Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 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 such files).Yes~~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 ~~October 29, 2021,~~July 30, 2022, there were ~~29,028,291~~28,321,763 shares of the registrant’s Common Stock outstanding.

1. Basis of Presentation

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 our principal operating subsidiary, 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 also has a ~~51%~~51% equity interest and ~~75%~~75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting. Polar is a variable interest entity that we do not consolidate because we are not the primary beneficiary and we generally do not have any financial exposure to fund debt obligations or operating losses of Polar (see Note 43 for further discussion).

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) ~~aircraft operating~~contractual service ~~agreements,~~arrangements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”); and (ii) 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, ~~2020,~~2021, which includes additional disclosures and a summary of our significant accounting policies. The December 31, ~~2020~~2021 balance sheet data was derived from that Annual Report. In our opinion, these Financial Statements include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the Company’s results of operations, financial position, and cash flows.

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.

~~Certain reclassifications have been made to prior periods’ notes to the Financial Statements to conform to the current year’s presentation of segments (see Note 11 for further discussion).~~ Except for per share data, all dollar amounts are in thousands unless otherwise noted.

2. Summary of Significant Accounting Policies

Heavy Maintenance

Except as described in the paragraph below, we account for heavy maintenance costs for airframes and engines 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.~~costs after considering multiple factors, including historical costs, experience and information provided by third-party maintenance providers. These estimates may be subsequently adjusted for changes and the final determination of actual costs incurred.As of June 30, 2022 and December 31, 2021, Accrued heavy maintenance was $72.3 million and $79.6 million, respectively.

We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F and 777-200 aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the shorter of the estimated period until the next scheduled heavy maintenance event is required or remaining lease term. Amortization of deferred maintenance expense included in Depreciation and amortization was ~~$12.8~~$12.2 million and ~~$37.1~~$23.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Amortization of deferred maintenance expense included in Depreciation and amortization was ~~$12.5~~$12.3 million and ~~$30.8~~$24.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

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


Balance as of December 31, 2021	$	180,675
Deferred maintenance costs		14,236
Special charge (1)		(1,628	)
Amortization of deferred maintenance		(23,325	)
Balance as of June 30, 2022	$	169,958

(1) See Note 6 for further discussion.

Balance as of December 31, 2020

$
191,303

Deferred maintenance costs

38,493

Amortization of deferred maintenance

(37,070
)
Balance as of September 30, 2021

$
192,726

Property and Equipment

Committed capital expenditures ~~to acquire aircraft and spare engines~~ are expected to be ~~$48.2~~$501.8 million for the remainder of ~~2021~~2022 and ~~$458.3~~$359.7 million in ~~2022.~~2023. These expenditures include delivery payments for our January 2021 agreement to purchase 4 747-8F aircraft from The Boeing Company (“Boeing”) ~~that~~, the first of these aircraft was delivered during the second quarter of 2022 and the remaining three are expected to be delivered throughout 2022. These amounts also include pre-delivery and delivery payments for our December 2021 agreement to purchase 4 new 777-200LRF aircraft from ~~May through October~~Boeing, the first of these aircraft is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023. In addition, the amounts include other agreements ~~for~~to acquire spare engines.

Payroll Support Program under the CARES Act

In May 2020, 2 subsidiaries of the Company, Atlas and Southern Air, Inc. (“Southern Air”, and together with Atlas, the “PSP Recipients”) entered into an agreement with the U.S. Treasury (the "PSP Agreement") with respect to payroll support funding available to cargo carriers under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). 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 the PSP Recipients as guarantor.

In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock. The warrants will expire in 2025 on the fifth anniversary of the issue date of each warrant. As of June 30, 2022, 0 portion of the warrants have been exercised.

We initially recognized deferred grant income within Accrued liabilities for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement. All grant income has been 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 were paid. During the six months ended June 30, 2021, we recognized the remaining $40.9 million of deferred grant income within Other (income) expense, net in the consolidated statement of operations.

Recent Accounting ~~Pronouncements Not Yet~~Pronouncement Adopted in 2022

In August 2020, the Financial Accounting Standards Board amended its accounting guidance for certain 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 separately account for the liability and equity components, which ~~currently results~~resulted in the amortization of a debt discount to interest expense. Under this amended guidance, such convertible debt ~~will be~~is accounted for as a single debt instrument with no amortization of a debt discount, ~~to interest expense,~~ unless certain other conditions are met. The amended guidance also requires the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. ~~The~~Effective January 1, 2022, we adopted the amended guidance is effective as of the beginning of 2022. The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, orusing the modified retrospective approach, under which the guidance iswas applied only to the most current period presented. ~~We will adopt this amended guidance on its required effective date of~~On January 1, ~~2022. While~~2022, we ~~are still assessing the impact the amended guidance will have on our financial statements, we expect the amount previously allocated~~recorded an increase of $31.0 million to the ~~equity component will be reclassified~~carrying value of our convertible notes, a reduction of $6.9 million to ~~debt. In addition, the amended guidance is expected~~deferred tax liabilities, a reduction of $92.6 million to ~~result in a material increase in net income~~Additional paid-in capital and ~~reduction in interest expense, as well as a material reduction in diluted earnings per share resulting from~~ an increase ~~in the number~~ of ~~shares included in the denominator.~~

~~3. COVID-19 Pandemic~~

~~COVID-19~~

~~In December 2019, COVID-19 was first reported in China and has since spread~~$68.5 million to most other regions of the world. In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization. Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military had taken precautionary measures to limit the movement of personnel through June 2021. Commercial charter cargo demand and yields, net of fuel, have increased as a result of the ongoing reduction of available cargo capacity provided by passenger airlines in the market and increased demand for transporting goods due to the COVID-19 pandemic. We have incurred and expect to continue to incur significant additional costs, including premium pay for pilots operating in certain areas significantly impacted by COVID-19; 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 we provided to our pilots beginning in May 2020 in advance of a new joint collective bargaining agreement (“JCBA”) with our pilots beginning in September 2021 (see Note 12 for additional discussion). In addition, the availability of hotels and restaurants, evolving travel restrictions and vaccine mandates, health screenings, ground handling delays and a reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft.

~~To mitigate the impact of any COVID-19 pandemic disruptions, we have:~~

•

~~made COVID-19 vaccinations available to employees;~~

•

~~provided paid time-off for employees to get COVID-19 vaccinations;~~

•

~~implemented frequent deep cleaning of all aircraft and facilities;~~

•

~~provided safety kits for each crewmember and all aircraft;~~

•

~~adjusted routes to limit exposure to regions significantly impacted by the COVID-19 pandemic;~~

•

~~implemented significant workforce testing, social distancing and protection measures at all of our facilities;~~

•

~~arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions;~~

•

~~reduced nonessential employee travel;~~

•

~~reduced the use of contractors;~~

•

~~implemented a number of other cost reduction initiatives;~~

•

entered into a Payroll Support Program Agreement (the “PSP Agreement”) with the U.S. Department of the Treasury (the “U.S. Treasury”), with respect to payroll support funding available to cargo air carriers under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (the “Payroll Support Program”) (see discussion below); and

•

deferred payment of the employer portion of social security taxes as provided for under the CARES Act through the end of 2020, half of which will be paid by the end of 2021 and the other half will be paid by the end of 2022.

~~Payroll Support Program under the CARES Act~~

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 $199.8 million 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 funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock. As of September 30, 2021, 0 portion of the warrants have been exercised.

~~We initially recognized deferred grant income within Accrued liabilities~~Retained earnings for the difference between the payroll support funding received in 2020 under the PSP Agreement and the amounts recorded for the Promissory Note and the Warrant Agreement. Grant income has been subsequently recognized within Other (income) expense, net in the consolidated statementcumulative effect of operations on a pro-rata basis over the periods that the qualifying employee wages, salaries and benefits are paid. The remaining $40.9 million of deferred grant income as of December 31, 2020 was recognized as grant income within Other (income) expense, net in the consolidated statement of operations during the three months ended March 31, 2021. We recognized grant income of $64.2 million and $84.4 million during the three and nine months ended September 30, 2020, respectively.adoption.

4.3. Related Parties

Polar

AAWW has a ~~51%~~51% equity interest and ~~75%~~75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, holds a ~~49%~~49% equity interest and a ~~25%~~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, 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.

The following table summarizes our transactions and balances with Polar:

For the Three Months Ended

For the Nine Months Ended

Revenue and Expenses:

September 30, 2021

September 30, 2020

September 30, 2021

September 30, 2020

Revenue from Polar

$
81,119

$
80,876

$
234,036

$
239,968

Ground handling and airport fees to Polar

1,096

796

2,917

2,389

Accounts receivable/payable as of:

September 30, 2021

December 31, 2020

Receivables from Polar

$
9,115

$
31,079

Payables to Polar

8,169

3,477

Aggregate Carrying Value of Polar Investment as of:

September 30, 2021

December 31, 2020

Aggregate Carrying Value of Polar Investment

$
4,870

$
4,870

In addition to the amounts in the table above, Atlas recognized revenue from flying on behalf of Polar of ~~$28.3~~$33.3 million and ~~$151.4~~$74.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Atlas recognized revenue from flying on behalf of Polar of ~~$48.0~~$69.0 million and ~~$158.5~~$123.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.


	For the Three Months Ended				For the Six Months Ended
Revenue and Expenses:	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Revenue from Polar	$	85,426	$	75,661	$	166,945	$	152,917
Ground handling and airport fees to Polar		930		938		2,017		1,820

Accounts receivable/payable as of:	June 30, 2022		December 31, 2021
Receivables from Polar	$	20,747	$	22,311
Payables to Polar		410		3,082

Aggregate Carrying Value of Polar Investment as of:	June 30, 2022		December 31, 2021
Aggregate Carrying Value of Polar Investment	$	4,870	$	4,870

Dry Leasing Joint Venture

We hold a ~~10%~~10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio. Through Titan, we provide aircraft and lease management services to the joint venture for fees based upon aircraft assets under management, among other things. Our investment in 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~~$40.0 million of capital contributions before December 2022, of which ~~$6.8~~$11.5 million has been contributed as of ~~September~~June 30, ~~2021.~~2022. Our maximum exposure to losses from the entity is limited to our investment. ~~The joint venture has third-party debt obligations of $56.8 million that are not guaranteed by us.~~

The following table summarizes our transactions and balances with our dry leasing joint venture:


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
Revenue and Expenses:	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Revenue from dry leasing joint venture	$	288	$	0	$	423	$	0	$	596	$	68	$	934	$	135
Aircraft rent to dry leasing joint venture		2,250		0		6,750		0		2,250		2,250		4,500		4,500

Aggregate Carrying Value of Joint Venture as of:	September 30, 2021		December 31, 2020						June 30, 2022		December 31, 2021
Aggregate Carrying Value of Dry Leasing Joint Venture	$	6,293	$	4,438					$	10,642	$	8,448

Parts Joint Venture

We hold a ~~50%~~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. The joint venture is a variable interest entity and we have not consolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control. Our investment in the joint venture is accounted for under the equity method of accounting and was ~~$18.9~~$20.4 million as of ~~September~~June 30, ~~2021~~2022 and ~~$21.0~~$19.2 million as of December 31, ~~2020.~~2021. Our maximum exposure to losses from the entity is limited to our investment, which is composed primarily of rotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of ~~$0.1~~$0.1 million as of ~~September~~June 30, ~~2021~~2022 and ~~$0.2~~$0.3 million as of December 31, ~~2020.~~2021. We had Accounts payable to the joint venture of ~~$1.3~~$0.9 million as of ~~September~~June 30, ~~2021~~2022 and ~~$0.9~~$1.2 million as of December 31, ~~2020.~~2021.

4. Amazon

~~5. Amazon~~

In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which involve, 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 have a term of ten years from the commencement of each agreement, while the CMI operations are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten ~~years)~~years). As of ~~September~~June 30, ~~2021,~~2022, 19 767-300 freighters were in Dry Lease service, of which 17 were operating in CMI service.

In conjunction with 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 ~~$37.34~~$37.34 per share, as adjusted (“Warrant A”). All 7.5 million shares, as adjusted, ~~have~~ vested in full and have been exercised in 2 transactions. In October 2020, Amazon exercised shares of Warrant A through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock. In January 2021, Amazon exercised the remaining shares of Warrant A through a cashless exercise resulting in the issuance of 1,210,741 shares of our common stock. exercised.

The agreements entered into in May 2016 also provided incentives for future growth of the relationship ~~as Amazon may increase its business~~ with ~~us.~~Amazon. In that regard, we granted Amazon a warrant to acquire up to an additional ~~10%~~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 ~~$37.34~~$37.34 per share, as adjusted (“Warrant B”). This warrant to purchase 3.77 million shares, as adjusted, ~~vests~~will vest in increments of 37,660 shares, as adjusted, each time Amazon has paid ~~$4.2~~$4.2 million of revenue to us, up to a total of ~~$420.0~~$420.0 million, for incremental business beyond the original 20 767-300 freighters. As of ~~September~~June 30, ~~2021, 828,520~~2022, 1,280,440 shares, as adjusted, of Warrant B have ~~vested. Upon vesting,~~vested, of which 715,540 shares remain unexercised. Warrant B ~~becomes exercisable~~will expire if not exercised in accordance with its terms ~~through~~ by May ~~2023. In January 2021, Amazon exercised shares of Warrant B through a cashless exercise resulting in the issuance of 69,709 shares of our common stock.~~4, 2023.

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 term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten ~~years)~~years). As of ~~September~~June 30, ~~2021,~~2022, eight 737-800 freighter aircraft were operating in CMI ~~service for Amazon.~~ service.

In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional ~~9.9%~~9.9% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the ~~warrants,~~warrant, for an exercise price of ~~$52.67~~$52.67 per share, as adjusted (“Warrant C”). ~~After~~Only if Warrant B ~~has vested~~vests 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~~$6.9 million of revenue to us, up to a total of ~~$1.0~~$1.0 billion, for incremental business beyond Warrant A and Warrant B. As of ~~September~~June 30, ~~2021,~~ 2022, 0 portion of Warrant C has vested. ~~Upon vesting,~~ Warrant C ~~would become exercisable~~will expire if not exercised in accordance with its terms ~~through~~ by March ~~2026.~~ 27, 2026. Further, in the event that Warrant B does not vest in full on or prior to its May 4, 2023 expiration, then Warrant C will no longer be exercisable by Amazon as of that date.

While Amazon would be entitled to vote the shares it owns up to ~~14.9%~~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%~~14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.

Upon the vesting of Warrant A in previous years, the fair value of the warrant was 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 revenue recognized over the terms of the Dry Leases and CMI agreements. 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 as a warrant liability within Financial instruments and other liabilities with changes in fair value recorded in Unrealized loss (gain) on financial instruments.

We amortized ~~$11.3~~$9.9 million and ~~$33.3~~$19.9 million of the customer incentive asset as a reduction of Operating Revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. We amortized ~~$9.9~~$11.4 million and ~~$28.4~~$21.9 million of the customer incentive asset as a reduction of Operating Revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

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

Balance at December 31, 2020	$	125,276

Balance as of December 31, 2021				$	96,177
Initial value for estimate of vested or expected to vest warrants		10,759			7,532
Amortization of customer incentive asset		(33,256	)		(19,915	)
Balance as of September 30, 2021	$	102,779
Balance as of June 30, 2022				$	83,794

We recognized an unrealized loss of $0.1 million on the Amazon warrant liability related to Warrant A during the nine months ended September 30, 2021. We recognized unrealized losses of $43.6 million and $73.4 million on the Amazon Warrant liability during the three and nine months ended September 30, 2020, respectively. The fair value of the Amazon warrant liability was 0 as of September 30, 2021 and $31.5 million as of December 31, 2020. Due to the exercise of Warrant A discussed above, our earnings are no longer affected by changes in the fair value of our Amazon warrant liability.

6.5. Supplemental Financial Information

Accounts Receivable

Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was ~~$253.2~~$221.1 million as of ~~September~~June 30, ~~2021~~2022 and ~~$195.6~~$248.4 million as of December 31, ~~2020.~~2021.

