Southern Air, management decided and committed to pursue a plan to sell Florida West. As a result, the financial results for Florida West were presented as a discontinued operation and the assets and liabilities of Florida West were classified as held for sale from the date of acquisition through December 31, 2016. In February 2017, management determined that a sale was no longer likely to occur and committed to a plan to wind-down the Florida West operations. The wind-down of operations was completed during the first quarter of 2017.

~~A summary of the employee termination benefit liabilities, which are expected to be paid by the first quarter of 2018, is as follows:~~

During the first quarter of 2016, we classified four CF6-80 engines as held for sale, recognized an impairment loss of $6.5 million and ceased depreciation on the engines. All four of those engines were traded in during 2016. During the fourth quarter of 2016, we classified two CF6-80 engines as held for sale, recognized an impairment loss of $3.5 million and ceased depreciation on the

engines. One of those engines was traded in during the first quarter of 2017. The carrying value of the remaining CF6-80 engine held for sale at September 30, 2017 was $1.4 million, and of the two CF6-80 engines held for sale at December 31, 2016 was $2.8 million, which was included within Prepaid expenses and other current assets in the consolidated balance sheets. The remaining CF6-80 engine classified as held for sale is expected to be sold during the fourth quarter of 2017.

In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involves, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan. The Dry Leases ~~will~~ have a term of ten years from the commencement of each ~~lease,~~agreement, while the CMI operations ~~will be~~are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ~~a total of~~ ten years). ~~We placed the first seven aircraft in service between~~Between August 2016 and ~~August 2017. In October 2017,~~November 2018, we ~~began flying three additional aircraft and we expect to be operating~~placed all 20 by767-300 freighter aircraft into service for Amazon. In February 2019, the ~~end~~number of ~~2018.~~767-300 freighters in CMI and Dry Lease service for Amazon was reduced to 19 with the loss of an aircraft. In September 2019, the number of 767-300 freighters in CMI service for Amazon was reduced to 17 with the early termination of CMI services for two aircraft, which remain under dry lease.

In conjunction with ~~these~~the agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of ~~$37.50~~$37.34 per ~~share. A portion~~share, as adjusted (“Warrant A”). As of ~~the~~December 31, 2018, this warrant ~~representing the right~~ to purchase ~~3.75~~7.5 million shares, as adjusted, had vested ~~immediately upon issuance of the warrant and the remainder of the warrant, representing the right to purchase 3.75 million shares, will vest~~ in ~~increments of 375,000 as the lease and operation of each of the 11~~^th ~~through 20~~^th ~~aircraft commences. The warrant will be~~full. Warrant A is exercisable in accordance with its terms through May 2021. As of September 30, ~~2017, no warrants have~~2020, 0 portion of Warrant A had been exercised. In October 2020, Amazon exercised 3,607,477 shares of Warrant A through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock.

The agreements entered into in May 2016 also ~~provide~~provided incentives for future growth of the relationship as Amazon may increase its business with us. In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of ~~$37.50~~$37.34 per ~~share.~~share, as adjusted (“Warrant B”). This warrant to purchase ~~3.75~~3.77 million shares, as adjusted, will vest in ~~conjunction with payments by~~increments of 37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for ~~additional~~incremental business ~~with us. The warrant will be~~beyond the original 20 767-300 freighters. As of September 30, 2020, 338,940 shares, as adjusted, of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. As of September 30, 2020, 0 portion of Warrant B has been exercised.

In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations are for a ~~special meeting on~~term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of September ~~20, 2016,~~30, 2020, seven 737-800 freighter aircraft were operating in CMI service. In October 2020, an eighth 737-800 freighter aircraft entered CMI service. Amazon may, in its sole discretion, place up to 12 additional 737-800 freighter aircraft into service with us by May 31, 2021.

In connection with the ~~Company’s shareholders, by~~amended agreements, we granted Amazon a ~~vote~~warrant to acquire up to an additional 9.9% of ~~approximately 99.9%~~our outstanding common shares, as of the ~~votes cast, approved~~date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of $52.67 per share, as adjusted (“Warrant C”). When combined with Warrant A and Warrant B, this provided Amazon with warrants to acquire up to ~~30%~~a total of 39.9% of our outstanding common ~~shares. This approval constituted a change in control,~~shares, as ~~defined under certain~~ of the ~~Company’s benefit plans.~~date of the agreements. While Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors. After Warrant B has vested in full, this warrant to purchase 6.66 million shares, as adjusted, would vest in increments of 45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B. As ~~a result, we recognized $26.2 million in expense, including accelerated compensation expense for restricted and performance share and cash awards, during the three and nine month periods ended~~of September 30, ~~2016. The share-based~~2020, 0 portion of Warrant C has vested. Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026.

~~The $92.9 million fair value~~warrants issued to the U.S. Treasury (see Note 3 for further discussion) triggered an antidilution adjustment to certain terms of the ~~vested portion~~Amazon warrants as reflected above.

Upon the vesting of Warrant A in previous years, the ~~warrant issued to Amazon as of May 4, 2016 was recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). This initial~~ fair value of the warrant was ~~also~~ recognized as a customer incentive asset within Deferred costs and other assets, net and is ~~being~~ amortized as a reduction of ~~revenue~~Operating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. ~~We amortized $1.5 million and $2.9 million of~~Determining the customer incentive asset for the three and nine months ended September 30, 2017, respectively. We amortized $0.2 million of the customer incentive asset for the three and nine month periods ended September 30, 2016. The balance of the customer incentive asset, netamount of amortization related to the CMI agreements requires significant judgment to estimate the total number of Block Hours expected over the terms of those agreements. The fair value of Warrant A was ~~$89.5 million~~also initially recorded as ~~of September 30, 2017~~a warrant liability within Financial instruments and ~~$92.4 million as of December 31, 2016.~~

other liabilities (the “Amazon Warrant”). The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized loss (gain) on financial instruments. ~~We utilize~~

As described in Note 2, we adopted the new accounting guidance for share-based payment awards issued to a ~~Monte Carlo simulation approach to estimate~~customer as of January 1, 2020. Under the ~~fair value~~amended guidance, approximately 60% of the Amazon Warrant ~~which requires inputs such~~liability related to the CMI agreements as ~~our common stock price,~~of January 1, 2020 was reclassified to Additional paid-in-capital and will no longer be marked-to-market at the ~~warrant strike price, estimated common stock price volatility and risk-free interest rate, among others.~~end of each reporting period. The amended guidance does not impact the accounting for the remaining portion of the Amazon Warrant liability related to Dry Lease contracts. We recognized a net unrealized ~~loss~~losses of ~~$44.8~~$43.6 million and ~~$36.2~~$73.4 million on the Amazon Warrant liability during the three and nine months ended September 30, 2020, respectively. We recognized net unrealized gains of $83.2 million and $78.9 million on the Amazon Warrant during the three and nine months ended September 30, ~~2017, respectively. We recognized a net unrealized loss of $1.5 million and a net unrealized gain of $25.0 million on the Amazon Warrant during the three and nine months ended September 30, 2016,~~2019, respectively. The fair value of the Amazon Warrant liability was ~~$132.0~~$83.3 million as of September 30, ~~2017~~2020 and ~~$95.8~~$24.3 million as of December 31, ~~2016.~~2019.

When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the grant date fair value of such portion is recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized. The grant date fair value of such increment is also recorded as Additional paid-in-capital. At the time of vesting, any amounts recorded in Additional paid-in-capital related to Dry Lease contracts would be reclassified to the Amazon Warrant liability.

We amortized $9.9 million and $12.8 million of the customer incentive asset as a reduction of Operating Revenue for the three months ended September 30, 2020 and 2019, respectively. We amortized $28.4 million and $26.0 million of the customer incentive asset for the nine months ended September 30, 2020 and 2019, respectively.

Customer incentive asset included within Deferred costs and other assets is as follows:

Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was $216.0 million as of September 30, 2020 and $247.5 million as of December 31, 2019.

Allowance for expected credit losses, included within Accounts receivable, is as follows:

	September 30, 2017		December 31, 2016		September 30, 2020		December 31, 2019
Maintenance	$	143,941	$	54,495	$	139,233	$	136,315
Deferred grant income						108,156		0
Salaries, wages and benefits						105,623		75,719
Customer maintenance reserves		85,256		81,830		100,739		110,355
Salaries, wages and benefits		48,879		55,063
U.S. class action settlement		30,000		35,000
Deferred revenue						43,720		26,357
Aircraft fuel		22,638		16,149		33,449		28,821
Deferred revenue		22,565		10,298
Other		68,391		68,052		114,174		104,158
Accrued liabilities	$	421,670	$	320,887	$	645,094	$	481,725

Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue.

Significant changes in our Revenue contract liability balances during the nine months ended September 30, 2020 were as follows:

As of December 31, 2019, we had 2 737-400 passenger aircraft previously used for training purposes, certain spare CF6-80 engines and 3 aircraft in our Dry Leasing portfolio classified as held for sale. During the nine months ended September 30, 2020, we received net proceeds of $45.7 million from the completion of the sales of some of the spare CF6-80 engines and 2 aircraft in our Dry Leasing portfolio, and recognized a net gain of $6.9 million. During the nine months ended September 30, 2020, we recognized an impairment loss of $16.5 million related to fair value adjustments for assets held for sale, within Special charge in the consolidated statement of operations. The carrying value of the assets held for sale as of September 30, 2020 and December 31, 2019 was $96.0 million and $155.9 million, respectively, which was included within Prepaid expense, held for sale and other current assets in the consolidated balance sheets. Sales of the remaining aircraft and engines held for sale are expected to be completed in 2020, except for certain aircraft and engines that are expected to be completed during the first half of 2021.

During the nine months ended September 30, 2020, we recognized refunds of $32.9 million related to aircraft rent paid in previous years within Other (income) expense, net.

~~We have entered into various~~In February 2020, we refinanced two secured term loans ~~during 2017~~that were originally due later in 2020, with 2 new term loans. One term loan is for 126 months in the amount of $82.0 million at a fixed interest rate of 3.27% with a final payment of $12.5 million due in July 2030 (the “First 2020 Term Loan”). The other term loan is for 130 months in the amount of $82.0 million at a fixed interest rate of 3.28% with a final payment of $12.5 million due in November 2030 (the “Second 2020 Term Loan”). The First and Second 2020 Term Loans are each secured by a mortgage against a 777-200LRF aircraft and subject to ~~finance the purchase~~usual and ~~passenger-to-freighter conversion~~customary fees, covenants and events of ~~767-300 aircraft,~~default, with principal and interest payable quarterly.

In April 2020, we borrowed $14.6 million at a fixed interest rate of 1.15% under an unsecured five-year term loan due in April 2025 for GEnx engine performance upgrade kits and ~~overhauls. Each term loan requires payment of principal and interest quarterly in arrears. Funds available under each term loan are~~overhauls (the “Third 2020 Term Loan”). The Third 2020 Term Loan is subject to ~~usual and~~ customary fees, ~~and funds drawn typically bear interest at a fixed rate based on LIBOR, plus a margin. Each facility is guaranteed by us and subject to customary~~ covenants and events of ~~default.~~

~~The following table summarizes the terms and principal balances for each term loan entered into during 2017 (in millions):~~

In March 2017, we amended and extended a lease for a 747-400 freighter aircraft to June 2032 at a lower monthly lease payment. As a result of the extension, we determined that the lease qualifies as a capital lease. The present value of the future minimum lease payments was $32.4 million.

In September 2017, we entered into a debt facility for up to $146.5 million through a private placement to finance the purchase and passenger-to-freighter conversion of up to six 767-300 freighter aircraft dry leased to Amazon (the “Private Placement Facility”). The Private Placement Facility consists of six separate loans (the “Private Placement Loans”). Each Private Placement Loan is comprised of an equipment note and an equipment term loan, both secured by the cash flows from a 767-300 freighter aircraft dry lease and the underlying aircraft. The equipment notes require payment ofdefault, with principal and interest payable quarterly.

In August 2020, we borrowed $22.9 million at a fixed interest ~~rate.~~rate of 0.95% under an unsecured five-year term loan due in June 2025 for GEnx engine performance upgrade kits and overhauls (the “Fourth 2020 Term Loan”). The ~~equipment term loans accrue interest, at a fixed rate, which~~Fourth 2020 Term Loan is added to the principal balance outstanding until each equipment note is paid in full. Subsequently, the equipment term loans require payment of principal and interest over the remaining term of the loans. The Private Placement Loans are cross-collateralized, but not cross-defaulted, with each other and, except for certain specified events, are not cross-defaulted with other debt facilities of the Company.

In connection with entry into the Private Placement Facility, we have agreed to pay usual and customary commitment and other fees associated with this type of financing. The Private Placement Facility is guaranteed by us and subject to customary fees, covenants and events of ~~default.~~

In October ~~2017,~~2020, we ~~completed~~borrowed $16.3 million at a fixed interest rate of 0.90% under an unsecured five-year term loan due in September 2025 for GEnx engine performance upgrade kits and overhauls (the “Fifth 2020 Term Loan”). The Fifth 2020 Term Loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.

See Note 3 for a discussion of the ~~following financings for~~Promissory Note we issued to the ~~first three aircraft under~~U.S. Treasury during the ~~Private Placement Facility:~~nine months ended September 30, 2020.

In May 2017, we issued $289.0 million aggregate principal amount of 1.875% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering. The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each ~~year at a fixed rate of 1.875%.~~year. The ~~2017~~ Convertible Notes ~~will mature~~are due on ~~June 1, 2024,~~their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.

