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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ________________________________________________________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period March 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________

Commission file number 000-50368
________________________________________________________________
Air Transport Services Group, Inc.
(Exact name of registrant as specified in its charter)
________________________________________________________________
Delaware
 
26-1631624
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
145 Hunter Drive, Wilmington, OH 45177
(Address of principal executive offices)
937-382-5591
(Registrant’s telephone number, including area code)
 ________________________________________________________________
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
  
Trading Symbol
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
  
ATSG
 
NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
  
Accelerated filer
Smaller reporting company
Non-accelerated filer
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No  
As of May 11, 2020, there were 59,590,270 shares of the registrant’s common stock outstanding.




AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
 
 
 
 
 
  
 
Page
PART I. FINANCIAL INFORMATION
Item 1.
  
 
  
 
  
 
  
 
  
 
  
 
 
Item 2.
 
Item 3.
 
Item 4.
 
 
 
 
PART II. OTHER INFORMATION
Item 1.
 
Item 1A.
  
Item 2.
  
Item 5.
  
Item 6.
  





FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
The financial information, including the financial statements, included in the Quarterly Report on Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on March 2, 2020.
The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding Air Transport Services Group, Inc. at www.sec.gov. Additionally, our filings with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, are available free of charge from our website at www.atsginc.com as soon as reasonably practicable after filing with the SEC.

FORWARD LOOKING STATEMENTS
Statements contained in this Quarterly report on Form 10-Q that are not historical facts are considered forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995). Words such as “future,” “anticipates,” “believes,” “estimates,” “expects,” “intends,” “plans,” “predicts,” “will,” “would,” “could,” “can,” “may,” and similar terms and expressions are intended to identify forward-looking statements. These forward-looking statements are based on expectations, estimates and projections as of the date of this filing, and involve risks and uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in the forward-looking statements for any number of reasons, including those described in this report and in our 2019 Annual Report filed on Form 10-K with the Securities and Exchange Commission.







PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
 
March 31,
 
December 31,
 
2020
 
2019
ASSETS
 
 
 
CURRENT ASSETS:
 
 
 
Cash, cash equivalents and restricted cash
$
71,063

 
$
46,201

Accounts receivable, net of allowance of $1,324 in 2020 and $975 in 2019
166,993

 
162,870

Inventory
43,278

 
37,397

Prepaid supplies and other
26,027

 
20,323

TOTAL CURRENT ASSETS
307,361

 
266,791

Property and equipment, net
1,835,176

 
1,766,020

Customer incentive
141,821

 
146,678

Goodwill and acquired intangibles
524,795

 
527,654

Operating lease assets
48,698

 
44,302

Other assets
62,189

 
68,733

TOTAL ASSETS
$
2,920,040

 
$
2,820,178

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
CURRENT LIABILITIES:
 
 
 
Accounts payable
$
136,781

 
$
141,094

Accrued salaries, wages and benefits
49,328

 
59,429

Accrued expenses
19,716

 
17,586

Current portion of debt obligations
13,773

 
14,707

Current portion of lease obligations
13,340

 
12,857

Unearned revenue
20,863

 
17,566

TOTAL CURRENT LIABILITIES
253,801

 
263,239

Long term debt
1,546,867

 
1,469,677

Stock warrant obligations
265,104

 
383,073

Post-retirement obligations
33,021

 
36,744

Long term lease obligations
34,642

 
30,334

Other liabilities
50,324

 
49,293

Deferred income taxes
136,978

 
127,476

TOTAL LIABILITIES
2,320,737

 
2,359,836

Commitments and contingencies (Note I)

 

STOCKHOLDERS’ EQUITY:
 
 
 
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock

 

Common stock, par value $0.01 per share; 150,000,000 shares authorized; 59,623,195 and 59,329,431 shares issued and outstanding in 2020 and 2019, respectively
596

 
593

Additional paid-in capital
476,423

 
475,720

Retained earnings
183,400

 
45,895

Accumulated other comprehensive loss
(61,116
)
 
(61,866
)
TOTAL STOCKHOLDERS’ EQUITY
599,303

 
460,342

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,920,040

 
$
2,820,178

 
 
 
 
See notes to condensed consolidated financial statements.

4


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
 
Three Months Ended
 
March 31,
 
2020
 
2019
REVENUES
$
389,277

 
$
348,183

OPERATING EXPENSES
 
 
 
Salaries, wages and benefits
125,531

 
99,341

Depreciation and amortization
69,342

 
62,637

Maintenance, materials and repairs
41,677

 
44,538

Fuel
43,799

 
34,950

Contracted ground and aviation services
14,349

 
15,598

Travel
21,657

 
20,098

Landing and ramp
2,745

 
3,048

Rent
3,486

 
3,753

Insurance
1,668

 
1,911

Transaction fees

 
373

Other operating expenses
15,216

 
15,408

 
339,470

 
301,655

OPERATING INCOME
49,807

 
46,528

OTHER INCOME (EXPENSE)
 
 
 
Interest income
112

 
96

Non-service component of retiree benefit gains (costs)
2,898

 
(2,351
)
Net gain on financial instruments
107,044

 
4,500

Loss from non-consolidated affiliate
(2,764
)
 
(3,816
)
Interest expense
(16,323
)
 
(17,390
)
 
90,967

 
(18,961
)
 
 
 
 
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
140,774

 
27,567

INCOME TAX EXPENSE
(7,041
)
 
(4,933
)
EARNINGS FROM CONTINUING OPERATIONS
133,733

 
22,634

EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES
3,772

 
31

NET EARNINGS
$
137,505

 
$
22,665

 
 
 
 
BASIC EARNINGS PER SHARE
 
 
 
Continuing operations
$
2.27

 
$
0.38

Discontinued operations
0.06

 
0.01

TOTAL BASIC EARNINGS PER SHARE
$
2.33

 
$
0.39

 
 
 
 
DILUTED EARNINGS PER SHARE
 
 
 
Continuing operations
$
0.84

 
0.25

Discontinued operations
0.06

 

TOTAL DILUTED EARNINGS PER SHARE
$
0.90

 
0.25

 
 
 
 
WEIGHTED AVERAGE SHARES
 
 
 
Basic
59,040

 
58,838

Diluted
67,947

 
60,437


See notes to condensed consolidated financial statements.

5


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
 
Three Months Ended
 
March 31,
 
2020
 
2019
NET EARNINGS
$
137,505

 
$
22,665

OTHER COMPREHENSIVE INCOME (LOSS):
 
 
 
Defined Benefit Pension
726

 
2,951

Defined Benefit Post-Retirement
24

 
33

Foreign Currency Translation

 
(5
)
 
 
 
 
TOTAL COMPREHENSIVE INCOME, net of tax
$
138,255

 
$
25,644


See notes to condensed consolidated financial statements.


6


AIR TRANSPORT SERVICES GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated Earnings (Deficit)
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
 
Number
 
Amount
 
BALANCE AT JANUARY 1, 2019
59,134,173

 
$
591

 
$
471,158

 
$
56,051

 
$
(91,362
)
 
$
436,438

Stock-based compensation plans
 
 
 
 
 
 
 
 
 
 
 
Grant of restricted stock
125,200

 
2

 
(2
)
 
 
 
 
 

Issuance of common shares, net of withholdings
91,953

 
1

 
(1,385
)
 
 
 
 
 
(1,384
)
Cumulative effect in change in accounting principle
 
 
 
 


 
(71,358
)
 
 
 
(71,358
)
Amortization of stock awards and restricted stock
 
 
 
 
1,474

 
 
 
 
 
1,474

Total comprehensive income
 
 
 
 
 
 
22,665

 
2,979

 
25,644

BALANCE AT MARCH 31, 2019
59,351,326

 
$
594

 
$
471,245

 
$
7,358

 
$
(88,383
)
 
$
390,814

 
 
 
 
 
 
 
 
 
 
 
 
BALANCE AT JANUARY 1, 2020
59,329,431

 
593

 
475,720

 
45,895

 
(61,866
)
 
$
460,342

Stock-based compensation plans
 
 
 
 
 
 
 
 
 
 
 
Grant of restricted stock
200,500

 
2

 
(2
)
 
 
 
 
 

Issuance of common shares, net of withholdings
93,264

 
1

 
(1,116
)
 
 
 
 
 
(1,115
)
Amortization of stock awards and restricted stock
 
 
 
 
1,821

 
 
 
 
 
1,821

Total comprehensive income
 
 
 
 
 
 
137,505

 
750

 
138,255

BALANCE AT MARCH 31, 2020
59,623,195

 
596


476,423


183,400


(61,116
)

599,303

 
 
 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.


7


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
 
Three Months Ended
 
March 31,
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
Net earnings from continuing operations
$
133,733

 
$
22,634

Net earnings from discontinued operations
3,772

 
31

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization
77,001

 
69,579

Pension and post-retirement
972

 
3,925

Deferred income taxes
7,947

 
4,705

Amortization of stock-based compensation
1,821

 
1,474

Loss from non-consolidated affiliates
2,764

 
3,816

Net gain on financial instruments
(107,044
)
 
(4,500
)
Changes in assets and liabilities:
 
 
 
Accounts receivable
(4,123
)
 
15,754

Inventory and prepaid supplies
(4,543
)
 
(4,441
)
Accounts payable
6,169

 
2,206

Unearned revenue
3,604

 
3,080

Accrued expenses, salaries, wages, benefits and other liabilities
(17,742
)
 
(9,267
)
Pension and post-retirement assets
(5,483
)
 
(2,252
)
Other
186

 
658

NET CASH PROVIDED BY OPERATING ACTIVITIES
99,034

 
107,402

INVESTING ACTIVITIES:
 
 
 
Expenditures for property and equipment
(143,495
)
 
(91,856
)
Proceeds from property and equipment
32

 

Acquisitions and investments in businesses, net of cash acquired
(3,049
)
 
(15,844
)
NET CASH USED IN INVESTING ACTIVITIES
(146,512
)
 
(107,700
)
FINANCING ACTIVITIES:
 
 
 
Principal payments on long term obligations
(499,064
)
 
(7,969
)
Proceeds from borrowings
80,000

 

Proceeds from bond issuance
500,000

 

Payments for financing costs
(7,481
)
 

Other financing payments

 
(264
)
Withholding taxes paid for conversion of employee stock awards
(1,115
)
 
(1,384
)
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
72,340

 
(9,617
)
 
 
 
 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
24,862

 
(9,915
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
46,201

 
59,322

CASH AND CASH EQUIVALENTS AT END OF YEAR
$
71,063

 
$
49,407

 
 
 
 
SUPPLEMENTAL CASH FLOW INFORMATION:
 
 
 
Interest paid, net of amount capitalized
$
8,864

 
$
16,925

Federal alternative minimum and state income taxes paid
$
48

 
$

SUPPLEMENTAL NON-CASH INFORMATION:
 
 
 
Accrued expenditures for property and equipment
$
27,914

 
$
15,812

See notes to condensed to consolidated financial statements.

8


AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
Page


9


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

Nature of Operations
Air Transport Services Group, Inc. is a holding company whose subsidiaries lease aircraft, provide contracted airline operations, ground services, aircraft modification and maintenance services and other support services mainly to the air transportation, e-commerce and package delivery industries. The Company's subsidiaries offer a range of complementary services to delivery companies, freight forwarders, airlines and government customers.
The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees. The Company's airlines, ABX Air, Inc. (“ABX”), Air Transport International, Inc. (“ATI”) and Omni Air International, LLC ("OAI" ) each have the authority, through their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates, to transport cargo worldwide. The Company provides air transportation services to a concentrated base of customers. The Company provides a combination of aircraft, crews, maintenance and insurance services for a customer's transportation network through customer "CMI" and "ACMI" agreements and through charter contracts in which aircraft fuel is also included. In addition to its aircraft leasing and airline services, the Company sells aircraft parts, provides aircraft maintenance and modification services, equipment maintenance services and arranges load transfer and package sorting services for customers.
Basis of Presentation
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with the financial statements reflected in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the air cargo industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year or any interim period. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. The accounting estimates reflect the best judgment of management, but actual results could differ materially from those estimates.
The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions are eliminated. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Investments in affiliates in which the Company has significant influence but does not exercise control are accounted for using the equity method of accounting. Under the equity method, the Company’s share of the nonconsolidated affiliate's income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Investments in affiliates in which the Company does not exercise control or have significant influence are reflected at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
On February 1, 2019, the Company acquired a group of companies under common control, referred to as TriFactor. Trifactor resells material handling equipment and provides engineering design solutions for warehousing, retail distribution and e-commerce operations. Revenues and operating expenses include the activities of TriFactor for periods since its acquisition by the Company. The excess purchase price over the estimated fair value of net assets acquired

10


was recorded as goodwill. The acquisition of TriFactor did not have a significant impact on the Company's financial statements or results of operations.
COVID-19 Uncertainties
In late 2019, an outbreak of a coronavirus, COVID-19, was identified in China and has since spread globally, becoming a pandemic. The pandemic has had an impact on our operations and financial results. Beginning in late February 2020, revenues were negatively impacted when customers began canceling scheduled passenger flights and the Company began to incur additional costs, including expenses to protect employees. Additionally, disruptions to the Company's operations, such as shortages of personnel, shortages of parts, maintenance delays, shortages of transportation and hotel accommodations for flight crews, facility closures and other issues can be caused by the pandemic.
The extent of the impact that the coronavirus pandemic will have on future financial and operational results will depend on developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and scope of government orders and restrictions; and the extent of the pandemic on overall economic conditions. These are highly uncertain. If the cornavirus pandemic persists or reemerges or expectations of operating cash flows decline significantly, the value of airframes, engines and certain intangible assets could decline significantly for the foreseeable future. If such circumstances occur or appear likely to occur, the Company may need to impair the carrying value of certain recorded assets.
Currently, the pandemic has not had a significant financial impact on the Company's leasing business or its airline operations for customers' freight networks. Management believes that the Company's current cash balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, capital spending and scheduled debt payments for at least the next 12 months.
Accounting Standards Updates
Effective January 1, 2019, the Company adopted the FASB's ASU No. 2016-02, “Leases (Topic 842)” which superseded previous lease guidance ASC 840, Leases. Topic 842 is a new lease model that requires a company to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company adopted the standard using the modified retrospective approach that does not require the restatement of prior year financial statements. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The adoption of Topic 842 resulted in the recognition of ROU assets and corresponding lease liabilities as of January 1, 2019 in the amount of $52.6 million for leases classified as operating leases. Topic 842 also applies to the Company's aircraft lease revenues, however, the adoption of Topic 842 did not have a significant impact on the Company's accounting for its customer lease agreements.
The Company adopted the package of practical expedients and transition provisions available for expired or existing contracts, which allowed the Company to carryforward its historical assessments of 1) whether contracts are or contain leases, 2) lease classification, and 3) initial direct costs. Additionally, for real estate leases, the Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Further, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements for leases with terms of 12 months or less. See Note H for additional information about leases.
In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-based Payment Accounting" ("ASU 2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC 718"), with the intent of simplifying the accounting for share-based payments granted to non-employees for goods and services and aligning the accounting for share-based payments granted to non-employees with the accounting for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2019 using the modified retrospective approach as required. ASU 2018-07 replaced ASC 505-50, "Equity-Based Payments to Nonemployees" ("ASC 505-50") which was previously applied by the Company for warrants granted to Amazon.com, Inc. ("Amazon") as customer incentives. As a result of ASU 2018-07, the Company applied accounting guidance for financial instruments to the unvested warrants conditionally granted to Amazon in conjunction with an investment agreement reached with Amazon on December 22, 2018. Applying ASU 2018-07 as of January 1, 2019, through the modified retrospective approach, resulted in the recognition of $176.9 million for unvested warrant liabilities, $100.1

11


million for customer incentive assets and cumulative-effect adjustments of $71.4 million, net of tax, to reduce retained earnings for customer incentives that were not probable of being realized.
The adoption of ASU 2018-07 on January 1, 2019 did not have an impact on the accounting for vested warrants.
The Company adopted "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ("ASU 2016-13") on January 1, 2020. Under ASU 2016-13, an entity is required to utilize an “expected credit loss model” on certain financial instruments, including trade receivables. This model requires an entity to estimate expected credit losses over the lifetime of the financial asset including trade receivables that are not past due. Operating lease receivables are not within the scope of Topic 326. The Company's adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements or related disclosures.