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

Balance as of December 31, 2020

$
1,233

Bad debt recovery

(377
)
Amounts written off, net of other items

2,883

Balance as of September 30, 2021

$
3,739


Balance as of December 31, 2021	$	4,003
Reversal of expected credit losses		(6	)
Amounts written off and other items		(68	)
Balance as of June 30, 2022	$	3,929

Accrued Liabilities

Accrued liabilities consisted of the following as of:


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Salaries, wages and benefits	$	167,820	$	136,753	$	172,854	$	211,801
Maintenance		119,967		142,374		127,881		135,133
Customer maintenance reserves		83,266		93,092		96,307		87,565
Aircraft fuel						73,846		40,855
Deferred revenue		63,799		41,665		66,864		58,616
Aircraft fuel		30,066		24,578
Deferred grant income		0		40,944
Other		126,290		103,754		116,746		108,008
Accrued liabilities	$	591,208	$	583,160	$	654,498	$	641,978

Revenue Contract Liability

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. ~~Changes~~

Significant changes in Deferred r~~evenue~~Revenue liability balances during the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 were as follows:

Balance as of December 31, 2020	$	30,291

Balance as of December 31, 2021				$	52,647
Revenue recognized		(229,325	)		(224,199	)
Amounts collected or invoiced		252,076			227,535
Balance as of September 30, 2021	$	53,042
Balance as of June 30, 2022				$	55,983

Supplemental Cash Flow Information

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:


	September 30, 2021		December 31, 2020		June 30, 2022		December 31, 2021
Cash and cash equivalents	$	773,911	$	845,589	$	606,567	$	910,965
Restricted cash		10,230		10,692		10,361		10,052
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows	$	784,141	$	856,281	$	616,928	$	921,017

7.6. Special Charge and Assets Held For Sale ~~and Other Income~~

Special Charge

During the six months ended June 30, 2022, we recorded a $2.6 million charge related to 2 CF60-80 engines Dry Leased to a customer.

Assets Held For Sale

As of December 31, ~~2020,~~2021, we had ~~2 737-400 passenger aircraft previously used for training purposes and certain~~6 spare CF6-80 engines with a carrying value of $5.5 million classified as held for sale. We received net proceeds of $9.5 million during the nine months ended September 30, 2021 from the completion of the sales of the two 737-400 passenger aircraft and some of the spare CF6-80 engines. The carrying value of the assets held for sale ~~was $5.5 million and $14.1 million as of September 30, 2021 and December 31, 2020, respectively, which was included~~ within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. ~~We estimated~~During the ~~fair value~~six months ended June 30, 2022, we received proceeds of ~~these assets, less costs to sell, based on bids received~~$11.7 million and recognized a net gain of $6.2 million from ~~independent third parties or recently completed sales. Sales~~the completion of the ~~remaining~~sale of the six spare CF6-80 engines ~~are expected to be completed during 2021.~~within Loss (gain) on disposal of flight equipment in the consolidated statement of operations.

7. Debt

We recognized a refund of $4.6 million during the nine months ended September 30, 2021 related to aircraft rent paid in previous years within Other (income) expense, net. We recognized refunds of $32.9 million during the nine months ended September 30, 2020, related to aircraft rent paid in previous years within Other (income) expense, net.

~~8. Debt and Finance Leases~~

Term Loans

In ~~March 2021,~~May 2022, we borrowed ~~$16.2~~$140.0 million atfor the delivery of one 747-8F aircraft under a twelve-year term loan due in May 2034. The term loan is secured by a mortgage against one 747-8F aircraft and has a fixed interest rate of ~~0.93% under an unsecured~~ ~~five-year~~4.17 ~~term loan due in January 2026 for GEnx engine performance upgrade kits~~% with principal and ~~overhauls.~~interest payable quarterly. The term loan is subject to customary fees, covenants and events of ~~default, with principal and interest payable quarterly.~~default.

Convertible Notes

In June ~~2021,~~2015, we ~~borrowed $7.8~~issued $224.5 million aggregate principal amount of convertible senior notes with 2.25% coupon (the “2015 Convertible Notes”) in an underwritten public offering. We used the majority of the net proceeds to refinance debt related to 747-400

freighter aircraft with an average coupon of 8.1%. In connection with the offering of the 2015 Convertible Notes, we purchased convertible note hedges whereby we had the right to receive a certain number of shares of our common stock at a fixed ~~interest rate of 0.91% under an unsecured~~ ~~five-year~~ term loan due in May 2026 for GEnx engine performance upgrade kits and overhauls. The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly.

~~Finance Leases~~

price per share. In ~~May, June and August 2021,~~addition, we ~~amended 8 operating leases for 747-400 freighter aircraft to acquire the aircraft at or prior~~sold warrants to the ~~end~~option counterparties whereby the holders of the ~~lease terms, resulting~~warrants have the option to purchase a certain number of shares of our common stock at a fixed price per share.

On June 1, 2022, the 2015 Convertible Notes reached maturity and were settled in ~~additional commitments of $123.1~~full. In the aggregate, we paid $210.4 million and ~~a change in classification~~issued 138,509 shares of common stock to ~~finance leases. NaN~~those holders that elected to convert their outstanding notes and we paid $6.2 million to holders that did not elect to convert their outstanding notes. In connection with the settlement of the ~~aircraft were acquired in October 2021~~2015 Convertible Notes, we exercised our rights under the convertible note hedge transactions with the ~~remainder to be acquired from March to December 2022.~~counterparties on June 1, 2022 and received 25,957 shares of our common stock.

~~Convertible Notes~~

In May 2017, we issued ~~$289.0~~$289.0 million aggregate principal amount of ~~1.88%~~ convertible senior notes that mature on June 1, 2024 with a 1.88% coupon (the “2017 Convertible Notes”) in an underwritten public offering. ~~In June 2015, we issued $224.5 million aggregate principal amount~~We used the majority of ~~2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering.~~the net proceeds to repay our then outstanding revolving credit facility. 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. The 2017 Convertible Notes are due on their ~~respective~~ maturity ~~dates,~~date, unless earlier converted or repurchased pursuant to their respective terms.

13In connection with the offering of the 2017 Convertible Notes, we purchased convertible note hedges whereby we have the right to receive a certain number of shares of our common stock at a fixed price per share. In addition, we sold warrants to the option counterparties whereby the holders of the warrants have the option to purchase a certain number of shares of our common stock at a fixed price per share.

Taken together, the purchase of the convertible note hedges and the sale of warrants are intended to offset economic dilution from the conversion of the 2017 Convertible Notes when the stock price is below the exercise price of the respective warrants and to effectively increase the overall conversion price from $61.08 to $92.20 per share for the 2017 Convertible Notes.

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, ~~each of~~ 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. Prior to September 1, 2023, a holder may also convert under certain circumstances, including if the price of our common stock is greater than or equal to 130% of the conversion price for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the quarter. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock.

The price of our common stock ~~with the principal amounts~~was greater than or equal to 130% of the conversion price of the 2017 Convertible Notes ~~paid in cash. Effective September 1, 2021, all conversions~~for at least 20 trading days during the 30 consecutive trading days ending on the last trading day of the ~~2015~~quarter ended March 31, 2022. Therefore, our 2017 Convertible Notes ~~are required to be~~were convertible at the holders’ option only through June 30, 2022. We received conversion notices on our 2017 Convertible Notes for an immaterial amount, none of which were settled, ~~in cash~~during the three months ended June 30, 2022.

Through December 31, 2021, we separately accounted for the ~~principal amount.~~liability and equity components of convertible notes based on their relative values. Debt issuance costs related to the issuance of convertible notes were also previously allocated to the liability and equity components based on their relative values. With the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 for further discussion), amounts, including debt issuance costs, that were previously classified within equity were reclassified to the liability component, net of any remaining unamortized amounts. Debt issuance costs are amortized to interest expense using the effective interest method over the term of each convertible notes.

The 2017 Convertible Notes consisted of the following as of ~~September~~June 30, ~~2021:~~2022:


	2017 Convertible Notes
Remaining life in months		23
Gross proceeds	$	289,000
Less: debt issuance cost, net of amortization		(2,034	)
Net carrying amount	$	286,966

2015 Convertible Notes

2017 Convertible Notes

Remaining life in months

8

32

Liability component:

Gross proceeds

$
224,500

$
289,000

Less: debt discount, net of amortization

(6,128
)

(30,235
)
Less: debt issuance cost, net of amortization

(560
)

(2,316
)
Net carrying amount

$
217,812

$
256,449

Equity component ⁽¹⁾

$
52,903

$
70,140

~~(1)~~

~~Included in Additional paid-in capital on the consolidated balance sheet as of September 30, 2021.~~

The following table presents the amount of interest expense recognized related to the ~~Convertible Notes:~~convertible notes:


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Contractual interest coupon	$	2,618	$	2,618	$	7,853	$	7,853	$	2,196	$	2,618	$	4,814	$	5,236
Amortization of debt discount		4,820		4,527		14,236		13,372		0		4,745		0		9,416
Amortization of debt issuance costs		410		394		1,219		1,171		427		406		936		808
Total interest expense recognized	$	7,848	$	7,539	$	23,308	$	22,396	$	2,623	$	7,769	$	5,750	$	15,460

Revolving Credit Facility

~~We have a~~In December 2021, we amended and extended our previous three-year ~~$200.0~~$200.0 million secured revolving credit facility ~~that matures in December 2022~~into a new four-year $250.0 million secured revolving credit facility (the “Revolver”). for general corporate purposes. As of ~~September~~June 30, ~~2021,~~2022, there were 0 amounts outstanding and we had ~~$200.0~~$250.0 million of unused availability, based on the collateral borrowing base.

Other Debt

In ~~October 2021,~~April 2022, we refinanced a ~~747-8F~~ term loan secured by a 747-8F aircraft and received proceeds of ~~$90.0~~$90.0 million from a financing with a an ~~seven-year~~84-month term for this aircraft at a ~~lower rate.~~blended fixed rate of 3.86%, with principal and interest payable quarterly. We used ~~$50.4~~$45.7 million of the proceeds to repay ~~the previous~~a term loan in ~~full.~~full and recognized a $0.7 million loss on early extinguishment of debt.In connection with entry into this financing, we paid usual and customary commitment and other fees.While the financing involved a sale and leaseback of the aircraft, it did not qualify as a sale for accounting purposes.

9.8. Income Taxes

The effective income tax rates were ~~23.4%~~23.2% and ~~23.5%~~23.0% for the three and ~~nine~~six months ended ~~September~~June 30, 2022, respectively. The effective income tax rates were 23.5% and 23.6% for the three and six months ended June 30, 2021, respectively. These rates differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes.

The effective income tax rates were 32.8% and 30.7% for the three and nine months ended September 30, 2020, respectively. These rates differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements). For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.

~~10.~~9. Financial Instruments

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:

Level 1 Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2 Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets;

Level 3 Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability.

~~Level 1~~

~~Unadjusted quoted prices in active markets for identical assets or liabilities;~~

~~Level 2~~

Other inputs that are observable directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, or inactive quoted prices for identical assets or liabilities in inactive markets;

~~Level 3~~

~~Unobservable inputs reflecting assumptions about the inputs used in pricing the asset or liability.~~

We endeavor to utilize the best available information to measure fair value.

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

Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, a promissory note issued to the U.S. Treasury and ~~equipment enhanced trust certificates.~~other financings. 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 a customer warrant liability is 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, 2021										June 30, 2022
	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	$	773,911	$	773,911	$	773,911	$	0	$	0	$	606,567	$	606,567	$	606,567	$	-	$	-
Restricted cash		10,230		10,230		10,230		0		0		10,361		10,361		10,361		-		-
	$	784,141	$	784,141	$	784,141	$	0	$	0	$	616,928	$	616,928	$	616,928	$	-	$	-

Liabilities
Term loans and notes	$	1,622,536	$	1,692,316	$	0	$	0	$	1,692,316	$	1,678,463	$	1,597,294	$	-	$	-	$	1,597,294
Convertible notes (1)		474,261		679,138		679,138		0		0		286,966		333,795		333,795		-		-
	$	2,096,797	$	2,371,454	$	679,138	$	0	$	1,692,316	$	1,965,429	$	1,931,089	$	333,795	$	-	$	1,597,294

December 31, 2020

Carrying Value

Fair Value

Level 1

Level 2

Level 3

Assets

Cash and cash equivalents

$
845,589

$
845,589

$
845,589

$
0

$
0

Restricted cash

10,692

10,692

10,692

0

0

$
856,281

$
856,281

$
856,281

$
0

$
0

Liabilities

Term loans and notes

$
1,809,656

$
1,909,942

$
0

$
0

$
1,909,942

Convertible notes (1)

458,803

560,975

560,975

0

0

Customer warrant

31,470

31,470

0

31,470

0

$
2,299,929

$
2,502,387

$
560,975

$
31,470

$
1,909,942


	December 31, 2021
	Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	910,965	$	910,965	$	910,965	$	-	$	-
Restricted cash		10,052		10,052		10,052		-		-
	$	921,017	$	921,017	$	921,017	$	-	$	-

Liabilities
Term loans and notes	$	1,638,311	$	1,690,675	$	-	$	-	$	1,690,675
Convertible notes (2)		479,573		758,424		758,424		-		-
	$	2,117,884	$	2,449,099	$	758,424	$	-	$	1,690,675

(1) Carrying value is net of debt issuance costs (see Note 7).

(2) Carrying value is net of debt discounts and debt issuance costs (see Note 8)7).

~~11.~~10. Segment Reporting

~~During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business.~~ We ~~currently~~ have the following 2 operating and reportable segments: Airline Operations and Dry ~~Leasing. Previously, our operating~~Leasing, both of which are directly or indirectly engaged in the business of air transportation services but have different commercial and reportable segments were ACMI, Charter and Dry Leasing. As ACMI and Charter services have become more similar, our chief operating decision maker began assessing operating results and making resource allocation decisions for Airline Operations.

Our Airline Operations segment provides outsourced aircraft operating services to customers including, express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services on an ACMI, CMI and Charter basis. Most agreements provide us with guaranteed minimum revenues at predetermined rates, levels of operation and defined periods of time. We also provide certain services on a short-term basis.

Our Dry Leasing segment provides for the leasing of cargo and passenger aircraft and engines to customers, and aircraft- and lease-management services. In our Dry Leasing segment, the customer operates, and is responsible for insuring and maintaining, the flight equipment.

~~Other represents revenue for services that are not allocated to any segment, including administrative and management support services and flight simulator training.~~

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, which shows the profitability of each segment. Direct Contribution includes Income before income taxes and excludes the following: Special charges, Transaction-related expenses, nonrecurring items, ~~Gain (losses)~~Loss (gain) on ~~the~~ disposal of ~~aircraft,~~flight equipment, Losses on early extinguishment of debt, Unrealized ~~losses (gains)~~loss on financial instruments 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, other non-operating costs and CARES Act grant income.

The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income before income taxes:


	For the Three Months Ended						For the Nine Months Ended						For the Three Months Ended						For the Six Months Ended
	September 30, 2021			September 30, 2020			September 30, 2021			September 30, 2020			June 30, 2022			June 30, 2021			June 30, 2022			June 30, 2021
Operating Revenue:
Airline Operations	$	980,714		$	773,591		$	2,762,815		$	2,169,462		$	1,142,731		$	955,861		$	2,138,086		$	1,782,101
Dry Leasing		40,926			40,740			121,694			123,572			41,314			40,404			87,484			80,768
Customer incentive asset amortization		(11,332	)		(9,858	)		(33,256	)		(28,414	)		(9,864	)		(11,443	)		(19,915	)		(21,924	)
Other		5,792			5,413			16,579			14,021			5,790			5,610			11,472			10,787
Total Operating Revenue	$	1,016,100		$	809,886		$	2,867,832		$	2,278,641		$	1,179,971		$	990,432		$	2,217,127		$	1,851,732

Direct Contribution:
Airline Operations	$	265,260		$	179,441		$	666,203		$	482,995		$	196,331		$	231,793		$	382,150		$	400,943
Dry Leasing		10,435			9,627			31,765			30,046			12,646			10,766			29,555			21,329
Total Direct Contribution for Reportable Segments		275,695			189,068			697,968			513,041			208,977			242,559			411,705			422,272

Unallocated income and (expenses), net		(120,219	)		(34,409	)		(284,218	)		(173,439	)		(93,361	)		(102,464	)		(194,101	)		(163,998	)
Loss on early extinguishment of debt		0			(7	)		0			(81	)		(689	)		0			(689	)		0
Unrealized loss on financial instruments		0			(43,604	)		(113	)		(73,351	)		0			0			0			(113	)
Special charge		0			(547	)		0			(16,481	)		0			0			(2,633	)		0
Transaction-related expenses		(168	)		(490	)		(486	)		(2,286	)		0			(117	)		0			(318	)
Gain on disposal of aircraft		810			163			794			6,878
Gain (loss) on disposal of flight equipment														(19	)		0			6,221			(16	)
Income before income taxes		156,118			110,174			413,945			254,281			114,908			139,978			220,503			257,827

Add back (subtract):
Interest income		(159	)		(225	)		(559	)		(929	)		(873	)		(189	)		(1,113	)		(400	)
Interest expense		27,173			28,524			81,345			86,749			19,924			26,992			40,347			54,172
Capitalized interest		(2,335	)		(203	)		(5,456	)		(528	)		(3,339	)		(1,850	)		(7,103	)		(3,121	)
Loss on early extinguishment of debt		0			7			0			81			689			0			689			0
Unrealized loss on financial instruments		0			43,604			113			73,351			0			0			0			113
Other (income) expense, net		3,136			(62,689	)		(41,174	)		(112,081	)		837			(4,854	)		219			(44,310	)
Operating Income	$	183,933		$	119,192		$	448,214		$	300,924		$	132,146		$	160,077		$	253,542		$	264,281

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


	For the Three Months Ended													For the Three Months Ended
	September 30, 2021							September 30, 2020						June 30, 2022							June 30, 2021
		Cargo		Passenger		Total		Cargo		Passenger		Total			Cargo		Passenger		Total		Cargo		Passenger		Total
Commercial customers		$	847,643	$	8,835	$	856,478	$	635,375	$	2,640	$	638,015		$	989,169	$	422	$	989,591	$	819,175	$	0	$	819,175
AMC			29,874		94,362		124,236		57,952		77,624		135,576			85,631		67,509		153,140		49,072		87,614		136,686
Total Airline Operations Revenue		$	877,517	$	103,197	$	980,714	$	693,327	$	80,264	$	773,591		$	1,074,800	$	67,931	$	1,142,731	$	868,247	$	87,614	$	955,861

	For the Nine Months Ended													For the Six Months Ended
	September 30, 2021							September 30, 2020						June 30, 2022							June 30, 2021
		Cargo		Passenger		Total		Cargo		Passenger		Total			Cargo		Passenger		Total		Cargo		Passenger		Total
Commercial customers		$	2,380,029	$	11,714	$	2,391,743	$	1,773,803	$	6,580	$	1,780,383		$	1,892,451	$	2,047	$	1,894,498	$	1,532,387	$	2,879	$	1,535,266
AMC			124,258		246,814		371,072		170,188		218,891		389,079			114,920		128,668		243,588		94,384		152,451		246,835
Total Airline Operations Revenue		$	2,504,287	$	258,528	$	2,762,815	$	1,943,991	$	225,471	$	2,169,462
Airline Operations Revenue															$	2,007,371	$	130,715	$	2,138,086	$	1,626,771	$	155,330	$	1,782,101

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 ~~AMC,~~U.S. Military Air Mobility Command (“AMC”), Polar and DHL (see above for the AMC and Note 43 for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from DHL was ~~$159.1~~$142.0 million and ~~$487.2~~$277.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Revenue from DHL was ~~$150.8~~$169.4 million and ~~$401.0~~$327.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively. We have not experienced any credit issues with these customers.