~~We used the majority of the net proceeds in May 2017 to repay $150.0 million then outstanding under our revolving credit facility and to fund the cost of the convertible note hedges described below.~~

~~Each $1,000 of principal of the 2017 Convertible Notes will initially be convertible into 16.3713 shares of our common stock, which is equal to an initial conversion price of $61.08 per share.~~ The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances. Upon the occurrence of a “make-whole fundamental change,” we will, in certain circumstances, increase the conversion rate by a number of additional shares of our common stock for the 2017 Convertible Notes converted in connection with such “make-whole fundamental change”. Additionally, if we undergo a “fundamental change,” a holder will have the option to require us to repurchase all or a portion of its 2017 Convertible Notes for cash at a price equal to 100% of the principal amount of the 2017 Convertible Notes being repurchased plus any accrued and unpaid interest through, but excluding, the fundamental change repurchase date.

In connection with the offering of the 2017 Convertible Notes, we entered into convertible note hedge transactions whereby we have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $61.08 per share. The total cost of the convertible note hedge transactions was $70.1 million. In addition, we sold warrants to the option counterparties whereby the holders of the warrants have the option to purchase initially (subject to adjustment for certain specified events) a total of 4,731,306 shares of our common stock at a price of $92.20. We received $38.1 million in cash proceeds from the sale of these warrants.

Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset any economic dilution from the conversion of the 2017 Convertible Notes when the stock price is below $92.20 per share and to effectively increase the overall conversion price from $61.08 to $92.20 per share. However, for purposes of the computation of diluted earnings per share in accordance with GAAP, dilution typically occurs when the average share price of our common stock for a given period exceeds the conversion price of the 2017 Convertible Notes. The $32.0 million net cost incurred in connection with the convertible note hedges and warrants was recorded as a reduction to additional paid-in capital, net of tax, in the consolidated balance sheet.

On or after September 1, 2023 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its 2017 Convertible Notes.

Upon conversion, the 2017 Convertible Notes will be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the 2017 Convertible Notes paid in cash.

~~Holders may only convert their 2017 Convertible Notes at their option at any time prior to September 1, 2023, under the following circumstances:~~

We separately account for the liability and equity components of convertible notes. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated conversion feature, assuming our nonconvertible unsecured debt borrowing rate. The carrying value of the equity component, the conversion option, which is recognized as additional paid-in-capital, net of tax, creates a debt discount on the convertible notes. The debt discount was determined by deducting the relative fair value of the liability component from the proceeds of the convertible notes and is amortized to interest expense using an effective interest rate of 6.14% over the term of the 2017 Convertible Notes. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification.

The debt issuance costs related to the issuance of the 2017 Convertible Notes were allocated to the liability and equity components based on their relative values, as determined above. Total debt issuance costs were $7.5 million, of which $5.7 million was allocated to the liability component and $1.8 million was allocated to the equity component. The debt issuance costs allocated to the liability component are amortized to interest expense using the effective interest method over the term of the 2017 Convertible Notes.

In June 2015, we issued $224.5 million aggregate principal amount of convertible senior notes (the “2015 Convertible Notes”) in an underwritten public offering. The 2015 Convertible Notes are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year at a fixed rate of 2.25%. The 2015 Convertible Notes will mature on June 1, 2022, unless earlier converted or repurchased pursuant to their terms.

~~As of September 30, 2017, the 2017 Convertible Notes and the 2015~~ Convertible Notes consisted of the following: as of September 30, 2020:

	2017 Convertible Note			2015 Convertible Note			2017 Convertible Notes			2015 Convertible Notes
Remaining life in months		80			56			44			20
Liability component:
Gross proceeds	$	289,000		$	224,500		$	289,000		$	224,500
Less: debt discount, net of amortization		(67,245	)		(37,862	)		(40,359	)		(14,842	)
Less: debt issuance cost, net of amortization		(5,394	)		(3,623	)		(3,121	)		(1,372	)
Net carrying amount	$	216,361		$	183,015		$	245,520		$	208,286

Equity component ⁽¹⁾	$	70,140		$	52,903		$	70,140		$	52,903

The following table presents the amount of interest expense recognized related to the ~~2017 Convertible Notes and the 2015~~ Convertible Notes:

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017		September 30, 2016		September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Contractual interest coupon	$	2,618	$	1,263	$	5,730	$	3,788	$	2,618	$	2,618	$	7,853	$	7,853
Amortization of debt discount		3,752		1,618		7,990		4,777		4,527		4,253		13,372		12,560
Amortization of debt issuance costs		352		170		776		505		394		379		1,171		1,126
Total interest expense recognized	$	6,722	$	3,051	$	14,496	$	9,070	$	7,539	$	7,250	$	22,396	$	21,539

~~In December 2016, we entered into~~We have a ~~three-year $150.0~~ $200.0 million secured revolving credit facility that matures in December 2022 (the “Revolver”) ~~for general corporate purposes, including financing the acquisition and conversion~~. As of ~~767 aircraft prior to obtaining permanent financing for the~~

~~converted aircraft. There~~September 30, 2020, there were no0 amounts outstanding and we had ~~$142.3~~$200.0 million of unused availability, ~~under the Revolver,~~ based on the collateral borrowing ~~base, as of September 30, 2017.~~base.

~~As of September 30, 2017, our estimated payments remaining for flight equipment purchase commitments are $143.8 million, of which $63.5 million are expected to be made during the remainder of 2017.~~

~~Our effective~~The income tax expense rates were 72.7% and 230.8% for the three months ended September 30, 2017 and 2016, respectively. Our effective income tax expense rates were 59.1% and 60.3% for the nine months ended September 30, 2017 and 2016, respectively. The effective income tax expense rates for the three and nine months ended September 30, ~~2017~~2020 differed from tax at the U.S. statutory rate primarily due to $9.6 million and $16.0 million of nondeductible changes in the fair value of ~~the Amazon Warrant~~a customer warrant liability, respectively (see Note ~~6 to our Financial Statements)~~5 for further discussion). ~~In addition, the effective~~

The income tax ~~expense rate~~benefit for the nine months ended September 30, ~~2017~~2019 differed from tax at the U.S. statutory rate due to the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized within income tax expense in our consolidated statement of operations. The effective income tax expense rates for the three and nine months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to ~~nondeductible expenses resulting from a change in control, as defined under certain~~$59.8 million of ~~the Company’s benefit plans,~~tax benefits related to the ~~Amazon transaction (see Note 6~~favorable completion of an IRS examination of our 2015 income tax return, and to ~~our Financial Statements).~~a lesser extent, $17.3 million of nontaxable changes in the fair value of a customer warrant liability. The ~~effective rates~~income tax benefit for ~~all periods were impacted by our assertion~~the three months ended September 30, 2019 differed from tax at the U.S. statutory rate primarily due to ~~indefinitely reinvest~~$18.2 million of nontaxable changes in the ~~net earnings~~fair value of ~~foreign subsidiaries outside the U.S.~~a customer warrant liability. For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate. When finalized, the complete operational merger of Atlas and Southern Air (see Note 12 for further discussion) would result in a material increase to our deferred tax liability.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:

The carrying value of Cash and cash equivalents, Short-term investments and Restricted cash is based on cost, which approximates fair value.

Long-term investments consist of debt securities, maturing within five years, for which we have both the ability and the intent to hold until maturity. These investments are classified as held-to-maturity and reported at amortized cost. The fair value of our Long-term investments is based on a discounted cash flow analysis using the contractual cash flows of the investments and a discount rate derived from unadjusted quoted interest rates for debt securities of comparable risk. Such debt securities represent investments in Pass-Through Trust Certificates (“PTCs”) related to enhanced equipment trust certificates (“EETCs”) issued by Atlas in 1998, 1999 and 2000.

Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, ~~(“Ex-Im Bank”),~~ the ~~Revolver~~Promissory Note issued to the U.S. Treasury and ~~EETCs.~~equipment enhanced trust certificates. The fair values of these debt instruments and the Revolver are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.

The fair value of our ~~convertible notes~~Convertible Notes is based on unadjusted quoted market prices for these securities.

The fair value of ~~the Amazon Warrant is~~a customer warrant liability and certain long-term performance-based restricted shares are based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.

The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:

	September 30, 2017										September 30, 2020
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	165,250	$	165,250	$	165,250	$	-	$	-	$	717,867	$	717,867	$	717,867	$	0	$	0
Short-term investments		10,676		10,676		-		-		10,676
Restricted cash		11,030		11,030		11,030		-		-		11,466		11,466		11,466		0		0
Long-term investments and accrued interest		19,234		22,442		-		-		22,442
	$	206,190	$	209,398	$	176,280	$	-	$	33,118	$	729,333	$	729,333	$	729,333	$	0	$	0

Liabilities
Term loans and notes	$	1,674,311	$	1,747,582	$	-	$	-	$	1,747,582	$	1,862,297	$	1,931,050	$	0	$	0	$	1,931,050
Convertible notes		399,377		632,740		632,740		-		-
Amazon Warrant		132,000		132,000		-		132,000		-
Convertible notes (1)												453,806		589,183		589,183		0		0
Customer warrant												83,312		83,312		0		83,312		0
	$	2,205,688	$	2,512,322	$	632,740	$	132,000	$	1,747,582	$	2,399,415	$	2,603,545	$	589,183	$	83,312	$	1,931,050

	December 31, 2016										December 31, 2019
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	123,890	$	123,890	$	123,890	$	-	$	-	$	103,029	$	103,029	$	103,029	$	0	$	0
Short-term investments		4,313		4,313		-		-		4,313		879		879		0		0		879
Restricted cash		14,360		14,360		14,360		-		-		10,401		10,401		10,401		0		0
Long-term investments and accrued interest		27,951		33,161		-		-		33,161
	$	170,514	$	175,724	$	138,250	$	-	$	37,474	$	114,309	$	114,309	$	113,430	$	0	$	879

Liabilities
Term loans and notes	$	1,674,013	$	1,739,744	$	-	$	-	$	1,739,744	$	1,800,911	$	1,885,750	$	0	$	0	$	1,885,750
Revolver												100,000		103,575		0		0		103,575
Convertible notes(1)		177,398		228,429		228,429		-		-		439,261		450,668		450,668		0		0
Amazon Warrant		95,775		95,775		-		95,775		-
Customer warrant (2)												24,345		24,345		0		24,345		0
	$	1,947,186	$	2,063,948	$	228,429	$	95,775	$	1,739,744	$	2,364,517	$	2,464,338	$	450,668	$	24,345	$	1,989,325

(1) Carrying value is net of debt discounts and debt issuance costs (see Note 8).

~~Gross unrealized gains~~(2) Includes $14.6 million that was reclassified to Additional paid-in-capital on ~~our long-term investments and accrued interest were $3.2 million at September 30, 2017 and $5.2 million at December 31, 2016.~~January 1, 2020 (see Note 2).

Our business is organized into ~~three~~3 operating segments based on our service offerings: ACMI, Charter and Dry Leasing. All segments are directly or indirectly engaged in the business of air transportation services but have different commercial and economic characteristics. Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.

We use an economic performance metric (“called Direct ~~Contribution”) that~~Contribution, which shows the profitability of each segment after allocation of direct operating and ownership costs. Direct Contribution ~~represents~~includes Income ~~(loss) from continuing operations~~ before income taxes ~~excluding~~and excludes the following: Special charges, Transaction-related expenses, nonrecurring items, ~~Losses (gains)~~Gain (losses) on the disposal of aircraft, Losses on early

extinguishment of debt, Unrealized losses (gains) on financial instruments, Gains on investments and Unallocated income and expenses, net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue, ~~and~~ other non-operating ~~costs.~~costs and CARES Act grant income.

The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income (Loss) and Income ~~from continuing operations~~ before income taxes:

	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			September 30, 2020			September 30, 2019			September 30, 2020			September 30, 2019
Operating Revenue:
ACMI	$	258,109		$	206,310		$	687,982		$	600,772		$	302,756		$	289,024		$	873,451		$	902,869
Charter		243,583			212,040			743,302			616,794			470,835			324,046			1,296,011			944,839
Dry Leasing		30,804			25,907			86,120			79,165			40,740			43,847			123,572			157,328
Customer incentive asset amortization		(1,531	)		(174	)		(2,873	)		(174	)		(9,858	)		(12,796	)		(28,414	)		(26,018	)
Other		4,783			3,932			13,977			13,345			5,413			4,418			14,021			13,122
Total Operating Revenue	$	535,748		$	448,015		$	1,528,508		$	1,309,902		$	809,886		$	648,539		$	2,278,641		$	1,992,140

Direct Contribution:
ACMI	$	51,647		$	51,607		$	141,134		$	121,837		$	42,822		$	33,401		$	109,624		$	114,048
Charter		34,808			32,948			88,877			78,580			136,619			36,339			373,371			79,554
Dry Leasing		10,245			7,413			29,629			24,699			9,627			12,028			30,046			58,646
Total Direct Contribution for Reportable Segments		96,700			91,968			259,640			225,116			189,068			81,768			513,041			252,248

Unallocated income and expenses, net		(64,463	)		(80,876	)		(183,418	)		(186,923	)
Unallocated expenses and (income), net														(34,409	)		(93,507	)		(173,439	)		(255,569	)
Loss on early extinguishment of debt		(167	)		-			(167	)		(132	)		(7	)		(559	)		(81	)		(804	)
Unrealized loss (gain) on financial instruments		(44,775	)		(1,462	)		(36,225	)		25,013
Unrealized gain (loss) on financial instruments														(43,604	)		83,175			(73,351	)		78,900
Special charge		-			-			-			(6,631	)		(547	)		(18,861	)		(16,481	)		(22,130	)
Transaction-related expenses		(1,092	)		(3,905	)		(3,403	)		(21,486	)		(490	)		(324	)		(2,286	)		(3,585	)
Loss (gain) on disposal of aircraft		(211	)		11			(64	)		11
Income (loss) from continuing operations before income taxes		(14,008	)		5,736			36,363			34,968
Gain on disposal of aircraft														163			0			6,878			0
Income before income taxes														110,174			51,692			254,281			49,060

Add back (subtract):
Interest income		(1,688	)		(1,316	)		(4,286	)		(4,325	)		(225	)		(653	)		(929	)		(3,975	)
Interest expense		26,553			21,355			72,747			63,595			28,524			30,117			86,749			90,515
Capitalized interest		(1,922	)		(1,059	)		(5,633	)		(2,106	)		(203	)		(853	)		(528	)		(1,943	)
Loss on early extinguishment of debt		167			-			167			132			7			559			81			804
Unrealized loss (gain) on financial instruments		44,775			1,462			36,225			(25,013	)
Other income		(1,165	)		(180	)		(357	)		(372	)
Operating Income	$	52,712		$	25,998		$	135,226		$	66,879
Unrealized (gain) loss on financial instruments														43,604			(83,175	)		73,351			(78,900	)
Other (income) expense, net														(62,689	)		1,434			(112,081	)		(596	)
Operating Income (Loss)													$	119,192		$	(879	)	$	300,924		$	54,965

The following table disaggregates our Charter segment revenue by customer and service type:

Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.