NOTE B—GOODWILL, INTANGIBLES AND EQUITY INVESTMENTS
The carrying amounts of goodwill, by operating segment, are as follows (in thousands):
 
 
CAM
 
ACMI Services
 
All Other
 
Total
Carrying value as of December 31, 2019
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974

Carrying value as of March 31, 2020
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974


The Company's acquired intangible assets are as follows (in thousands):
 
 
Airline
 
Amortizing
 
 
 
 
Certificates
 
Intangibles
 
Total
Carrying value as of December 31, 2019
 
$
9,000

 
$
122,680

 
$
131,680

Amortization
 

 
(2,859
)
 
(2,859
)
Carrying value as of March 31, 2020
 
$
9,000

 
$
119,821

 
$
128,821


The airline certificates have an indefinite life and therefore are not amortized. The Company amortizes finite-lived intangibles assets, including customer relationship and STC intangibles, over 3 to 19 years.
Stock warrants issued to a lessee (see Note C) as an incentive are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligations and amortized against revenues over the duration of related aircraft leases. The Company's lease incentive granted to the lessee was as follows (in thousands):
 
 
Lease
 
 
Incentive
Carrying value as of December 31, 2019
 
$
146,678

Amortization
 
(4,857
)
Carrying value as of March 31, 2020
 
$
141,821


In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, West Atlantic UK and West Atlantic Sweden, operates a fleet of aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 767 and 737 aircraft. In April 2019, West issued additional shares to a new investor in conjunction with a capital investment and purchase agreement which reduced the Company's ownership to approximately 10% and reduced the Company's influence over West. West leases three Boeing 767 aircraft from the Company.
On August 3, 2017 the Company entered into a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The Company anticipates approval of a supplemental type certificate from the FAA in 2020. The Company expects to make contributions equal to its 49% ownership percentage of the program's total costs over the next two years. During the first three months of

12



2020 and 2019, the Company contributed $3.0 million and $3.8 million to the joint venture, respectively. The Company accounts for its investment in the aircraft conversion joint venture under the equity method of accounting, in which the carrying value of each investment is reduced for the Company's share of the non-consolidated affiliates' operating results.
The carrying value of West and the joint venture totaled $11.2 million and $10.9 million at March 31, 2020 and December 31, 2019, respectively, and are reflected in “Other Assets” in the Company’s consolidated balance sheets. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment. The fair value is generally determined using an income approach based on discounted cash flows or using negotiated transaction values.

NOTE C—SIGNIFICANT CUSTOMERS
DHL
The Company has had long-term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL") since August 2003. Revenues from aircraft leases and related services performed for DHL were approximately 11% and 15% of the Company's consolidated revenues from continuing operations for the three month periods ending March 31, 2020 and 2019, respectively. The Company’s balance sheets include accounts receivable with DHL of $5.4 million and $12.7 million as of March 31, 2020 and December 31, 2019, respectively.
The Company leases Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases. The Company also provides additional air cargo transportation services for DHL through ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, air starts and related maintenance services to DHL under separate agreements.
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for Amazon.com Services, LLC ("ASI"), successor to Amazon.com Services, Inc., a subsidiary of Amazon.com, Inc. ("Amazon") since September 2015. On March 8, 2016, the Company entered into an Air Transportation Services Agreement (the “ATSA”) with ASI, pursuant to which CAM leases 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA also provides for the operation of those aircraft by the Company’s airline subsidiaries, and the management of ground services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). The ATSA became effective on April 1, 2016 and had an original term of five years.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants in three tranches which will grant Amazon the right to acquire up to 19.9% of the Company’s outstanding common shares as described below. The first tranche of warrants, issued upon the execution of the Investment Agreement and all of which are now fully vested, granted Amazon the right to purchase approximately 12.81 million ATSG common shares, with the first 7.69 million common shares vesting upon issuance on March 8, 2016, and the remaining 5.12 million common shares vesting as the Company delivered additional aircraft leased under the ATSA. The second tranche of warrants, which were issued and vested on March 8, 2018, grants Amazon the right to purchase approximately 1.59 million ATSG common shares. The third tranche of warrants will be issued and vest on September 8, 2020, and will grant Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect to the warrants granted. The exercise price of the warrants is $9.73 per share, which represents the closing

13


price of ATSG’s common shares on February 9, 2016. Each of the three tranches of warrants are exercisable in accordance with its terms through March 8, 2021.
On December 22, 2018 the Company announced agreements with Amazon to 1) lease and operate ten additional Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option for three more years, 3) extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option for three more years and 4) extend the ATSA by five years through March 2026, with an option to extend for an additional three years. The Company delivered six of the 767-300 aircraft in 2019 and plans to deliver the remainder in 2020. All ten of these aircraft leases will be for ten years.
In conjunction with the commitment for ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and the ATSA described above, Amazon and the Company entered into another Investment Agreement on December 20, 2018. Pursuant to the 2018 Investment Agreement, Amazon was issued warrants for 14.8 million common shares which could expand its potential ownership in the Company to approximately 33.2%, including the warrants described above for the 2016 agreements.  Warrants for 11.1 million common shares vested as existing leases were extended and six additional aircraft leases were executed and added to the ATSA operations. More of these warrants will vest as four additional aircraft leases were executed. These new warrants will expire if not exercised within seven years from their issuance date. They have an exercise price of $21.53 per share.
Additionally, Amazon will be able to earn incremental warrant rights, increasing its potential ownership from 33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo aircraft from the Company before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will have an exercise price based on the volume-weighted average price of the Company's shares during the 30 trading days immediately preceding the contractual commitment for each lease.
The warrants issuable under these new agreements with Amazon required an increase in the number of authorized common shares of the Company. Management submitted proposals for shareholder consideration at the Company's annual meeting of shareholders on May 9, 2019 calling for an increase in the number of authorized common shares and approval of the warrants as required under the rules of the Nasdaq Global Select Market. Both proposals were approved by shareholders on May 9, 2019.
The Company’s accounting for the warrants has been determined in accordance with the financial reporting guidance for financial instruments. Warrant obligations are marked to fair value at the end of each reporting period. The value of warrants is recorded as a customer incentive asset if it is probable of vesting at the time of grant and further changes in the fair value of warrant obligations are recorded to earnings. Upon a warrant vesting event, the customer incentive asset is amortized as a reduction of revenue over the duration of the related revenue contract.
As of March 31, 2020, the Company's liabilities reflected 14.8 million warrants from the 2016 Investment Agreement having a fair value of $129.7 million and 24.7 million warrants from the 2018 Amazon agreements having a fair value of $135.4 million. During the three month periods ended March 31, 2020 and 2019, the re-measurements of all the warrants to fair value resulted in net non-operating gains of $118.0 million and $8.3 million before the effect of income taxes, respectively.
Revenues from Amazon comprised approximately 29% and 18% of the Company's consolidated revenues from continuing operations for the three month periods ending March 31, 2020 and 2019, respectively. The Company’s balance sheets include accounts receivable with Amazon of $46.8 million and $50.1 million as of March 31, 2020 and December 31, 2019, respectively.
The Company's earnings in future periods will be impacted by the re-measurements of warrant fair value, amortizations of the lease incentive asset and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting.

14


DoD
The Company is a provider of cargo and passenger airlift services to the DoD. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the DoD were approximately 30% and 37% of the Company's total revenues from continuing operations for the years ended March 31, 2020 and 2019, respectively. The Company's balance sheets included accounts receivable with the DoD of $59.4 million and $44.5 million as of March 31, 2020 and December 31, 2019, respectively.

NOTE D—FAIR VALUE MEASUREMENTS
The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance sheets at fair values based on market values from comparable transactions. The fair value of the Company’s money market funds, convertible note, convertible note hedges and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions.
The fair value of the stock warrant obligations resulting from aircraft leased to Amazon were determined using a Black-Scholes pricing model which considers various assumptions, including the Company’s common stock price, the volatility of the Company’s common stock, the expected dividend yield, exercise price and the risk-free interest rate (Level 2 inputs). The fair value of the stock warrant obligations for unvested stock warrants, conditionally granted to Amazon for the execution of incremental, future aircraft leases, include additional assumptions including the expected exercise prices and the probabilities that future leases will occur (Level 3 inputs).
The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As of March 31, 2020
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
957

 
$

 
$
957

Total Assets
$

 
$
957

 
$

 
$
957

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(19,052
)
 
$

 
$
(19,052
)
Stock warrant obligations

 
(227,082
)
 
(38,022
)
 
(265,104
)
Total Liabilities
$

 
$
(246,134
)
 
$
(38,022
)
 
$
(284,156
)
As of December 31, 2019
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
1,129

 
$

 
$
1,129

Interest rate swap

 
111

 

 
111

Total Assets
$

 
$
1,240

 
$

 
$
1,240

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(8,237
)
 
$

 
$
(8,237
)
Stock warrant obligation

 
(340,767
)
 
(42,306
)
 
(383,073
)
Total Liabilities
$

 
$
(349,004
)
 
$
(42,306
)
 
$
(391,310
)

As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $72.4 million less than the carrying value, which was $1,560.6 million at March 31, 2020. As of December 31, 2019, the fair value of the Company’s debt obligations was approximately $2.7 million less than the carrying value, which was $1,484.4 million. The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.


15


NOTE E—PROPERTY AND EQUIPMENT
The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and other flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Flight equipment
$
2,649,370

 
$
2,598,113

Ground equipment
60,400

 
59,628

Leasehold improvements, facilities and office equipment
34,173

 
33,649

Aircraft modifications and projects in progress
297,791

 
220,827

 
3,041,734

 
2,912,217

Accumulated depreciation
(1,206,558
)
 
(1,146,197
)
Property and equipment, net
$
1,835,176

 
$
1,766,020


CAM owned aircraft with a carrying value of $887.1 million and $889.3 million that were under leases to external customers as of March 31, 2020 and December 31, 2019, respectively.

NOTE F—DEBT OBLIGATIONS
Debt obligations consisted of the following (in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Unsubordinated term loan
$
622,751

 
$
626,277

Revolving credit facility
217,900

 
632,900

Senior notes
492,675

 

Convertible debt
215,663

 
213,461

Other financing arrangements
11,651

 
11,746

Total debt obligations
1,560,640

 
1,484,384

Less: current portion
(13,773
)
 
(14,707
)
Total long term obligations, net
$
1,546,867

 
$
1,469,677


The Company utilizes a syndicated credit agreement ("Senior Credit Agreement") which includes an unsubordinated term loan and a revolving credit facility. In November 2019, the Senior Credit Agreement was amended to increase the maximum revolver capacity from $645.0 million to $750.0 million, combine two terms loans into one loan and reduce the interest rate spread of the LIBOR based financing at various ratios of the Company's debt to its earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). This amendment also extended the agreement to November 2024 provided certain liquidity measures are maintained during 2024, and added incremental accordion capacity based on debt ratios. In January 2020, the Company chose to lower the maximum revolver capacity to $600.0 million in conjunction with the issuance of senior unsecured notes. As of March 31, 2020, the unused revolving credit facility available to the Company at the trailing twelve month EBITDA level was $297.0 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0 million.
The balance of the unsubordinated term loan is net of debt issuance costs of $8.3 million and $8.7 million as of March 31, 2020 and December 31, 2019, respectively. The balance of the Senior Notes is net of debt issuance costs of $7.3 million as of March 31, 2020. Under the terms of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's EBITDA, its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan, Senior Notes and revolving credit facility bear variable interest rates of 2.865%, 4.75% and 2.805%, respectively.