~~12.~~11. Labor and Legal Proceedings

Collective Bargaining Agreements

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~~had 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. On November 17, 2021, the Southern Air pilots all transferred to Atlas with the issuance of a single operating certificate for Atlas by the U.S. Federal Aviation Administration.

In March 2022, we signed a new five-year CBA with our pilots, effective as of September 2021. This long-term CBA was reached through a binding arbitration process, with the arbitrator’s decision being issued on September 10, 2021. The new pay rates became effective as of September 1, 2021, and we are continuing to work closely together with the union’s new leadership on the final implementation of certain remaining provisions of the CBA. Under this industry competitive agreement, all of our pilots are receiving significantly higher pay, quality of life improvements and enhanced benefits.

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. On September 15, 2021, the IBT, representing the flight dispatchers of Atlas and Polar, ~~served~~provided the Company with the requisite notice of its intent to commence negotiations for a new CBA pursuant to Section 6 of the Railway Labor Act. The Company and ~~IBT are in the process of scheduling dates to start bargaining.~~

~~We also had a~~ ~~five-year~~ ~~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.~~

~~The Company and~~ the IBT commenced bargaining ~~in early 2016. After approximately six years of bargaining for a new JCBA for the Atlas~~with good faith discussions and Southern Air pilots, which included two arbitrators and two federal district courts ordering the IBT to comply with the merger provisions of the Atlas and Southern Air CBAs, the parties had reached tentative agreements on more than half of the JCBA.

On February 15, 2021, the Company and IBT completed the contractually-mandated nine-month period for negotiations for a JCBA. All remaining open issues not resolved in negotiations were subject to binding interest arbitration between the Company and the IBT, which occurred in the latter half of March 2021 and concluded on April 1, 2021. On March 30, 2021, the IBT provided the Company with the integrated seniority list.

~~On September 10, 2021, the Company and the IBT received the arbitration decision, which was the final step~~are making progress towards reaching a new JCBA for our Atlas and Southern Air pilots. The new competitive pay rates became effective as of September 1, 2021. The Company and the IBT are working together to implement the new work rules for the JCBA over the next several months.

There are a few open items from the arbitrator’s decision on which the parties have differing interpretations. These items will be reviewed with the arbitrator, the Company and the IBT, and we expect them to be resolved over the next several months. Once these remaining items are resolved, the Company and the IBT will sign the new JCBA, which will be deemed effective pursuant to a date that will be agreed by the parties. While the ultimate outcome of these few open items could be material to our financial condition, results of operations or cash flows, it is not expected to be material.

In October 2021, IBT Local 2750 elected new union leadership. While the Atlas and Southern Air pilots are represented by the same IBT Local 2750, they have remained two distinct pilot groups under separate CBAs. Now that the JCBA process is completed, the Southern Air pilots are expected to all transfer to Atlas on or about November 17, 2021 with the issuance of a single operating certificate for Atlas.

Since April 2020, the Company and the IBT have entered into several Coronavirus Memorandum of Understandings (“COVID MOUs”) providing for various enhanced benefits and compensation (including pay for becoming fully vaccinated) for our pilots due to the challenges of flying and operating globally due to COVID-19. On September 30, 2021, in connection with implementing the new JCBA, the Company terminated all COVID MOUs in place with the IBT; however, the Company continues to offer additional compensation to its pilots for becoming fully vaccinated.an amended CBA.

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.

~~Preliminary Injunction~~

In late November 2017, the DC District Court issued a preliminary injunction preventing the IBT from “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities that were intended to gain leverage in pilot contract negotiations with the Company and requiring the IBT to meet its obligations under the Railway Labor Act. The IBT appealed to the DC Court of Appeals, which, in a unanimous three-judge panel, affirmed the DC District Court’s ruling. On May 22, 2020, the IBT filed a motion to dismiss the Company’s action for a preliminary injunction, which has been fully briefed. Now that the parties are in the process of completing the last phase of implementing the JCBA in accordance with the terms of the new arbitration award, the DC District Court stayed the preliminary injunction action and directed the parties to submit a joint status report in late November 2021. It is anticipated the action will be dismissed at such time.

Matters Related to Alleged Pricing Practices

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 allegedly unlawful pricing practices 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”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings. Another defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on various procedural issues and rulings, some of which are awaiting court decisions on appeal. The ultimate outcome of the lawsuit is likely to be affected by a decision readopted by the European 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, 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.

Brazilian Customs Claim

Old Polar was cited for ~~two~~an alleged customs ~~violations~~violation in Sao Paulo, Brazil, relating to shipments of goods dating back to ~~1999 and 2000. Each claim asserts~~asserting that goods listed on the flight manifest of ~~two separate~~an Old Polar scheduled service ~~flights~~flight were not ~~on board the aircraft~~properly presented to customs upon arrival and therefore were improperly brought into Brazil. The ~~two claims,~~claim, which also ~~seek~~seeks unpaid customs duties, taxes and penalties from the date of the alleged infraction, ~~are~~is approximately ~~$3.8~~$1.9 million in aggregate based on ~~September~~June 30, ~~2021~~2022 exchange rates.

~~In both cases,~~Old Polar has presented evidence that certain of the alleged missing goods were in fact never onboard the aircraft (due to a change in plans by the relevant shipper) and thus no customs duties should be due. Further, 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. 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,~~this claim, we have made deposits pending resolution of ~~these matters.~~the matter. The balance was ~~$3.2~~$3.6 million as of ~~September~~June 30, ~~2021~~2022 and ~~$3.3~~$3.2 million as of December 31, ~~2020,~~2021, and is included in Deferred costs and other assets.

We are currently defending ~~these~~this 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.

Other

In addition to the matters described in this note, we have certain other litigation contingencies incident to the ordinary course of business. Unless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies or matters will materially affect our financial condition, results of operations or cash flows.

12. Stock Repurchases

18We record the repurchase of our shares of common stock at cost based on the settlement date of the transaction. These shares are classified as treasury stock, which is a reduction to stockholders’ equity. Treasury shares are included in authorized and issued shares but excluded from outstanding shares.

In February 2022, our board of directors approved the establishment of a new stock repurchase program authorizing the repurchase of up to a total of $200.0 million of our common stock.Purchases may be made at management's discretion in the form of accelerated share repurchase programs, open market repurchase programs, privately negotiated transactions or a combination of these methods.

In February 2022, we paid $100.0 million and received an initial delivery of 1,061,257 shares pursuant to an accelerated share repurchase program agreement with a financial institution for the repurchase of our common stock (the “ASR”). We accounted for this ASR as a repurchase of common stock and as a forward contract indexed to our own common stock. We determined that the forward contract met all of the applicable criteria for equity classification and, therefore, this ASR was not accounted for as a derivative instrument.

In April 2022, the ASR was settled and we received an additional 172,887 shares of common stock. In the aggregate, we repurchased 1,234,144 shares for $100.0 million at an average cost of $81.03 per share under this ASR. The total number of shares of common stock repurchased by us was based on the volume-weighted average price of the common stock during the term of the ASR Agreement, less a pre-determined discount.

13. Earnings Per Share

Basic earnings per share (“EPS”) represents income divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income 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.~~ period.

The calculations of basic and diluted EPS were as follows:


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Six Months Ended
Numerator:	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020		June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021
Net Income	$	119,535	$	74,054	$	316,578	$	176,319	$	88,258	$	107,110	$	169,769	$	197,043
Plus: Unrealized loss on financial instruments, net of tax		0		0		112		0
Plus: Interest expense on convertible notes, net of tax										1,040		0		2,086		0
Unrealized loss on financial instruments, net of tax										0		0		0		112
Diluted net income	$	119,535	$	74,054	$	316,690	$	176,319	$	89,298	$	107,110	$	171,855	$	197,155

Denominator:
Basic EPS weighted average shares outstanding		29,023		26,135		28,844		26,077		28,243		29,011		28,547		28,752
Effect of dilutive warrants		584		237		611		82
Effect of dilutive convertible notes		717		0		442		0
Effect of dilutive restricted stock		223		247		220		97
Effect of dilutive:
Convertible notes										4,731		608		4,881		304
Warrants										590		499		600		625
Restricted stock										115		201		156		219
Diluted EPS weighted average shares outstanding		30,547		26,619		30,117		26,256		33,679		30,319		34,184		29,900

Earnings per share:
Basic	$	4.12	$	2.83	$	10.98	$	6.76	$	3.12	$	3.69	$	5.95	$	6.85
Diluted	$	3.91	$	2.78	$	10.52	$	6.72	$	2.65	$	3.53	$	5.03	$	6.59

Antidilutive shares related to warrants issued in connection with our ~~Convertible Notes and warrants issued~~convertible notes or to ~~a customer~~customers that were out of the money and excluded from the calculation of diluted EPS were 0 for the three and six months ended June 30, 2022, and 3.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, and 15.6 million for the three and nine months ended September 30, 2020.~~2021. Diluted shares reflect the 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 ~~9.8~~9.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~10.4~~9.9 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021.

14. Accumulated Other Comprehensive Income ~~(Loss)~~

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

	Interest Rate			Foreign Currency
	Derivatives			Translation		Total						Foreign
Balance as of December 31, 2019	$	(2,827	)	$	9	$	(2,818	)
Reclassification to interest expense		894			0		894
Tax effect		(202	)		0		(202	)
Balance as of September 30, 2020	$	(2,135	)	$	9	$	(2,126	)
									Interest Rate			Currency
									Derivatives			Translation		Total
Balance as of December 31, 2020	$	(1,913	)	$	9	$	(1,904	)	$	(1,913	)	$	9	$	(1,904	)
Reclassification to interest expense		774			0		774			524			0		524
Tax effect		(184	)		0		(184	)		(124	)		0		(124	)
Balance as of September 30, 2021	$	(1,323	)	$	9	$	(1,314	)
Balance as of June 30, 2021									$	(1,513	)	$	9	$	(1,504	)

Balance as of December 31, 2021									$	(520	)	$	9	$	(511	)
Reclassification to interest expense										122			0		122
Reclassification to loss on early extinguishment of debt										639			0		639
Tax effect										(175	)		0		(175	)
Balance as of June 30, 2022									$	66		$	9	$	75

1915. Subsequent Event

On August 4, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Rand Parent, LLC, a Delaware limited liability company (“Parent”) affiliated with certain funds managed by affiliates of Apollo Global Management, Inc., J.F. Lehman & Company, Inc. and Hill City Capital L.P. (collectively, the “Buyers”) and Rand Merger Sub, Inc, a Delaware corporation and wholly owned subsidiary of Parent (“MergerCo”), pursuant to which, subject to the terms and conditions thereof, MergerCo will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Consummation of the Merger is subject to the approval of the Company’s stockholders and other customary closing conditions. Upon completion of the Merger, AAWW will become a privately held company and shares of AAWW common stock will no longer be listed or publicly traded on The NASDAQ Global Select Market.

Subject to the terms and conditions set forth in the Merger Agreement, which has been unanimously approved by the board of directors, at the effective time of the Merger (the “Effective Time”), each share of the Company’s common stock issued and outstanding (subject to certain exceptions set forth in the Merger Agreement) shall be converted into the right to receive $102.50 in cash, without interest (the “Merger Consideration”).

At the Effective Time, each outstanding share of Warrant B issued to Amazon shall automatically vest and be exercised in accordance with its terms for the Merger Consideration and each outstanding warrant issued to the U.S. Treasury shall become exercisable for the Merger Consideration. No other warrants issued to Amazon will vest or become exercisable in connection with the Merger. In addition, at the Effective Time, each restricted share unit (including those subject to performance-based vesting conditions) will vest and be canceled and the holder will be entitled to receive an amount in cash equal to the number of shares of common stock underlying such award (assuming all performance goals are achieved at the maximum level of performance) multiplied by the Merger Consideration.

The consummation of the Merger is subject to certain closing conditions, including, among other things: (i) the approval of the Company’s stockholders; (ii) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended as well as certain non-U.S. antitrust approvals; (iii) the receipt of certain required consents or approvals from (a) the U.S. Department of Transportation, (b) the Federal Communications Commission and (c) certain other regulatory agencies; (iv) the absence of legal restraints prohibiting the Merger; and (v) other customary conditions specified in the Merger Agreement.

The Merger Agreement contains certain termination rights for the Company and Parent, including, among others, the right of (1) either party to terminate the Merger Agreement if the Merger is not consummated by March 4, 2023 (subject to certain exceptions set forth in the Merger Agreement), (2) the Company to terminate the Merger Agreement in order to enter into a definitive acquisition agreement providing for a Superior Proposal (as defined in the Merger Agreement) and (3) Parent to terminate the Merger Agreement if the Board changes its recommendation with respect to the Merger Agreement.

Upon termination of the Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee. Generally, if the termination fee becomes payable as a result of the Company terminating the Merger Agreement in order to enter into a definitive acquisition agreement, or by Parent as a result of the Board changing its recommendation with respect to the Merger or under certain other circumstances, the amount of the termination fee will be $97.5 million. If the Company terminates the Merger Agreement as a result of Parent’s breach of the Merger Agreement or because Parent fails to consummate the Merger when required by the Merger Agreement, the Company will be entitled to a termination fee of $227.4 million.

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 ~~2020~~2021 Annual Report on Form 10-K.

Background

Certain Terms - Glossary

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.


~~Block Hour~~ACMI		Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, including the provision of an aircraft, crew, maintenance and insurance, while customers assume fuel, demand and price risk. In addition, customers are generally responsible for landing, navigation and most other operational fees and costs.

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

C Check		“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~~Charter		Service offering, whereby we provide cargo and passenger aircraft charter services to customers. The customer generally pays a fixed charter fee that includes fuel, insurance, landing fees, navigation fees and most other operational fees and costs.

CMI		Service offering, whereby we provide outsourced cargo and passenger aircraft operating solutions, generally including the provision of crew, Line Maintenance and insurance, but not the aircraft. Customers assume fuel, demand and price risk, and are responsible for providing the aircraft (which they may lease from us) and generally responsible for Heavy and Non-Heavy Maintenance, landing, navigation and most other operational fees and costs.

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

~~Heavy Maintenance~~Dry Leasing		Service offering, whereby we provide cargo and passenger aircraft and engine leasing solutions for compensation that is typically based on a fixed monthly amount. The customer operates, and is generally responsible for insuring and maintaining, the flight equipment.

Heavy Maintenance		Scheduled maintenance activities that are 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.

Business Overview

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 and 737 aircraft for domestic, regional and international cargo and passenger operations. We provide unique value to our customers by giving them access to highly reliable ~~new~~modern 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, the U.S. military, charter brokers, freight forwarders, direct shippers, airlines, manufacturers, sports teams and fans, and private charter customers. We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business (see Note 11 to our Financial Statements). Our primary service offerings are provided through two operating segments:

~~Airline Operations~~. Our Airline Operations segment provides outsourced aircraft operating services to customers including express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services through aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”).