We are exposed to a concentration of revenue from the ~~U.S. Military Air Mobility Command (the “AMC”),~~AMC, Polar and DHL (see above and Note 34 to our Financial Statements for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from ~~the AMC~~DHL was ~~$124.9~~$150.8 million for the three months ended September 30, ~~2017~~2020 and ~~$116.2~~$91.4 million for the three months ended September 30, ~~2016.~~2019. Revenue from ~~the AMC~~DHL was ~~$397.5~~$401.0 million for the nine months ended September 30, ~~2017~~2020 and ~~$346.8~~$267.8 million for the nine months ended September 30, 2016. Revenue from DHL was $62.1 million for the three months ended September 30, 2017 and $57.4 million for the three months ended September 30, 2016. Revenue from DHL was $177.6 million for the nine months ended September 30, 2017 and $128.0 million for the nine months ended September 30, 2016.2019. We have not experienced any credit issues with ~~either of~~ these customers.

Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”). We have a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016 and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021.

After we completed the acquisition of Southern Air in April 2016, we informed the IBT of our intention to pursue (and we have been pursuing) a complete operational merger of Atlas and Southern Air. The Atlas and Southern Air CBAs both have a defined and streamlined process for negotiating a joint CBA (“JCBA”) when a merger occurs, as in the case with the Atlas and Southern Air merger. Pursuant to the merger provisions in both ~~the Atlas and Southern Air~~ CBAs, joint negotiations for a single CBA for Atlas and Southern Air should commence promptly. Further, ~~to this process,~~ once aan integrated seniority list (“ISL”) of Atlas and Southern Air pilots is presented to usthe Company by the ~~unions,~~union, it triggers ana nine month agreed-upon ~~time frame~~timeframe to negotiate a new ~~joint CBA~~JCBA with any unresolved issues promptly submitted to binding arbitration.

The IBT refused to follow the merger provisions in the Atlas and Southern Air CBAs. This has resulted in significant litigation, arbitrations and delay. As more fully stated below, the Company prevailed in all of the merger related proceedings.

After the merger process began, the IBT also filed an application for mediation with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The ~~Atlas and Southern Air CBAs have a defined and streamlined process for negotiating a joint CBA when a merger occurs, as in the case with the Atlas and Southern Air merger. The~~ NMB conducted a ~~pre-mediation~~premediation investigation on the IBT’s Atlas application in June 2016, which ~~is currently~~has remained pending (along with the IBT’s Southern Air application). since 2016.

Due to ~~a lack~~the IBT’s refusal to adhere to the merger provisions of ~~meaningful progress in such merger discussions,~~the respective CBAs, in February 2017, wethe Company filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. ~~While this lawsuit is pending in~~On March 13, 2018, the U.S. District Court for the Southern District ~~Court~~ of New York (“NY District Court”) ruled in the Company’s favor and ordered arbitration of this issue. The IBT appealed the NY District Court’s decision, and on November 21, 2019, the U.S. Court of Appeals for the Second Circuit Court issued its decision in the Company’s favor affirming the NY District Court’s decision.

The Company and the IBT ~~have reached~~conducted the Atlas and Southern Air arbitrations for this issue in October 2018. The Company prevailed in both the Atlas and Southern Air management grievance arbitrations against the IBT, with decisions rendered on June 12, 2019 and August 26, 2019, respectively. Both arbitrators ruled that the IBT violated the CBAs by refusing to follow merger provisions in the parties’ respective CBAs, which require formulation of a JCBA covering the combined pilot group. The arbitrators each ordered the IBT to promptly comply with the CBAs by submitting an ~~interim agreement on a process~~ISL to ~~proceed~~the Company within 45 days of each arbitration decision, respectively. The IBT failed to comply with ~~negotiations~~both deadlines for ~~a new joint CBA. These negotiations commenced~~submitting the ISL, which passed on July ~~6, 2017~~27, 2019 for Southern Air, and ~~the parties have continued to meet regularly since then and bargain~~on October 10, 2019 for Atlas. As a ~~new joint CBA.~~

~~In September 2017,~~result, on October 25, 2019, the Company ~~requested~~filed an action in the U.S. District Court for the District of Columbia (“DC District Court”) to enforce the Atlas and Southern Air arbitration decisions. On March 31, 2020, the DC District Court ruled in the Company’s favor, enforcing the arbitration decisions and directing the IBT to produce the ISL by May 15, 2020.

The IBT subsequently requested additional time from the Company to complete the ISL and the parties agreed to a joint stipulation. As a result, on April 24, 2020, the DC District Court issued an order modifying its March 31st order, providing that the nine-month timeframe to bargain for a new JCBA will be triggered on May 15, 2020 and that the IBT must produce the ISL by March 31, 2021. Any remaining open issues will then be determined by binding interest arbitration pursuant to the merger provisions in the CBAs. On April 28, 2020, the IBT and Local 2750 filed a Notice of Appeal of the DC District Court’s March 31st order, which remains in place pending appeal (the ~~“Court”~~“March 31^st Appeal”).

In connection with its opposition to application of the merger provisions, the IBT commenced lawsuits in the DC District Court seeking to vacate both arbitration awards. On January 28, 2020, the DC District Court ruled in the Company’s favor, granting its

motions to dismiss both of the IBT’s lawsuits. On April 28, 2020, the IBT and Local 2750 filed a Notice of Appeal of the DC District Court’s January 28th orders, which remains in place pending appeal (the “January 28^th Appeal”).

On June 8, 2020, the U.S. Court of Appeals for the District of Columbia Circuit (“DC Court of Appeals”) consolidated the January 28^th Appeal and March 31^st Appeal (collectively referred to as the “Consolidated Appeals”). On August 12, 2020, the IBT filed a motion, which the Company agreed not to oppose, to hold the briefing schedule in abeyance in the Consolidated Appeals, stating the IBT had reached an agreement in principle for an ISL with the Atlas and Southern Air pilots, and that it expects to file a motion to dismiss the March 31st Appeal once the IBT has formalized the agreement for the ISL. On August 14, 2020, the DC Court of Appeals granted the IBT’s unopposed motion and ordered the Consolidated Appeals be held in abeyance pending further order from the DC Court of Appeals and ordered the IBT and the Company to file status reports at 90-day intervals beginning November 12, 2020.

The Company and the IBT continue to meet virtually to move the process forward and bargain in good faith for a new JCBA. Substantive progress has been made with tentative agreements for more than half of the articles in a new JCBA.

In late September 2019, the Atlas pilots represented by the IBT formed a new local union, IBT Local 2750 to represent them. The Southern Air pilots continue to be represented by IBT Local 1224. The Company continues to work with both Local 2750 and Local 1224 leadership groups.

On May 7, 2020, the Company announced that Atlas and Southern Air reached an agreement with IBT Locals 2750 and 1224, which provides for a 10 percent pay increase for all pilots, effective as of May 1, 2020. This pay increase provides interim additional compensation to our pilots until a new JCBA is reached.

In late November 2017, the DC District Court granted the Company’s request to issue a preliminary injunction to stop an illegal work slowdown and require the IBT to meet its obligations under the Railway Labor ~~Act and stop~~Act. Specifically, the ~~illegal intentional work slowdowns and service interruptions. In its filing, the Company states that~~DC District Court ordered the IBT isto stop “authorizing, encouraging, permitting, calling, engaging in, ~~unlawful, concerted work slowdowns~~or continuing” any illegal pilot slowdown activities, which were intended to gain leverage in pilot contract negotiations with the Company. ~~The Company seeks to have~~In addition, the Court ~~compel~~ordered the IBT to ~~stop~~take affirmative action to prevent and to refrain from continuing any form of interference with the ~~illegal work actions~~Company’s operations or any other concerted refusal to perform normal pilot operations consistent with its status quo obligations under the Railway Labor Act. In December 2017, the IBT appealed the DC District Court’s decision to the DC Court of Appeals. On July 5, 2019, the DC Court of Appeals, in a unanimous three judge panel, affirmed the DC District Court’s ruling and ~~return~~denied the IBT’s appeal.

On May 22, 2020, the IBT filed a motion to ~~normal operations. The hearing was completed in early November and~~dismiss the Company’s action for a ~~ruling on the~~ preliminary injunction, ~~is expected during~~asserting the ~~fourth quarter~~Company’s claim for injunctive relief was mooted by the DC District Court’s March 31, 2020 decision in a separate case enforcing the management grievance arbitration awards in the Company’s favor. The Company filed an opposition to the IBT’s motion on June 22, 2020, and the IBT’s reply was filed on July 3, 2020. The preliminary injunction remains in full force and effect pending the court’s decision.

In April 2020, the Company entered into Coronavirus Memorandum of ~~2017.~~Understandings (“MOU”) with both Local 2750 and Local 1224, providing for premium pay and enhanced benefits for pilots flying into covered areas designated by the Centers for Disease Control and Prevention (“CDC”) as Red Level 3 Travel Health Notices on its website at the time, as well as providing for an increased per diem and other additional safety measures related to COVID-19. In August 2020, the CDC updated its Travel Health Notices, which affected covered areas eligible for premium pay and certain benefits under the MOU. Nonetheless, the Company has voluntarily offered to maintain the MOU, including all of the enhanced pay, per diem and benefits provided for therein, through December 31, 2020.

We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.

The Company and Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary, were named defendants, along with a number of other cargo carriers, in several class actions in the U.S. arising from allegations about the pricing practices of Old Polar and a number of air cargo carriers. These actions were all centralized in the U.S. District Court for the Eastern District of New York. Polar was later joined as an additional defendant. The consolidated complaint alleged, among other things, that the defendants, including the Company and Old Polar, manipulated the market price for air cargo services sold domestically and abroad through the use of surcharges, in violation of U.S., state, and European Union antitrust laws. The suit sought treble damages and attorneys’ fees.

On January 7, 2016, the Company, Old Polar, and Polar entered into a settlement agreement to settle all claims by participating class members against the Company, Old Polar and Polar. The Company, Polar, and Old Polar deny any wrongdoing, and there is no admission of any wrongdoing in the settlement agreement. Pursuant to the settlement agreement, the Company, Old Polar and Polar have agreed to make installment payments over three years to settle the plaintiffs’ claims, with payments of $35.0 million paid in January 2016 and 2017, and $30.0 million due on or before January 15, 2018. The U.S. District Court for the Eastern District of New York issued an order granting preliminary approval of the settlement on January 12, 2016. On October 6, 2016, the final judgment was issued and the settlement was approved.

In the United Kingdom, several groups of named claimants have brought suit against British Airways in connection with the same alleged pricing practices at issue in the proceedings described above and are seeking damages allegedly arising from that conduct. British Airways has filed claims in the lawsuit against Old Polar and a number of air cargo carriers for contribution should British Airways be found liable to claimants. Old Polar’s formal statement of defense was filed on March 2, 2015. On October 14, 2015, the U.K. Court of Appeal released decisions favorable to the defendant and contributory defendants on two matters under appeal. Permission was sought to appeal the U.K. Court of Appeal's decisions to the U.K. Supreme Court. Permission was denied. In December 2015, certain claimants settled with British Airways removing a significant portion of the claim against British Airways and therefore reducing the potential contribution required by the other airlines, including Old Polar. On December 16, 2015, the European General Court released decisions annulling decisions that the European Commission made against the majority of the air cargo carriers. The European Commission did not appeal the General Court decision but has, in early 2017, reissued a revised decision to which Old Polar is, again, not an addressee. On April 13, 2017, Old Polar and claimants represented by Hausfeld & Co. LLP (the “Hausfeld Claimants”) entered into a bilateral settlement agreement in relation to the English proceedings (the “Settlement Agreement”). The Settlement Agreement contains a mechanism by which the Hausfeld Claimants will release Old Polar and remove from the English proceedings all claims for damages alleged by the Hausfeld Claimants to be attributable to air cargo purchases from Old Polar (and each of Old Polar’s parents, subsidiaries, affiliates, predecessors, successors, agents and assignees). The amount of the settlement, which is tax deductible and was previously accrued for, was paid during the second quarter of 2017 and did not have a material adverse impact on the Company’s financial condition,

~~results of operations or cash flows.Old Polar remains a contributory defendant in the proceedings and, as such, is subject to certain continuing evidentiary obligations.~~

In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from ~~the same~~allegedly unlawful pricing practices ~~at issue in the proceedings described above.~~of such defendants. In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old ~~Polar~~Polar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings. ~~Old Polar and Polar entered their initial court appearances~~Another defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on ~~September 30, 2015. Various~~various procedural issues and rulings, some of which are ~~undergoing~~awaiting court ~~review. Like~~decisions on appeal. The ultimate outcome of the ~~U.K. proceedings, the Netherlands proceedings are~~lawsuit is likely to be affected by a decision readopted by the European ~~Commission’s revised decision. We are unable to reasonably predict the outcome of the litigation.~~Commission in March 2017, finding EU competition law violations by British Airways, KLM, Martinair, Air France and Lufthansa, among others, but not Old Polar or Polar. If the Company, Old Polar or

Polar were to incur an unfavorable outcome, ~~in connection with this proceeding,~~ such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows. We are unable to reasonably estimate a range of possible loss for this matter at this time.