16


The Senior Credit Agreement is collateralized by certain of the Company's Boeing 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 115% of the outstanding balance of the term loan and the total funded revolving credit facility. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $600.0 million.
The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $100.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under 3.00 times, after giving effect to the dividend or repurchase. The Senior Credit Agreement contains covenants, including a maximum permitted total debt to EBITDA ratio, a fixed charge covenant ratio requirement, limitations on certain additional indebtedness, and on guarantees of indebtedness. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.
On January 28, 2020, the Company, through a subsidiary, completed a debt offering of $500.0 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The Senior Notes contain customary events of default and certain covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement. The net proceeds of $495.0 million from the Senior Notes were used to pay down the revolving credit facility. The Senior Notes do not require principal payments in 2020.
In September 2017, the Company issued $258.8 million aggregate principal amount of 1.125% Convertible Senior Notes due 2024 ("Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 1.125% per year payable semi-annually in arrears on April 15 and October 15, beginning April 15, 2018. The Convertible Notes mature on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the Convertible Notes can only occur upon satisfaction of certain conditions and during certain periods, beginning in any calendar quarter commencing after December 31, 2017 and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon the occurrence of certain fundamental changes, holders of the Convertible Notes can require the Company to repurchase their notes at the cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.
The Convertible Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. The initial conversion rate is 31.3475 common shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $31.90 per common share). If a “make-whole fundamental change” (as defined in the offering circular with the Convertible Notes) occurs, the Company will, in certain circumstances, increase the conversion rate for a specified period of time.
In conjunction with the Convertible Notes, the Company purchased convertible note hedges under privately negotiated transactions for $56.1 million, having the same number of the Company's common shares, 8.1 million shares and same strike price of $31.90, that underlie the Convertible Notes. The convertible note hedges are expected to reduce the potential equity dilution with respect to the Company's common stock, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Convertible Notes. The Company's current intent and policy is to settle all Note conversions through a combination settlement which satisfies the principal amount of the Convertible Notes outstanding with cash. The Convertible Notes could have a dilutive effect on the computation of earnings per share in accordance with accounting principles to the extent that the average traded market price of the Company’s common shares for a reporting period exceeds the conversion price.
The conversion feature of the Convertible Notes required bifurcation from the principal amount under the applicable accounting guidance. Settlement provisions of the Convertible Notes and the convertible note hedges required cash settlement of these instruments until the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. As a result, the conversion feature of the Convertible Notes and the convertible note hedges were initially accounted for as liabilities and assets, respectively,

17


and marked to market at the end of each period. The fair value of the note conversion obligation at issuance was $57.4 million.
On May 10, 2018, the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. The Company reevaluated the Convertible Notes and convertible note hedges under the applicable accounting guidance including ASC 815, "Derivatives and Hedging," and determined that the instruments, which meet the definition of derivative and are indexed to the Company's own stock, should be classified in shareholder's equity. On May 10, 2018, the fair value of the conversion feature of the Convertible Notes and the convertible note hedges of $51.3 million and $50.6 million, respectively, were reclassified to paid-in capital and are no longer remeasured to fair value.
The net proceeds from the issuance of the Convertible Notes was approximately $252.3 million, after deducting initial issuance costs. These unamortized issuance costs and discount are being amortized to interest expense through October 2024, using an effective interest rate of approximately 5.15%. The carrying value of the Company's convertible debt is shown below.
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Principal value, Convertible Senior Notes, due 2024
 
258,750

 
258,750

Unamortized issuance costs
 
(4,625
)
 
(4,864
)
Unamortized discount
 
(38,462
)
 
(40,425
)
Convertible debt
 
215,663

 
213,461


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

NOTE G—DERIVATIVE INSTRUMENTS
The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least twenty-five percent of the outstanding balance of the term loan issued in November 2018. Accordingly, the Company entered into additional interest rate swaps in December 2018 and January 2019 having initial values of $150.0 million and $150.0 million, respectively, and forward start dates of December 31, 2018 and June 28, 2019. The table below provides information about the Company’s interest rate swaps (in thousands):
 
 
 
March 31, 2020
 
December 31, 2019
Expiration Date
Stated
Interest
Rate
 
Notional
Amount
 
Market
Value
(Liability)
 
Notional
Amount
 
Market
Value
(Liability)
May 5, 2021
1.090
%
 
18,750

 
(130
)
 
20,625

 
111

May 30, 2021
1.703
%
 
18,750

 
(243
)
 
20,625

 
(25
)
December 31, 2021
2.706
%
 
144,375

 
(5,889
)
 
146,250

 
(3,242
)
March 31, 2022
1.900
%
 
50,000

 
(1,617
)
 
50,000

 
(408
)
March 31, 2022
1.950
%
 
75,000

 
(2,496
)
 
75,000

 
(696
)
March 31, 2023
2.425
%
 
146,250

 
(8,677
)
 
148,125

 
(3,866
)


18


The outstanding interest rate swaps are not designated as hedges for accounting purposes. The effects of future fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains and losses into the statement of operations. The Company recorded a net loss on derivatives of $10.9 million and $3.8 million for the three month periods ending March 31, 2020 and 2019, respectively. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses.

NOTE H—COMMITMENTS AND CONTINGENCIES
CARES Act
The Company's airline subsidiaries, OAI and ATI, each submitted an application to the Secretary of the Treasury for a grant of funds pursuant to the payroll support program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). On April 24, 2020, OAI was notified by the U.S. Department of the Treasury that its application for funds under the payroll support program had been approved on a preliminary basis. OAI expects to receive total funding of approximately $67 million to be paid in installments through September 2020. ATI’s application for a grant under the payroll support program remains pending at this time. As a condition to receiving the funds, OAI and ATI must agree to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and their affiliate air carriers, executive compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, the Company may not pay dividends or repurchase its shares through September 30, 2021.
Lease Commitments
The Company leases property, five aircraft, aircraft engines and other types of equipment under operating leases. Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and lease terms ranging from one month to seven years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable lease expense when incurred and are not material. Equipment leases include ground support and industrial equipment as well as computer hardware with fixed rent payments and terms of one month to five years.
The Company records the initial right-to-use asset and lease liability at the present value of lease payments scheduled during the lease term. For the first three months of 2020 and 2019, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $12.9 million and $1.1 million, respectively. Unless the rate implicit in the lease is readily determinable, the Company discounts the lease payments using an estimated incremental borrowing rate at the time of lease commencement. The Company estimates the incremental borrowing rate based on the information available at the lease commencement date, including the rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company's weighted-average discount rate for operating leases at March 31, 2020 was 4.06% compared to 4.7% at December 31, 2019. Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Although not material, the amount of such options is reflected below in the maturity of operating lease liabilities table. Lease expense is recognized on a straight-line basis over the lease term. Our weighted-average remaining lease term is 4.7 years and 4.6 years as of March 31, 2020 and December 31, 2019, respectively.

19


For the three month periods ended March 31, 2020 and 2019, cash payments against operating lease liabilities were $3.9 million and $5.2 million, respectively. As of March 31, 2020, the maturities of operating lease liabilities are as follows (in thousands):
 
 
Operating Leases
Remaining 2020
 
$
11,682

2021
 
12,054

2022
 
8,336

2023
 
7,608

2024
 
6,398

2025 and beyond
 
6,341

Total undiscounted cash payments
 
52,419

Less: amount representing interest
 
(4,437
)
Present value of future minimum lease payments
 
47,982

Less: current obligations under leases
 
13,340

Long-term lease obligation
 
$
34,642


The Company expects to lease one additional passenger aircraft and additional facilities commencing later in 2020 that are not reflected in the table above.
Purchase Commitments
The Company has agreements with Israel Aerospace Industries Ltd. ("IAI") for the conversion of Boeing 767 passenger aircraft into a standard configured freighter aircraft. The conversions primarily consist of the installation of a standard cargo door and loading system. As of March 31, 2020, the Company had 12 aircraft that were in or awaiting the modification process. As of March 31, 2020, the Company had placed non-refundable deposits of $15.0 million to purchase ten more Boeing 767-300 passenger aircraft through 2021. As of March 31, 2020, the Company's commitments to acquire and convert aircraft totaled $302.2 million through 2021.
Guarantees and Indemnifications
Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.
Other
In addition to the foregoing matters, the Company is also a party to legal proceedings in various federal and state jurisdictions from time to time arising out of the operation of the Company's business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, the Company believes that its ultimate liability, if any, arising from pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations.

20


Employees Under Collective Bargaining Agreements
As of March 31, 2020, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:
Airline
Labor Agreement Unit
Percentage of
the Company’s
Employees
ABX
International Brotherhood of Teamsters
5.1%
ATI
Air Line Pilots Association
8.3%
OAI
International Brotherhood of Teamsters
7.0%
ATI
Association of Flight Attendants
0.9%
OAI
Association of Flight Attendants
7.1%


NOTE I—PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
Defined Benefit and Post-retirement Healthcare Plans
ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX crewmembers, which is unfunded. Benefits for covered individuals terminate upon reaching age 65 under the post-retirement healthcare plans.
The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement obligations. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations.
ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.
The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):
 
Three Months Ended March 31,
 
Pension Plans
 
Post-Retirement Healthcare Plan
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
35

 
$
27

Interest cost
6,970

 
7,825

 
23

 
37

Expected return on plan assets
(11,168
)
 
(9,477
)
 

 

Amortization of net loss
941

 
3,882

 
31

 
43

Net periodic benefit (income) loss
$
(3,257
)
 
$
2,230

 
$
89

 
$
107


During the three month period ending March 31, 2020, the Company contributed $1.3 million to the pension plans. The Company expects to contribute an additional $9.6 million during the remainder of 2020.


21


NOTE J—INCOME TAXES
The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2020 have been estimated utilizing a 24% rate based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants and other items, have an impact on the effective rate during a period.
During 2020, the Company recorded discrete tax items for the conversion of employee stock awards and gains and losses on warrant revaluations which were not subject to tax. As a result of these differences in which expenses and benefits for tax purposes are different than required by generally accepted accounting principles, the Company's effective tax rate for the first three months of 2020 was 5.0%. The final effective tax rate for the year 2020 will depend on the actual amount of pre-tax book results by the Company for the full year, the additional conversions of employee stock awards, stock warrant valuations, executive compensation and other items.
The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, management does not expect to pay federal income taxes until 2023 or later. The Company may, however, be required to pay some federal tax due to loss carryforward usage limitations and certain state and local income taxes before then.

NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ending March 31, 2020 and 2019 (in thousands):
 
 
Defined Benefit Pension
 
Defined Benefit Post-Retirement
 
Foreign Currency Translation
 
Total
Balance as of January 1, 2019
 
(89,042
)
 
(841
)
 
(1,479
)
 
(91,362
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 

 

 
(7
)
 
(7
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
3,882

 
43

 

 
3,925

Income Tax (Expense) or Benefit
 
(931
)
 
(10
)
 
2

 
(939
)
Other comprehensive income (loss), net of tax
 
2,951

 
33

 
(5
)
 
2,979

Balance as of March 31, 2019
 
(86,091
)
 
(808
)
 
(1,484
)
 
(88,383
)
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2020
 
$
(61,152
)
 
$
(702
)
 
$
(12
)
 
$
(61,866
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
941

 
31

 

 
972

Income Tax Expense
 
(215
)
 
(7
)
 

 
(222
)
Other comprehensive income, net of tax
 
726

 
24

 

 
750

Balance as of March 31, 2020
 
(60,426
)
 
(678
)
 
(12
)
 
(61,116
)


22


NOTE L—STOCK-BASED COMPENSATION
The Company's Board of Directors has granted stock incentive awards to certain employees and board members pursuant to a long term incentive plan which was approved by the Company's stockholders in May 2005 and in May 2015. Employees have been awarded non-vested stock units with performance conditions, non-vested stock units with market conditions and non-vested restricted stock. The restrictions on the non-vested restricted stock awards lapse at the end of a specified service period, which is typically three years from the date of grant. Restrictions could lapse sooner upon a business combination, death, disability or after an employee qualifies for retirement. The non-vested stock units will be converted into a number of shares of Company stock depending on performance and market conditions at the end of a specified service period, lasting approximately three years. The performance condition awards will be converted into a number of shares of Company stock based on the Company's average return on invested capital during the service period. Similarly, the market condition awards will be converted into a number of shares depending on the appreciation of the Company's stock compared to the NASDAQ Transportation Index. Board members were granted time-based awards with vesting periods of approximately six or twelve months. The Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below summarizes award activity.
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
Number of
Awards
 
Weighted
average
grant-date
fair value
 
Number of
Awards
 
Weighted
average
grant-date
fair value
Outstanding at beginning of period
963,832

 
$
17.67

 
969,928

 
$
15.89

Granted
435,254

 
18.86

 
276,496

 
23.24

Converted
(128,463
)
 
19.06

 
(130,764
)
 
16.74

Expired
(1,000
)
 
19.40

 

 

Forfeited

 

 

 

Outstanding at end of period
1,269,623

 
$
17.94

 
1,115,660

 
$
17.61

Vested
353,023

 
$
8.25

 
337,060

 
$
8.04


The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2020 was $18.39, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted in 2020 was $20.41. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.7% and a volatility of 35.0% based on volatility over three years using daily stock prices.
For the three month periods ended March 31, 2020 and 2019, the Company recorded expense of $1.8 million and $1.5 million, respectively, for stock incentive awards. At March 31, 2020, there was $13.5 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.8 years. As of March 31, 2020, none of the awards were convertible, 353,023 units of the Board members' time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in a maximum number of 1,570,298 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2022.


23



NOTE M—COMMON STOCK AND EARNINGS PER SHARE
Earnings per Share
The calculation of basic and diluted earnings per common share are as follows (in thousands, except per share amounts):
 
Three Months Ending March 31,
 
2020
 
2019
Numerator:
 
 
 
Earnings from continuing operations - basic
$
133,733

 
$
22,634

Gain from stock warrants revaluation, net of tax
(76,361
)
 
(7,653
)
Earnings from continuing operations - diluted
$
57,372

 
$
14,981

 
 
 
 
Denominator:
 
 
 
Weighted-average shares outstanding for basic earnings per share
59,040

 
58,838

Common equivalent shares:
 
 
 
Effect of stock-based compensation awards and warrants
8,907

 
1,599

Weighted-average shares outstanding assuming dilution
67,947

 
60,437

Basic earnings per share from continuing operations
$
2.27

 
$
0.38

Diluted earnings per share from continuing operations
$
0.84

 
0.25


The determination of diluted earnings per share requires the exclusion of the fair value re-measurement of the stock warrants recorded as a liability (see Note D), if such warrants have an anti-dilutive effect on earnings per share. The dilutive effect of the weighted-average diluted shares outstanding is calculated using the treasury method for periods in which equivalent shares have a dilutive effect on earnings per share. Under this method, the number of diluted shares is determined by dividing the assumed proceeds of the warrants recorded as a liability by the average stock price during the period and comparing that amount with the number of corresponding warrants outstanding.
The underlying warrants recorded as a liability as of March 31, 2020 and 2019 would have resulted in 39.5 million and 39.5 million additional shares of the Company's common stock, respectively, if the warrants were settled by tendering cash.
The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution because their effect would have been anti-dilutive, were 9.2 million for the three month period ended March 31, 2019.