~~Dry Leasing. Our Dry Leasing business provides cargo and passenger aircraft and engine leasing solutions. The customer operates, and is responsible for insuring and maintaining, the flight equipment.~~

We look to achieve our growth plans and enhance shareholder value by:

•

Delivering superior service quality to our valued customers;

•

Focusing on securing long-term customer contracts;

•

Managing our fleet with a focus on leading-edge aircraft;

•

Leveraging our flexible business model to maximize utilization;

•

Driving significant and ongoing productivity improvements;

•

Selectively pursuing and evaluating future acquisitions and alliances; while

•

Appropriately managing capital allocation and delivering value to shareholders.

•

~~Delivering superior service quality to our valued customers;~~

•

~~Focusing on securing long-term customer contracts;~~

•

~~Managing our fleet with a focus on leading-edge aircraft;~~

•

~~Leveraging our flexible business model to maximize utilization;~~

•

~~Driving significant and ongoing productivity improvements;~~

•

~~Selectively pursuing and evaluating future acquisitions and alliances; while~~

•

~~Appropriately managing capital allocation and delivering value to shareholders.~~

See “Business Overview” and “Business Strategy” in our ~~2020~~2021 Annual Report on Form 10-K for additional information.

Business Developments

In December 2019, COVID-19 was first reported in China and has since spread to many other regions of the world. In March 2020, it was determined to be a global pandemic by the World Health Organization. Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in a reduction in flights by some of our ACMI customers and lower AMC passenger flying as the military had taken precautionary measures to limit the movement of personnel through June 2021.

Our Airline Operations results for the first ~~three quarters~~half of ~~2021,~~2022, compared with ~~2020,~~2021, reflected higher Yields, net of fuel. These were ~~significantly higher primarily due~~more than offset by increased pilot costs related to our ability to increase aircraft utilization as demand for our commercial cargo Charter and CMI services increased, reflecting growth in airfreight volumes from pre-pandemic levels driven by the ongoing reduction of available cargo capacity provided by passenger airlines in the market and the continued disruption of global supply chains due to the COVID-19 pandemic. Due to this strong demand in 2020, we reactivated four 747-400BCF aircraft that had been temporarily parked and began Charter operations using a 777-200 freighter aircraft that was previously in our Dry Leasing business. During 2020 and the first three quarters of 2021, we entered into numerous long-term Charter programs and extensions 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.

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 continue to incur significant additional costs, includingnew CBA, higher premium pay for pilots operating in certain areas significantly impacted by ~~COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees;~~the COVID-19 pandemic and higher ~~crew costs~~overtime pay driven by an increase in COVID-19 cases late in the second quarter. In addition, our results were negatively impacted by lower aircraft utilization driven by operational disruptions related to ~~increased pay rates we provided to~~this increase in COVID-19 cases. The higher Yields include the impact of expanding and enhancing our ~~pilots beginning~~relationships with strategic customers through new and extended long-term contracts driven by strong customer demand. The increase in ~~May 2020 in advance of a JCBA with~~COVID-19 cases negatively impacted our ~~pilots beginning in September 2021 (see Note 12 to our Financial Statements for further discussion). In addition, the~~crew availability ~~of hotels~~ and restaurants, evolving travel restrictions and vaccine mandates, health screenings, ground handling delays and a reduction in passenger flights by other airlines globally, or airport closures, have impacted and could further impact our ability to position ~~employees~~them due to ~~operate~~widespread and ~~fully utilize all~~well-publicized cancellations of commercial passenger flights. We are closely monitoring the COVID-19 pandemic and taking numerous precautions to ensure the safety of our ~~aircraft.~~

~~In response~~operations around the world and mitigate the impact of any disruptions, including continuously adjusting routes to ~~these challenging times, we have:~~

•

~~made COVID-19 vaccinations available to employees;~~

•

~~provided paid time-off for employees to get COVID-19 vaccinations;~~

•

~~implemented frequent deep cleaning of all aircraft and facilities;~~

•

~~provided safety kits for each crewmember and all aircraft;~~

•

~~adjusted routes to~~ limit exposure ~~to regions significantly impacted by the COVID-19 pandemic;~~

•

~~implemented significant workforce testing, social distancing and protection measures at all of our facilities;~~

•

~~arranged for employees who can work remotely to do so and developed plans for a partial return to the workplace based on local conditions;~~

•

~~reduced nonessential employee travel;~~

•

~~reduced the use of contractors;~~

•

~~implemented a number of other cost reduction initiatives;~~

•

~~entered into a PSP Agreement with the U.S. Treasury with respect to payroll support funding available to cargo air carriers; and~~

•

~~The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.~~

~~In August 2021, the Department of Defense activated the U.S. Civil Reserve Air Fleet (“CRAF”) for the first time since 2002~~ to augment support to the U.S. Department of State in the evacuation of U.S. citizens and personnel, special immigrant visa applicants, and other at-risk individuals from Afghanistan. We provided three 747-400 passenger aircraft to support the CRAF activation, which ended in mid-September, and also provided additional 767 passenger aircraft in support of these evacuations for the AMC.

~~On February 15, 2021, the Company and IBT completed the contractually mandated nine-month period for negotiations for a~~

JCBA. All remaining open issues not resolved in negotiations were subject to binding interest arbitration, which concluded in April 2021. On September 10, 2021, the arbitrator issued the decision for a new five-year JCBA effective September 1, 2021. regions significantly impacted.Labor costs arising from the new JCBA are materially greater than the costs under our previous CBAs with our Atlas and Southern Air pilots (see Note 12 to our Financial Statements for further discussion).

We 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.

~~Airline Operations results for the first three quarters of 2021, compared with 2020, were also impacted by the following:~~

•

In March 2019, we entered into agreements with Amazon, which include CMI operation of 737-800 freighter aircraft. A sixth and seventh 737-800 freighter aircraft entered service in September 2020, and an eighth aircraft entered service in October 2020.

•

~~In October 2020, a third 747-400 freighter entered service for Nippon Cargo Airlines on transpacific routes.~~

•

~~In July 2021, we entered into an ACMI agreement with FedEx for two 747-400 freighter aircraft. The two aircraft entered service in July and August 2021.~~

•

In September 2021, we entered into various ACMI and CMI contract extensions with DHL for six 747-8F aircraft, two 747-400 freighter aircraft, eight 777-200 freighter aircraft and four 767-300 freighter aircraft.

We manage our fleet to profitably serve our customers with modern, efficient ~~aircraft.~~ aircraft and have entered into the following transactions to secure capacity to meet strong customer demand.

•

In January 2021, we signed an agreement with Boeing for the purchase of four new 747-8F aircraft. The first of these aircraft was delivered during the second quarter of 2022 and the remaining three are expected to be delivered ~~from May through October~~throughout 2022. All four of these aircraft have been placed with customers under long-term agreements.

•

Between May and October 2021, we acquired six of our existing 747-400 freighter aircraft that were previously on lease to us. In May and June of 2021, we reached agreement with several of our lessors to purchase five of our other 747-400 freighters at the end of their existing lease terms, two of which ~~range from~~were acquired between March toand May 2022. The acquisition of the remaining three aircraft will be completed between August and December 2022. ~~Acquiring~~

•

In December 2021, we signed an agreement with Boeing for the purchase of four new 777-200LRF aircraft. The first of these ~~eleven 747-400 freighter~~ aircraft ~~keeps them~~is expected to be delivered late in the fourth quarter of 2022 and the remaining three throughout 2023.

We continually assess our ~~fleet~~aircraft requirements and ~~ensures committed capacity~~will make adjustments to our ~~customers.~~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.

In March 2022, we signed a new five-year CBA with our pilots, effective as of September 2021. Under this industry competitive agreement, all of our pilots are receiving significantly higher pay, quality of life improvements and enhanced benefits. Labor costs arising from the new CBA are materially greater than the costs under our previous CBAs with our pilots (see Note 11 to our Financial Statements for further discussion).

Given the dynamic nature of the COVID-19 pandemic, the financial impact cannot be reasonably estimated at this time. We have incurred and expect to incur significant additional costs, including higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic and other operational costs, including costs for continuing to provide a safe working environment for our employees. In addition, COVID-19-related airport closures, employees who are unable to work, vaccine mandates, disruption of operations by our third-party service providers, availability of hotels and restaurants, ground handling delays or reductions in passenger flights by other airlines globally, have impacted and could further impact our ability to position employees to operate and fully utilize all of our aircraft. The continuation or worsening of the aforementioned and other factors could materially affect our results for the duration of the COVID-19 pandemic.

Results of Operations

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

Three Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Operating Statistics

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) for the three months ended ~~September~~June 30:

Segment Operating Fleet

2021

2020

Inc/(Dec)

Airline Operations*

747-8F Cargo

10.0

10.0

-

747-400 Cargo

34.6

32.9

1.7

747-400 Dreamlifter

0.6

2.7

(2.1
)
747-400 Passenger

5.1

5.0

0.1

777-200 Cargo

9.0

9.0

-

767-300 Cargo

24.0

24.0

-

767-300 Passenger

4.9

4.8

0.1

767-200 Cargo

-

9.0

(9.0
)
767-200 Passenger

-

1.0

(1.0
)
737-800 Cargo

8.0

5.5

2.5

737-400 Cargo

-

0.8

(0.8
)
Total

96.2

104.7

(8.5
)

Dry Leasing

777-200 Cargo

7.0

7.0

-

767-300 Cargo

21.0

21.0

-

737-300 Cargo

1.0

1.0

-

Total

29.0

29.0

-

Less: Aircraft Dry Leased to CMI customers

(21.0
)

(21.0
)

-

Total Operating Average Aircraft Equivalents

104.2

112.7

(8.5
)

Out-of-service**

-

1.0

(1.0
)


Segment Operating Fleet	2022			2021			Inc/(Dec)
Airline Operations*
747-8F Cargo		10.3			10.0			0.3
747-400 Cargo		34.7			34.6			0.1
747-400 Dreamlifter		0.3			1.3			(1.0	)
747-400 Passenger		4.6			5.0			(0.4	)
777-200 Cargo		9.0			9.0			-
767-300 Cargo		24.0			24.0			-
767-300 Passenger		5.7			4.9			0.8
767-200 Cargo		-			2.4			(2.4	)
737-800 Cargo		8.0			8.0			-
Total		96.6			99.2			(2.6	)

Dry Leasing
777-200 Cargo		7.0			7.0			-
767-300 Cargo		21.0			21.0			-
737-300 Cargo		-			1.0			(1.0	)
Total		28.0			29.0			(1.0	)

Less: Aircraft Dry Leased to CMI customers		(21.0	)		(21.0	)		-
Total Operating Average Aircraft Equivalents		103.6			107.2			(3.6	)

* Airline Operations average fleet excludes spare aircraft provided by CMI customers.


Block Hours	2022		2021		Inc/(Dec)			% Change
Total Block Hours**		83,922		93,190		(9,268	)		(9.9	)%

** Includes Airline Operations and other Block Hours.

~~Airline Operations average fleet excludes spare aircraft provided by CMI customers.~~

~~Out-of-service includes aircraft that are temporarily parked.~~

Block Hours

2021

2020

Inc/(Dec)

% Change

Total Block Hours***

90,363

90,528

(165
)

(0.2
)%

~~***~~

~~Includes Airline Operations and other Block Hours.~~

Operating Revenue

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


	2021			2020			Inc/(Dec)		% Change			2022			2021			Inc/(Dec)			% Change
Operating Revenue
Airline Operations	$	980,714		$	773,591		$	207,123		26.8	%	$	1,142,731		$	955,861		$	186,870			19.5	%
Dry Leasing		40,926			40,740			186		0.5	%		41,314			40,404			910			2.3	%
Customer incentive asset amortization		(11,332	)		(9,858	)		1,474		15.0	%		(9,864	)		(11,443	)		(1,579	)		(13.8	)%
Other		5,792			5,413			379		7.0	%		5,790			5,610			180			3.2	%
Total Operating Revenue	$	1,016,100		$	809,886							$	1,179,971		$	990,432

Airline Operations


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Block Hours
Cargo		84,512		84,435		77		0.1	%		79,922		87,675		(7,753	)		(8.8	)%
Passenger		5,112		4,538		574		12.6	%		3,285		4,713		(1,428	)		(30.3	)%
Total Airline Operations		89,624		88,973		651		0.7	%		83,207		92,388		(9,181	)		(9.9	)%

Revenue Per Block Hour
Airline Operations	$	10,943	$	8,695	$	2,248		25.9	%	$	13,734	$	10,346	$	3,388			32.7	%
Cargo	$	10,383	$	8,211	$	2,172		26.5	%	$	13,448	$	9,903	$	3,545			35.8	%
Passenger	$	20,187	$	17,687	$	2,500		14.1	%	$	20,679	$	18,590	$	2,089			11.2	%

Airline Operations revenue increased ~~$207.1~~$186.9 million, or ~~26.8%~~19.5%, primarily due to an increase in Revenue per Block ~~Hour.~~Hour, partially offset by a reduction in Block Hours. Revenue per Block Hour rose primarily due to ~~an increased proportion~~higher fuel prices and Yields, net of ~~higher-yielding flying,~~fuel, including the impact of new and extended long-term ~~contracts, the ongoing reduction of available cargo capacity provided by passenger airlines in the market, the continued disruption of global supply chains~~contracts. Block Hours decreased primarily due to ~~the COVID-19 pandemic and higher fuel costs. Block Hours flown were relatively unchanged as we reduced~~a reduction in less profitable smaller gauge CMI service flying ~~while increasing utilization of~~and our ~~current fleet to meet strong customer demand. Block Hour volumes benefited from the~~ operation of ~~one 747-400 freighter we reactivated during the fourth quarter of 2020,~~fewer passenger flights, as well as ~~increased AMC passenger Charter flying~~operational disruptions related to an increase in COVID-19 cases late in the ~~CRAF activation~~second quarter. This increase in ~~August 2021.~~ cases adversely impacted our crew availability and our ability to position them due to the widespread and well-publicized cancellations of commercial passenger flights.

Dry Leasing

Dry Leasing revenue was relatively unchanged.

Operating Expenses

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


	2021			2020			Inc/(Dec)			% Change			2022		2021		Inc/(Dec)			% Change
Operating Expenses
Aircraft fuel													$	385,882	$	214,269	$	171,613			80.1	%
Salaries, wages and benefits	$	231,437		$	194,265		$	37,172			19.1	%		285,906		208,366		77,540			37.2	%
Aircraft fuel		216,638			118,113			98,525			83.4	%
Maintenance, materials and repairs		102,819			116,634			(13,815	)		(11.8	)%		108,055		132,547		(24,492	)		(18.5	)%
Depreciation and amortization		73,468			65,595			7,873			12.0	%		74,358		66,661		7,697			11.5	%
Travel														52,719		39,947		12,772			32.0	%
Navigation fees, landing fees and other rent		46,622			42,870			3,752			8.8	%		39,091		47,409		(8,318	)		(17.5	)%
Passenger and ground handling services		40,268			36,266			4,002			11.0	%		34,747		41,504		(6,757	)		(16.3	)%
Travel		42,966			37,731			5,235			13.9	%
Aircraft rent		15,485			24,239			(8,754	)		(36.1	)%		12,613		17,687		(5,074	)		(28.7	)%
Gain on disposal of aircraft		(810	)		(163	)		647		NM
Special charge		-			547			(547	)	NM
Loss (gain) on disposal of flight equipment														19		-		19		NM
Transaction-related expenses		168			490			(322	)		(65.7	)%		-		117		(117	)	NM
Other		63,106			54,107			8,999			16.6	%		54,435		61,848		(7,413	)		(12.0	)%
Total Operating Expenses	$	832,167		$	690,694								$	1,047,825	$	830,355

NM represents year-over-year changes that are not meaningful.

~~Salaries, wages and benefits~~Aircraft fuel increased ~~$37.2~~$171.6 million, or 19.1%, primarily due to higher pilot costs related to our new JCBA since the beginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in our new JCBA (see Note 12 to our Financial Statements), and increased profit sharing.

~~Aircraft fuel~~ ~~increased $98.5 million, or 83.4%~~80.1%, primarily due to an increase in the average fuel cost per gallon, ~~and higher~~partially offset by lower consumption related to ~~increased~~decreased Charter flying. Our exposure to fluctuations in fuel price is generally limited to the shorter-term commercial portion of our Charter services, ~~only,~~ as fuel risk is largely mitigated by price adjustments, including those based on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in providing ACMI and CMI

services or in our Dry Leasing business as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters

because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the three months ended ~~September~~June 30 were:


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Average fuel cost per gallon	$	2.06	$	1.35	$	0.71		52.6	%	$	3.83	$	1.92	$	1.91			99.5	%
Fuel gallons consumed (000s)		105,258		87,460		17,798		20.3	%		100,860		111,818		(10,958	)		(9.8	)%

Salaries, wages and benefits increased $77.5 million, or 37.2%, primarily due to increased pilot costs related to our new CBA, higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic and higher overtime pay driven by an increase in COVID-19 cases. These items were partially offset by decreased flying.