Old Polar was cited for two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000. Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil. The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately ~~$9.6~~$3.6 million in aggregate based on September 30, ~~2017~~2020 exchange rates.

In both cases, we believe that the amounts claimed are substantially overstated due to a calculation error when considering the type and amount of goods allegedly missing, among other things. ~~Furthermore, we may seek appropriate indemnity from the shipper in each claim as may be feasible.~~ In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities. In the other case, we received an administrative decision in favor of the Brazil customs authorities and we are in the process of appealing this decision to the Brazil courts. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was ~~$5.3~~$3.0 million as of September 30, ~~2017~~2020 and $4.1 million as of December 31, ~~2016,~~2019, and is included in Deferred costs and other assets.

We are currently defending these and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.

~~As of September 30, 2017, the Company had an accrual of $30.0 million related~~In addition to the ~~U.S. class action settlement that was recognized~~matters described in ~~2015.~~

Wethis note, we have certain other contingencies incident to the ordinary course of business. ~~Management believes~~Unless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies ~~is not expected to~~or matters will materially affect our financial condition, results of operations or cash flows.

Basic earnings per share (“EPS”) represents income ~~(loss)~~ divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income ~~(loss)~~ divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method. ~~Anti-dilutive~~The calculations of basic and diluted EPS were as follows:

Antidilutive shares related to warrants issued in connection with our Convertible Notes and ~~stock options~~warrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were ~~3.0~~15.6 million for the three and nine months ended September 30, ~~2017~~2020, and ~~2016. Anti-dilutive shares related to restricted share units~~15.3 million and ~~warrants that were excluded from the calculation of diluted EPS due to losses incurred were 2.2~~7.8 million for the three and nine months ended September 30, ~~2017 and were 0.4 million for~~2019, respectively. Diluted shares reflect the ~~three months ended September 30, 2016.~~

For the Three Months Ended

For the Nine Months Ended

Numerator:

September 30, 2017

September 30, 2016

September 30, 2017

September 30, 2016

Income (loss) from continuing operations, net of taxes

$
(24,195
)

$
(7,501
)

$
14,884

$
13,889

Less: Unrealized loss (gain) on financial instruments, net of tax

-

-

-

(26,109
)
Diluted income (loss) from continuing operations, net of tax

$
(24,195
)

$
(7,501
)

$
14,884

$
(12,220
)

Denominator:

Basic EPS weighted average shares outstanding

25,262

24,840

25,229

24,788

Effect of dilutive warrant

-

-

-

141

Effect of dilutive convertible notes

-

-

36

-

Effect of dilutive stock options and restricted stock

-

-

557

187

Diluted EPS weighted average shares outstanding

25,262

24,840

25,822

25,116

Earnings (loss) per share from continuing operations:

Basic

$
(0.96
)

$
(0.30
)

$
0.59

$
0.56

Diluted

$
(0.96
)

$
(0.30
)

$
0.58

$
(0.49
)
Earnings (loss) per share from discontinued operations:

Basic

$
0.00

$
(0.02
)

$
(0.03
)

$
(0.03
)
Diluted

$
0.00

$
(0.02
)

$
(0.03
)

$
(0.03
)
Earnings (loss) per share:

Basic

$
(0.96
)

$
(0.32
)

$
0.56

$
0.53

Diluted

$
(0.96
)

$
(0.32
)

$
0.54

$
(0.52
)

potential dilution that could occur from restricted shares using the treasury stock method. The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of ~~7.6~~10.4 million for the three and nine months ended September 30, ~~2017~~2020 and ~~7.5~~10.6 million for the three and nine months ended September 30, ~~2016.~~2019.

The following table summarizes the components of Accumulated other comprehensive income (loss):

	Interest Rate			Foreign Currency					Interest Rate			Foreign Currency
	Derivatives			Translation		Total			Derivatives			Translation		Total
Balance as of December 31, 2015	$	(6,072	)	$	9	$	(6,063	)
Balance as of December 31, 2018									$	(3,841	)	$	9	$	(3,832	)
Reclassification to interest expense		1,334			-		1,334			1,012			0		1,012
Tax effect		(517	)		-		(517	)		(239	)		0		(239	)
Balance as of September 30, 2016	$	(5,255	)	$	9	$	(5,246	)
Balance as of September 30, 2019									$	(3,068	)	$	9	$	(3,059	)

Balance as of December 31, 2016	$	(5,002	)	$	9	$	(4,993	)
Balance as of December 31, 2019									$	(2,827	)	$	9	$	(2,818	)
Reclassification to interest expense		1,216			-		1,216			894			0		894
Tax effect		(472	)		-		(472	)		(202	)		0		(202	)
Balance as of September 30, 2017	$	(4,258	)	$	9	$	(4,249	)
Balance as of September 30, 2020									$	(2,135	)	$	9	$	(2,126	)

As of September 30, ~~2017,~~2020, there was ~~$6.9~~$2.8 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were ~~$0.4~~$0.3 million for the three months ended September 30, ~~2017~~2020 and ~~2016, respectively.~~2019. Net realized losses reclassified

into earnings were ~~$1.2~~$0.9 million and ~~$1.3~~$1.0 million for the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, respectively. Net realized losses expected to be reclassified into earnings within the next 12 months are ~~$1.5~~$1.1 million as of September 30, ~~2017.~~2020.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our ~~2016~~2019 Annual Report on Form 10-K.

The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.

We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 ~~757~~ and 737 aircraft for domestic, regional and international cargo and passenger ~~applications.~~operations. We provide unique value to our customers by giving them access to highly reliable new production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. Our customers include express delivery providers, e-commerce retailers, airlines, freight forwarders, the U.S. military and charter brokers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

See “Business Overview” and “Business Strategy” in our ~~2016~~2019 Annual Report on Form 10-K for additional information.

In December 2019, COVID-19 was first reported in China and has since spread to many other regions of the world. In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization. During the first three quarters of 2020, this public health crisis disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in flight cancellations by our ACMI customers and lower AMC passenger flying as the military took precautionary measures to limit the movement of personnel, as well as increased operating costs.

Our Charter results for the first three quarters of 2020, compared with 2019 were significantly impacted by the reduction of available cargo capacity in the market and the disruption of global supply chains due to the COVID-19 pandemic resulting in significantly higher commercial charter cargo Yields, net of fuel. Due to this strong demand, we reactivated three 747-400BCF aircraft that had been temporarily parked and began Charter operations for a 777-200 freighter aircraft in our Dry Leasing business. During the second and third quarters of 2020, we entered into several long-term charter programs with customers seeking to secure committed cargo capacity. These long-term charter programs provide us with guaranteed revenue and include indexed fuel price adjustments to mitigate our exposure to fuel price volatility.

Safety is our top priority. We are closely monitoring the COVID-19 pandemic and taking numerous precautions to ensure the safety of our operations around the world, including:

In March 2020, the Department of Homeland Security stated that transportation is an essential critical infrastructure sector, which includes all aviation workers. We play an important role in facilitating the movement of essential goods around the world during this challenging time, including the delivery of pharmaceuticals, medical equipment, education supplies, food and other daily necessities.

Given the dynamic nature of this pandemic, the duration of business disruption, the extent of customer cancellations and the related financial impact cannot be reasonably estimated at this time. We have incurred and expect to incur significant additional costs, including premium pay; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates resulting from our recent interim agreement with our pilots. In addition, the availability of hotels and restaurants; evolving COVID-19-related travel restrictions and health screenings; and cancellations of passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position employees to operate our aircraft. In response to these challenging times, we have:

The continuation or worsening of the aforementioned and other factors, including restrictions on travel and transportation, could materially affect our results for the duration of the crisis. We also continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.

Our ACMI results for the first three quarters of ~~2017,~~2020, compared with ~~2016,~~2019, were also impacted by ~~the following events:~~

During the third quarter of 2017, both ACMI and Charter segment results were negatively impacted by Hurricanes Irma and Harvey and work slowdowns and service interruptions for which the Company is seeking a preliminary injunction (See Note 13 to our Financial Statements).

~~Charter results for the first three quarters of 2017 also reflected increased commercial cargo demand, increased cargo and passenger demand~~ from the ~~AMC, higher commercial cargo Yields and the temporary redeployment of 747-8F aircraft from the ACMI segment, partially offset by lower cargo and passenger rates from the AMC.~~following:

During the third quarter of 2017, we entered into two operating leases for 747-400 freighter aircraft to meet increased customer demand in our ACMI and Charter businesses. One aircraft entered service in late September and the other is expected to enter service during the fourth quarter of 2017.

In February 2016, we began Dry Leasing one 767-300 converted freighter aircraft to DHL on a long-term basis. As described above, between August 2016 and August 2017, we began Dry Leasing seven 767-300 converted freighter aircraft to Amazon on a long-term basis.24

The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the three months ended September 30:

Segment Operating Fleet	2017			2016			Inc/(Dec)			2020			2019			Inc/(Dec)
ACMI*
747-8F Cargo		9.5			7.9			1.6			8.1			7.7			0.4
747-400 Cargo		15.1			12.9			2.2			13.0			18.3			(5.3	)
747-400 Dreamlifter		3.1			2.8			0.3			2.7			3.5			(0.8	)
777-200 Cargo		5.0			5.0			-			8.0			8.0			-
767-300 Cargo		12.2			4.6			7.6			23.0			25.0			(2.0	)
767-200 Cargo		9.0			9.0			-			9.0			9.0			-
767-200 Passenger											1.0			1.0			-
737-800 Cargo											5.5			3.7			1.8
737-400 Cargo		5.0			5.0			-			0.8			5.0			(4.2	)
747-400 Passenger		1.0			1.0			-
767-200 Passenger		1.0			1.0			-
Total		60.9			49.2			11.7			71.1			81.2			(10.1	)

Charter
747-8F Cargo		0.5			2.1			(1.6	)		1.9			2.2			(0.3	)
747-400 Cargo		9.0			9.8			(0.8	)		19.9			15.7			4.2
747-400 Passenger		1.9			2.0			(0.1	)		5.0			4.1			0.9
777-200 Cargo											1.0			-			1.0
767-300 Cargo											1.0			-			1.0
767-300 Passenger		4.8			4.0			0.8			4.8			4.8			-
Total		16.2			17.9			(1.7	)		33.6			26.8			6.8

Dry Leasing
777-200 Cargo		6.0			6.0			-			7.0			7.0			-
767-300 Cargo		8.6			2.6			6.0			21.0			21.0			-
757-200 Cargo		1.0			1.0			-			-			1.0			(1.0	)
737-300 Cargo		1.0			1.0			-			1.0			1.0			-
737-800 Passenger		1.0			1.0			-			-			1.0			(1.0	)
Total		17.6			11.6			6.0			29.0			31.0			(2.0	)

Less: Aircraft Dry Leased to CMI customers		(8.6	)		(2.6	)		(6.0	)		(21.0	)		(22.7	)		(1.7	)
Total Operating Average Aircraft Equivalents		86.1			76.1			10.0			112.7			116.3			(3.6	)

Out-of-service**											1.0			1.0			-

Block Hours	2017		2016		Inc/(Dec)		% Change			2020		2019		Inc/(Dec)		% Change
Total Block Hours**		64,837		54,175		10,662		19.7	%
Total Block Hours***											90,528		79,310		11,218		14.1	%

The following table compares our Operating Revenue for the three months ended September 30 (in thousands):

	2017			2016			Inc/(Dec)			% Change			2020			2019			Inc/(Dec)			% Change
Operating Revenue
ACMI	$	258,109		$	206,310		$	51,799			25.1	%	$	302,756		$	289,024		$	13,732			4.8	%
Charter		243,583			212,040			31,543			14.9	%		470,835			324,046			146,789			45.3	%
Dry Leasing		30,804			25,907			4,897			18.9	%		40,740			43,847			(3,107	)		(7.1	)%
Customer incentive asset amortization		(1,531	)		(174	)		(1,357	)	NM				(9,858	)		(12,796	)		(2,938	)		(23.0	)%
Other		4,783			3,932			851			21.6	%		5,413			4,418			995			22.5	%
Total Operating Revenue	$	535,748		$	448,015		$	87,733			19.6	%	$	809,886		$	648,539

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)		% Change
ACMI Block Hours		50,243		39,448		10,795			27.4	%		61,154		60,337		817		1.4	%
ACMI Revenue Per Block Hour	$	5,137	$	5,230	$	(93	)		(1.8	)%	$	4,951	$	4,790	$	161		3.4	%

ACMI revenue increased ~~$51.8~~$13.7 million, or 25.1%, primarily due to increased flying. The increase in Block Hours was primarily driven by the startup of 767 flying for Amazon, 747-8F flying for Cathay Pacific Cargo and 747-400 flying for Nippon Cargo Airlines, Asiana Cargo and Suparna Airlines, as well as higher aircraft utilization. Revenue per Block Hour decreased slightly primarily due to the impact of increased 767 and 747-400 CMI flying. In addition, ACMI revenue in the third quarter of 2017 was negatively impacted by the aforementioned labor-related operational disruptions.

~~Charter revenue increased $31.5 million, or 14.9%~~4.8%, primarily due to an increase in Revenue per Block ~~Hour.~~Hour and increased flying. The increase in Revenue per Block Hour was primarily ~~reflects~~related to changes in customer flying. The increase in Block Hours flown was primarily driven by strong demand related to a reduction of available cargo capacity in the ~~impact~~market and the disruption of global supply chains due to the COVID-19 pandemic, partially offset by the redeployment of 747-400 aircraft to Charter ~~capacity purchased from our ACMI~~to support long-term charter programs with customers seeking to secure committed cargo capacity.

NM represents year-over-year changes that ~~had no associated~~are not meaningful.