24


NOTE N—SEGMENT AND REVENUE INFORMATION
The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations. The ACMI Services segment consists of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service agreements that the Company has with its customers. The Company's aircraft maintenance services, aircraft modification services, ground services and other services, are not large enough to constitute reportable segments and are combined in All other. Intersegment revenues are valued at arms-length market rates.
The Company's segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Total revenues:
 
 
 
CAM
$
74,163

 
$
70,350

ACMI Services
284,165

 
257,956

All other
80,036

 
67,362

Eliminate inter-segment revenues
(49,087
)
 
(47,485
)
Total
$
389,277

 
$
348,183

Customer revenues:
 
 
 
CAM
$
46,736

 
$
41,609

ACMI Services
284,161

 
257,953

All other
58,380

 
48,621

Total
$
389,277

 
$
348,183


ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, cycles operated, the number of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter agreements, the Company's airline is obligated to provide full services for one or more flights having specific origins and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all flight services, the related costs are recorded in operating expenses. Any sales commissions paid for charter agreements are generally expensed when incurred because the amortization period is less than one year. ACMI Services are invoiced monthly or more frequently. (There are no customer rewards programs associated with services offered by the Company nor does the Company sell passenger tickets or issue freight bills.)
The Company's revenues for customer contracts for airframe maintenance and aircraft modification services that do not have an alternative use and for which the Company has an enforceable right to payment are generally recognized over time based on the percentage of costs completed. Services for airframe maintenance and aircraft modifications typically have project durations lasting a few weeks to a few months. Other revenues for aircraft part sales, component repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts include assurance warranties that are not sold separately.
The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the costs to costs input method. For such services, the Company estimates the earnings

25


on a contract as the difference between the expected revenue and estimated costs to complete a contract and recognizes revenues and earnings based on the proportion of costs incurred compared to the total estimated costs. Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of progress toward contract obligations. The Company's estimates consider the timing and extent of the services, including the amount and rates of labor, materials and other resources required to perform the services. These production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the adjustment is identified.
The Company's ground services revenues include load transfer and sorting services, facility and equipment maintenance services. These revenues are recognized as the services are performed for the customer over time. Revenues from related facility and equipment maintenance services are recognized over time and at a point in time depending on the nature of the customer contracts.
The Company's external customer revenues from other activities for the three month periods ended March 31, 2020 and 2019 are presented below (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Aircraft maintenance, modifications and part sales
 
$
33,835

 
$
33,981

Ground services
 
14,609

 
13,938

Other, including aviation fuel sales
 
9,936

 
702

Total customer revenues
 
$
58,380

 
$
48,621


CAM's aircraft lease revenues are recognized as operating leases on a straight-line basis over the term of the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in advance. CAM's leases do not contain residual guarantees. Approximately 11% of CAM's leases to external customers contain purchase options at projected market values. As of March 31, 2020, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $143.6 million for the remainder of 2020, $182.8 million, $156.6 million, $114.7 million, and $80.1 million, respectively, for each of the next four years ending December 31, 2024 and $195.5 million thereafter. As of December 31, 2019, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $186.8 million, $178.2 million, $152.0 million, $110.1 million and $75.5 million, respectively, for each of the next 5 years ending December 31, 2024 and $186.2 million thereafter.
For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service. During the three month periods ending March 31, 2020 and 2019, the Company recognized $2.7 million and $2.7 million of non lease revenue that was reported in deferred revenue at the beginning of the respective year. Deferred revenue was $4.0 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively, for contracts with customers.

26


The Company's other segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Depreciation and amortization expense:
 
 
 
CAM
$
43,047

 
$
38,795

ACMI Services
25,312

 
23,095

All other
983

 
747

Total
$
69,342

 
$
62,637

Interest expense
 
 
 
CAM
10,255

 
9,965

ACMI Services
5,301

 
6,549

Segment earnings (loss):
 
 
 
CAM
$
15,820

 
$
16,174

ACMI Services
18,378

 
12,310

     All other
53

 
1,903

Net unallocated interest expense
(655
)
 
(780
)
Net gain on financial instruments
107,044

 
4,500

Transaction fees

 
(373
)
Other non-service components of retiree benefit costs, net
2,898

 
(2,351
)
Loss from non-consolidated affiliate
(2,764
)
 
(3,816
)
Pre-tax earnings from continuing operations
$
140,774

 
$
27,567


The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.
 
March 31,
 
December 31,
 
2020
 
2019
Assets:
 
 
 
CAM
$
1,918,286

 
$
1,857,687

ACMI Services
882,941

 
830,620

Discontinued operations
2,027

 
1,499

All other
116,786

 
130,372

Total
$
2,920,040

 
$
2,820,178


During the first three months of 2020, the Company had capital expenditures for property and equipment of $25.9 million and $116.1 million for the ACMI Services and CAM, respectively.


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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis has been prepared with reference to the historical financial condition and results of operations of Air Transport Services Group, Inc., and its subsidiaries. Air Transport Services Group, Inc. and its subsidiaries may hereinafter individually and collectively be referred to as "the Company", "we", "our" or "us" from time to time. The following discussion and analysis describes the principal factors affecting the results of operations, financial condition, cash flows, liquidity and capital resources. It should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes prepared in accordance with accounting principles generally accepted in the United States of America contained in this report and our Annual Report on Form 10-K for the year ended December 31, 2019.

INTRODUCTION
We lease aircraft and provide airline operations, aircraft modification and maintenance services, ground services, and other support services to the air transportation and logistics industries. Through the Company's subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, e-commerce operators, airlines and government customers. Our principal subsidiaries include three independently certificated airlines (ABX, ATI and OAI) and an aircraft leasing company (CAM ). CAM provides competitive aircraft lease rates by converting passenger aircraft into cargo freighters and offering them to customers under long-term leases.
We have two reportable segments: CAM, which leases Boeing 777, 767, 757 and 737 aircraft and aircraft engines, and ACMI Services, which includes the cargo and passenger transportation operations of the three airlines. Our other business operations, which primarily provide support services to the transportation industry, include aircraft maintenance and modification services, aviation fuel sales and ground services for load transfer, parcel sorting and related equipment maintenance. These operations do not constitute reportable segments and are reported together as Other Activities.
Our largest customers are the U.S. Department of Defense ("DoD"); Amazon.com Services, LLC ("ASI"), successor to Amazon.com Services, Inc., a subsidiary of Amazon.com, Inc. ("Amazon") and DHL Network Operations (USA), Inc. and its affiliates ("DHL").
DHL
The Company has had long-term contracts with DHL since August 2003. DHL accounted for 11% and 15% of the Company's consolidated revenues, during the first three months of 2020 and 2019, respectively. As of March 31, 2020, the Company, through CAM, leased 14 Boeing 767 cargo aircraft to DHL comprised of seven Boeing 767-200 aircraft and seven Boeing 767-300 aircraft expiring between 2022 and 2024. Eight of the 14 Boeing 767 aircraft were being operated for DHL by the Company's airlines. We also operated four CAM-owned Boeing 757 aircraft under other operating arrangements with DHL during 2020 and 2019.
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for ASI since September 2015. Revenues from our commercial arrangements with ASI comprised approximately 29% and 18% of our consolidated revenues during the three month periods ending March 31, 2020 and 2019, respectively. On March 8, 2016, we entered into an Air Transportation Services Agreement (the “ATSA”) with ASI pursuant to which CAM leased 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA also provides for the operation of those aircraft by our airline subsidiaries for a term of five years, and the performance of ground handling services by our subsidiary, LGSTX Services Inc. ("LGSTX"). In December 2018, the Company announced agreements with Amazon to 1) lease and operate ten additional Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option on the part of ASI to extend the lease term for three more years, 3) extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option on the part of ASI to extend the lease term for three more years and 4) extend the ATSA by five years through March 2026, with an option on the part of ASI to extend the term for an additional three years. During January 2019, amendments to extend the terms of the aircraft leases were executed. As of March 31, 2020, we had executed leases with ASI for six of the ten Boeing 767-300 aircraft. We plan to deliver the remainder in the second half of 2020. All ten of these aircraft leases will be for ten years. Under the ATSA, we operate the aircraft based on

28


pre-defined fees scaled for the number of aircraft hours flown, aircraft scheduled and flight crews provided to ASI for its network.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants in three tranches which grant Amazon the right to acquire up to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect to the warrants granted. These warrants will expire on March 9, 2021 and, if settled in cash, would result in an approximately $144 million payment to the Company.
In conjunction with the commitment for the ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and additional aircraft operations under the ATSA, Amazon was issued additional warrants for 14.8 million common shares which, if also exercised for cash, could expand its potential ownership in the Company to approximately 33.2%, including the warrants described above under the 2016 agreements. These new warrants will vest as existing leases are extended and additional aircraft leases are executed and added to the ATSA operations. If settled in cash, these warrants, which begin to expire in December 2025, would result in payments of approximately $319 million to the Company. Additionally, Amazon can earn incremental warrant rights, increasing its potential ownership from 33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo aircraft from the Company before January 2026.
For all warrants granted, Amazon may select a cashless conversion option. Assuming ATSG’s stock price at the time of conversion is above the warrant exercise price, Amazon would receive fewer shares in exchange for any warrants exercised under the cashless option. Instead, Amazon would receive the number of ATSG shares equivalent in market value at the time of conversion to the appreciation above the exercise price of the warrants.
Our accounting for the warrants issued to Amazon has been determined in accordance with the financial reporting guidance for financial instruments. The fair value of the warrants issued or issuable to Amazon are recorded as a lease incentive asset and are amortized against revenues over the duration of the aircraft leases. The warrants are accounted for as financial instruments, and accordingly, the fair value of the outstanding warrants are measured and classified in liabilities at the end of each reporting period. The Company's earnings are impacted by the fair value re-measurement of the Amazon warrants at the end of each reporting period, customer incentive amortization and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting. For additional information about the warrants, see Note C to the accompanying consolidated financial statements.
DoD
The Company's airlines have been providing services to the U. S. DoD since the 1990's. The Company's airlines provide passenger and cargo airlift services to the DoD. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Under the contracts, we are responsible for all operating expenses including fuel, landing and ground handling expenses. We receive reimbursements from the U.S. Transportation Command of the DoD each month if the price of fuel paid by us for the flights exceeds a previously set peg price. The DoD comprised 30% and 37% of the Company's consolidated revenues during the three month periods ending March 31, 2020 and 2019, respectively.

RESULTS OF OPERATIONS
Summary
The consolidated net earnings from continuing operations were $133.7 million for the three month period ending March 31, 2020 compared to $22.6 million for the corresponding period of 2019. The pre-tax earnings from continuing operations were $140.8 million for the first quarter of 2020 compared to $27.6 million for 2019. Earnings were affected by specific events and certain adjustments that do not directly reflect our underlying operations among the periods presented. On a pre-tax basis, earnings included net gains of $107.0 million and $4.5 million for the three month periods ended March 31, 2020 and 2019, respectively, for the re-measurement of financial instruments, primarily warrant obligations granted to Amazon. Pre-tax earnings were reduced by $4.9 million and $4.2 million for the first quarters ended March 31, 2020 and 2019, respectively, for the amortization of customer incentives given to ASI in the form of warrants. Pre-tax earnings from continuing operations included gains of $2.9 million and expenses of $2.4 million for

29


the quarters of 2020 and 2019, respectively, for non-service components of retiree benefit plans. Additionally, pre-tax earnings included losses of $2.8 million and $3.8 million for the first quarters of 2020 and 2019, respectively, for the Company's share of development costs for a joint venture and the partial sale of an airline investment. Pre-tax earnings for the first quarter of 2019 also included expense of $0.4 million for acquisition fees incurred during the Company's acquisition of OAI, along with related entities Advanced Flight Services, LLC; Omni Aviation Leasing, LLC; and T7 Aviation Leasing, LLC (collectively, "Omni"). After removing the effects of these items, adjusted pre-tax earnings from continuing operations, a non-GAAP measure (a definition and reconciliation of adjusted pre-tax earnings from continuing operations follows), were $38.5 million for the first quarter of 2020 compared to $33.8 million for the first quarter of 2019. Adjusted pre-tax earnings from continuing operations for the first quarter of 2020 improved by 13.7% compared to 2019, driven by increased revenues.
External customer revenues from continuing operations increased by $41.1 million, or 12%, to $389.3 million during the first three months of 2020 compared to 2019. Customer revenues increased in 2020 for contracted airline services, aircraft leasing, ground services and aviation fuel sales compared to the previous year period. Beginning in late February 2020, our revenues were negatively impacted due to the coronavirus pandemic. The DoD and other customers began canceling scheduled passenger flights as a result of the pandemic. The decline in revenues from these cancellations were partially offset by an increase in event driven, ad hoc passenger flights during the first quarter of 2020.
A summary of our revenues and pre-tax earnings and adjusted pre-tax earnings from continuing operations is shown below (in thousands):
 
Three Months Ended
 
March 31,
 
2020
 
2019
Revenues from Continuing Operations:
 
 
 
CAM
 
 
 
Aircraft leasing and related services
$
78,609

 
$
74,577

Lease incentive amortization
(4,446
)
 
(4,227
)
Total CAM
74,163

 
70,350

ACMI Services
284,165

 
257,956

Other Activities
80,036

 
67,362

Total Revenues
438,364

 
395,668

Eliminate internal revenues
(49,087
)
 
(47,485
)
Customer Revenues - non reimbursed
$
389,277

 
$
348,183

 
 
 
 
 
 
 
 
Pre-Tax Earnings (Loss) from Continuing Operations:
 
 
 
CAM, inclusive of interest expense
$
15,820

 
$
16,174

ACMI Services
18,378

 
12,310

Other Activities
53

 
1,903

Net unallocated interest expense
(655
)
 
(780
)
Net financial instrument re-measurement gain
107,044

 
4,500

Transaction fees

 
(373
)
Other non-service components of retiree benefits gains (costs), net
2,898

 
(2,351
)
Loss from non-consolidated affiliate
(2,764
)
 
(3,816
)
Pre-Tax Earnings (Loss) from Continuing Operations
140,774

 
27,567

Add other non-service components of retiree benefit (gains) costs, net
(2,898
)
 
2,351

Add charges for non-consolidated affiliates
2,764

 
3,816

Add lease incentive amortization
4,857

 
4,227

Add transaction fees

 
373

Add net gain on financial instruments
(107,044
)
 
(4,500
)
Adjusted Pre-Tax Earnings from Continuing Operations
$
38,453

 
$
33,834


30


Adjusted pre-tax earnings from continuing operations, a non-GAAP measure, is pre-tax earnings excluding settlement charges and other non-service components of retiree benefit costs, gains and losses for the fair value re-measurement of financial instruments, customer incentive amortization, the transaction fees related to the acquisition of Omni, the start-up costs of a non-consolidated joint venture and the partial sale of an airline investment. We exclude these items from adjusted pre-tax earnings because they are distinctly different in their predictability or not closely related to our on-going operating activities. Management uses adjusted pre-tax earnings to compare the performance of core operating results between periods. Presenting this measure provides investors with a comparative metric of fundamental operations while highlighting changes to certain items among periods. Adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP.
Aircraft Fleet
Our fleet of cargo and passenger aircraft is summarized in the following table as of March 31, 2020 and December 31, 2019. Our freighters, converted from passenger aircraft, utilize standard shipping containers and can be deployed into regional cargo markets more economically than larger capacity aircraft, newly built freighters or other competing alternatives. At March 31, 2020, the Company owned twelve Boeing 767-300 aircraft that were either already undergoing, or awaiting, induction into the freighter conversion process.
Aircraft fleet activity during the first three months of 2020 is summarized below:
- CAM completed the modification of one Boeing 767-300 freighter aircraft purchased in the previous year and began to lease that aircraft to an external customer under a multi-year lease.
- ABX returned one Boeing 767-200 freighter aircraft and one Boeing 767-300 freighter aircraft to CAM. ATI returned one Boeing 757-200 freighter aircraft. CAM is prepping the Boeing 767-300 aircraft for lease to an external customer later in 2020.
- An external customer returned one Boeing 737-400 freighter aircraft to CAM. CAM is prepping to sell the Boeing 737-400 aircraft to an external customer during the second quarter of 2020.
- OAI began to lease one Boeing 767-300 passenger aircraft from an external lessor.
- CAM purchased four Boeing 767-300 passenger aircraft and one Boeing 767-300 freighter aircraft for the purpose of converting the passenger aircraft into a standard freighter configuration.