Maintenance, materials and repairs decreased ~~$13.8~~$24.5 million, or ~~11.8%~~18.5%, primarily reflecting ~~$21.7 million of~~ decreased Heavy Maintenance ~~expense, partially offset by $5.2 million of increased Non-heavy Maintenance.~~expense. Heavy Maintenance expense on 747-400 aircraft decreased ~~$24.6~~$16.8 million primarily due to a decrease in the number of engine overhauls, ~~and a decrease in the number of D Checks,~~ partially offset by an increase in the number of C Checks. Heavy Maintenance expense on ~~767~~747-8F aircraft ~~increased $1.9~~decreased $4.5 million primarily due to ~~an increase~~a decrease in the number of C Checks. ~~Non-heavy~~Heavy Maintenance expense ~~increased~~ on ~~747-400 and 747-8F~~767 aircraft decreased $1.8 million primarily due to a decrease in the ~~timing~~number of ~~landing gear overhauls.~~C Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended ~~September~~June 30 were:


Heavy Maintenance Events	2021		2020		Inc/(Dec)			2022		2021		Inc/(Dec)
747-8F C Checks		2		-		2			-		2		(2	)
747-400 C Checks		3		2		1			4		3		1
767 C Checks		2		-		2			-		1		(1	)
747-8F D Checks		-		1		(1	)
747-400 D Checks		-		2		(2	)		3		3		-
CF6-80 engine overhauls		1		5		(4	)		1		3		(2	)
PW4000 engine overhauls		-		1		(1	)		-		1		(1	)

Depreciation and amortization increased ~~$7.9~~$7.7 million, or 11.5%, primarily due to an increase in depreciation related to the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.

Travel increased $12.8 million, or 32.0%, primarily due to increased rates.

Navigation fees, landing fees and other rent decreased $8.3 million, or 17.5%, primarily due to decreased flying.

Passenger and ground handling services decreased $6.8 million, or 16.3%, primarily due to decreased flying and lower rates.

Aircraft rent decreased $5.1 million, or 28.7%, primarily due the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to us and changes in 747-400 freighter aircraft leases in 2021.

Other decreased $7.4 million, or 12.0%, primarily due to ~~an increase in deprecation related to the acquisition of flight equipment and changes in 747-400 freighter aircraft leases (see Note 8 to our Financial Statements).~~

~~Navigation fees, landing fees and other rent~~ ~~increased $3.8 million, or 8.8%, primarily due to increased passenger Charter flying.~~

~~Passenger and ground handling services~~ ~~increased $4.0 million, or 11.0%, primarily due to increased passenger Charter flying.~~

~~Travel~~ ~~increased $5.2 million, or 13.9%, primarily due to increased passenger Charter flying and increased rates.~~

~~Aircraft rent~~ decreased $8.8 million, or 36.1%, primarily due to changes in 747-400 freighter aircraft leases (see Note 8 to our Financial Statements) and the acquisition of 747-400 freighter aircraft that were previously on lease to us.

~~Other~~ ~~increased $9.0 million, or 16.6%, primarily due to an increase~~a decrease in professional fees, which include costs associated with negotiations and arbitration for a new JCBA (see Note 12 to our Financial Statements), as well as costs for continuing to provide a safe working environment for our employees and higher passenger taxes related to increased passenger flying.fees.

Non-operating Expenses (Income)

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


	2021			2020			Inc/(Dec)			% Change			2022			2021			Inc/(Dec)			% Change
Non-operating Expenses (Income)
Interest income	$	(159	)	$	(225	)	$	(66	)		(29.3	)%	$	(873	)	$	(189	)	$	684		NM
Interest expense		27,173			28,524			(1,351	)		(4.7	)%		19,924			26,992			(7,068	)		(26.2	)%
Capitalized interest		(2,335	)		(203	)		2,132		NM				(3,339	)		(1,850	)		1,489			80.5	%
Loss on early extinguishment of debt		-			7			(7	)	NM				689			-			689		NM
Unrealized loss on financial instruments		-			43,604			(43,604	)	NM
Other (income) expense, net		3,136			(62,689	)		(65,825	)		(105.0	)%		837			(4,854	)		(5,691	)		(117.2	)%

Interest expense decreased ~~$1.4~~$7.1 million, or ~~4.7%~~26.2%, primarily due to the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 to our Financial Statements) and the scheduled repayment of debt.

Capitalized interest increased ~~$2.1~~$1.5 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft and our December 2021 agreement to purchase four 777-200LRF aircraft from Boeing (see Note 2 to our Financial Statements).

~~Unrealized loss on financial instruments~~ in 2020 represented the change in fair value of a customer warrant liability (see Note 5 to our Financial Statements) primarily due to changes in our common stock price. Due to the exercise of a warrant in early 2021, our24

~~earnings are no longer affected by changes in the fair value of our customer warrant liability.~~

Other (income) expense, net decreased primarily due to ~~$64.2~~a $4.6 million reduction in ~~CARES Act grant income~~refunds of aircraft rent paid in ~~2020 (see Note 3 to our Financial Statements)~~previous years.

Income taxes. The effective income tax rates were ~~23.4%~~23.2% and ~~32.8%~~23.5% for the three months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The rate for the three months ended ~~September~~June 30, 2022 and 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes. The rate for the three months ended September 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements).

Segments

The following table compares the Direct Contribution for our reportable segments for the three months ended ~~September~~June 30 (see Note 1110 to our Financial Statements for the reconciliation to Operating income) (in thousands):


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Direct Contribution
Airline Operations	$	265,260	$	179,441	$	85,819		47.8	%	$	196,331	$	231,793	$	(35,462	)		(15.3	)%
Dry Leasing		10,435		9,627		808		8.4	%		12,646		10,766		1,880			17.5	%
Total Direct Contribution	$	275,695	$	189,068	$	86,627		45.8	%	$	208,977	$	242,559	$	(33,582	)		(13.8	)%

Unallocated expenses and (income), net	$	120,219	$	34,409	$	85,810		249.4	%	$	93,361	$	102,464	$	(9,103	)		(8.9	)%

Airline Operations Segment

Airline Operations Direct Contribution ~~increased $85.8~~decreased $35.5 million, or ~~47.8%~~15.3%, primarily due to increased pilot costs related to our new CBA, higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic and higher overtime pay driven by an increase in COVID-19 cases late in the second quarter. In addition, Direct Contribution was negatively impacted by lower aircraft utilization driven by operational disruptions related to this increase in COVID-19 cases. The increase in COVID-19 cases negatively impacted our crew availability and our ability to position them due to the widespread and well-publicized cancellations of commercial passenger flights. Partially offsetting these items were increased Yields, net of fuel, including the impact of new and extended long-term contracts and lower Heavy Maintenance and our ability to increase aircraft utilization as demand for our services increased. Direct Contribution also benefited from the operation of one 747-400BCF aircraft reactivated in the fourth quarter of 2020 and an increase in passenger flying related to the CRAF activation in August 2021. Partially offsetting these improvements were higher pilot costs related to our new JCBA (see Note 12 to our Financial Statements). expense.

Dry Leasing Segment

Dry Leasing Direct Contribution increased ~~$0.8~~$1.9 million, or ~~8.4%~~17.5%, primarily ~~due to~~driven by lower interest expense related to the scheduled repayment of debt.

Unallocated expenses and (income), net

Unallocated expenses and (income), net ~~increased $85.8~~decreased $9.1 million, or ~~249.4%~~8.9%, primarily due to ~~$64.2 million in CARES Act grant income recognized in 2020~~lower professional fees and ~~a $15.2 million increase related~~lower interest expense due to ~~adjustments to paid time-off benefits in our new JCBA in 2021~~the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 122 to our Financial Statements)., partially offset by a reduction in refunds of aircraft rent paid in previous years.

2625

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021

Operating Statistics

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

Segment Operating Fleet

2021

2020

Inc/(Dec)

Airline Operations*

747-8F Cargo

10.0

9.9

0.1

747-400 Cargo

34.3

32.2

2.1

747-400 Dreamlifter

1.0

2.7

(1.7
)
747-400 Passenger

5.0

5.0

-

777-200 Cargo

9.0

8.5

0.5

767-300 Cargo

24.0

24.0

-

767-300 Passenger

4.9

4.8

0.1

767-200 Cargo

2.7

9.0

(6.3
)
767-200 Passenger

0.2

1.0

(0.8
)
737-800 Cargo

8.0

5.2

2.8

737-400 Cargo

-

3.5

(3.5
)
Total

99.1

105.8

(6.7
)

Dry Leasing

777-200 Cargo

7.0

7.0

-

767-300 Cargo

21.0

21.0

-

757-200 Cargo

-

0.2

(0.2
)
737-300 Cargo

1.0

1.0

-

737-800 Passenger

-

0.2

(0.2
)
Total

29.0

29.4

(0.4
)

Less: Aircraft Dry Leased to CMI customers

(21.0
)

(21.0
)

-

Total Operating Average Aircraft Equivalents

107.1

114.2

(7.1
)

Out-of-service**

-

2.7

(2.7
)


Segment Operating Fleet	2022			2021			Inc/(Dec)
Airline Operations*
747-8F Cargo		10.1			10.0			0.1
747-400 Cargo		34.6			34.2			0.4
747-400 Dreamlifter		0.3			1.2			(0.9	)
747-400 Passenger		4.7			4.9			(0.2	)
777-200 Cargo		9.0			9.0			-
767-300 Cargo		24.0			24.0			-
767-300 Passenger		5.6			4.9			0.7
767-200 Cargo		-			4.0			(4.0	)
767-200 Passenger		-			0.3			(0.3	)
737-800 Cargo		8.0			8.0			-
Total		96.3			100.5			(4.2	)

Dry Leasing
777-200 Cargo		7.0			7.0			-
767-300 Cargo		21.0			21.0			-
737-300 Cargo		-			1.0			(1.0	)
Total		28.0			29.0			(1.0	)

Less: Aircraft Dry Leased to CMI customers		(21.0	)		(21.0	)		-
Total Operating Average Aircraft Equivalents		103.3			108.5			(5.2	)

* Airline Operations average fleet excludes spare aircraft provided by CMI customers.


Block Hours	2022		2021		Inc/(Dec)			% Change
Total Block Hours**		166,548		181,713		(15,165	)		(8.3	)%

** Includes Airline Operations and other Block Hours.

~~Airline Operations average fleet excludes spare aircraft provided by CMI customers.~~

~~Out-of-service includes aircraft that are either temporarily parked.~~

Block Hours

2021

2020

Inc/(Dec)

% Change

Total Block Hours***

272,076

248,742

23,334

9.4
%

~~***~~

~~Includes Airline Operations and other Block Hours.~~

Operating Revenue

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


	2021			2020			Inc/(Dec)			% Change			2022			2021			Inc/(Dec)			% Change
Operating Revenue
Airline Operations	$	2,762,815		$	2,169,462		$	593,353			27.4	%	$	2,138,086		$	1,782,101		$	355,985			20.0	%
Dry Leasing		121,694			123,572			(1,878	)		(1.5	)%		87,484			80,768			6,716			8.3	%
Customer incentive asset amortization		(33,256	)		(28,414	)		4,842			17.0	%		(19,915	)		(21,924	)		(2,009	)		(9.2	)%
Other		16,579			14,021			2,558			18.2	%		11,472			10,787			685			6.4	%
Total Operating Revenue	$	2,867,832		$	2,278,641								$	2,217,127		$	1,851,732

Airline Operations


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Block Hours
Cargo		255,296		232,681		22,615		9.7	%		158,347		170,784		(12,437	)		(7.3	)%
Passenger		13,474		12,452		1,022		8.2	%		6,591		8,362		(1,771	)		(21.2	)%
Total Airline Operations		268,770		245,133		23,637		9.6	%		164,938		179,146		(14,208	)		(7.9	)%

Revenue Per Block Hour
Airline Operations	$	10,279	$	8,850	$	1,429		16.1	%	$	12,963	$	9,948	$	3,015			30.3	%
Cargo	$	9,809	$	8,355	$	1,454		17.4	%	$	12,677	$	9,525	$	3,152			33	%
Passenger	$	19,187	$	18,107	$	1,080		6.0	%	$	19,832	$	18,576	$	1,256			6.8	%

Airline Operations revenue increased ~~$593.4~~$356.0 million, or ~~27.4%~~20.0%, primarily due to an increase in Revenue per Block Hour, ~~and increased flying.~~partially offset by a reduction in Block Hours. Revenue per Block Hour rose primarily due to ~~an increased proportion~~higher fuel prices and Yields, net of ~~higher-yielding flying,~~fuel, including the impact of new and extended long-term ~~contracts, the impact~~contracts. Block hours decreased primarily due to a reduction in less profitable smaller gauge CMI service flying and our operation of ~~the ongoing reduction of available cargo capacity provided by~~fewer passenger ~~airlines~~flights, as well as operational disruptions related to an increase in COVID-19 cases late in the ~~market, the continued disruption of global supply chains~~second quarter. This increase in cases adversely impacted our crew availability and our ability to position them due to the ~~COVID-19 pandemic~~widespread and ~~higher fuel costs. Partially offsetting these increases were lower~~well-publicized cancellations of commercial cargo Yields, net of fuel, compared with the higher commercial cargo market Yields during the early months of the COVID-19 pandemic, specifically April and May of 2020. The increase in Block Hours flown waspassenger flights.

Dry Leasing

Dry Leasing revenue increased $6.7 million, or 8.3%, primarily due to ~~our ability to increase aircraft utilization as demand for our commercial cargo services increased, reflecting growth in airfreight volumes~~$5.0 million of revenue from pre-pandemic levels driven by the factors impacting commercial cargo Charter noted above. Due to this strong demand, we reactivated four 747-400BCF aircraft throughout 2020 that had been temporarily parked and began using a 777-200 freighter aircraft that was previously in our Dry Leasing business. In addition, Block Hours increased as passenger Charter reflected an increase in demandmaintenance payments related to the ~~CRAF activation in August 2021 and~~scheduled return of an ~~increase in flying by~~aircraft during the ~~AMC as the military had taken precautionary measures to limit the movement~~first quarter of ~~personnel since the early days of the COVID-19 pandemic in 2020 through June 2021.~~ 2022, which was subsequently sold during that quarter.

~~Dry Leasing~~

~~Dry Leasing revenue was relatively unchanged.~~

Operating Expenses

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


	2021			2020			Inc/(Dec)			% Change			2022			2021		Inc/(Dec)			% Change
Operating Expenses
Aircraft fuel													$	630,219		$	377,820	$	252,399			66.8	%
Salaries, wages and benefits	$	642,417		$	534,600		$	107,817			20.2	%		583,925			410,980		172,945			42.1	%
Aircraft fuel		594,458			309,673			284,785			92.0	%
Maintenance, materials and repairs		356,499			379,086			(22,587	)		(6.0	)%		226,954			253,680		(26,726	)		(10.5	)%
Depreciation and amortization		207,918			189,005			18,913			10.0	%		146,560			134,450		12,110			9.0	%
Travel														95,487			77,619		17,868			23.0	%
Navigation fees, landing fees and other rent		138,918			109,909			29,009			26.4	%		78,445			92,296		(13,851	)		(15.0	)%
Passenger and ground handling services		121,837			98,355			23,482			23.9	%		69,683			81,569		(11,886	)		(14.6	)%
Travel		120,585			114,749			5,836			5.1	%
Aircraft rent		53,928			72,522			(18,594	)		(25.6	)%		25,608			38,443		(12,835	)		(33.4	)%
Gain on disposal of aircraft		(794	)		(6,878	)		(6,084	)	NM
Loss (gain) on disposal of flight equipment														(6,221	)		16		6,237		NM
Special charge		-			16,481			(16,481	)	NM				2,633			-		2,633		NM
Transaction-related expenses		486			2,286			(1,800	)		(78.7	)%		-			318		(318	)	NM
Other		183,366			157,929			25,437			16.1	%		110,292			120,260		(9,968	)		(8.3	)%
Total Operating Expenses	$	2,419,618		$	1,977,717								$	1,963,585		$	1,587,451

~~Salaries, wages and benefits~~

Aircraft fuel increased ~~$107.8~~$252.4 million, or ~~20.2%~~66.8%, primarily due to higher pilot costs related to premium pay for pilots operating in certain areas significantly impacted by COVID-19, increased pay rates we provided to our pilots beginning in May 2020 and higher pilot costs related to our new JCBA since the beginning of September 2021, including $15.2 million related to adjustments to paid time-off benefits in our new JCBA (see Note 12 to our Financial Statements). In addition, pilot costs reflected increased flying and increased profit sharing.