Charter revenue increased $146.8 million, or 45.3%, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Charter Block Hours ~~higher~~flown was primarily driven by increased demand for freighter aircraft reflecting a reduction of available cargo capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Due to this increased demand and to support long-term charter programs with customers seeking to secure committed cargo capacity, we redeployed 747-400 aircraft from ACMI and began operating a 777-200 freighter aircraft in our Dry Leasing business. Revenue per Block Hour decreased primarily due to lower fuel ~~prices and~~costs, partially offset by higher commercial cargo ~~Yields. In addition, Charter~~Yields driven by the factors impacting commercial cargo demand noted above.

Dry Leasing revenue decreased $3.1 million, or 7.1%, primarily due to changes in leases and the ~~third~~disposition of certain nonessential Dry Leased aircraft during the first quarter of ~~2017 was negatively impacted by Hurricanes Irma and Harvey.~~ 2020.

The following table compares our Operating Expenses for the three months ended September 30 (in thousands):

	2017		2016			Inc/(Dec)			% Change			2020			2019		Inc/(Dec)			% Change
Operating Expenses
Salaries, wages and benefits	$	114,505	$	125,978		$	(11,473	)		(9.1	)%	$	194,265		$	145,987	$	48,278			33.1	%
Maintenance, materials and repairs													116,634			88,240		28,394			32.2	%
Aircraft fuel		74,048		65,409			8,639			13.2	%		118,113			123,132		(5,019	)		(4.1	)%
Maintenance, materials and repairs		74,457		49,761			24,696			49.6	%
Depreciation and amortization		42,033		37,509			4,524			12.1	%		65,595			62,499		3,096			5.0	%
Travel		38,260		31,958			6,302			19.7	%		37,731			49,110		(11,379	)		(23.2	)%
Aircraft rent		33,873		35,730			(1,857	)		(5.2	)%
Navigation fees, landing fees and other rent		33,468		15,640			17,828			114.0	%		42,870			32,270		10,600			32.8	%
Passenger and ground handling services		28,491		21,673			6,818			31.5	%		36,266			34,453		1,813			5.3	%
Loss (gain) on disposal of aircraft		211		(11	)		(200	)	NM
Aircraft rent													24,239			40,048		(15,809	)		(39.5	)%
Gain on disposal of aircraft													(163	)		-		163		NM
Special charge													547			18,861		(18,314	)	NM
Transaction-related expenses		1,092		3,905			(2,813	)		(72.0	)%		490			324		166			51.2	%
Other		42,598		34,465			8,133			23.6	%		54,107			54,494		(387	)		(0.7	)%
Total Operating Expenses	$	483,036	$	422,017								$	690,694		$	649,418

Salaries, wages and benefits ~~decreased $11.5~~ increased $48.3 million, or ~~9.1%~~33.1%, primarily ~~driven by a 2016 change in control, as defined under certain benefit plans,~~due to higher pilot costs related to ~~the Amazon transaction (see Note 6 to~~premium pay for pilots operating in certain areas significantly impacted by COVID-19, increased pay rates from our ~~Financial Statements), partially offset by~~recent interim agreement with our pilots and increased flying. ~~In addition, crewmember costs were negatively impacted by the aforementioned labor-related operational disruptions.~~

~~Aircraft fuel~~Maintenance, materials and repairs increased ~~$8.6~~$28.4 million, or ~~13.2%~~32.2%, primarily reflecting $22.9 million of increased Heavy Maintenance expense and $6.3 million of increased Line Maintenance expense. Heavy Maintenance expense on 747-400 aircraft increased $24.9 million primarily due to an increase in the number of engine overhauls, to take advantage of availability and opportunities for vendor pricing discounts, and an increase in the number of D Checks, partially offset by a decrease in the number of C Checks. Line Maintenance expense increased primarily due to increased flying. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended September 30 were:

Aircraft fuel decreased $5.0 million, or 4.1%, primarily due to a decrease in the average fuel cost per ~~gallon.~~gallon, partially offset by higher consumption related to increased Charter flying. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the three months ended September 30 were:

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)			% Change
Average fuel cost per gallon	$	1.84	$	1.61	$	0.23			14.3	%	$	1.35	$	2.27	$	(0.92	)		(40.5	)%
Fuel gallons consumed (000s)		40,275		40,718		(443	)		(1.1	)%		87,460		54,296		33,164			61.1	%

~~Maintenance, materials~~Depreciation and ~~repairs~~ increased by $24.7 million, or 49.6%, primarily reflecting $13.3 million of increased Line Maintenance expense due to increased flying and additional repairs performed, and $10.1 million of Heavy Maintenance expense. The higher Line Maintenance primarily reflected increases of $5.8 million for 767 aircraft, $4.9 million for 747-400 aircraft and $2.7 million for 747-8F aircraft. Heavy Maintenance expense on 747-400 aircraft increased $4.0 million primarily due to an increase in the number of engine overhauls and additional repairs performed. Heavy Maintenance expense on 747-8F aircraftamortization increased $3.1 million, primarily due to an increase in the number of C Checks. Heavy Maintenance expense on 767 aircraft increased $2.9 million primarily due to an increase in the number of C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended September 30 were:

~~Depreciation and amortization~~ ~~increased $4.5 million,~~ or ~~12.1%~~5.0%, primarily due to ~~additional aircraft operating in 2017 and~~ an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements). and an increase in the scrapping of rotable parts. Partially offsetting these increases was a reduction in depreciation related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019, and certain spare CF6-80 engines and aircraft that were classified as held for sale during the fourth quarter of 2019.

Travel ~~increased $6.3~~ decreased $11.4 million, or ~~19.7%~~23.2%, primarily due to ~~increased flying.~~

~~Aircraft rent~~decreased ~~$1.9 million, or 5.2%, primarily due~~rates and travel related to the ~~amendment and extension~~impact of ~~a lease for a 747-400 freighter aircraft to a lower monthly lease rate (see Note 8 to our Financial Statements) and a reduction~~the COVID-19 pandemic, partially offset by an increase in ~~the number of spare engines leased.~~flying.

Navigation fees, landing fees and other rent increased ~~$17.8~~$10.6 million, or ~~114.0%, primarily due to an increase in purchased capacity.~~

~~Passenger and ground handling services~~ ~~increased $6.8 million, or 31.5%~~32.8%, primarily due to increased ~~Charter~~ flying.

~~Transaction-related expenses~~ ~~in 2017 related to the Southern Air acquisition, which primarily included professional fees~~27

Passenger and integration costs. Transaction-related expenses in 2016 related to the Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costs (see Notes 4 and 6 to our Financial Statements).

~~Other~~ground handling services increased ~~$8.1~~$1.8 million, or ~~23.6%~~5.3%, primarily due to increased ~~commission expense on higher revenue from~~cargo flying, partially offset by a decrease in passenger flying.

Aircraft rent decreased $15.8 million, or 39.5%, primarily due to a reduction in the ~~AMC, the impact~~amortization of ~~growth initiatives, and higher legal and professional fees~~operating lease right-of-use assets related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019.

Special charge in 2019 primarily represented a $18.9 million impairment loss for four CF6-80 engines to be disposed of and the permanent parking of two 737-400 passenger aircraft used for training purposes. See Note 7 to our ~~request~~Financial Statements for ~~a preliminary injunction to stop the aforementioned labor-related operational disruptions.~~additional discussion. We may sell additional flight equipment, which could result in additional charges in future periods.

The following table compares our Non-operating Expenses (Income) for the three months ended September 30 (in thousands):

	2017			2016			Inc/(Dec)			% Change			2020			2019			Inc/(Dec)			% Change
Non-operating Expenses (Income)
Interest income	$	(1,688	)	$	(1,316	)	$	372			28.3	%	$	(225	)	$	(653	)	$	(428	)		(65.5	)%
Interest expense		26,553			21,355			5,198			24.3	%		28,524			30,117			(1,593	)		(5.3	)%
Capitalized interest		(1,922	)		(1,059	)		863			81.5	%		(203	)		(853	)		(650	)		(76.2	)%
Loss on early extinguishment of debt		167			-			(167	)	NM				7			559			(552	)	NM
Unrealized loss (gain) on financial instruments		44,775			1,462			43,313		NM				43,604			(83,175	)		(126,779	)		(152.4	)%
Other income		(1,165	)		(180	)		985		NM
Other (income) expense, net														(62,689	)		1,434			64,123		NM

~~Interest expense~~ ~~increased $5.2 million, or 24.3%, primarily due to the issuance of the 2017 Convertible Notes and the financing of 767-300 aircraft purchases and conversions.~~

~~Capitalized interest~~ ~~increased $0.9 million, or 81.5%, primarily due to an increase in the number of 767-300 aircraft undergoing passenger-to-freighter conversion.~~

Unrealized loss (gain) on financial instruments represents the change in fair value of ~~the Amazon Warrant~~a customer warrant liability (see Note 65 to our Financial Statements) primarily due to changes in our common stock price.

Other (income) expense, net increased $64.1 million primarily due to CARES Act grant income of $64.2 million (see Note 3 to our Financial Statements).

Income taxes. ~~Our effective~~The income tax expense ~~rates were 72.7% and 230.8%~~ for the three months ended September 30, ~~2017 and 2016, respectively.~~2020 differed from tax at the U.S. statutory rate primarily due to $9.6 million of nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements). The ~~effective~~ income tax ~~expense rate~~benefit for the three months ended September 30, ~~2017~~2019 differed from tax at the U.S. statutory rate primarily due to ~~nondeductible~~$18.2 million of nontaxable changes in the fair value of the Amazon Warrant liability (see Note 6 to our Financial Statements). The effective income tax expense rate for the three months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S.customer warrant liability.

The following table compares the Direct Contribution for our reportable segments for the three months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)			% Change
Direct Contribution:
ACMI	$	51,647	$	51,607	$	40			0.1	%	$	42,822	$	33,401	$	9,421			28.2	%
Charter		34,808		32,948		1,860			5.6	%		136,619		36,339		100,280			276.0	%
Dry Leasing		10,245		7,413		2,832			38.2	%		9,627		12,028		(2,401	)		(20.0	)%
Total Direct Contribution	$	96,700	$	91,968	$	4,732			5.1	%	$	189,068	$	81,768	$	107,300			131.2	%

Unallocated income and expenses, net	$	64,463	$	80,876	$	(16,413	)		(20.3	)%
Unallocated expenses and (income), net											$	34,409	$	93,507	$	(59,098	)		(63.2	)%

ACMI Direct Contribution ~~was relatively unchanged, as~~increased $9.4 million, or 28.2%, primarily due to increased aircraft utilization reflecting the ~~impact of~~strong demand from our customers, and a reduction in aircraft rent and depreciation. Partially offsetting these improvements were higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased ~~flying was largely offset by higher Heavy and Line Maintenance costs and amortization of deferred maintenance costs.~~pay rates resulting from our recent interim agreement with our pilots. In addition, ACMI Direct Contribution ~~was negatively impacted by~~reflected higher heavy maintenance, including additional engine overhauls to take advantage of availability and opportunities for vendor pricing discounts, and the ~~aforementioned labor-related operational disruptions.~~redeployment of 747-400 aircraft to Charter to support long-term charter programs with customers seeking to secure committed cargo capacity.

Charter Direct Contribution increased ~~$1.9~~$100.3 million, ~~or 5.6%,~~ primarily due to ~~higher~~an increase in commercial cargo Yields, ~~partially offset by higher Heavy Maintenance costs~~net of fuel, and demand reflecting a reduction of available capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Charter Direct Contribution also benefited from a reduction in aircraft rent and depreciation, the redeployment of ~~747-8F~~747-400 aircraft from ACMI and the operation of a 777-200 freighter aircraft in our Dry Leasing business. Partially offsetting these improvements were higher heavy maintenance, including additional engine overhauls to ~~the ACMI segment.~~take advantage of availability and opportunities for vendor pricing discounts. In addition, Charter Direct Contribution ~~was negatively~~reflected higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by ~~Hurricanes Irma~~COVID-19 and ~~Harvey and the aforementioned labor-related operational disruptions.~~increased pay rates resulting from our recent interim agreement with our pilots.

Dry Leasing Direct Contribution ~~increased $2.8~~decreased $2.4 million, or ~~38.2%, primarily related to lower interest expense due to the scheduled repayment of debt for Dry Leased 777-200LRF aircraft and the placement of 767-300 converted freighter aircraft.~~

~~Unallocated income and expenses, net decreased $16.4 million, or 20.3%~~20.0%, primarily due to a ~~2016 change~~reduction in ~~control, as defined under certain benefit plans,~~revenue related to changes in leases and the ~~Amazon transaction (see Note 6 to our Financial Statements). Partially offsetting this item were higher costs in 2017~~disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.

Unallocated expenses and (income), net decreased $59.1 million, or 63.2%, primarily due to unallocated interest expense, growth initiatives, amortization of the Amazon customer incentive asset, and legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.CARES Act grant income.