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March 31, 2020
 
December 31, 2019
 
ACMI
Services
CAM
Total
 
ACMI
Services
CAM
Total
In-service aircraft
 
 
 
 
 
 
 
Aircraft owned
 
 
 
 
 
 
 
Boeing 767-200 Freighter
6

26

32

 
7

26

33

Boeing 767-200 Passenger
2


2

 
2


2

Boeing 767-300 Freighter
4

36

40

 
5

35

40

Boeing 767-300 Passenger
7


7

 
7


7

Boeing 777-200 Passenger
3


3

 
3


3

Boeing 757-200 Freighter
3


3

 
4


4

Boeing 757-200 Combi
4


4

 
4


4

Boeing 737-400 Freighter



 

1

1

Total
29

62

91

 
32

62

94

Operating lease
 
 
 
 
 
 
 
Boeing 767-200 Passenger
1


1

 
1


1

Boeing 767-300 Passenger
2


2

 
1


1

Boeing 767-300 Freighter
2


2

 
2


2

Total
5


5

 
4


4

Other aircraft
 
 
 
 
 
 
 
Owned Boeing 767-300 under modification

12

12

 

8

8

Owned Boeing 767 available or staging for lease

4

4

 

2

2

As of March 31, 2020, ABX, ATI and OAI were leasing 29 in-service aircraft internally from CAM. As of March 31, 2020, 35 of CAM's 62 Boeing 767 freighter aircraft were leased to customers and operated by ABX or ATI within ACMI Services. CAM leased the other 13 Boeing 767-200 freighter aircraft and 14 Boeing 767-300 aircraft to external customers, including six Boeing 767-200 aircraft to DHL that are being operated by a DHL-affiliated airline. The carrying values of the total in-service fleet as of March 31, 2020 and December 31, 2019 were $1,346.8 million and $1,387.6 million; respectively.
CAM Segment
CAM offers aircraft leasing and related services to external customers and also leases aircraft internally to the Company's airlines. CAM acquires passenger aircraft and manages the modification of the aircraft into freighters. The follow-on aircraft leases normally cover a term of five to ten years.
As of March 31, 2020 and 2019, CAM had 62 and 59 aircraft under lease to external customers, respectively. CAM's revenues grew by $3.8 million during the first quarter of 2020 compared to 2019, primarily as a result of additional aircraft leases. Revenues from external customers totaled $46.7 million and $41.6 million for the first quarters of 2020 and 2019, respectively. CAM's revenues from the Company's airlines totaled $27.4 million during the first quarter of 2020, compared to $28.7 million for 2019. CAM's aircraft leasing and related services revenues, which exclude customer lease incentive amortization, increased $4.0 million in the first quarter of 2020 compared to 2019, primarily as a result of new aircraft leases in 2020. Since April 1 2019, CAM has added eight Boeing 767-300 aircraft to its lease portfolio.
CAM's pre-tax earnings, inclusive of internally allocated interest expense, were $15.8 million and $16.2 million during the first three months of 2020 and 2019, respectively. Decreased pre-tax earnings reflect a $0.3 million increase in internally allocated interest expense due to higher debt levels and $4.3 million more depreciation expense driven by the addition of eight Boeing aircraft in 2020 compared to the first quarter of 2019.

32


During the first three months of 2020, CAM purchased four Boeing 767-300 passenger aircraft for freighter conversion and one Boeing 767-300 freighter aircraft. As of March 31, 2020, all four of the Boeing 767-300 passenger aircraft purchased in 2020 and seven of the passenger aircraft purchased in 2019 were being modified from passenger to freighter configuration. We have customer commitments for more than half of these aircraft, and are in discussion with customers for deployment of the remainder in 2020 or 2021.
In addition to the eleven Boeing 767-300 passenger aircraft which were in the freighter conversion process at March 31, 2020, CAM has agreements to purchase nine more passenger Boeing 767-300 aircraft and expects to complete their conversion through 2021. CAM also has agreements to purchase one more Boeing 767-300 freighter aircraft. CAM's operating results will depend on its continuing ability to convert passenger aircraft into freighters within planned costs and within the time frames required by customers. Potential supply chain disruptions, including workforce illness, parts shortages and transportation delays, which may be caused by the coronavirus pandemic could result in the delay of aircraft conversions. Currently, CAM expects six more passenger aircraft to be converted during 2020.
During the remainder of 2020, two leases for Boeing 767-200 aircraft are timed to expire. Further, CAM expects the return of its Boeing 757 freighter aircraft after DHL discontinues the related ACMI agreements in the second quarter of 2020. The timing and lease rates under which these aircraft are ultimately leased, redeployed or disposed will impact CAM's future operating results. Additionally, CAM's future operating results will also be impacted by the amortization of additional warrants committed to Amazon in conjunction with agreements for additional long-term aircraft leases.
ACMI Services
The ACMI Services segment provides airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance, insurance and aviation fuel. Our customers are typically responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees, ramp expenses, certain aircraft maintenance expenses and fuel procured directly by the airline. Aircraft charter agreements, including those for the DoD, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price. As of March 31, 2020, ACMI Services included 69 in-service aircraft as follows:
Twelve passenger aircraft and 17 freighter aircraft leased internally from CAM
Eight CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the DHL CMI agreement
Twenty-six CAM-owned freighter aircraft which are under lease to ASI and operated by ATI or ABX under the ATSA
Two freighter aircraft from an external lessor under lease to ASI and operated by ATI under the ATSA
Another CAM-owned freighter leased to a customer and operated by ATI
Three passenger aircraft leased from an external lessor
During the first quarter of 2020, ACMI Services revenues included the operation of four more aircraft compared to March 31, 2019, resulting in a 31% increase in billable block hours, driven primarily by expanded flying for ASI. Total revenues from ACMI Services increased $26.2 million during the first three months of 2020 compared with 2019 to $284.2 million. In late February, 2020 the DoD began canceling combi aircraft flights and in March, the DoD and other customers began canceling scheduled passenger flights as a result of the coronavirus pandemic. Block hours for contracted passenger and combi fights for the DoD declined 11% compare to the previous year due to the pandemic. The decline in revenues from these cancellations were partially offset by an increase in contracted ad hoc passenger flights during the first quarter of 2020.
ACMI Services pre-tax earnings increased $6.1 million to $18.4 million during the first quarter of 2020, compared to 2019, inclusive of internally allocated interest expense. Improved pre-tax results in 2020 compared to 2019 were primarily a result of expanded revenues from ASI, the timing of scheduled airframe maintenance events and lower internally allocated interest expense. Scheduled airframe maintenance expense increased $0.6 million during the first three months of 2020 compared to 2019. Airframe maintenance expense varies depending upon the number of C-checks and the scope of the checks required for those airframes scheduled for maintenance. Internally allocated interest expense decreased by $1.2 million to $5.3 million for the first quarter of 2020 compared to 2019.

33


Our operating results are expected to be significantly impacted by the coronavirus pandemic during the second quarter of 2020 and mostly likely during subsequent quarters. The DoD and other passenger service customers have suspended most passenger operations at least through May 2020. As a result, we expect the operating results of ACMI Services to decline at least for the second quarter of 2020. It is difficult to reasonably predict when passenger flights will actually resume, the frequency in which flights will resume, and length of time necessary before passenger flights substantially recover to pre-pandemic levels. Our airlines have applied for a payroll support grant under the Coronavirus Aid, Relief, and Economic Security Act, referred to as the CARES Act. Beginning in May 2020, we expect OAI to receive the first of five monthly installments that will total approximately $67 million of non-repayable support for employee payroll from the CARES Act program for passenger airlines. The grant program includes terms and conditions for which OAI must comply to retain the funding. Among others, the terms and conditions require OAI to maintain its scheduled flight services and refrain from employee furloughs or lay-offs through September 30, 2020. We have also applied under the CARES Act for our airline ATI, and its application has yet to be finalized.
In addition to passenger flights, cargo flights we operate may also be impacted by the pandemic. In addition to our own capabilities, we rely on services from vendors and customers to operate efficiently and safely in the express cargo networks that we support. Potential disruptions which may be caused by the pandemic, such as parts shortages, maintenance delays, crew travel delays, shortages of hotel accommodations for flight crews and workforce shortages could result in reduced revenues and additional expenses.
DHL has informed us that it intends to discontinue the remaining ACMI agreements for the Boeing 757 freighter aircraft in the second quarter of 2020. We are evaluating customer alternatives for the four aircraft and expect a reduction in their ACMI revenues to occur.
We expect Amazon to lease at least four additional Boeing 767-300 freighter aircraft from CAM during 2020 and to contract the operation of those aircraft to our airlines through our existing ATSA.
Other Activities
We provide other support services to our ACMI Services customers and other airlines by leveraging our knowledge and capabilities developed for our own operations over the years. Through our FAA certificated maintenance and repair subsidiaries, we sell aircraft parts and provide aircraft maintenance and modification services. We also arrange and perform logistical services and package sorting services for certain ASI gateway locations in the U.S. We provide maintenance for ground equipment, facilities and material handling equipment and we resell aviation fuel in Wilmington, Ohio. Additionally, our airlines provide flight training services.
External customer revenues from all other activities increased $9.8 million during the first three months of 2020 compared to the corresponding period of 2019, primarily due to aviation fuel sales at ASI's hub in Wilmington, Ohio. Revenues also increased at two ASI gateways which we operate. Ground services revenues during 2020 included a reduction for equipment and facility maintenance revenues compared to the first quarter of 2019 as customers chose to in-source some of these services.
The pre-tax earnings from other activities decreased by $1.9 million to $0.1 million in the first three months of 2020. Reduced earnings for 2020 are a result of higher unallocated corporate expenses and less equipment and facility maintenance revenues. These were partially offset by additional aviation fuel sales which earn a lower margin.
Our customer base for aircraft maintenance revenues includes passenger airlines. Our operating results are expected to be impacted by the coronavirus pandemic as passenger airlines reduce their needs for scheduled heavy airframe maintenance. Further, we rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer packages, load aircraft and maintain related equipment. Although we are taking precautions to distance employees and promote hygiene, a coronavirus outbreak at one of our maintenance facilities or customer sorting centers could result in workforce shortages or closures causing reduced revenues and higher expenses.
Expenses from Continuing Operations
Salaries, wages and benefits expense increased $26.2 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019 driven by higher employee headcount for flight operations, maintenance services and package sorting services. The total headcount increased 16% as of March 31, 2020 compared to March 31, 2019.

34


Depreciation and amortization expense increased $6.7 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. The increase reflects incremental depreciation for eight Boeing 767-300 aircraft and additional aircraft engines added to the operating fleet since April 1, 2019, as well as capitalized heavy maintenance and navigation technology upgrades. We expect depreciation expense to increase during future periods in conjunction with our fleet expansion and capital spending plans.
Maintenance, materials and repairs expense decreased by $2.9 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. Decreased maintenance expense for 2020 was due to lower material expenses for aircraft maintenance provided by our maintenance and repair subsidiary for external customers and lower costs for unscheduled engine repairs at our airlines, partially offset by increases corresponding to increased flight hours. The aircraft maintenance and material expenses can vary among periods due to the number of maintenance events and the scope of airframe checks that are performed.
Fuel expense increased by $8.8 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. Fuel expense includes the cost of fuel to operate DoD charters, fuel used to position aircraft for service and for maintenance purposes, as well as the cost of fuel sales. The increase in fuel during 2020 is primarily for the increased amounts of aviation fuel we sell at the ASI air hub in Wilmington, Ohio since it opened in mid 2019.
Contracted ground and aviation services expense includes navigational services, aircraft and cargo handling services, baggage handling services and other airport services. Contracted ground and aviation services decreased $1.2 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. Since mid 2019, certain customers chose to in-source some ground services that we had subcontracted.
Travel expense increased by $1.6 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019 to support the expanded network for ASI.
Landing and ramp expense, which includes the cost of deicing chemicals, decreased by $0.3 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019 due to milder winter weather in 2020.
Rent expense decreased by $0.3 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. Compared to the corresponding period of 2019, increased rent expense for additional aircraft were offset by lower facility rents during 2020.
Non Operating Income, Adjustments and Expenses
Interest expense decreased by $1.1 million during the quarter ended March 31, 2020 compared to the corresponding period of 2019. Interest expense during the first three months of 2020 decreased compared to the previous year due to lower interest rates on our borrowings under the Senior Credit Agreement.
The Company recorded unrealized pre-tax gains on financial instrument re-measurements of $107.0 million during the first quarter of 2020, compared to unrealized pre-tax net gains of $4.5 million for 2019. The gains and losses include the results of re-valuing, as of March 31, 2020 and 2019, the fair value of the stock warrants granted to Amazon. Generally, the warrant value increases or decreases with corresponding increases or decreases in the ATSG stock price during the measurement period. Additionally, the value of certain warrants depend partially on the probability that warrants will vest upon the execution of aircraft leases. Warrant gains for 2020 were primarily a result of a 22% decrease in the traded value of ATSG shares.
Non service components of retiree benefits were a net gain of $2.9 million for the first quarter of 2020 compared to a net losses of $2.4 million for 2019. The non service component gain and losses of retiree benefits are actuarially determined and include the amortization of unrecognized gain and loss stemming from changes in assumptions regarding discount rates, expected investment returns and other retirement plan assumptions. Non service components of retiree benefits can vary significantly from one year to the next based on investment results and changes in discount rates used to account for defined benefit retirement plans.
The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2020 have been estimated utilizing a 24% rate based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants and other items have an impact on the effective rate during a period.