~~Aircraft fuel~~ ~~increased $284.8 million, or 92.0%, primarily due to an increase in consumption related to increased Charter flying and~~ an increase in the average fuel cost per ~~gallon.~~gallon, partially offset by lower consumption related to decreased Charter flying. Our exposure to fluctuations in fuel price is generally limited to the shorter-term commercial portion of our Charter services, ~~only,~~ as fuel risk is largely mitigated by price adjustments, including those based

on indexed fuel prices for longer-term commercial charter contracts. We do not incur fuel expense in providing ACMI and CMI services or in our Dry Leasing business as the cost of fuel is borne by the customer. Similarly, we generally have no fuel price risk for AMC charters because the price is set under our contract with the AMC, and we receive or make payments to adjust for price increases and decreases from the contractual rate. Average fuel cost per gallon and fuel consumption for the ~~nine~~six months ended ~~September~~June 30 were:


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Average fuel cost per gallon	$	1.90	$	1.42	$	0.48		33.8	%	$	3.32	$	1.82	$	1.50			82.4	%
Fuel gallons consumed (000s)		312,662		217,507		95,155		43.7	%		190,058		207,404		(17,346	)		(8.4	)%

Salaries, wages and benefits increased $172.9 million, or 42.1%, primarily due to increased pilot costs related to our new CBA and higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 pandemic, partially offset by decreased flying.

Maintenance, materials and repairs decreased by ~~$22.6~~$26.7 million, or ~~6.0%~~10.5%, primarily reflecting ~~$54.6~~$15.2 million of ~~decreased~~lower Heavy Maintenance expense ~~partially offset by $22.1~~and $11.6 million of ~~increased~~reduced Line Maintenance expense. Heavy Maintenance expense ~~and $9.9~~on 747-8F aircraft decreased $7.6 million primarily due to a decrease in the number of ~~increased Non-heavy Maintenance expense.~~D Checks. Heavy Maintenance expense on 747-400 aircraft decreased ~~$59.2~~$6.0 million primarily due to a decrease in the number of engine overhauls and a decrease in the number of D and C Checks, partially offset by an increase in Heavy Maintenance expense on 747-8F aircraft of $4.2 million primarily due to an increase in the number of C Checks.overhauls. Line Maintenance expense ~~increased primarily due to increased flying. Non-heavy Maintenance expense on 747-8F aircraft increased $7.8 million~~decreased primarily due to the ~~timing of landing gear overhauls.~~reduction in flying. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the ~~nine~~six months ended ~~September~~June 30 were:


Heavy Maintenance Events	2021		2020		Inc/(Dec)			2022		2021		Inc/(Dec)
747-8F C Checks		4		-		4			2		2		-
747-400 C Checks		11		13		(2	)		8		8		-
777-200 C Checks									1		-		1
767 C Checks		5		6		(1	)		2		3		(1	)
747-8F D Checks		2		4		(2	)		-		2		(2	)
747-400 D Checks		4		6		(2	)		5		4		1
CF6-80 engine overhauls		5		18		(13	)		4		4		-
PW4000 engine overhauls		2		2		-			-		2		(2	)

Depreciation and amortization increased ~~$18.9~~$12.1 million, or ~~10.0%~~9.0%, primarily due to an increase in depreciation related to the acquisition of ~~flight equipment, an increase in the amortization of deferred maintenance costs related~~747-400 freighter aircraft throughout 2021 that were previously on lease to ~~747-8F engine overhauls (see Note 2 to our Financial Statements)~~us and changes in 747-400 freighter aircraft leases ~~(see Note 8~~in 2021.

Travel increased $17.9 million, or 23.0%, primarily due to ~~our Financial Statements).~~increased rates.

Navigation fees, landing fees and other rent ~~increased $29.0~~decreased $13.9 million, or ~~26.4%~~15.0%, primarily due to ~~increased Charter~~decreased flying.

Passenger and ground handling services ~~increased $23.5~~decreased $11.9 million, or ~~23.9%~~14.6%, primarily due to ~~increased Charter flying.~~decreased flying and lower rates.

~~Travel~~Aircraft rent ~~increased $5.8~~decreased $12.8 million, or ~~5.1%~~33.4%, primarily due the acquisition of 747-400 freighter aircraft throughout 2021 that were previously on lease to ~~increased flying.~~

~~Aircraft rent~~ ~~decreased $18.6 million, or 25.6%, primarily due to~~us and changes in 747-400 freighter aircraft leases ~~(see Note 8 to our Financial Statements) and the acquisition of 747-400 freighter aircraft that were previously on lease to us.~~in 2021.

~~Gain~~Loss (gain) on disposal of ~~aircraft~~ flight equipment in ~~2021 and 2020~~2022 represented ~~net gains~~a gain during the first quarter of 2022 from the sale of ~~certain nonessential assets (see Note 5 to our Financial Statements).~~

~~Special charge~~ ~~in 2020 represented a $16.5 million impairment charge related to fair value adjustments for~~six spare CF6-80 engines, which were previously classified as assets held for sale ~~including spare engines and 737-400 passenger aircraft for training purposes.~~

~~Transaction-related expenses~~ ~~in 2020 primarily related to professional fees in support of the Payroll Support Program under the CARES Act~~ (see Note 36 to our Financial Statements).

~~Other~~Special charge ~~increased $25.4~~in 2022 represented a charge during the first quarter of 2022 related to two CF6-80 engines Dry Leased to a customer.

Other decreased $10.0 million, or ~~16.1%~~8.3%, primarily due to ~~an increase~~a decrease in professional fees ~~which included~~incurred in 2021 related to costs associated with negotiations and arbitration for a new ~~JCBA~~CBA (see Note 1211 to our Financial Statements)~~, as well as costs for continuing to provide a safe working environment for our employees and costs associated with the movement of spare engines.~~.

2928

Non-operating (Income) Expenses

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


	2021			2020			Inc/(Dec)			% Change			2022			2021			Inc/(Dec)			% Change
Non-operating (Income) Expenses
Interest income	$	(559	)	$	(929	)	$	(370	)		(39.8	)%	$	(1,113	)	$	(400	)	$	713			178.3	%
Interest expense		81,345			86,749			(5,404	)		(6.2	)%		40,347			54,172			(13,825	)		(25.5	)%
Capitalized interest		(5,456	)		(528	)		4,928		NM				(7,103	)		(3,121	)		3,982			127.6	%
Loss on early extinguishment of debt		-			81			(81	)	NM				689			-			689		NM
Unrealized loss on financial instruments		113			73,351			(73,238	)		(99.8	)%		-			113			(113	)	NM
Other (income) expense, net		(41,174	)		(112,081	)		(70,907	)		(63.3	)%		219			(44,310	)		(44,529	)		(100.5	)%

Interest expense decreased ~~$5.4~~$13.8 million, or ~~6.2%~~25.5%, primarily due to the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 2 to our Financial Statements) and the scheduled repayment of ~~debt and the repayment of our revolving credit facility during the third quarter of 2020.~~debt.

Capitalized interest increased ~~$4.9~~$4.0 million primarily due to pre-delivery deposits related to our January 2021 agreement to purchase four 747-8F aircraft and our December 2021 agreement to purchase four 777-200LRF aircraft from Boeing (see Note 2 to our Financial Statements).

~~Unrealized loss on financial instruments~~ represents the change in fair value of a customer warrant liability (see Note 5 to our Financial Statements) primarily due to changes in our common stock price until the exercise of certain warrants in October 2020 and January 2021.

Other (income) expense, net decreased ~~$70.9~~$44.5 million, or ~~63.3%~~100.5%, primarily due to ~~a $43.4~~$40.9 million ~~decrease~~ in CARES Act grant income in 2021 (see Note 32 to our Financial Statements) and a ~~$28.3~~$4.6 million reduction in refunds of aircraft rent paid in previous years ~~(see Note 7 to our Financial Statements)~~.

Income taxes. The effective income tax rates were ~~23.5%~~23.0% and ~~30.7%~~23.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The rate for the ~~nine~~six months ended ~~September~~June 30, 2022 and 2021 differed from the U.S. statutory rate primarily due to state income taxes and certain expenses that are not deductible for tax purposes. The rate for the nine months ended September 30, 2020 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 5 to our Financial Statements).

Segments

The following table compares the Direct Contribution for our reportable segments for the ~~nine~~six months ended ~~September~~June 30 (see Note 11 to our Financial Statements for the reconciliation to Operating income) (in thousands):


	2021		2020		Inc/(Dec)		% Change			2022		2021		Inc/(Dec)			% Change
Direct Contribution
Airline Operations	$	666,203	$	482,995	$	183,208		37.9	%	$	382,150	$	400,943	$	(18,793	)		(4.7	)%
Dry Leasing		31,765		30,046		1,719		5.7	%		29,555		21,329		8,226			38.6	%
Total Direct Contribution	$	697,968	$	513,041	$	184,927		36.0	%	$	411,705	$	422,272	$	(10,567	)		(2.5	)%

Unallocated expenses and (income), net	$	284,218	$	173,439	$	110,779		63.9	%	$	194,101	$	163,998	$	30,103			18.4	%

Airline Operations Segment

Airline Operations Direct Contribution ~~increased $183.2~~decreased $18.8 million, or ~~37.9%~~4.7%, primarily due to ~~our ability to increase aircraft utilization as demand for our services~~ increased reflecting growth in airfreight volumes from pre-pandemic levels, as well as lower Heavy Maintenance expense. Direct Contribution also benefited from the operation and higher utilization of 747-400 freighters reactivated throughout 2020 and a 777-200 freighter aircraft that was previously in our Dry Leasing business. Partially offsetting these improvements were lower commercial cargo Yields, net of fuel, compared with the higher commercial cargo market Yields during the early months of the COVID-19 pandemic, higher pilot costs related to our new CBA, higher premium pay for pilots operating in certain areas significantly impacted by the COVID-19 ~~increased pay rates we provided to our pilots beginning in May 2020~~pandemic and higher ~~pilot costs~~overtime pay driven by an increase in COVID-19 cases late in the second quarter. In addition, Direct Contribution was negatively impacted by lower aircraft utilization driven by operational disruptions related to this increase in COVID-19 cases. The increase in COVID-19 cases negatively impacted our crew availability and our ability to position them due to the widespread and well-publicized cancellations of commercial passenger flights. Partially offsetting these items were increased Yields, net of fuel, including the impact of new ~~JCBA (see Note 12 to our Financial Statements).~~ and extended long-term contracts and lower Heavy Maintenance expense.

Dry Leasing Segment

Dry Leasing Direct Contribution increased ~~$1.7~~$8.2 million, or ~~5.7%~~38.6%, primarily due to $5.0 million of revenue from maintenance payments related to the scheduled return of an aircraft during the first quarter of 2022 and lower interest expense related to the scheduled repayment of debt.

Unallocated expenses and (income), net

Unallocated expenses and (income), net increased ~~$110.8~~$30.1 million, or ~~63.9%~~18.4%, primarily due to ~~a $43.4~~$40.9 million ~~decrease~~ in CARES Act grant income recognized in 2021 (see Note 32 to our Financial Statements), and a ~~$28.3~~$4.6 million reduction in refunds of aircraft rent paid in previous ~~years~~years. Partially offsetting these items were a decrease in professional fees and ~~a $15.2 million increase related~~lower interest expense due to ~~adjustments to paid time-off benefits in our new JCBA~~the adoption of the amended accounting guidance for convertible notes on January 1, 2022 (see Note 122 to our Financial Statements).

Reconciliation of GAAP to non-GAAP Financial Measures

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, Adjusted Diluted EPS 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 Net Income 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 is determined, in part, by using Adjusted Net Income 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 and Diluted EPS 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									For the Three Months Ended
	September 30, 2021			September 30, 2020			Percent Change			June 30, 2022			June 30, 2021			Percent Change

Net Income	$	119,535		$	74,054			61.4	%	$	88,258		$	107,110			(17.6	)%
Impact from:
CARES Act grant income (a)		-			(64,211	)
Customer incentive asset amortization		11,332			9,858						9,864			11,443
Adjustments to JCBA paid time-off benefits (b)		15,150			-
Special charge		-			547
Noncash expenses and income, net (c)		4,821			4,527
Unrealized loss on financial instruments		-			43,604
Other, net (d)		(204	)		2,638
Noncash expenses and income, net (a)											-			4,746
Other, net (b)											708			696
Income tax effect of reconciling items		(5,189	)		11,731						(1,580	)		(2,220	)
Adjusted Net Income	$	145,445		$	82,748			75.8	%	$	97,250		$	121,775			(20.1	)%

Weighted average diluted shares outstanding		30,547			26,619						33,679			30,319
Add: dilutive warrant		-			2,478
effect of convertible notes hedges (e)		(717	)		-
Less: effect of convertible notes hedges (c)											(4,731	)		(608	)
Adjusted weighted average diluted shares outstanding		29,830			29,097						28,948			29,711

Adjusted Diluted EPS	$	4.88		$	2.84			71.8	%	$	3.36		$	4.10			(18.0	)%


	For the Six Months Ended
	June 30, 2022			June 30, 2021			Percent Change

Net Income	$	169,769		$	197,043			(13.8	)%
Impact from:
CARES Act grant income (d)		-			(40,944	)
Customer incentive asset amortization		19,915			21,924
Adjustments to CBA paid time-off benefits (e)		2,154			-
Special charge (f)		2,633			-
Noncash expenses and income, net (a)		-			9,418
Unrealized loss on financial instruments		-			113
Other, net (b)		(5,532	)		1,025
Income tax effect of reconciling items		(2,909	)		5,411
Adjusted Net Income	$	186,030		$	193,990			(4.1	)%

Weighted average diluted shares outstanding		34,184			29,900
Less: effect of convertible notes hedges (c)		(4,881	)		(304	)
Adjusted weighted average diluted shares outstanding		29,303			29,596
Adjusted Diluted EPS	$	6.35		$	6.55			(3.1	)%

3130


	For the Three Months Ended
	June 30, 2022		June 30, 2021		Percent Change

Net Income	$	88,258	$	107,110		(17.6	)%
Interest expense, net		15,712		24,953
Depreciation and amortization		74,358		66,661
Income tax expense		26,650		32,868
EBITDA		204,978		231,592
Customer incentive asset amortization		9,864		11,443
Other, net (b)		708		696
Adjusted EBITDA	$	215,550	$	243,731		(11.6	)%


	For the Six Months Ended
	June 30, 2022			June 30, 2021			Percent Change

Net Income	$	169,769		$	197,043			(13.8	)%
Interest expense, net		32,131			50,651
Depreciation and amortization		146,560			134,450
Income tax expense		50,734			60,784
EBITDA		399,194			442,928
CARES Act grant income (d)		-			(40,944	)
Customer incentive asset amortization		19,915			21,924
Adjustments to CBA paid time-off benefits (e)		2,154			-
Special charge (f)		2,633			-
Unrealized loss on financial instruments		-			113
Other, net (b)		(5,532	)		1,025
Adjusted EBITDA	$	418,364		$	425,046			(1.6	)%

For the Nine Months Ended

September 30, 2021

September 30, 2020

Percent Change

Net Income

$
316,578

$
176,319

79.5
%
Impact from:

CARES Act grant income (a)

(40,944
)

(84,378
)

Customer incentive asset amortization

33,256

28,414

Adjustments to JCBA paid time-off benefits (b)

15,150

-

Special charge

-

16,481

Noncash expenses and income, net (c)

14,239

13,372

Unrealized loss on financial instruments

113

73,351

Other, net (f)

821

2,088

Income tax effect of reconciling items

222

10,170

Adjusted Net Income

$
339,435

$
235,817

43.9
%

Weighted average diluted shares outstanding

30,117

26,256

Add: dilutive warrant

-

826

effect of convertible notes hedges (e)

(442
)

-

Adjusted weighted average diluted shares outstanding

29,675

27,082

Adjusted Diluted EPS

$
11.44

$
8.71

31.3
%
(a)

Noncash expenses and income, net in 2021 primarily related to amortization of debt discount on the convertible notes (see Note 7 to our Financial Statements).

(b)

Other, net in 2022 primarily related to a gain on the sale of six spare CF6-80 engines previously held for sale (see Note 6 to our Financial Statements) and a loss on early extinguishment of debt. Other, net in 2021 primarily related to costs associated with our acquisition of an airline and leadership transition costs.

(c)

Represents the economic benefit from our convertible notes hedges in offsetting dilution from our convertible notes as we concluded that generally there would be no economic dilution result from conversion of each of the convertible notes when our stock price is below the exercise price of the respective convertible note warrants.

(d)

CARES Act grant income in 2021 related to income associated with the Payroll Support Program (see Note 2 to our Financial Statements).

(e)

Adjustments to CBA paid time-off benefits in 2022 are related to our new CBA (see Note 11 to our Financial Statements).

(f)

Special charge in 2022 represented a charge related to two CF6-80 engines Dry Leased to a customer.