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) and total Block Hours operated for the nine months ended September 30:

Segment Operating Fleet	2017			2016			Inc/(Dec)			2020			2019			Inc/(Dec)
ACMI*
747-8F Cargo		8.1			8.2			(0.1	)		8.6			8.3			0.3
747-400 Cargo		14.0			13.0			1.0			13.0			18.1			(5.1	)
747-400 Dreamlifter		3.1			2.9			0.2			2.7			3.6			(0.9	)
777-200 Cargo		5.0			3.2			1.8			8.0			6.8			1.2
767-300 Cargo		8.7			4.0			4.7			23.6			25.2			(1.6	)
767-200 Cargo		9.0			9.0			-			9.0			9.0			-
767-200 Passenger											1.0			1.0			-
737-800 Cargo											5.2			1.8			3.4
737-400 Cargo		5.0			3.2			1.8			3.5			5.0			(1.5	)
747-400 Passenger		1.0			1.0			-
767-200 Passenger		1.0			1.0			-
Total		54.9			45.5			9.4			74.6			78.8			(4.2	)

Charter
747-8F Cargo		1.9			1.8			0.1			1.3			1.6			(0.3	)
747-400 Cargo		9.9			9.7			0.2			19.2			15.3			3.9
747-400 Passenger		2.0			2.0			-			5.0			4.0			1.0
777-200 Cargo											0.5			-			0.5
767-300 Cargo											0.4			-			0.4
767-300 Passenger		4.8			3.4			1.4			4.8			4.9			(0.1	)
Total		18.6			16.9			1.7			31.2			25.8			5.4

Dry Leasing
777-200 Cargo		6.0			6.0			-			7.0			7.3			(0.3	)
767-300 Cargo		6.0			2.0			4.0			21.0			21.2			(0.2	)
757-200 Cargo		1.0			1.0			-			0.2			1.0			(0.8	)
737-300 Cargo		1.0			1.0			-			1.0			1.0			-
737-800 Passenger		1.0			1.0			-			0.2			1.0			(0.8	)
Total		15.0			11.0			4.0			29.4			31.5			(2.1	)

Less: Aircraft Dry Leased to CMI customers		(6.0	)		(2.0	)		(4.0	)		(21.0	)		(23.1	)		(2.1	)
Total Operating Average Aircraft Equivalents		82.5			71.4			11.1			114.2			113.0			1.2

Out-of-service**											2.7			0.7			2.0

The following table compares our Operating Revenue for the nine months ended September 30 (in thousands):

	2017			2016			Inc/(Dec)			% Change			2020			2019			Inc/(Dec)			% Change
Operating Revenue
ACMI	$	687,982		$	600,772		$	87,210			14.5	%	$	873,451		$	902,869		$	(29,418	)		(3.3	)%
Charter		743,302			616,794			126,508			20.5	%		1,296,011			944,839			351,172			37.2	%
Dry Leasing		86,120			79,165			6,955			8.8	%		123,572			157,328			(33,756	)		(21.5	)%
Customer incentive asset amortization		(2,873	)		(174	)		(2,699	)	NM				(28,414	)		(26,018	)		2,396			9.2	%
Other		13,977			13,345			632			4.7	%		14,021			13,122			899			6.9	%
Total Operating Revenue	$	1,528,508		$	1,309,902		$	218,606			16.7	%	$	2,278,641		$	1,992,140

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)			% Change
ACMI Block Hours		133,978		108,839		25,139			23.1	%		175,064		182,060		(6,996	)		(3.8	)%
ACMI Revenue Per Block Hour	$	5,135	$	5,520	$	(385	)		(7.0	)%	$	4,989	$	4,959	$	30		NM

ACMI revenue ~~increased $87.2~~decreased $29.4 million, or ~~14.5%~~3.3%, primarily due to ~~increased~~decreased flying. The ~~increase~~decrease in Block Hours ~~reflects~~flown was primarily driven by the ~~impact from the Southern Air acquisition, the startup~~redeployment of ~~767~~747-400 aircraft to Charter to support long-term charter programs with customers seeking to secure committed cargo capacity, partially offset by an increase in CMI flying ~~for Amazon, 747-400 flying for Nippon Cargo Airlines, Asiana Cargo~~ and ~~Suparna Airlines, and 747-8F flying for Cathy Pacific Cargo, as well as higher~~ aircraft utilization. ~~Partially offsetting these items was~~In addition, Block Hours were negatively impacted from flight cancellations by certain of our ACMI customers caused by the ~~temporary redeployment of 747-8F aircraft to the Charter segment during the first quarter of 2017.~~COVID-19 pandemic. Revenue per Block Hour decreased primarily due to the impact of 777-200 and 737-400 CMI flying from the Southern Air acquisition, increased 767 and 747-400 CMI flying and the temporary redeployment of 747-8F aircraft to Charter during the first quarter of 2017.was relatively unchanged.

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)			% Change
Charter Block Hours:
Cargo		30,908		26,698		4,210			15.8	%		57,749		37,084		20,665			55.7	%
Passenger		14,903		12,753		2,150			16.9	%		12,320		15,379		(3,059	)		(19.9	)%
Total		45,811		39,451		6,360			16.1	%		70,069		52,463		17,606			33.6	%

Charter Revenue Per Block Hour:
Cargo	$	16,258	$	14,878	$	1,380			9.3	%	$	18,560	$	17,379	$	1,181			6.8	%
Passenger	$	16,159	$	17,218	$	(1,060	)		(6.2	)%	$	18,199	$	19,530	$	(1,331	)		(6.8	)%
Charter	$	16,225	$	15,634	$	591			3.8	%	$	18,496	$	18,010	$	486			2.7	%

Charter revenue increased ~~$126.5~~$351.2 million, or ~~20.5%~~37.2%, primarily due to increased ~~flying.~~flying and an increase in Revenue per Block Hour. The increase in Charter Block Hours flown was primarily driven by increased ~~commercial~~demand for freighter aircraft reflecting a reduction of available cargo capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Due to this increased demand ~~increased~~and to support long-term charter programs with customers seeking to secure committed cargo ~~and passenger demand from the AMC and the temporary redeployment of 747-8F~~capacity, we redeployed 747-400 aircraft from ACMI and began operation of a 777-200 freighter aircraft in our Dry Leasing business. Partially offsetting these improvements was lower AMC passenger flying for 747-400 aircraft as the ~~ACMI segment during~~U.S. military took precautionary measures to limit the ~~first quarter~~movement of ~~2017.~~military personnel. Revenue per Block Hour increased primarily due to higher ~~Yields for~~ commercial cargo ~~higher fuel prices and~~Yields driven by the ~~impact of Charter capacity purchased from our ACMI customers that had no associated Charter Block Hours,~~factors impacting commercial cargo demand noted above, partially offset by a reduction in passenger charter Revenue per Block Hour related to a decrease in higher-yielding 747-400 flying for the AMC and lower ~~cargo~~fuel costs.

Dry Leasing revenue decreased $33.8 million, or 21.5%, primarily due to $22.3 million of revenue in 2019 from maintenance payments related to the scheduled return of a 777-200 freighter aircraft, changes in leases and ~~passenger rates from~~ the ~~AMC.~~ disposition of certain nonessential Dry Leased aircraft during the first quarter of 2020.

The following table compares our Operating Expenses for the nine months ended September 30 (in thousands):

	2017		2016			Inc/(Dec)			% Change			2020			2019		Inc/(Dec)			% Change
Operating Expenses
Salaries, wages and benefits	$	330,080	$	321,365		$	8,715			2.7	%	$	534,600		$	432,911	$	101,689			23.5	%
Maintenance, materials and repairs													379,086			305,331		73,755			24.2	%
Aircraft fuel		239,966		189,982			49,984			26.3	%		309,673			351,611		(41,938	)		(11.9	)%
Maintenance, materials and repairs		212,042		162,220			49,822			30.7	%
Depreciation and amortization		120,913		109,722			11,191			10.2	%		189,005			190,669		(1,664	)		(0.9	)%
Travel		105,510		94,291			11,219			11.9	%		114,749			140,513		(25,764	)		(18.3	)%
Aircraft rent		103,738		109,490			(5,752	)		(5.3	)%
Navigation fees, landing fees and other rent		77,258		56,391			20,867			37.0	%		109,909			110,468		(559	)		(0.5	)%
Passenger and ground handling services		77,187		64,571			12,616			19.5	%		98,355			97,138		1,217			1.3	%
Loss (gain) on disposal of aircraft		64		(11	)		(53	)	NM
Aircraft rent													72,522			122,271		(49,749	)		(40.7	)%
Gain on disposal of aircraft													(6,878	)		-		6,878		NM
Special charge		-		6,631			(6,631	)	NM				16,481			22,130		(5,649	)		(25.5	)%
Transaction-related expenses		3,403		21,486			(18,083	)		(84.2	)%		2,286			3,585		(1,299	)		(36.2	)%
Other		123,121		106,885			16,236			15.2	%		157,929			160,548		(2,619	)		(1.6	)%
Total Operating Expenses	$	1,393,282	$	1,243,023								$	1,977,717		$	1,937,175

Salaries, wages and benefits increased ~~$8.7~~$101.7 million, or 2.7%, primarily driven by the impact of the Southern Air acquisition, growth initiatives and increased flying. Partially offsetting these items were a 2016 change in control, as defined under certain benefit plans, related to the Amazon transaction (see Note 6 to our Financial Statements) and lower costs related to crew training. In addition, crewmember costs were negatively impacted by the aforementioned labor-related operational disruptions.

~~Aircraft fuel~~ ~~increased $50.0 million, or 26.3%~~23.5%, primarily due to higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19, increased ~~fuel consumption~~pay rates from our recent interim agreement with our pilots and increased flying.

Maintenance, materials and repairs increased by $73.8 million, or 24.2%, primarily reflecting ~~the~~$73.5 million of increased Heavy Maintenance expense. Heavy Maintenance expense on 747-400 aircraft increased $65.8 million primarily due to an increase in ~~Charter Block Hours operated~~the number of engine overhauls, to take advantage of availability and opportunities for vendor pricing discounts, and an increase in the number of D Checks. Heavy Maintenance expense on 747-8F aircraft increased $5.8 million primarily due to an increase in the number of D Checks, partially offset by a reduction in the number of C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:

Aircraft fuel decreased $41.9 million, or 11.9%, primarily due to a decrease in the average fuel cost per ~~gallon.~~gallon, partially offset by higher consumption related to increased Charter flying. We do not incur fuel expense in our ACMI or Dry Leasing businesses as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the nine months ended September 30 were:

~~Maintenance, materials~~Depreciation and ~~repairs~~ ~~increased by $49.8~~amortization decreased $1.7 million, or ~~30.7%~~0.9%, primarily reflecting $31.0 million of higher Line Maintenance expense due to increased flying and additional repairs performed, the Southern Air acquisition, and $21.1 million of Heavy Maintenance expense, partially offset by a $3.0 million decrease in Non-heavy Maintenance expense on 747-400 aircraft. The higher Line Maintenance primarily reflected increases of $11.9 million for 767 aircraft, $9.9 million for 747-400 aircraft and $6.1 million for 747-8F aircraft. Heavy Maintenance expense on 747-400 aircraft increased $19.1 million primarily due to an increase in the number of D Checks, engine overhauls and additional repairs performed, partially offset by a decrease in the number of C Checks. Heavy Maintenance expense on 767 aircraft increased $4.2 million primarily due to an increase in the number of C Checks. Heavy Maintenance expense on 747-8F aircraft decreased $3.4 million primarily due to a ~~decrease~~reduction in ~~unscheduled engine repairs, partially offset by an increase in~~depreciation related to the ~~number~~747-400 freighter asset group that was written down during the fourth quarter of ~~C Checks. Non-heavy Maintenance on 747-400~~2019, and certain spare CF6-80 engines and aircraft ~~decreased $3.0 million~~that were classified as ~~a result~~held for sale during the fourth quarter of ~~fewer events. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the nine months ended September 30 were:~~

~~Depreciation and amortization~~ ~~increased $11.2 million, or 10.2%, primarily due to additional aircraft operating in 2017 and~~2019. Partially offsetting these decreases was an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements).

Travel ~~increased $11.2~~ decreased $25.8 million, or ~~11.9%~~18.3%, primarily due to decreased rates and travel related to the impact of the ~~Southern Air acquisition and increased flying,~~COVID-19 pandemic, partially offset by ~~lower rates for crewmember travel.~~an increase in flying.

Aircraft rent decreased ~~$5.8~~$49.7 million, or ~~5.3%~~40.7%, primarily due to a reduction in the ~~amendment and extension~~amortization of aoperating lease ~~for a~~right-of-use assets related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019.

Special charge in 2020 represented a ~~reduction in the number of~~$16.5 million impairment charge related to fair value adjustments for assets held for sale, including spare engines ~~leased.~~

~~Navigation fees, landing fees~~ and ~~other rent~~ ~~increased $20.9 million, or 37.0%, primarily due to an increase in purchased capacity and increased flying.~~

~~Passenger and ground handling services~~ ~~increased $12.6 million, or 19.5%, primarily due to increased Charter flying.~~

737-400 passenger aircraft for training purposes. Special charge in ~~2016~~2019 primarily represented a ~~$6.5~~$19.6 million impairment loss onfor four CF6-80 engines ~~held~~to be disposed of and the permanent parking of two 737-400 passenger aircraft used for ~~sale (see~~training purposes. See Note 57 to our Financial ~~Statements).~~Statements for additional discussion. We may sell additional flight equipment, which could result in additional charges in future periods.

Transaction-related expenses in ~~2017~~2020 primarily related to ~~the Southern Air acquisition, which primarily included~~ professional fees ~~and integration costs. Transaction-related expenses~~ in ~~2016 related to~~support of the ~~Southern Air acquisition and our transaction with Amazon and primarily included: compensation costs, including employee termination benefits; professional fees; and integration costs~~Payroll Support Program under the CARES Act (see ~~Notes 4 and 6~~Note 3 to our Financial Statements). Transaction-related expenses in 2019 primarily related to professional fees for a customer transaction with warrants (see Note 5 to our Financial Statements).

Other ~~increased $16.2~~ decreased $2.6 million or ~~15.2%~~1.6%, primarily due to ~~increased~~a reduction in commission expense ~~on higher~~related to decreased revenue from the AMC, the impact of the Southern Air acquisition and other growth initiatives, and higher legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions. Partially offsetting these items was an accrual for legal matters in 2016 (see Note 13 to our Financial Statements).AMC.