35


The effective tax rate from continuing operations for the three month period ended March 31, 2020 was 5%. The effective tax rate is affected by the re-measurement of warrants, changes in valuation allowances and other discrete tax items in which expenses and benefits for tax purposes are different than required by generally accepted accounting principles. The effective tax rate before including the effects of the warrant re-measurements, incentive amortizations and valuation allowance changes was 24% for the three month period ended March 31, 2020. The effective tax rate before including the effects of the warrants was 23% for the three month period ended March 31, 2019.
Discontinued Operations
The financial results of discontinued operations primarily reflect pension, workers' compensation cost adjustments and other benefits for former employees previously associated with ABX's former hub operations pursuant to which ABX performed package sorting services for DHL. Pre-tax gains related to the former sorting operations were $4.9 million for the first quarter of 2020 compared to less than $0.1 million for 2019. Pre-tax earnings during 2020 and 2019 were a result of reductions in self-insurance reserves for former employee claims and pension credits.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Net cash generated from operating activities totaled $99.0 million and $107.4 million for the first three months in 2020 and 2019, respectively. Cash flows generated from operating activities during 2020 and 2019 were driven primarily by aircraft leases to customers and by the operating levels of the ACMI Services segment. Cash outlays for pension contributions were $1.3 million and $0.6 million for the first three months of 2020 and 2019, respectively. Operating cash flows declined $7.3 million for the first three months of 2020 compared to the corresponding period of 2019 due to increased operating costs and a higher level of net working capital during 2020.
Capital spending levels were primarily the result of aircraft modification costs and the acquisition of aircraft for freighter modification. Cash payments for capital expenditures were $143.5 million and $91.9 million for the first three months of 2020 and 2019, respectively. Capital expenditures in the first quarter of 2020 included $105.4 million for the acquisition of five Boeing 767-300 aircraft and freighter modification costs; $27.4 million for required heavy maintenance; and $10.7 million for other equipment, including purchases of aircraft engines and rotables. Capital expenditures in the first quarter of 2019 included $70.5 million for the acquisition of four Boeing 767-300 aircraft and freighter modification costs; $9.8 million for required heavy maintenance; and $11.6 million for other equipment, including purchases of aircraft engines and rotables.
During the first quarter of 2019, we paid $12.0 million to complete the acquisitions of Omni and TriFactor. During the first quarters of 2020 and 2019, we contributed $3.0 million and $3.8 million, respectively, to a joint-venture with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft.
Net cash provided by financing activities was $72.3 million compared to $9.6 million in 2019. Our financing activities during the first three months of 2020 included a debt offering of $500 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.750% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The net proceeds from the Senior Notes were used to pay down the revolver credit facility.
During the first three months of 2020, we drew a total $80.0 million from the revolving credit facility and made no draws during the first three months of 2019. Our borrowing activities were necessary to purchase and modify aircraft for deployment into air cargo markets.
Commitments
As of March 31, 2020, the Company had twelve aircraft that were in, or awaiting, the freighter modification process. Additionally, we have agreed to purchase ten more Boeing 767-300 aircraft through 2021. We estimate that capital expenditures for 2020 will total $420 million, of which the majority will be related to aircraft purchases and freighter modifications. Actual capital spending for any future period will be impacted by aircraft acquisitions, maintenance and modification processes. We expect to finance these capital expenditures from current cash balances, future operating

36


cash flows and the Senior Credit Agreement. The Company outsources a significant portion of the aircraft freighter modification process to a non-affiliated third party. The modification process primarily consists of the installation of a standard cargo door and loading system. For additional information about the Company's aircraft modification obligations, see Note I of the accompanying financial statements.
Since August 3, 2017, the Company has been part of a joint-venture with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. We anticipate approval of a supplemental type certificate from the FAA in 2020. We expect to make contributions equal to the Company's 49% ownership percentage of the program's total costs during 2020.
Liquidity
We have a Senior Credit Agreement with a consortium of banks that includes an unsubordinated term loan of $622.8 million, net of debt issuance costs, and a revolving credit facility from which the Company has drawn $217.9 million, net of repayments, as of March 31, 2020. The Senior Credit Agreement expires in November 2024 if certain liquidity measures are maintained during 2024 and contains an incremental accordion capacity based on debt ratios. As of March 31, 2020, the available unused revolving credit facility capacity totaled $297.0 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0 million.
The Senior Credit Agreement is collateralized by our fleet of Boeing 777, 767 and 757 freighter aircraft. Under the terms of the Senior Credit Agreement, we are required to maintain collateral coverage equal to 115% of the outstanding balances of the term loan and the total funded revolving credit facility. The Senior Credit Agreement requires a minimum collateral coverage of 50% of the outstanding balance of the term loan plus the revolving credit facility commitment, which was $600.0 million.
Under the Senior Credit Agreement, the Company is subject to covenants and warranties that are usual and customary including, among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization expenses) ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default including unspecified events that may have a material adverse effect on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement. The Senior Notes contain customary events of default and covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement.
Additional debt or lower EBITDA may result in higher interest rates. Under the Senior Credit Agreement, interest rates are adjusted quarterly based on the prevailing LIBOR or prime rates and a ratio of the Company's outstanding debt level to EBITDA. At the Company's current debt-to-EBITDA ratio, the unsubordinated term loans, the Senior Notes and the revolving credit facility bear variable interest rates of 2.865%, 4.75% and 2.805%, respectively.
At March 31, 2020, the Company had $71.1 million of cash balances. We believe that the Company's current cash balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, capital spending, scheduled debt payments and required pension funding for at least the next 12 months.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2020 and 2019, we were not involved in any material unconsolidated SPE transactions.
Certain of our operating leases and agreements contain indemnification obligations to the lessor or one or more other parties that are considered usual and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after the expiration of the respective lease or agreement. No amounts have been recognized in our financial statements for the underlying fair value of guarantees and indemnifications.


37


CRITICAL ACCOUNTING POLICIES AND ESTIMATES
“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as certain disclosures included elsewhere in this report, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to select appropriate accounting policies and make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingencies. In certain cases, there are alternative policies or estimation techniques which could be selected. On an ongoing basis, we evaluate our selection of policies and the estimation techniques we use, including those related to revenue recognition, post-retirement liabilities, bad debts, self-insurance reserves, valuation of spare parts inventory, useful lives, salvage values and impairment of property and equipment, income taxes, contingencies and litigation. We base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances. Those factors form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources, as well as for identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.
For information regarding recently issued accounting pronouncements and the expected impact on our annual statements, see Note A "SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES" in the accompanying notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk for changes in interest rates and changes in the price of jet fuel. The risk associated with jet fuel, however, is largely mitigated by reimbursement through the agreements with its customers.
No changes have occurred to the market risks the Company faces since information about those risks was disclosed in item 7A of the Company's 2019 Annual Report on form 10-K filed with the Securities and Exchange Commission on March 2, 2020.

ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
As of March 31, 2020, the Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon the evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls
There were no changes in internal control over financial reporting during the most recently completed fiscal year that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.


38


PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We are currently a party to legal proceedings in various federal and state jurisdictions arising out of the operation of the Company's businesses. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, we believe that the Company's ultimate liability, if any, arising from the pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations.

ITEM 1A. RISK FACTORS
The Company faces risks that could adversely affect its condition or results of operations. Many of these risks are disclosed in Item 1A of the Company's 2019 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 2, 2020. The risk factors presented below update, and should be considered in addition to, the risk factors previously disclosed in Item 1A of the Company's 2019 Annual Report on form 10-K. Other risks that are currently unknown to management or are currently considered immaterial or unlikely, could also adversely affect the Company.
Our operating results have been and will continue to be impacted by the coronavirus pandemic.
In late 2019, an outbreak of a coronavirus COVID-19, was identified in China and has since spread globally, becoming a pandemic. The pandemic has had an impact on our operations and financial results and is expected to continue to affect our operations and financial results. The extent of the impact that the coronavirus pandemic will have on our operations and financial results will depend on future developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and scope of government orders and restrictions; and the extent of the impact of the pandemic on overall economic conditions. These are highly uncertain and cannot reasonably be predicted.
We expect our operating results to be significantly impacted by the coronavirus pandemic during the second quarter of 2020 and most likely during subsequent quarters. The DoD and other passenger service customers have suspended most passenger operations at least through May 2020. As a result, we expect the operating results of ACMI Services to decline at least for the second quarter of 2020. It is difficult to reasonably predict when flights will actually resume, the frequency in which flights will resume, and the length of time necessary before passenger flights substantially recover to pre-pandemic levels. The economic downturn resulting from the coronavirus may also result in the reduction of demand for other types of services including air cargo services.
Some of our employees and employees of suppliers and service providers have tested positive for, or have been suspected of having COVID-19. Additional instances of actual or perceived risk of infection among our employees, or our suppliers' or service providers’ employees, could further negatively impact our operations.  We rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer packages, load aircraft and maintain related equipment. In addition to our own employees, we rely on services from suppliers and customers to operate efficiently and safely. Our operations could be negatively affected if our own personnel or those of our suppliers and customers are quarantined or sickened as a result of exposure to COVID-19, or if they are subject to governmental curfews or “shelter in place” health orders. Although we are taking precautions to distance employees and promote hygiene, a coronavirus outbreak at one of our maintenance facilities or customer sorting centers could result in workforce shortages or closures causing reduced revenues and higher expenses. Measures restricting the ability of airport personnel or flight crews to work may result in the reductions of flights.
In addition to workforce shortages, the coronavirus pandemic may result in parts shortages, maintenance delays, shortages of transportation and hotel accommodations for flight crews, any of which could result in reduced revenues and additional expenses. Similarly, the effects of the coronavirus pandemic could result in the slower completion of aircraft freighter conversions which in turn would disrupt our aircraft leasing operations. Our customer base for aircraft maintenance revenues includes passenger airlines. Our operating results have been impacted and may continue to be impacted by the coronavirus pandemic as passenger airlines reduce their needs for scheduled heavy airframe maintenance.

39


The pandemic may have a long term impact on the demand for aviation services and our operating results.
Due to the pandemic, passenger air travel has declined sharply and passenger airlines have temporarily removed much of their fleets from service. The demand for passenger air travel could remain low for an extended period of time and accordingly, the value of airframes and engines could decline for the foreseeable future. If the coronavirus pandemic persists or reemerges, our expectations of related operating cash flows could significantly decline. If such circumstances occur or appear likely to occur, we may need to impair the carrying value of certain recorded assets.
Conditions of the CARES Act
ATSG's airline subsidiaries, OAI and ATI, each submitted an application to the Secretary of the Treasury for a grant of funds pursuant to the payroll support program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). On April 24, 2020, OAI was notified by the U.S. Department of the Treasury that its application for funds under the payroll support program had been approved on a preliminary basis. OAI expects to receive total funding of approximately $67 million to be paid in five monthly installments through September 2020. ATI’s application for a grant under the payroll support program remains pending at this time. As a condition to receiving the funds, OAI and ATI must agree to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and their affiliate air carriers, executive compensation through March 24, 2022; maintain certain air transportation services through March 1, 2022, as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, ATSG may not pay dividends or repurchase its shares through September 30, 2021.
If the coronavirus pandemic persists or reemerges after September 30, 2020, we may need to terminate or furlough airline employees.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 5, 2014, the Board of Directors authorized the Company to repurchase up to $50.0 million of outstanding common stock. In May 2016, the Board amended the Company's common stock repurchase program increasing the amount that management may repurchase from $50.0 million to $100.0 million of outstanding common stock. In February 2018, the Board increased the authorization from $100.0 million to $150.0 million (less amounts previously repurchased). The Board's authorization does not require the Company to repurchase a specific number of shares or establish a time frame for any repurchase and the Board may terminate the repurchase program at any time. Repurchases may be made from time to time in the open market or in privately negotiated transactions. There is no expiration date for the repurchase program. There were no repurchases made during the first quarter of 2020. As of March 31, 2020, the Company had repurchased 6,592,349 shares and the maximum dollar value of shares that could then be purchased under the program was $61.3 million.

ITEM 5. OTHER INFORMATION
None.


40


ITEM 6. EXHIBITS
The following exhibits are filed with or incorporated by reference into this report.
Exhibit No.
Description of Exhibit
 
Articles of Incorporation
3.1
 
 
 
Instruments defining the rights of security holders
 
 
4.1
 
 
4.2
 
Material Contracts
 
 
10.1
 
Certifications
 
 
31.1
 
 
31.2
 
 
32.1
 
 
32.2
101.INS
XBRL Instance Document
 
 
101.SCH
XBRL Taxonomy Extension Schema Document
 
 
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
 
101.LAB
XBRL Taxonomy Extension Labels Linkbase Document
 
 
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
____________________
(1)
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on January 28, 2020.
(2)
Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on March 24, 2020.