For the Three Months Ended

September 30, 2021

September 30, 2020

Percent Change

Net Income

$
119,535

$
74,054

61.4
%
Interest expense, net

24,679

28,096

Depreciation and amortization

73,468

65,595

Income tax expense

36,583

36,120

EBITDA

254,265

203,865

CARES Act grant income (a)

-

(64,211
)

Customer incentive asset amortization

11,332

9,858

Adjustments to JCBA paid time-off benefits (b)

15,150

-

Special charge

-

547

Unrealized loss on financial instruments

-

43,604

Other, net (d)

(204
)

2,638

Adjusted EBITDA

$
280,543

$
196,301

42.9
%

For the Nine Months Ended

September 30, 2021

September 30, 2020

Percent Change

Net Income

$
316,578

$
176,319

79.5
%
Interest expense, net

75,330

85,292

Depreciation and amortization

207,918

189,005

Income tax expense

97,367

77,962

EBITDA

697,193

528,578

CARES Act grant income (a)

(40,944
)

(84,378
)

Customer incentive asset amortization

33,256

28,414

Adjustments to JCBA paid time-off benefits (b)

15,150

-

Special charge

-

16,481

Unrealized loss on financial instruments

113

73,351

Other, net (f)

821

2,088

Adjusted EBITDA

$
705,589

$
564,534

25.0
%

~~(a)~~

~~CARES Act grant income in 2021 and 2020 related to income associated with the Payroll Support Program (see Note 3 to our Financial Statements).~~

~~(b)~~

~~Adjustments to JCBA time-off benefits in 2021 are related to our new JCBA (see Note 12 to our Financial Statements).~~

~~(c)~~

~~Noncash expenses and income, net in 2021 and 2020 primarily related to amortization of debt discount on the convertible notes (see Note 8 to our Financial Statements).~~

~~(d)~~

~~Other, net in 2021 primarily related to~~gain on the sale of aircraft partially offset by leadership transition costs. Other, net in 2020 primarily related to leadership transition costs and costs associated with our acquisition of Southern Air.

~~(e)~~

Represents the economic benefit from our convertible notes hedges in offsetting dilution from our convertible notes as we concluded in no event would economic dilution result from conversion of each of the convertible notes when our stock price is below the exercise price of the respective convertible note warrants (see Note 8 to our Financial Statements).

~~(f)~~

~~Other, net in 2021 primarily related to leadership transition costs and~~costs associated with our acquisition of Southern Air, partially offset by a gain on the sale of aircraft. Other, net in 2020 primarily related to leadership transition costs, costs associated with the Payroll Support Program (see Note 3 to our Financial Statements) and our acquisition of Southern Air, partially offset by a $6.9 million net gain on the sale of aircraft.

Liquidity and Capital Resources

The most significant liquidity events during the first ~~three quarters~~half of ~~2021~~2022 were as follows:

In ~~March 2021,~~February 2022, we paid $100.0 million and received an initial delivery of 1,061,257 shares pursuant to an ASR under our new stock repurchase program approved by our board of directors, which authorized the repurchase of up to $200.0 million of our common stock. We subsequently settled the ASR in April 2022 and received an additional 172,887 shares of common stock. In the aggregate, we repurchased 1,234,144 shares (see Note 12 to our Financial Statements for a discussion of our ASR). In connection with the proposed Merger (see Note 15 to our Financial Statements), we have suspended the stock repurchase program.

In April 2022, we refinanced a term loan secured by a 747-8F aircraft and received proceeds of $90.0 million from a financing with an 84-month term for this aircraft at a blended fixed rate of 3.86% (see Note 7 to our Financial Statements).

In May 2022, we borrowed ~~$16.2~~$140.0 million for the delivery of one 747-8F aircraft under a twelve-year term loan due in May 2034 at a fixed interest rate of 0.93% under an unsecured five-year term loan due in January 2026 for GEnx engine performance upgrade kits and overhauls. The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly4.17% (see Note 87 to our Financial Statements).

In June 2021, we borrowed $7.8 million at a fixed interest rate of 0.91% under an unsecured five-year term loan due in May 2026 for GEnx engine performance upgrade kits and overhauls. The term loan is subject to customary fees, covenants and events of default, with principal and interest payable quarterly (see Note 8 to our Financial Statements).

Operating Activities. Net cash provided by operating activities was ~~$608.9~~$426.0 million for the first ~~three quarters~~half of ~~2021,~~2022, which primarily reflected Net Income of ~~$316.6~~$169.8 million, ~~and~~ noncash adjustments of ~~$265.2~~$172.4 million for Depreciation and amortization and ~~$96.1~~$50.0 million for Deferred taxes, and a $28.7 million decrease in Accounts receivable, partially offset by a ~~$43.3~~$15.8 million increase in Prepaid expenses, current assets and other ~~assets,~~assets. Net cash provided by operating activities was $343.1 million for the first half of 2021, which primarily reflected Net Income of $197.0 million and noncash adjustments of $172.2 million for Depreciation and amortization and $60.1 million for Deferred taxes, partially offset by a ~~$19.4~~$56.3 million decrease in Accounts payable, accrued liabilities and other

liabilities, ~~and~~ a ~~$15.8~~$24.7 million increase in Accounts receivable. Net cash provided by operating activities was $782.7 million for the first three quarters of 2020, which primarily reflected Net Income of $176.3 million, noncash adjustments of $240.8 million for Depreciation and amortization, $75.3 million for Deferred taxes and $73.4 million for Unrealized loss on financial instruments, a $208.1 million increase in Accounts payable, accrued liabilities and other liabilities,receivable and a ~~$23.1 million decrease in Accounts receivable, partially offset by a $39.8~~$12.5 million increase in Prepaid expenses, current assets and other assets.

Investing Activities. Net cash used for investing activities was ~~$403.1~~$375.8 million for the first ~~three quarters~~half of ~~2021,~~2022, consisting primarily of ~~$346.0~~$329.8 million of purchase deposits and payments for flight equipment and modifications and ~~$64.1~~$54.2 million of payments for core capital expenditures, excluding flight equipment, partially offset by ~~$9.5~~$13.5 million of proceeds from the disposal of ~~aircraft.~~flight equipment. Purchase deposits and payments for flight equipment and modifications during the first ~~three quarters~~half of ~~2021~~2022 were primarily related to the delivery of one 747-8F aircraft, 777-200LRF aircraft pre-delivery payments and spare ~~engines and GEnx engine performance upgrade kits.~~engines. All capital expenditures for ~~2021~~2022 were funded through working capital and the financings discussed above. Net cash used for investing activities was ~~$101.4~~$268.1 million for the first ~~three quarters~~half of ~~2020,~~2021, consisting primarily of ~~$102.8~~$224.9 million of purchase deposits and payments for flight equipment and modifications and ~~$45.1~~$43.4 million of payments for core capital expenditures, excluding flight ~~equipment, partially offset by $45.7 million of proceeds from the disposal of aircraft. Payments~~equipment. Purchase deposits and payments for flight equipment and modifications during the first ~~three quarters~~half of ~~2020~~2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits.

Financing Activities. Net cash used for financing activities was ~~$278.0~~$354.3 million for the first ~~three quarters~~half of 2022, which primarily reflected $478.9 million of payments on debt, $100.0 million related to the purchase of treasury stock and $12.1 million related to treasury shares withheld for payment of taxes, partially offset by $230.0 million of proceeds from debt issuance and $8.9 million of customer maintenance reserves and deposits received. Net cash used for financing activities was $170.9 million for the first half of 2021, which primarily reflected ~~$271.1~~$171.2 million of payments on debt, ~~$35.6~~$23.9 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for payment of taxes, partially offset by $23.9 million of proceeds from debt issuance and ~~$13.5~~$9.0 million of customer maintenance reserves and deposits received. Net cash used for financing activities was $65.4 million for the first three quarters of 2020, which primarily reflected $353.8 million of payments on debt, $175.0 million of 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 our revolving credit facility.

In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, 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. We consider Cash and cash equivalents, 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~~ capital expenditures for ~~the next twelve months~~2022 and ~~core capital expenditures for the remainder~~to purchase shares of ~~2021.~~our stock under our stock repurchase program. Core capital expenditures for the remainder of ~~2021~~2022 are expected to range from ~~$25.0~~$70.0 to ~~$35.0~~$80.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of ~~2021~~2022 are expected to be ~~$48.2~~approximately $501.8 million. ~~These~~

Committed capital expenditures include pre-delivery and delivery payments for ~~our January 2021 agreement to~~the purchase of the remaining three new 747-8F and four ~~747-8F~~new 777-200LRF aircraft from Boeing, ~~that~~and other agreements to acquire spare engines. We expect to finance the aircraft delivery payments through secured debt financing. The remaining three 747-8F aircraft are expected to be delivered ~~from May through October~~throughout 2022. The first 777-200LRF aircraft is expected to be delivered late in the fourth quarter of 2022 and ~~agreements to acquire spare engines).~~the remaining three throughout 2023.

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 April 2020 that enables us to sell 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 for at least several years. Our business operations are subject to income tax in several foreign jurisdictions and in many states. We do not expect to pay any significant cash income taxes for at least several years in these foreign jurisdictions and states. We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant. The U.S. and numerous other countries are currently considering tax reform, which could result in significant changes to U.S. and international tax laws. The potential enactment of these laws could have a material impact on our business, results of operations and financial condition. We continue to monitor developments and assess the impact to us.

~~Contractual Obligations and~~Description of Debt Agreements

See Note 87 to our Financial Statements for a description of our new debt. See our ~~2020~~2021 Annual Report on Form 10-K for a ~~tabular disclosure~~description of our ~~contractual~~debt obligations and amendments thereto as of December 31, ~~2020 and a description of our other debt obligations and amendments thereto.~~2021.

Off-Balance Sheet Arrangements

There were no material changes into our off-balance sheet arrangements during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Recent Accounting Pronouncements

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

Forward-Looking Statements

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: the risk that the proposed transaction may not be completed in a timely manner or at all; the failure to receive, on a timely basis or otherwise, the required approvals of the proposed transaction by AAWW’s stockholders; the possibility that any or all of the various conditions to the consummation of the proposed transaction may not be satisfied or waived, including the failure to receive any required regulatory approvals from any applicable governmental entities (or any conditions, limitations or restrictions placed on such approvals); the possibility that competing offers or acquisition proposals for AAWW will be made; the occurrence of any event, change or other circumstance that could give rise to the termination of the definitive transaction agreement relating to the proposed transaction, including in circumstances which would require AAWW to pay a termination fee; incurring substantial costs related to the proposed transaction, such as legal, accounting, financial advisory and integration costs; the effect of the announcement, pendency of the proposed transaction, or any failure to successfully complete the proposed transaction on AAWW’s ability to attract, motivate or retain key executives, pilots and associates, its ability to maintain relationships with its customers, including Amazon.com, Inc., vendors, service providers and others with whom it does business, or its operating results and business generally; risks related to the proposed transaction diverting management’s attention from AAWW’s ongoing business operations; the risk of shareholder litigation in connection with the proposed transaction, including resulting expense or delay; and those described in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021 and our quarterly reports on Form 10-Q. 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 and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Except for the change to our market risk in Part I, Item 3 of the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, which is hereby incorporated by reference into this Part I, Item 3 of this Form 10-Q, thereThere have been no ~~other~~ material changes to our market risk during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. 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 ~~2020~~2021 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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~~June 30, ~~2021.~~2022. 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.

Changes in Internal Control Over Financial Reporting

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~~June 30, ~~2021~~2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

With respect to the fiscal quarter ended ~~September~~June 30, ~~2021,~~2022, the information required in response to this Item is set forth in Note 1211 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.

ITEM 1A. RISK FACTORS

There have been no material changes in our risk factors from those disclosed in our ~~2020~~2021 Annual Report on Form ~~10-K.~~10-K, except as noted below.

Risks Related to the Proposed Merger

The Merger Transactions may not be completed on the terms or timeline currently contemplated or at all, which could adversely affect our stock price, business, financial condition and results of operations.

On August 4, 2022, the Company entered into the Merger Transactions, which are subject to certain conditions, including (i) the absence of any law, order, judgment, decree, injunction or ruling prohibiting the consummation of the Merger; (ii) the accuracy of the other party’s representations and warranties (subject to certain materiality qualifiers); (iii) the other party’s compliance in all material respects with its pre-closing covenants; (iv) obtaining the approval of our stockholders; and (v) receipt of certain required regulatory approvals and the expiration or termination of any waiting period (and any extension thereof) applicable to the consummation of the Merger Transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the rules and regulations promulgated thereunder. While it is currently anticipated that the Merger Transactions will be consummated during or before the first quarter of 2023, there can be no assurance that the foregoing conditions will be satisfied in a timely manner or at all, or that an effect, event, development or change will not transpire that could delay or prevent these conditions from being satisfied.

If the Merger Transactions are not consummated for any reason, the trading price of our common stock may decline to the extent that the market price of the common stock reflects positive market assumptions that the Merger Transactions will be consummated and the related benefits will be realized. We may also be subject to additional risks if the Merger Transactions are not completed, including:

•

the requirement in the Merger Agreement that, under certain circumstances, we pay Parent a termination fee of $97.5 million in cash;

•

incurring substantial costs related to the Merger Transactions, such as legal, accounting, financial advisory and integration costs that have already been incurred or will continue to be incurred until closing;

•

limitations on our ability to retain and hire key personnel;

•

reputational harm including relationships with investors, customers and business partners due to the adverse perception of any failure to successfully complete the Merger Transactions; and

•

potential disruption to our business and distraction of our workforce and management team to pursue other opportunities that could be beneficial to us, in each case without realizing any of the benefits of having the Merger Transactions completed.

Further, we or Parent may terminate the Merger Agreement if the Merger Transactions have not been consummated by March 4, 2023 (subject to (i) an automatic extension until June 4, 2023 if all closing conditions other than those relating to a clearance, consent or restraint in respect of any antitrust law have not been received, (ii) a further extension to August 4, 2023 at the option of Parent or the Company if such regulatory closing conditions have not been satisfied, and (iii) whether or not otherwise extended, an extension until four business days following the expiration of the marketing period for Parent’s debt financing, the “Outside Date”). We or Parent also may terminate the Merger Agreement (i) by mutual written consent; (ii) if there is a final and nonappealable judgment enacted, promulgated, issued, entered, amended or enforced by any governmental authority of competent jurisdiction or any applicable law enjoining, restraining or otherwise prohibiting consummation of the Merger Transactions; (iii) if our stockholder’s meeting (including any adjournments or postponements thereof) shall have concluded and the Company stockholder approval shall not have been obtained; or (iv) if the other party has breached its representations or warranties or failed to perform any of its covenants or agreements in a way that would prevent satisfaction of a closing condition by the Outside Date and such breach or failure to perform cannot be cured within 35 calendar days following receipt of written notice of such breach or failure to perform and an intent to

terminate the Merger Agreement. The occurrence of the aforementioned could adversely affect our stock price, business, financial condition and results of operations

The announcement of the Merger Agreement and pendency of the Merger Transactions could negatively impact our business, financial condition and results of operations.

The announcement or pendency of the Merger Transactions could adversely affect our business, financial condition and results of operations and may result in our inability to hire or the departure of key personnel. In connection with the Merger Transactions, some of our customers and business partners may delay or defer decisions or may end their relationships with us, which could negatively affect our revenues, earnings and cash flows, regardless of whether the Merger Transactions are completed. In addition, we have undertaken certain covenants in the Merger Agreement restricting the conduct of our business during the pendency of the Merger Transactions, including restrictions on undertaking certain significant financing transactions and certain other actions, even if such actions would prove beneficial to us. Similarly, our current and prospective employees may experience uncertainty about their future roles with us following the Merger Transactions, which may materially adversely affect our ability to attract and retain key personnel during the pendency of the Merger Transactions.

Our directors and executive officers have interests in the Merger Transactions that may be different from, or in addition to, the interests of our other stockholders.

Our directors and executive officers have financial interests in the Merger Transactions that may be different from, or in addition to, the interests of our other stockholders. These interests may include:

•

the treatment of Company equity awards and long-term incentive cash awards provided for under the Merger Agreement;

•

severance and other benefits in the case of certain qualifying terminations under the terms of an individual employment agreement or the Company’s severance plans;

•

cash-based retention bonuses under a program established for the benefit of certain Company employees;

•

each participant (including each executive officer) in the Company’s annual bonus plan will be eligible for an annual bonus for the year in which the effective time occurs if such participant is terminated prior to the date such bonuses are earned and he or she otherwise qualifies for severance; and

•

continued indemnification and insurance coverage under the Merger Agreement, the Company’s organizational documents and indemnification agreements the Company has entered into with each of its directors and executive officers.

Litigation challenging the Merger Agreement may prevent the Merger from being consummated within the expected timeframe or at all.