The following table compares our Non-operating Expenses (Income) for the nine months ended September 30 (in thousands):

	2017			2016			Inc/(Dec)			% Change			2020			2019			Inc/(Dec)			% Change
Non-operating Expenses (Income)
Non-operating (Income) Expenses
Interest income	$	(4,286	)	$	(4,325	)	$	(39	)		(0.9	)%	$	(929	)	$	(3,975	)	$	(3,046	)		(76.6	)%
Interest expense		72,747			63,595			9,152			14.4	%		86,749			90,515			(3,766	)		(4.2	)%
Capitalized interest		(5,633	)		(2,106	)		3,527			167.5	%		(528	)		(1,943	)		(1,415	)		(72.8	)%
Loss on early extinguishment of debt		167			132			35		NM				81			804			(723	)		(89.9	)%
Unrealized loss (gain) on financial instruments		36,225			(25,013	)		(61,238	)		(244.8	)%		73,351			(78,900	)		152,251			(193.0	)%
Other income		(357	)		(372	)		(15	)		(4.0	)%
Other (income) expense, net														(112,081	)		(596	)		111,485		NM

~~Interest expense~~ ~~increased $9.2 million, or 14.4%, primarily due to the issuance of the 2017 Convertible Notes and the financing of 767-300 aircraft purchases and conversions.~~

~~Capitalized interest~~ ~~increased $3.5 million, primarily due to an increase in the number of 767-300 aircraft undergoing passenger-to-freighter conversion.~~

Other (income) expense, net increased $111.5 million primarily due to CARES Act grant income of $84.4 million (see Note 3 to our Financial Statements) and a $32.9 million refund of aircraft rent paid in previous years.

Income taxes. ~~Our effective~~The income tax expense ~~rates were 59.1% and 60.3%~~ for the nine months ended September 30, ~~2017 and 2016, respectively.~~2020 differed from tax at the U.S. statutory rate primarily due to $16.0 million of nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements). The ~~effective~~ income tax ~~expense rate~~benefit for the nine months ended September 30, ~~2017~~2019 differed from tax at the U.S. statutory rate primarily due to ~~nondeductible~~$59.8 million of tax benefits related to the favorable completion of an IRS examination of our 2015 income tax return, and to a lesser extent, $17.3 million of nontaxable changes in the fair value of the Amazon Warrant liability (see Note 6 to our Financial Statements) and by the impact of the 2017 adoption of the amended accounting guidance for share-based compensation which requires that excess tax benefits associated with share-based compensation be recognized within income tax expense in our consolidated statement of operations. The effective income tax expense rate for the nine months ended September 30, 2016 differed from the U.S. federal statutory rate primarily due to nondeductible expenses resulting from a change in control, as defined under certain of the Company’s benefit plans, related to the Amazon transaction. The effective rates for both periods were impacted by our assertion to indefinitely reinvest the net earnings of foreign subsidiaries outside the U.S.customer warrant liability.

The following table compares the Direct Contribution for our reportable segments for the nine months ended September 30 (see Note 1211 to our Financial Statements for the reconciliation to Operating income) (in thousands):

	2017		2016		Inc/(Dec)			% Change			2020		2019		Inc/(Dec)			% Change
Direct Contribution:
ACMI	$	141,134	$	121,837	$	19,297			15.8	%	$	109,624	$	114,048	$	(4,424	)		(3.9	)%
Charter		88,877		78,580		10,297			13.1	%		373,371		79,554		293,817		NM
Dry Leasing		29,629		24,699		4,930			20.0	%		30,046		58,646		(28,600	)		(48.8	)%
Total Direct Contribution	$	259,640	$	225,116	$	34,524			15.3	%	$	513,041	$	252,248	$	260,793			103.4	%

Unallocated income and expenses, net	$	183,418	$	186,923	$	(3,505	)		(1.9	)%
Unallocated expenses and (income), net											$	173,439	$	255,569	$	(82,130	)		(32.1	)%

ACMI Direct Contribution ~~increased $19.3~~decreased $4.4 million, or ~~15.8%~~3.9%, primarily due to ~~the Southern Air acquisition, increased flying~~higher heavy maintenance, including additional engine overhauls to take advantage of availability and ~~lower~~opportunities for vendor pricing discounts. In addition, ACMI Direct Contribution reflected higher pilot costs related to ~~crew training.~~premium pay for pilots operating in certain areas significantly impacted by COVID-19 and increased pay rates from our recent interim agreement with our pilots. We also redeployed 747-400 aircraft to Charter to support long-term Charter programs with customers seeking to secure committed cargo capacity. Partially offsetting these items ~~were higher Heavy~~was an increase in CMI flying, a reduction in aircraft rent and ~~Line Maintenance costs, the amortization of deferred maintenance costs~~depreciation and ~~the temporary redeployment of 747-8F~~an increase in aircraft ~~to the Charter segment during the first quarter of 2017.~~utilization.

Charter Direct Contribution increased ~~$10.3~~$293.8 million ~~or 13.1%,~~ primarily due to ~~increased~~an increase in commercial cargo Yields, net of fuel, and demand ~~increased cargo~~reflecting a reduction of available capacity in the market, the disruption of global supply chains due to the COVID-19 pandemic and our ability to increase aircraft utilization. Charter Direct Contribution also benefited from a reduction in aircraft rent and depreciation, the redeployment of 747-400 aircraft from ACMI and the operation of a 777-200 freighter aircraft in our Dry Leasing business. Partially offsetting these improvements were higher heavy maintenance, including additional engine overhauls to take advantage of availability and opportunities for vendor pricing discounts, and lower passenger demand from the AMC ~~lower~~as the COVID-19 pandemic disrupted the movement of military personnel. In addition, Charter Direct Contribution reflected higher pilot costs related to ~~crew training~~premium pay for pilots operating in certain areas significantly impacted by COVID-19 and ~~higher commercial cargo Yields. Partially offsetting these items were higher Heavy Maintenance costs and lower cargo and passenger~~increased pay rates resulting from ~~the AMC.~~ our recent interim agreement with our pilots.

Dry Leasing Direct Contribution ~~increased $4.9~~decreased $28.6 million, or ~~20.0%~~48.8%, primarily due to ~~lower interest expense due to the scheduled repayment~~$22.3 million of ~~debt related to Dry Leased 777-200LRF aircraft and the placement of 767-300 converted freighter aircraft. Partially offsetting these items were~~revenue in 2019 from maintenance payments ~~received~~ related to the scheduled return of ana 777-200 freighter aircraft, changes in leases and the disposition of certain nonessential Dry Leased aircraft during the first ~~three quarters~~quarter of ~~2016. There were no aircraft returned during the first three quarters of 2017.~~2020.

Unallocated ~~income~~expenses and ~~expenses,~~(income), net decreased ~~$3.5~~$82.1 million, or ~~1.9%~~32.1%, primarily due to a 2016 change in control, as defined under certain benefit plans, related to the Amazon transaction (see Note 6 to our Financial Statements) and a 2016 accrual for legal matters. Partially offsetting these items were higher costs in 2017 due to the Southern Air acquisition, unallocated interest expense, growth initiatives, amortization of the Amazon customer incentive asset, and legal and professional fees related to our request for a preliminary injunction to stop the aforementioned labor-related operational disruptions.CARES Act grant income.

To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income, ~~from continuing operations, net of taxes and~~ Adjusted Diluted EPS ~~from continuing operations, net of~~and Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Income from continuing operations, net of taxes and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP.

We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation ~~will be~~is determined, in part, by using Adjusted Net Income ~~from continuing operations, net of taxes.~~and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.

The following is a reconciliation of Net Income ~~from continuing operations, net of taxes~~ and Diluted EPS ~~from continuing operations, net of taxes~~ to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):

For the Three Months Ended

September 30, 2017

September 30, 2016

Percent Change

Income (loss) from continuing operations, net of taxes

$
(24,195
)

$
(7,501
)

222.6
%
Impact from:

Loss (gain) on disposal of aircraft

211

(11
)

Costs associated with transactions (a)

1,355

30,074

Accrual for legal matters and professional fees

1,264

(210
)

Noncash expenses and income, net (b)

5,474

2,081

Charges associated with refinancing debt

167

-

Unrealized loss (gain) on financial instruments

44,775

1,462

Income tax effect of reconciling items (c)

643

1,531

Adjusted income from continuing operations, net of taxes

$
29,694

$
27,426

8.3
%

Weighted average diluted shares outstanding

25,262

24,840

Add: dilutive warrant

1,501

150

dilutive convertible notes

109

-

effect of convertible notes hedges (d)

(109
)

-

dilutive restricted stock

636

285

Adjusted weighted average diluted shares outstanding

27,399

25,275

Adjusted Diluted EPS from continuing operations, net of taxes

$
1.08

$
1.09

(0.9
)%

	For the Three Months Ended
	September 30, 2020			September 30, 2019			Percent Change

Net Income	$	74,054		$	59,974			23.5	%
Impact from:
CARES Act grant income (a)		(64,211	)		-
Customer incentive asset amortization		9,858			12,796
Special charge		547			18,861
Leadership transition costs		2,176			2,852
Noncash expenses and income, net (b)		4,527			4,696
Unrealized loss (gain) on financial instruments		43,604			(83,175	)
Other, net (c)		462			2,371
Income tax effect of reconciling items		11,731			(8,859	)
Adjusted Net Income	$	82,748		$	9,516		NM

Weighted average diluted shares outstanding		26,619			25,854
Add: dilutive warrant (d)		2,478			-
Adjusted weighted average diluted shares outstanding		29,097			25,854
Adjusted Diluted EPS	$	2.84		$	0.37		NM

For the Nine Months Ended

September 30, 2017

September 30, 2016

Percent Change

Income from continuing operations, net of taxes

$
14,884

$
13,889

7.2
%
Impact from:

Loss (gain) on disposal of aircraft

64

(11
)

Special charge

-

6,631

Costs associated with transactions (a)

3,666

47,655

Accrual for legal matters and professional fees

1,600

6,777

Noncash expenses and income, net (b)

11,537

5,807

Charges associated with refinancing debt

167

132

Unrealized loss (gain) on financial instruments

36,225

(25,013
)

Income tax effect of reconciling items  (c)

(1,061
)

(535
)

Adjusted income from continuing operations, net of taxes

$
67,082

$
55,332

21.2
%

Weighted average diluted shares outstanding

25,822

25,116

        Add: dilutive warrant

1,230

-

                 effect of convertible note hedges (d)

(36
)

-

Adjusted weighted average diluted shares outstanding

27,016

25,116

Adjusted Diluted EPS from continuing operations, net of taxes

$
2.48

$
2.20

12.7
%

	For the Nine Months Ended
	September 30, 2020			September 30, 2019			Percent Change

Net Income	$	176,319		$	117,132			50.5	%
Impact from:
CARES Act grant income (a)		(84,378	)		-
Customer incentive asset amortization		28,414			26,018
Special charge		16,481			22,130
Leadership transition costs		5,933			3,393
Noncash expenses and income, net (b)		13,372			13,743
Unrealized loss (gain) on financial instruments		73,351			(78,900	)
Other, net (c)		(3,845	)		4,653
Income tax effect of reconciling items		10,170			(12,540	)
Special tax item (e)		-			(54,272	)
Adjusted Net Income	$	235,817		$	41,357		NM

Weighted average diluted shares outstanding		26,256			26,909
Add: dilutive warrant (d)		826			-
Adjusted weighted average diluted shares outstanding		27,082			26,909
Adjusted Diluted EPS	$	8.71		$	1.54		NM

The most significant liquidity events during the first three quarters of ~~2017~~2020 were as follows:

In ~~May 2017,~~February 2020, we ~~issued $289.0~~refinanced two secured term loans that were originally due later in 2020, with two new term loans. One term loan is for 126 months in the amount of $82.0 million at a fixed interest rate of ~~2017 Convertible Notes~~3.27% with a ~~cash coupon~~final payment of ~~1.875%.~~ $12.5 million due in July 2030. The other term loan is for 130 months in the amount of $82.0 million at a fixed interest rate of 3.28% with a final payment of $12.5 million due in November 2030.

In ~~May 2017, we used the majority of the proceeds to repay $150.0 million then outstanding under the Revolver.~~

~~In June 2017,~~April 2020, we borrowed ~~$18.7~~$14.6 million related to GEnx engine performance upgrade kits and overhauls under an unsecured five-year term loan at a fixed interest rate of ~~2.17%~~1.15%.

During the second and third quarter of 2017, we borrowed an aggregate of $140.1 million through seven separate term loans related to the purchase and passenger-to-freighter conversion of 767-300 aircraft at fixed rates ranging from 3.02% to 3.62%.

In ~~September 2017,~~May 2020, we entered into the ~~Private Placement Facility~~PSP Agreement with the U.S. Treasury that provided us with payroll support funding in three installments through July 2020 totaling $406.8 million, of which $207.0 million is in the form of direct payroll support and $199.8 million is in the form of the Promissory Note. The Promissory Note is due in May 2030 and bears interest on the outstanding principal amount at a rate equal to ~~finance up~~1.00% per annum until the fifth anniversary of the PSP Closing Date and the applicable Secured Overnight Financing Rate (“SOFR”) plus 2.00% per annum thereafter (see Note 3 to ~~$146.5 million for the purchase and passenger-to-freighter conversion of up to six 767-300 aircraft dry leased to Amazon.~~ our Financial Statements).

In ~~October 2017,~~August 2020, we borrowed ~~$72.6~~$22.9 million ~~for the first three aircraft~~related to GEnx engine performance upgrade kits and overhauls under ~~the facility.~~an unsecured five-year term loan at a fixed interest rate of 0.95%.

Operating Activities. Net cash provided by operating activities was ~~$195.1~~$782.7 million for the first three quarters of ~~2017,~~2020, which primarily reflected ~~$14.0 million of~~ Net Income of $176.3 million, noncash adjustments of ~~$142.0~~$240.8 million for Depreciation and amortization, $75.3 million for Deferred taxes and ~~$36.2~~$73.4 million for Unrealized loss on financial instruments, ~~and~~ a ~~$30.4~~$208.1 million increase in Accounts payable, accrued liabilities and ~~accrued liabilities. Partially offsetting these items was~~other liabilities, and a ~~$53.3~~$23.1 million decrease in Accounts receivable, partially offset by a $39.8 million increase in Prepaid expenses, current assets and other assets. Net cash provided by operating activities was ~~$100.8~~$193.3 million for the first three quarters of ~~2016,~~2019, which primarily reflected ~~$13.1 million of~~ Net Income of $117.1 million, noncash adjustments of ~~$124.2~~$241.3 million for Depreciation and amortization, and $27.9 million for Stock-based compensation expense, and a $32.8 million decrease in Accounts receivable. Partially offsetting these items were a $79.7 million decrease in Accounts payable and accrued liabilities and a noncash adjustment of $25.0$78.9 million for Unrealized gain on financial ~~instruments.~~instruments and $68.6 million for Deferred taxes and a $11.0 million increase in Accounts payable, accrued liabilities and other liabilities, partially offset by a $69.3 million increase in Prepaid expenses, current assets and other assets.