41


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
 
AIR TRANSPORT SERVICES GROUP, INC.,
 
 
 
 
a Delaware Corporation
 
 
 
 
Registrant
 
 
 
 
 
 
 
 
 
/S/  RICHARD F. CORRADO
 
 
 
 
Richard F. Corrado
 
 
 
 
Chief Executive Officer (Principal Executive Officer)
Date:
May 11, 2020
 
 
 
 
 
 
 
 
 
 
 
 
/S/  QUINT O. TURNER
 
 
 
 
Quint O. Turner
 
 
 
 
Chief Financial Officer (Principal Financial Officer
Date:
May 11, 2020
 
 
and Principal Accounting Officer)

42
Exhibit


Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Richard F. Corrado, certify that:
1.
I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 11, 2020
 
/s/ RICHARD F. CORRADO
Richard F. Corrado
Chief Executive Officer


Exhibit


Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Quint O. Turner, certify that:
1.
I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: May 11, 2020
 
/s/ QUINT O. TURNER
Quint O. Turner
Chief Financial Officer
(Principal Financial and Accounting Officer)


Exhibit


Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard F. Corrado, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
/S/ RICHARD F. CORRADO
Richard F. Corrado
Chief Executive Officer
Date: May 11, 2020



Exhibit


Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Quint O. Turner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
 
/s/ QUINT O. TURNER
Quint O. Turner
Chief Financial Officer
Date: May 11, 2020



v3.20.1
Debt Obligations (Schedule of Long Term Debt Maturities) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Long-term Debt, Fiscal Year Maturity [Abstract]    
Total long term obligations $ 1,560,640 $ 1,484,384
v3.20.1
Fair Value Measurements (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
May 10, 2018
Sep. 25, 2017
Liabilities, Fair Value Disclosure [Abstract]        
Warrant liability $ 265,104 $ 383,073    
Fair Value, Recurring [Member]        
Assets, Fair Value Disclosure [Abstract]        
Cash equivalents - money market 957 1,129    
Derivative Asset   111    
Total Assets 957 1,240    
Liabilities, Fair Value Disclosure [Abstract]        
Interest rate swap   (8,237)    
Warrant liability (265,104) (383,073)    
Total Liabilities (284,156) (391,310)    
Carrying value, debt 1,560,600 1,484,400    
Fair Value, Recurring [Member] | Level 1 [Member]        
Assets, Fair Value Disclosure [Abstract]        
Cash equivalents - money market 0 0    
Derivative Asset   0    
Total Assets 0 0    
Liabilities, Fair Value Disclosure [Abstract]        
Interest rate swap 0 0    
Warrant liability 0 0    
Total Liabilities 0 0    
Fair Value, Recurring [Member] | Level 2 [Member]        
Assets, Fair Value Disclosure [Abstract]        
Cash equivalents - money market 957 1,129    
Derivative Asset   111    
Convertible note hedge fair value     $ 50,600 $ 56,100
Total Assets 957 1,240    
Liabilities, Fair Value Disclosure [Abstract]        
Interest rate swap (19,052) (8,237)    
Note conversion obligation fair value     $ 51,300 $ 57,400
Warrant liability (227,082) (340,767)    
Total Liabilities (246,134) (349,004)    
Difference between fair value and carrying value, debt (72,400) (2,700)    
Fair Value, Recurring [Member] | Level 3 [Member]        
Assets, Fair Value Disclosure [Abstract]        
Cash equivalents - money market 0 0    
Derivative Asset   0    
Total Assets 0 0    
Liabilities, Fair Value Disclosure [Abstract]        
Interest rate swap 0 0    
Warrant liability (38,022) (42,306)    
Total Liabilities (38,022) $ (42,306)    
Fair Value, Recurring [Member] | Total [Member]        
Liabilities, Fair Value Disclosure [Abstract]        
Interest rate swap (19,052)      
Amazon Warrant AB [Member]        
Liabilities, Fair Value Disclosure [Abstract]        
Warrant liability (129,700)      
Amazon Warrant C [Member] [Member]        
Liabilities, Fair Value Disclosure [Abstract]        
Warrant liability $ (135,400)      
v3.20.1
Commitments and Contingencies (Labor Unions) (Details) - Workforce Subject to Collective Bargaining Arrangements [Member] - Labor Unions [Member]
3 Months Ended
Mar. 31, 2020
ABX [Member]  
Concentration Risk [Line Items]  
Percentage of the Company's Employees 5.10%
ATI [Member]  
Concentration Risk [Line Items]  
Percentage of the Company's Employees 8.30%
Omni Air International [Member]  
Concentration Risk [Line Items]  
Percentage of the Company's Employees 7.00%
Air Transport International, Flight Attendants [Member]  
Concentration Risk [Line Items]  
Percentage of the Company's Employees 0.90%
Omni Air International, Flight Attendants [Member] [Member]  
Concentration Risk [Line Items]  
Percentage of the Company's Employees 7.10%
v3.20.1
Quarterly Results (Unaudited) (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Fair Value Adjustment of Warrants $ 118,000 $ 8,300
REVENUES 389,277 348,183
Net earnings from continuing operations 133,733 22,634
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES $ 3,772 $ 31
Weighted average shares:    
Basic (in shares) 59,040 58,838
Diluted (in shares) 67,947 60,437
Earnings (loss) per share from continuing operations    
Basic (in dollars per share) $ 2.27 $ 0.38
Diluted (in dollars per share) $ 0.84 $ 0.25
ACMI Services [Member]    
REVENUES $ 284,165 $ 257,956
v3.20.1
Commitments and Contingencies (Tables)
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Lessee, Operating Lease, Liability, Maturity [Table Text Block] As of March 31, 2020, the maturities of operating lease liabilities are as follows (in thousands):
 
 
Operating Leases
Remaining 2020
 
$
11,682

2021
 
12,054

2022
 
8,336

2023
 
7,608

2024
 
6,398

2025 and beyond
 
6,341

Total undiscounted cash payments
 
52,419

Less: amount representing interest
 
(4,437
)
Present value of future minimum lease payments
 
47,982

Less: current obligations under leases
 
13,340

Long-term lease obligation
 
$
34,642


Schedules of Concentration of Risk, by Risk Factor
As of March 31, 2020, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:
Airline
Labor Agreement Unit
Percentage of
the Company’s
Employees
ABX
International Brotherhood of Teamsters
5.1%
ATI
Air Line Pilots Association
8.3%
OAI
International Brotherhood of Teamsters
7.0%
ATI
Association of Flight Attendants
0.9%
OAI
Association of Flight Attendants
7.1%

v3.20.1
Earnings Per Share
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Earnings Per Share COMMON STOCK AND EARNINGS PER SHARE
Earnings per Share
The calculation of basic and diluted earnings per common share are as follows (in thousands, except per share amounts):
 
Three Months Ending March 31,
 
2020
 
2019
Numerator:
 
 
 
Earnings from continuing operations - basic
$
133,733

 
$
22,634

Gain from stock warrants revaluation, net of tax
(76,361
)
 
(7,653
)
Earnings from continuing operations - diluted
$
57,372

 
$
14,981

 
 
 
 
Denominator:
 
 
 
Weighted-average shares outstanding for basic earnings per share
59,040

 
58,838

Common equivalent shares:
 
 
 
Effect of stock-based compensation awards and warrants
8,907

 
1,599

Weighted-average shares outstanding assuming dilution
67,947

 
60,437

Basic earnings per share from continuing operations
$
2.27

 
$
0.38

Diluted earnings per share from continuing operations
$
0.84

 
0.25


The determination of diluted earnings per share requires the exclusion of the fair value re-measurement of the stock warrants recorded as a liability (see Note D), if such warrants have an anti-dilutive effect on earnings per share. The dilutive effect of the weighted-average diluted shares outstanding is calculated using the treasury method for periods in which equivalent shares have a dilutive effect on earnings per share. Under this method, the number of diluted shares is determined by dividing the assumed proceeds of the warrants recorded as a liability by the average stock price during the period and comparing that amount with the number of corresponding warrants outstanding.
The underlying warrants recorded as a liability as of March 31, 2020 and 2019 would have resulted in 39.5 million and 39.5 million additional shares of the Company's common stock, respectively, if the warrants were settled by tendering cash.
The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution because their effect would have been anti-dilutive, were 9.2 million for the three month period ended March 31, 2019.
v3.20.1
Goodwill and Other Intangibles (Tables)
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Lease Incentive Intangible [Table Text Block] The Company's lease incentive granted to the lessee was as follows (in thousands):
 
 
Lease
 
 
Incentive
Carrying value as of December 31, 2019
 
$
146,678

Amortization
 
(4,857
)
Carrying value as of March 31, 2020
 
$
141,821


Schedule of Goodwill
The carrying amounts of goodwill, by operating segment, are as follows (in thousands):
 
 
CAM
 
ACMI Services
 
All Other
 
Total
Carrying value as of December 31, 2019
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974

Carrying value as of March 31, 2020
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974


Schedule Intangible Assets by Major Class
The Company's acquired intangible assets are as follows (in thousands):
 
 
Airline
 
Amortizing
 
 
 
 
Certificates
 
Intangibles
 
Total
Carrying value as of December 31, 2019
 
$
9,000

 
$
122,680

 
$
131,680

Amortization
 

 
(2,859
)
 
(2,859
)
Carrying value as of March 31, 2020
 
$
9,000

 
$
119,821

 
$
128,821


v3.20.1
Property and Equipment
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Property and Equipment PROPERTY AND EQUIPMENT
The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and other flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Flight equipment
$
2,649,370

 
$
2,598,113

Ground equipment
60,400

 
59,628

Leasehold improvements, facilities and office equipment
34,173

 
33,649

Aircraft modifications and projects in progress
297,791

 
220,827

 
3,041,734

 
2,912,217

Accumulated depreciation
(1,206,558
)
 
(1,146,197
)
Property and equipment, net
$
1,835,176

 
$
1,766,020


CAM owned aircraft with a carrying value of $887.1 million and $889.3 million that were under leases to external customers as of March 31, 2020 and December 31, 2019, respectively.
v3.20.1
Income Taxes
3 Months Ended
Mar. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2020 have been estimated utilizing a 24% rate based upon year-to-date income and projected results for the full year. The recognition of discrete tax items, such as the conversion of employee stock awards, the issuance of stock warrants and other items, have an impact on the effective rate during a period.
During 2020, the Company recorded discrete tax items for the conversion of employee stock awards and gains and losses on warrant revaluations which were not subject to tax. As a result of these differences in which expenses and benefits for tax purposes are different than required by generally accepted accounting principles, the Company's effective tax rate for the first three months of 2020 was 5.0%. The final effective tax rate for the year 2020 will depend on the actual amount of pre-tax book results by the Company for the full year, the additional conversions of employee stock awards, stock warrant valuations, executive compensation and other items.
The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, management does not expect to pay federal income taxes until 2023 or later. The Company may, however, be required to pay some federal tax due to loss carryforward usage limitations and certain state and local income taxes before then.
v3.20.1
Summary of Financial Statement Preparation and Significant Accounting Policies (Details)
3 Months Ended
Mar. 31, 2020
Minimum [Member] | Ground equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 3 years
Minimum [Member] | facilities, leasehold improvements and office equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 3 years
Maximum [Member] | Ground equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 10 years
Maximum [Member] | facilities, leasehold improvements and office equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 25 years
Boeing 767 and 757 aircraft and flight equipment [Member] | Minimum [Member] | Flight Equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 7 years
Boeing 767 and 757 aircraft and flight equipment [Member] | Maximum [Member] | Flight Equipment [Member]  
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]  
Property, plant and equipment, useful life 18 years
v3.20.1
Accumulated Other Comprehensive Income (Loss) (Tables)
3 Months Ended
Mar. 31, 2020
Other Comprehensive Income [Abstract]  
Schedule of Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ending March 31, 2020 and 2019 (in thousands):
 
 
Defined Benefit Pension
 
Defined Benefit Post-Retirement
 
Foreign Currency Translation
 
Total
Balance as of January 1, 2019
 
(89,042
)
 
(841
)
 
(1,479
)
 
(91,362
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 

 

 
(7
)
 
(7
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
3,882

 
43

 

 
3,925

Income Tax (Expense) or Benefit
 
(931
)
 
(10
)
 
2

 
(939
)
Other comprehensive income (loss), net of tax
 
2,951

 
33

 
(5
)
 
2,979

Balance as of March 31, 2019
 
(86,091
)
 
(808
)
 
(1,484
)
 
(88,383
)
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2020
 
$
(61,152
)
 
$
(702
)
 
$
(12
)
 
$
(61,866
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
941

 
31

 

 
972

Income Tax Expense
 
(215
)
 
(7
)
 

 
(222
)
Other comprehensive income, net of tax
 
726

 
24

 

 
750

Balance as of March 31, 2020
 
(60,426
)
 
(678
)
 
(12
)
 
(61,116
)