Lawsuits may be filed against us, our Board of Directors or other parties to the Merger Agreement, challenging our acquisition by Parent, or making other claims in connection therewith. Such lawsuits may be brought by our purported stockholders and may seek, among other things, to enjoin consummation of the Merger. One of the conditions to the consummation of the Merger is that the consummation of the Merger is not restrained, made illegal, enjoined or prohibited by any order or legal or regulatory restraint or prohibition of a court of competent jurisdiction or any governmental entity. As such, if the plaintiffs in such potential lawsuits are successful in obtaining an injunction prohibiting the defendants from completing the Merger on the agreed upon terms, then such injunction may prevent the Merger from becoming effective within the expected timeframe or at all.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer Purchase of Equity Securities

We made the following repurchases of shares of our common stock during the quarter ended June 30, 2022:


Period	Total Number of Shares Purchased			Average Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs			Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (a)
April 1, 2022 through April 30, 2022		172,887	(b)		-	(b)		172,887	(b)	$	100,000,000
May 1, 2022 through May 31, 2022		-			-			-		$	-
June 1, 2022 through June 30, 2022		-			-					$	-
Total		172,887			-			172,887		$	100,000,000

(a) In February 2022, our board of directors approved the establishment of a new stock repurchase program authorizing the repurchase of up to a total of $200.0 million of our common stock. Purchases may be made at our discretion in the form of accelerated share repurchase programs, open market repurchase programs, privately negotiated transactions or a combination of these methods. This program replaced a previous stock repurchase program that had been established in 2008 and amended in 2013. In connection with the proposed Merger, we have suspended the stock repurchase program.

(b) Reflects the repurchase of shares of common stock pursuant to our ASR. See Note 12 to our Financial Statements for a discussion of our ASR.

ITEM 6. EXHIBITS

Exhibits

~~Exhibits~~

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

3536

EXHIBIT INDEX


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 – 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).

Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020, (ii) Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020, (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020, (iv) Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020, (v) Consolidated Statements of Stockholders’ Equity as of and for the three and nine months ended September 30, 2021 and 2020 and (vi) Notes to the Unaudited Consolidated Financial Statements.

36* Attached as Exhibit 101 to this report are the following formatted in Inline XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021, (ii) Consolidated Statements of Operations for the three and six months ended June 30, 2022 and 2021, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2022 and 2021, (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021, (v) Consolidated Statements of Stockholders’ Equity as of and for the three and six months ended June 30, 2022 and 2021 and (vi) Notes to Unaudited Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		Atlas Air Worldwide Holdings, Inc.

Dated: ~~November 3, 2021~~August 4, 2022		/s/ John W. Dietrich
		John W. Dietrich
		President and Chief Executive Officer

Dated: ~~November 3, 2021~~August 4, 2022		/s/ Spencer Schwartz
		Spencer Schwartz
		Executive Vice President and Chief Financial Officer


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		3

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (unaudited)	3

	Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	4

	Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	5

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity as of and for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3433

Item 4.	Controls and Procedures	3533

PART II. OTHER INFORMATION		34

Item 1.	Legal Proceedings	3534

Item 1A.	Risk Factors	3534

Item 6.2.	Unregistered Sales of Equity Securities and Use of Proceeds	36

Item 6.	Exhibits	3536

	Exhibit Index	3637

	Signatures	3738



	September 30, 2021			December 31, 2020			June 30, 2022			December 31, 2021
Assets
Current Assets
Cash and cash equivalents	$	773,911		$	845,589		$	606,567		$	910,965
Restricted cash		10,230			10,692			10,361			10,052
Accounts receivable, net of allowance of $3,739 and $1,233, respectively		283,362			265,521
Accounts receivable, net of allowance of $3,929 and $4,003, respectively								279,033			305,905
Prepaid expenses, assets held for sale and other current assets		88,330			95,919			97,057			99,100
Total current assets		1,155,833			1,217,721			993,018			1,326,022
Property and Equipment
Flight equipment		5,435,345			5,061,387			5,752,365			5,449,100
Ground equipment		99,769			86,670			107,302			101,824
Less: accumulated depreciation		(1,290,928	)		(1,147,613	)		(1,415,347	)		(1,319,636	)
Flight equipment purchase deposits and modifications in progress		289,475			110,150			365,920			352,422
Property and equipment, net		4,533,661			4,110,594			4,810,240			4,583,710
Other Assets
Operating lease right-of-use assets		158,387			255,805			122,993			138,744
Deferred costs and other assets		350,759			374,242			310,976			329,971
Intangible assets, net and goodwill		66,303			70,826			61,781			64,796
Total Assets	$	6,264,943		$	6,029,188		$	6,299,008		$	6,443,243

Liabilities and Equity
Current Liabilities
Accounts payable	$	92,708		$	107,604		$	83,771		$	82,885
Accrued liabilities		591,208			583,160			654,498			641,978
Current portion of long-term debt and finance leases		703,650			298,690			355,595			639,811
Current portion of long-term operating leases		56,670			157,732			55,138			55,383
Total current liabilities		1,444,236			1,147,186			1,149,002			1,420,057
Other Liabilities
Long-term debt and finance leases		1,669,248			2,020,451			1,720,082			1,655,075
Long-term operating leases		191,604			318,850			138,704			166,022
Deferred taxes		297,472			203,586			397,890			354,798
Financial instruments and other liabilities		38,119			77,576			28,764			37,954
Total other liabilities		2,196,443			2,620,463			2,285,440			2,213,849
Commitments and contingencies
Equity
Stockholders’ Equity
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; 34,515,565 and 32,877,533 shares issued, 29,025,102 and 27,517,297 shares outstanding (net of treasury stock), as of September 30, 2021 and December 31, 2020, respectively		345			329
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; 35,227,975 and 34,707,860 shares issued, 28,320,835 and 29,215,702 shares outstanding (net of treasury stock), as of June 30, 2022 and December 31, 2021, respectively								352			347
Additional paid-in capital		926,853			873,874			863,014			934,516
Treasury stock, at cost; 5,490,463 and 5,360,236 shares, respectively		(225,327	)		(217,889	)
Accumulated other comprehensive loss		(1,314	)		(1,904	)
Treasury stock, at cost; 6,907,140 and 5,492,158 shares, respectively								(337,635	)		(225,461	)
Accumulated other comprehensive income (loss)								75			(511	)
Retained earnings		1,923,707			1,607,129			2,338,760			2,100,446
Total stockholders’ equity		2,624,264			2,261,539			2,864,566			2,809,337
Total Liabilities and Equity	$	6,264,943		$	6,029,188		$	6,299,008		$	6,443,243

	For the Nine Months Ended
	September 30, 2021			September 30, 2020			For the Six Months Ended
							June 30, 2022			June 30, 2021
Operating Activities:
Net Income	$	316,578		$	176,319		$	169,769		$	197,043

Adjustments to reconcile Net Income to net cash provided by operating activities:
Depreciation and amortization		265,231			240,826			172,449			172,216
Accretion of debt securities discount		0			(2	)
Provision for (reversal of) expected credit losses		(377	)		76
Reversal of expected credit losses								(6	)		(381	)
Loss on early extinguishment of debt		0			81			689			0
Special charge, net of cash payments		0			16,481
Special charge								2,633			0
Unrealized loss on financial instruments		113			73,351			0			113
Gain on disposal of aircraft		(794	)		(6,878	)
Loss (gain) on disposal of flight equipment								(6,221	)		16
Deferred taxes		96,053			75,331			49,981			60,086
Stock-based compensation		10,653			15,816			5,656			7,466
Changes in:
Accounts receivable		(15,785	)		23,072			28,676			(24,730	)
Prepaid expenses, current assets and other assets		(43,297	)		(39,823	)		(15,806	)		(12,452	)
Accounts payable, accrued liabilities and other liabilities		(19,442	)		208,058			18,168			(56,271	)
Net cash provided by operating activities		608,933			782,708			425,988			343,106
Investing Activities:				��
Capital expenditures		(64,132	)		(45,134	)		(54,193	)		(43,359	)
Purchase deposits and payments for flight equipment and modifications		(346,028	)		(102,777	)		(329,774	)		(224,922	)
Investment in joint ventures		(2,424	)		0			(5,288	)		(1,636	)
Proceeds from investments		0			881
Proceeds from disposal of aircraft		9,470			45,660
Proceeds from disposal of flight equipment								13,500			1,850
Net cash used for investing activities		(403,114	)		(101,370	)		(375,755	)		(268,067	)
Financing Activities:
Proceeds from debt issuance		23,948			401,419			230,000			23,948
Payment of debt issuance costs		(1,274	)		(5,172	)		(2,176	)		(1,257	)
Payments of debt and finance lease obligations		(271,078	)		(353,795	)		(478,940	)		(171,223	)
Proceeds from revolving credit facility		0			75,000
Payment of revolving credit facility		0			(175,000	)
Purchase of treasury stock								(100,000	)		0
Customer maintenance reserves and deposits received		13,491			10,465			8,859			9,029
Customer maintenance reserves paid		(35,608	)		(14,437	)		0			(23,932	)
Treasury shares withheld for payment of taxes		(7,438	)		(3,915	)		(12,065	)		(7,432	)
Net cash used for financing activities		(277,959	)		(65,435	)		(354,322	)		(170,867	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(72,140	)		615,903
Net decrease in cash, cash equivalents and restricted cash								(304,089	)		(95,828	)
Cash, cash equivalents and restricted cash at the beginning of period		856,281			113,430			921,017			856,281
Cash, cash equivalents and restricted cash at the end of period	$	784,141		$	729,333		$	616,928		$	760,453

Noncash Investing and Financing Activities:

Acquisition of property and equipment included in Accounts payable and accrued liabilities	$	16,802		$	11,357		$	0		$	7,928
Acquisition of property and equipment acquired under operating leases	$	9,661		$	2,486		$	488		$	8,875
Acquisition of flight equipment under finance leases	$	191,913		$	17,035		$	3,154		$	121,313
Customer maintenance reserves settled with sale of aircraft	$	0		$	6,497
Issuance of shares related to settlement of warrant liability	$	31,582		$	0		$	0		$	31,582
Issuance of shares related to settlement of convertible notes							$	7,901		$	0

	As of and for the Three Months Ended September 30, 2021
						Additional							Total			As of and for the Three Months Ended June 30, 2022
	Common		Treasury			Paid-In		Accumulated Other			Retained		Stockholders'								Additional			Accumulated					Total
	Stock		Stock			Capital		Comprehensive Loss			Earnings		Equity			Common		Treasury			Paid-In			Other Comprehensive			Retained		Stockholders'
Balance at June 30, 2021	$	345	$	(225,321	)	$	919,362	$	(1,504	)	$	1,804,172	$	2,497,054
																Stock		Stock			Capital			Income (Loss)			Earnings		Equity
Balance at March 31, 2022																$	351	$	(317,480	)	$	828,391		$	(433	)	$	2,250,502	$	2,761,331
Net Income																	0		0			0			0			88,258		88,258
Other comprehensive income																	0		0			0			508			0		508
Stock-based compensation																	0		0			3,461			0			0		3,461
Issuance of 138,509 shares related to settlement of convertible notes																	1		-			7,900			-			-		7,901
Receipt of 25,957 shares related to settlement of convertible note hedge transaction																	-		-			-			-			-		-
Issuance of warrants																	-		-			3,228			-			-		3,228
Purchase of 172,887 shares of treasury stock																	0		(20,144	)		20,034			0			0		(110	)
Treasury shares of 152 withheld for payment of taxes																	0		(11	)		0			0			0		(11	)
Issuance of 18,056 shares of restricted stock																	0		0			0			0			0		0
Balance at June 30, 2022																$	352	$	(337,635	)	$	863,014		$	75		$	2,338,760	$	2,864,566

																As of and for the Three Months Ended June 30, 2021
																					Additional			Accumulated					Total
																Common		Treasury			Paid-In			Other Comprehensive			Retained		Stockholders'
																Stock		Stock			Capital			Income (Loss)			Earnings		Equity
Balance at March 31, 2021																$	345	$	(225,239	)	$	912,728		$	(1,700	)	$	1,697,062	$	2,383,196
Net Income		0		0			0		0			119,535		119,535			0		0			0			0			107,110		107,110
Other comprehensive income		0		0			0		190			0		190			0		0			0			196			0		196
Stock-based compensation		0		0			3,187		0			0		3,187			0		0			3,406			0			0		3,406
Issuance of warrants		0		0			4,304		0			0		4,304			0		0			3,228			0			0		3,228
Treasury shares of 495 withheld for payment of taxes		0		(6	)		0		0			0		(6	)
Issuance of 93 shares of restricted stock		0		0			0		0			0		0
Balance at September 30, 2021	$	345	$	(225,327	)	$	926,853	$	(1,314	)	$	1,923,707	$	2,624,264
Treasury shares of 1,267 withheld for payment of taxes																	0		(82	)		0			0			0		(82	)
Issuance of 19,332 shares of restricted stock																	0		0			0			0			0		0
Balance at June 30, 2021																$	345	$	(225,321	)	$	919,362		$	(1,504	)	$	1,804,172	$	2,497,054

																As of and for the Six Months Ended June 30, 2022
																					Additional			Accumulated					Total
																Common		Treasury			Paid-In			Other Comprehensive			Retained		Stockholders'
																Stock		Stock			Capital			Income (Loss)			Earnings		Equity
Balance at December 31, 2021																$	347	$	(225,461	)	$	934,516		$	(511	)	$	2,100,446	$	2,809,337
Net Income																	0		0			0			0			169,769		169,769
Other comprehensive income																	0		0			0			586			0		586
Cumulative effect of change in accounting principle (see Note 2)																	0		0			(92,586	)		0			68,545		(24,041	)
Stock-based compensation																	0		0			5,656			0			0		5,656
Issuance of 138,509 shares related to settlement of convertible notes																	1		0			7,900			0			0		7,901
Receipt of 25,957 shares related to settlement of convertible note hedge transaction																	0		0			0			0			0		0
Issuance of warrants																	0		0			7,532			0			0		7,532
Purchase of 1,234,144 shares of treasury stock																	0		(100,109	)		0			0			0		(100,109	)
Treasury shares of 154,881 withheld for payment of taxes																	0		(12,065	)		0			0			0		(12,065	)
Issuance of 381,606 shares of restricted stock																	4		0			(4	)		0			0		0
Balance at June 30, 2022																$	352	$	(337,635	)	$	863,014		$	75		$	2,338,760	$	2,864,566

																As of and for the Six Months Ended June 30, 2021
																					Additional			Accumulated					Total
																Common		Treasury			Paid-In			Other Comprehensive			Retained		Stockholders'
																Stock		Stock			Capital			Income (Loss)			Earnings		Equity
Balance at December 31, 2020																$	329	$	(217,889	)	$	873,874		$	(1,904	)	$	1,607,129	$	2,261,539
Net Income																	0		0			0			0			197,043		197,043
Other comprehensive income																	0		0			0			400			0		400
Stock-based compensation																	0		0			7,466			0			0		7,466
Issuance of warrants																	0		0			6,456			0			0		6,456
Treasury shares of 130,134 withheld for payment of taxes																	0		(7,432	)		0			0			0		(7,432	)
Issuance of 1,280,450 shares related to settlement of warrants																	13		0			31,569			0			0		31,582
Issuance of 357,087 shares of restricted stock																	3		0			(3	)		0			0		0
Balance at June 30, 2021																$	345	$	(225,321	)	$	919,362		$	(1,504	)	$	1,804,172	$	2,497,054


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


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

	As of and for the Nine Months Ended September 30, 2021
						Additional								Total
	Common		Treasury			Paid-In			Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital			Comprehensive Loss			Earnings		Equity
Balance at December 31, 2020	$	329	$	(217,889	)	$	873,874		$	(1,904	)	$	1,607,129	$	2,261,539
Net Income		0		0			0			0			316,578		316,578
Other comprehensive income		0		0			0			590			0		590
Stock-based compensation		0		0			10,653			0			0		10,653
Issuance of warrants		0		0			10,760			0			0		10,760
Treasury shares of 130,227 withheld for payment of taxes		0		(7,438	)		0			0			0		(7,438	)
Issuance of 1,280,450 shares related to settlement of warrants		13		0			31,569								31,582
Issuance of 357,582 shares of restricted stock		3		0			(3	)		0			0		0
Balance at September 30, 2021	$	345	$	(225,327	)	$	926,853		$	(1,314	)	$	1,923,707	$	2,624,264

Balance as of December 31, 2020	$	191,303
Deferred maintenance costs		38,493
Amortization of deferred maintenance		(37,070	)
Balance as of September 30, 2021	$	192,726

Balance as of December 31, 2020	$	1,233
Bad debt recovery		(377	)
Amounts written off, net of other items		2,883
Balance as of September 30, 2021	$	3,739

	2015 Convertible Notes			2017 Convertible Notes
Remaining life in months		8			32
Liability component:
Gross proceeds	$	224,500		$	289,000
Less: debt discount, net of amortization		(6,128	)		(30,235	)
Less: debt issuance cost, net of amortization		(560	)		(2,316	)
Net carrying amount	$	217,812		$	256,449

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