Investing Activities. Net cash used for investing activities was ~~$401.7~~$101.4 million for the first three quarters of ~~2017,~~2020, consisting primarily of ~~$338.5~~$102.8 million of payments for flight equipment and modifications and ~~$66.4~~$45.1 million of payments for core capital expenditures, excluding flight ~~equipment.~~equipment, partially offset by $45.7 million of proceeds from the disposal of aircraft. Payments for flight equipment and modifications during the first three quarters of ~~2017~~2020 were primarily related to spare engines and GEnx engine performance upgrade kits. All capital expenditures for 2020 were funded through working capital and the ~~purchase~~financings discussed above. Net cash used for investing activities was $208.8 million for the first three quarters of 2019, consisting primarily of $153.7 million of payments for flight equipment and modifications and $107.6 million of core capital expenditures, excluding flight equipment, partially offset by $38.1 million of proceeds from insurance. Payments for flight equipment and modifications during the first three quarters of 2019 were primarily related to 767-300 passenger aircraft and related freighter conversion costs, spare engines and GEnx engine performance upgrade kits. ~~All capital expenditures for 2017 were funded through working capital and the term loans discussed above.~~

Financing Activities. Net cash used for ~~investing~~financing activities was ~~$372.6~~$65.4 million for the first three quarters of ~~2016, consisting~~2020, which primarily ~~of $237.1~~reflected $353.8 million of ~~purchase deposits and~~ payments ~~for flight equipment, $107.5 million related to the Southern Air acquisition, and $36.9~~on debt, $175.0 million of ~~core capital expenditures, excluding flight equipment. Partially offsetting these investing activities were $8.8~~payments on our revolving credit facility and $14.4 million in payments of maintenance reserves, partially offset by $401.4 million from debt issuance and $75.0 million of proceeds from ~~investments.~~

~~Financing Activities.~~our revolving credit facility. Net cash ~~provided by~~used for financing activities was ~~$244.6~~$136.5 million for the first three quarters of ~~2017,~~2019, which primarily reflected proceeds from debt issuance of $447.9 million, $38.1 million from the sale of convertible note warrants and $22.0 million of customer maintenance reserves and deposits received, partially offset by $153.3$273.1 million of payments on debt, ~~obligations~~including a $66.2 million repayment of three term loans, and ~~$70.1~~$9.3 million related to treasury shares withheld for ~~the purchase~~payment of ~~convertible note hedges. Net cash used for financing activities was $51.6 million for the first three quarters of 2016, which primarily reflected $135.8 million of payments on debt,~~taxes, partially offset by ~~$84.8~~$93.7 million from debt issuance and $50.0 million of proceeds from ~~debt issuance.~~our revolving credit facility.

In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, limited ground staff hiring, implemented a number of other cost reduction initiatives and taken actions to increase liquidity and strengthen our financial position, including participation in the Payroll Support Program and deferral of the payment of the employer portion of social security taxes as provided for under the CARES Act. In connection with our participation in the Payroll Support Program, we agreed not to repurchase shares in the open market of, or make dividend payments with respect to, our common stock through September 30, 2021. We consider Cash and cash equivalents ~~Short-term investments, Restricted cash~~(excluding Payroll Support Program proceeds to be used exclusively for the payment of certain employee wages, salaries and benefits of the PSP Recipients), Net cash provided by operating activities and availability under our revolving credit facility to be sufficient to meet our debt and lease obligations, and to fund committed and core capital expenditures for ~~2017, and~~the remainder of 2020. Commitments to ~~pay amounts due related to the settlement of the U.S. class action litigation.~~acquire engines are approximately $95.0 million. Core capital expenditures for the remainder of ~~2017~~2020 are expected to range between ~~$10.0~~$25.0 to ~~$15.0~~$35.0 million, which excludes flight equipment and capitalized interest. Our payments remaining for flight equipment purchase and passenger-to-freighter conversion commitments are expected to be approximately $143.8 million, of which approximately $63.5 million is expected to be made during 2017. We expect to finance the acquisition and conversion of this flight equipment with working capital prior to obtaining permanent financing for the converted aircraft.

We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in ~~May 2017~~April 2020 that enables us to sell ~~a yet to be determined amount of~~ debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.

We do not expect to pay any significant U.S. federal income tax ~~until 2025 or later.~~in this decade. Our business operations are subject to income tax in several foreign ~~jurisdictions.~~jurisdictions and in many states. We do not expect to pay any significant cash income taxes ~~in foreign jurisdictions~~ for at least several ~~years.~~years in these foreign jurisdictions and states. We ~~currently do not intend to~~may repatriate ~~cash from certain~~the unremitted earnings of our foreign subsidiaries ~~that is indefinitely reinvested outside~~to the ~~U.S. Any repatriation of cash from these subsidiaries or certain changes in U.S. tax laws could result in additional tax expense.~~extent taxes are insignificant.

See ~~Note~~Notes 3 and 8 to our Financial Statements for a description of our new ~~debt obligations.~~debt. See our ~~2016~~2019 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, ~~2016~~2019 and a description of our other debt obligations and amendments thereto.

There were no material changes in our off-balance sheet arrangements during the nine months ended September 30, ~~2017.~~2020.

See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.

This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.

The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019 and our Form 10-Q for the period ended June 30, 2020. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by ~~law.~~law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

There have been no material changes to our market risk during the nine months ended September 30, ~~2017.~~2020. For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our ~~2016~~2019 Annual Report on Form 10-K.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of September 30, ~~2017.~~2020. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in

reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, ~~2017~~2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

With respect to the fiscal quarter ended September 30, ~~2017,~~2020, the information required in response to this Item is set forth in Note 1312 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.

Except for the risk factor disclosed in Part II, Item 1A of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, which is hereby incorporated by reference into this Part II, Item 1A of this Form 10-Q, there have been no material changes in the Company’s risk factors ~~that may cause actual results to differ materially~~ from those ~~anticipated, please refer to~~disclosed in our ~~2016~~ Annual Report on Form ~~10-K.~~10-K for the year ended December 31, 2019.

See accompanying Exhibit Index included ~~after~~before the signature page of this report for a list of exhibits filed or furnished with this report.

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.

Delaware		13-4146982
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2000 Westchester Avenue, Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	~~Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016 (unaudited)~~	3

	Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (unaudited)	3

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	4

	Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three and Nine Months Ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	5

	Consolidated Statements of Cash Flows for the Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity as of and for the Three and Nine Months ended September 30, ~~2017~~2020 and ~~2016~~2019 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3638

Item 4.	Controls and Procedures	3638

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	3839

Item 1A.	Risk Factors	3839

Item 6.	Exhibits	38

	~~Exhibit Index~~	39

	~~Signatures~~ Exhibit Index	40

	Signatures	41

	Deferred Maintenance
Balance as of December 31, 2016	$	19,100
Deferred maintenance costs		33,910
Amortization of deferred maintenance		(3,710	)
Balance as of September 30, 2017	$	49,300

Balance as of December 31, 2019	$	184,279
Deferred maintenance costs		34,693
Amortization of deferred maintenance		(30,783	)
Balance as of September 30, 2020	$	188,189

									Accumulated
						Additional			Other					Total
	Common		Treasury			Paid-In			Comprehensive			Retained		Stockholders'
	Stock		Stock			Capital			Loss			Earnings		Equity
Balance at December 31, 2016	$	296	$	(183,119	)	$	657,082		$	(4,993	)	$	1,048,072	$	1,517,338
Net Income		-		-			-			-			14,025		14,025
Other comprehensive income		-		-			-			744			-		744
Stock-based compensation		-		-			17,030			-			-		17,030
Purchase of 191,047 shares of treasury stock		-		(10,307	)		-			-			-		(10,307	)
Issuance of 456,905 shares of restricted stock		5		-			(5	)		-			-		-
Equity component of convertible note, net of tax		-		-			43,256			-			-		43,256
Purchase of convertible note hedges, net of tax		-		-			(45,065	)		-			-		(45,065	)
Issuance of convertible note warrants		-		-			38,148			-			-		38,148
Balance at September 30, 2017	$	301	$	(193,426	)	$	710,446		$	(4,249	)	$	1,062,097	$	1,575,169

	As of and for the Nine Months Ended September 30, 2020
						Additional								Total
	Common		Treasury			Paid-In			Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital			Comprehensive Loss			Earnings		Equity
Balance at December 31, 2019	$	310	$	(213,871	)	$	761,715		$	(2,818	)	$	1,246,843	$	1,792,179
Net Income		0		0			0			0			176,319		176,319
Other comprehensive income		0		0			0			692			0		692
Stock-based compensation		0		0			15,816			0			0		15,816
Issuance of warrants		0		0			36,332			0			0		36,332
Treasury shares of 180,723 withheld for payment of taxes		0		(3,915	)		0			0			0		(3,915	)
Issuance of 448,386 shares of restricted stock		5		0			(5	)		0			0		0
Balance at September 30, 2020	$	315	$	(217,786	)	$	813,858		$	(2,126	)	$	1,423,162	$	2,017,423

	For the Three Months Ended				For the Nine Months Ended
Revenue and Expenses:	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Revenue from Polar	$	80,876	$	84,957	$	239,968	$	283,313
Ground handling and airport fees to Polar		796		568		2,389		1,631

Accounts receivable/payable as of:	September 30, 2020		December 31, 2019
Receivables from Polar	$	19,526	$	10,855
Payables to Polar		2,523		2,161

Aggregate Carrying Value of Polar Investment as of:	September 30, 2020		December 31, 2019
Aggregate Carrying Value of Polar Investment	$	4,870	$	4,870

	Employee Termination Benefits
Liability as of December 31, 2016	$	1,214
Wind-down expenses		766
Cash payments		(1,718	)
Liability as of September 30, 2017	$	262

Balance at December 31, 2019	$	152,534
Initial value for estimate of vested or expected to vest warrants		7,528
Amortization of customer incentive asset		(28,414	)
Balance at September 30, 2020	$	131,648

Balance as of December 31, 2019	$	1,822
Bad debt expense		76
Amounts written off, net of recoveries		(1,122	)
Balance as of September 30, 2020	$	776

	Issue	Face		Collateral	Original	Interest Rate	Interest
	Date	Value		Type	Term	Type	Rate
First 2017 Term Loan	April 2017	$	20.1	767-300	91 months	Fixed		3.02%
Second 2017 Term Loan	April 2017		21.3	767-300	91 months	Fixed		3.16%
Third 2017 Term Loan	May 2017		21.5	767-300	91 months	Fixed		3.16%
Fourth 2017 Term Loan	June 2017		21.3	767-300	91 months	Fixed		3.09%
Fifth 2017 Term Loan	June 2017		21.7	767-300	91 months	Fixed		3.11%
Sixth 2017 Term Loan	June 2017		21.7	767-300	91 months	Fixed		3.11%
Seventh 2017 Term Loan	June 2017		18.7	None	58 months	Fixed		2.17%
Eighth 2017 Term Loan	July 2017		12.5	767-300	60 months	Fixed		3.62%
Total		$	158.8

	For the Three Months Ended				For the Nine Months Ended
Numerator:	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Net Income	$	74,054	$	59,974	$	176,319	$	117,132
Less: Unrealized gain on financial instruments, net of tax		0		0		0		(81,139	)
Diluted Net Income	$	74,054	$	59,974	$	176,319	$	35,993

Denominator:
Basic EPS weighted average shares outstanding		26,135		25,854		26,077		25,814
Effect of dilutive warrants		237		0		82		1,010
Effect of dilutive restricted stock		247		0		97		85
Diluted EPS weighted average shares outstanding		26,619		25,854		26,256		26,909

Earnings per share:
Basic	$	2.83	$	2.32	$	6.76	$	4.54
Diluted	$	2.78	$	2.32	$	6.72	$	1.34

Block Hour		The time interval between when an aircraft departs the terminal until it arrives at the destination terminal.

C Check		~~High-level or “heavy”~~“Heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type.

D Check		~~High-level or “heavy”~~“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six and eight years depending on aircraft type.

Heavy Maintenance		Scheduled maintenance activities ~~which~~that are ~~the most~~ extensive in scope and are primarily based on time or usage intervals, which include, but are not limited to, C Checks, D Checks and engine overhauls. In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be Heavy Maintenance.

Line Maintenance		Maintenance events occurring during normal day-to-day operations.

Non-heavy Maintenance		Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers.

Utilization		The average number of Block Hours operated per day per aircraft.

Yield		The average amount a customer pays to fly one tonne of cargo one mile.

Heavy Maintenance Events	2020		2019		Inc/(Dec)
747-400 C Checks		2		4		(2	)
767 C Checks		-		1		(1	)
747-8F D Checks		1		2		(1	)
747-8F C Checks		-		1		(1	)
747-400 D Checks		2		-		2
CF6-80 engine overhauls		5		1		4
PW4000 engine overhauls		1		-		1

Exhibit Number		Description


31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32.1		Section 1350 Certifications.

101.INS		Inline XBRL Instance ~~Document.~~Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).

		Atlas Air Worldwide Holdings, Inc.

Dated: November ~~7, 2017~~5, 2020		/s/ ~~William J. Flynn~~John W. Dietrich
		~~William J. Flynn~~John W. Dietrich
		President and Chief Executive Officer

Dated: November ~~7, 2017~~5, 2020		/s/ Spencer Schwartz
		Spencer Schwartz
		Executive Vice President and Chief Financial Officer

~~Large accelerated filer~~

~~Accelerated filer~~

~~Non-accelerated filer~~

☐ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

~~Emerging growth company~~