v3.20.1
Goodwill and Other Intangibles Investment in West Atlantic (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Schedule of Equity Method Investments [Line Items]      
Payments to Acquire Interest in Joint Venture $ 3,000 $ 3,800  
Equity Method Investments 11,200   $ 10,900
Goodwill $ 395,974   $ 395,974
v3.20.1
Earnings Per Share (Details) - USD ($)
$ / shares in Units, shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Earnings Per Share Reconciliation [Abstract]      
Earnings from continuing operations $ 133,733 $ 22,634  
fair value adjustment to warrants, net of tax (76,361) (7,653)  
Undistributed Earnings (Loss) from Continuing Operations Available to Common Shareholders, Diluted $ 57,372 $ 14,981  
Weighted-average shares outstanding for basic earnings per share (in shares) 59,040 58,838  
Common equivalent shares:      
Effect of stock-based compensation awards (in shares) 8,907 1,599  
Weighted-average shares outstanding assuming dilution (in shares) 67,947 60,437  
Basic earnings per share from continuing operations (in dollars per share) $ 2.27 $ 0.38  
Diluted earnings per share from continuing operations (in dollars per share) $ 0.84 $ 0.25  
Equivalent shares not included in weighted average shares outstanding because they would be anti-dilutive   9,200  
Amazon Warrant AB [Member]      
Earnings Per Share Reconciliation [Abstract]      
Class of Warrant or Right, Number of Securities Called by Warrants or Rights 39,500   39,500
v3.20.1
Consolidated Statements of Stockholders' Equity - USD ($)
$ in Thousands
Total
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Deficit [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Balance at at Dec. 31, 2018 $ 436,438 $ 591 $ 471,158 $ 56,051 $ (91,362)
Balance at (in shares) at Dec. 31, 2018   59,134,173      
Stock-based compensation plans          
Grant of restricted stock 0 $ 2 (2)    
Grant of restricted stock (in shares)   125,200      
Issuance of common shares, net of withholdings (1,384) $ 1 (1,385)    
Withholdings of common shares, net of issuances (in shares)   91,953      
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification | Accounting Standards Update 2016-02 [Member] (71,358)     (71,358)  
Amortization of stock awards and restricted stock 1,474   1,474    
Total comprehensive income (loss) 25,644     22,665 2,979
Balance at at Mar. 31, 2019 390,814 $ 594 471,245 7,358 (88,383)
Balance at (in shares) at Mar. 31, 2019   59,351,326      
Balance at at Dec. 31, 2019 $ 460,342 $ 593 475,720 45,895 (61,866)
Balance at (in shares) at Dec. 31, 2019 59,329,431 59,329,431      
Stock-based compensation plans          
Grant of restricted stock $ 0 $ 2 (2)    
Grant of restricted stock (in shares)   200,500      
Issuance of common shares, net of withholdings (1,115) $ 1 (1,116)    
Withholdings of common shares, net of issuances (in shares)   93,264      
Amortization of stock awards and restricted stock 1,821   1,821    
Total comprehensive income (loss) 138,255     137,505 750
Balance at at Mar. 31, 2020 $ 599,303 $ 596 $ 476,423 $ 183,400 $ (61,116)
Balance at (in shares) at Mar. 31, 2020 59,623,195 59,623,195      
v3.20.1
Pension and Other Post-Retirement Benefit Plans (Funded Status) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Pension Plans [Member]    
Change in benefit obligation [Roll Forward]    
Service cost $ 0 $ 0
Interest cost 6,970 7,825
Change in plan assets [Roll Forward]    
Employer contributions 1,300  
Post-Retirement Healthcare Plans [Member]    
Change in benefit obligation [Roll Forward]    
Service cost 35 27
Interest cost $ 23 $ 37
v3.20.1
Income Taxes (Tax Rate Reconciliation) (Details)
3 Months Ended
Mar. 31, 2020
Operating Loss Carryforwards [Line Items]  
effective tax reconciliation, projected annual rate 24.00%
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation [Abstract]  
Effective income tax rate (5.00%)
v3.20.1
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Assets, Current [Abstract]    
Allowance for doubtful accounts $ 1,324 $ 975
Stockholders' Equity Attributable to Parent [Abstract]    
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, shares authorized (in shares) 150,000,000 110,000,000
Common stock, shares issued (in shares) 59,623,195 59,329,431
Common stock, shares outstanding (in shares) 59,623,195 59,329,431
Preferred Stock [Member]    
Stockholders' Equity Attributable to Parent [Abstract]    
Preferred stock, shares authorized (in shares) 20,000,000 20,000,000
Series A Junior Participating Preferred Stock [Member]    
Stockholders' Equity Attributable to Parent [Abstract]    
Preferred stock, shares authorized (in shares) 75,000 75,000
v3.20.1
Debt Obligations
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Debt Obligations DEBT OBLIGATIONS
Debt obligations consisted of the following (in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Unsubordinated term loan
$
622,751

 
$
626,277

Revolving credit facility
217,900

 
632,900

Senior notes
492,675

 

Convertible debt
215,663

 
213,461

Other financing arrangements
11,651

 
11,746

Total debt obligations
1,560,640

 
1,484,384

Less: current portion
(13,773
)
 
(14,707
)
Total long term obligations, net
$
1,546,867

 
$
1,469,677


The Company utilizes a syndicated credit agreement ("Senior Credit Agreement") which includes an unsubordinated term loan and a revolving credit facility. In November 2019, the Senior Credit Agreement was amended to increase the maximum revolver capacity from $645.0 million to $750.0 million, combine two terms loans into one loan and reduce the interest rate spread of the LIBOR based financing at various ratios of the Company's debt to its earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). This amendment also extended the agreement to November 2024 provided certain liquidity measures are maintained during 2024, and added incremental accordion capacity based on debt ratios. In January 2020, the Company chose to lower the maximum revolver capacity to $600.0 million in conjunction with the issuance of senior unsecured notes. As of March 31, 2020, the unused revolving credit facility available to the Company at the trailing twelve month EBITDA level was $297.0 million, and additional permitted indebtedness under the Senior Credit Agreement subject to compliance with other covenants, was limited to $250.0 million.
The balance of the unsubordinated term loan is net of debt issuance costs of $8.3 million and $8.7 million as of March 31, 2020 and December 31, 2019, respectively. The balance of the Senior Notes is net of debt issuance costs of $7.3 million as of March 31, 2020. Under the terms of the Senior Credit Agreement, interest rates are adjusted at least quarterly based on the Company's EBITDA, its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan, Senior Notes and revolving credit facility bear variable interest rates of 2.865%, 4.75% and 2.805%, respectively.
The Senior Credit Agreement is collateralized by certain of the Company's Boeing 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 115% of the outstanding balance of the term loan and the total funded revolving credit facility. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $600.0 million.
The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $100.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under 3.00 times, after giving effect to the dividend or repurchase. The Senior Credit Agreement contains covenants, including a maximum permitted total debt to EBITDA ratio, a fixed charge covenant ratio requirement, limitations on certain additional indebtedness, and on guarantees of indebtedness. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.
On January 28, 2020, the Company, through a subsidiary, completed a debt offering of $500.0 million in senior unsecured notes (the “Senior Notes”). The Senior Notes were sold only to qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and certain investors pursuant to Regulation S under the Securities Act. The Senior Notes are senior unsecured obligations that bear interest at a rate of 4.75% per year, payable semiannually in arrears on February 1 and August 1 of each year, beginning on August 1, 2020. The Senior Notes will mature on February 1, 2028. The Senior Notes contain customary events of default and certain covenants which are generally no more restrictive than those set forth in the Senior Credit Agreement. The net proceeds of $495.0 million from the Senior Notes were used to pay down the revolving credit facility. The Senior Notes do not require principal payments in 2020.
In September 2017, the Company issued $258.8 million aggregate principal amount of 1.125% Convertible Senior Notes due 2024 ("Convertible Notes") in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The Convertible Notes bear interest at a rate of 1.125% per year payable semi-annually in arrears on April 15 and October 15, beginning April 15, 2018. The Convertible Notes mature on October 15, 2024, unless repurchased or converted in accordance with their terms prior to such date. The Convertible Notes are unsecured indebtedness, subordinated to the Company's existing and future secured indebtedness and other liabilities, including trade payables. Conversion of the Convertible Notes can only occur upon satisfaction of certain conditions and during certain periods, beginning in any calendar quarter commencing after December 31, 2017 and thereafter, until the close of business on the second scheduled trading day immediately preceding the maturity date. Upon the occurrence of certain fundamental changes, holders of the Convertible Notes can require the Company to repurchase their notes at the cash repurchase price equal to the principal amount of the notes, plus any accrued and unpaid interest.
The Convertible Notes may be settled in cash, the Company’s common shares or a combination of cash and the Company’s common shares, at the Company’s election. The initial conversion rate is 31.3475 common shares per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $31.90 per common share). If a “make-whole fundamental change” (as defined in the offering circular with the Convertible Notes) occurs, the Company will, in certain circumstances, increase the conversion rate for a specified period of time.
In conjunction with the Convertible Notes, the Company purchased convertible note hedges under privately negotiated transactions for $56.1 million, having the same number of the Company's common shares, 8.1 million shares and same strike price of $31.90, that underlie the Convertible Notes. The convertible note hedges are expected to reduce the potential equity dilution with respect to the Company's common stock, and/or offset any cash payments in excess of the principal amount due, as the case may be, upon conversion of the Convertible Notes. The Company's current intent and policy is to settle all Note conversions through a combination settlement which satisfies the principal amount of the Convertible Notes outstanding with cash. The Convertible Notes could have a dilutive effect on the computation of earnings per share in accordance with accounting principles to the extent that the average traded market price of the Company’s common shares for a reporting period exceeds the conversion price.
The conversion feature of the Convertible Notes required bifurcation from the principal amount under the applicable accounting guidance. Settlement provisions of the Convertible Notes and the convertible note hedges required cash settlement of these instruments until the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. As a result, the conversion feature of the Convertible Notes and the convertible note hedges were initially accounted for as liabilities and assets, respectively,
and marked to market at the end of each period. The fair value of the note conversion obligation at issuance was $57.4 million.
On May 10, 2018, the Company's shareholders increased the number of authorized shares of common stock to cover the full number of shares underlying the Convertible Notes. The Company reevaluated the Convertible Notes and convertible note hedges under the applicable accounting guidance including ASC 815, "Derivatives and Hedging," and determined that the instruments, which meet the definition of derivative and are indexed to the Company's own stock, should be classified in shareholder's equity. On May 10, 2018, the fair value of the conversion feature of the Convertible Notes and the convertible note hedges of $51.3 million and $50.6 million, respectively, were reclassified to paid-in capital and are no longer remeasured to fair value.
The net proceeds from the issuance of the Convertible Notes was approximately $252.3 million, after deducting initial issuance costs. These unamortized issuance costs and discount are being amortized to interest expense through October 2024, using an effective interest rate of approximately 5.15%. The carrying value of the Company's convertible debt is shown below.
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Principal value, Convertible Senior Notes, due 2024
 
258,750

 
258,750

Unamortized issuance costs
 
(4,625
)
 
(4,864
)
Unamortized discount
 
(38,462
)
 
(40,425
)
Convertible debt
 
215,663

 
213,461


In conjunction with the offering of the Convertible Notes, the Company also sold warrants to the convertible note hedge counterparties in separate, privately negotiated warrant transactions at a higher strike price and for the same number of the Company’s common shares, subject to customary anti-dilution adjustments. The amount received for these warrants and recorded in Stockholders' Equity in the Company’s consolidated balance sheets was $38.5 million. These warrants could result in 8.1 million additional shares of the Company's common stock, if the Company's traded market price exceeds the strike price which is $41.35 per share and is subject to certain adjustments under the terms of the warrant transactions. The warrants could have a dilutive effect on the computation of earnings per share to the extent that the average traded market price of the Company's common shares for a reporting periods exceed the strike price.
v3.20.1
Derivative Instruments
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments DERIVATIVE INSTRUMENTS
The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least twenty-five percent of the outstanding balance of the term loan issued in November 2018. Accordingly, the Company entered into additional interest rate swaps in December 2018 and January 2019 having initial values of $150.0 million and $150.0 million, respectively, and forward start dates of December 31, 2018 and June 28, 2019. The table below provides information about the Company’s interest rate swaps (in thousands):
 
 
 
March 31, 2020
 
December 31, 2019
Expiration Date
Stated
Interest
Rate
 
Notional
Amount
 
Market
Value
(Liability)
 
Notional
Amount
 
Market
Value
(Liability)
May 5, 2021
1.090
%
 
18,750

 
(130
)
 
20,625

 
111

May 30, 2021
1.703
%
 
18,750

 
(243
)
 
20,625

 
(25
)
December 31, 2021
2.706
%
 
144,375

 
(5,889
)
 
146,250

 
(3,242
)
March 31, 2022
1.900
%
 
50,000

 
(1,617
)
 
50,000

 
(408
)
March 31, 2022
1.950
%
 
75,000

 
(2,496
)
 
75,000

 
(696
)
March 31, 2023
2.425
%
 
146,250

 
(8,677
)
 
148,125

 
(3,866
)

The outstanding interest rate swaps are not designated as hedges for accounting purposes. The effects of future fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains and losses into the statement of operations. The Company recorded a net loss on derivatives of $10.9 million and $3.8 million for the three month periods ending March 31, 2020 and 2019, respectively. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses.
v3.20.1
Goodwill and Other Intangibles (Schedule Intangible Assets) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2020
Dec. 31, 2019
Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]      
Incentive to Lessee   $ 141,821 $ 146,678
Amortization of Lease Incentives $ (4,857)    
Finite and Indefinite-lived Intangible Assets [Roll Forward]      
Carrying value at beginning of period 122,680    
Carrying value at beginning of period 131,680    
Amortization expense (2,859)    
Carrying value at end of period 122,680 $ 119,821 $ 122,680
Carrying value at end of period 128,821    
ACMI Services [Member] | Airline Certificates [Member]      
Finite and Indefinite-lived Intangible Assets [Roll Forward]      
Carrying value at beginning of period 9,000    
Amortization expense 0    
Carrying value at end of period $ 9,000    
v3.20.1
Segment Information (Tables)
3 Months Ended
Mar. 31, 2020
Segment Reporting Information [Line Items]  
Segment Reporting, Additional Information about Entity's Reportable Segments
The Company's other segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Depreciation and amortization expense:
 
 
 
CAM
$
43,047

 
$
38,795

ACMI Services
25,312

 
23,095

All other
983

 
747

Total
$
69,342

 
$
62,637

Interest expense
 
 
 
CAM
10,255

 
9,965

ACMI Services
5,301

 
6,549

Segment earnings (loss):
 
 
 
CAM
$
15,820

 
$
16,174

ACMI Services
18,378

 
12,310

     All other
53

 
1,903

Net unallocated interest expense
(655
)
 
(780
)
Net gain on financial instruments
107,044

 
4,500

Transaction fees

 
(373
)
Other non-service components of retiree benefit costs, net
2,898

 
(2,351
)
Loss from non-consolidated affiliate
(2,764
)
 
(3,816
)
Pre-tax earnings from continuing operations
$
140,774

 
$
27,567


Schedule of Segment Reporting Information, by Segment
The Company's segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Total revenues:
 
 
 
CAM
$
74,163

 
$
70,350

ACMI Services
284,165

 
257,956

All other
80,036

 
67,362

Eliminate inter-segment revenues
(49,087
)
 
(47,485
)
Total
$
389,277

 
$
348,183

Customer revenues:
 
 
 
CAM
$
46,736

 
$
41,609

ACMI Services
284,161

 
257,953

All other
58,380

 
48,621

Total
$
389,277

 
$
348,183


Reconciliation of Assets from Segment to Consolidated
The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.
 
March 31,
 
December 31,
 
2020
 
2019
Assets:
 
 
 
CAM
$
1,918,286

 
$
1,857,687

ACMI Services
882,941

 
830,620

Discontinued operations
2,027

 
1,499

All other
116,786

 
130,372

Total
$
2,920,040

 
$
2,820,178


Revenue from External Customers by Products and Services
The Company's external customer revenues from other activities for the three month periods ended March 31, 2020 and 2019 are presented below (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Aircraft maintenance, modifications and part sales
 
$
33,835

 
$
33,981

Ground services
 
14,609

 
13,938

Other, including aviation fuel sales
 
9,936

 
702

Total customer revenues
 
$
58,380

 
$
48,621


v3.20.1
Derivative Instruments (Tables)
3 Months Ended
Mar. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Schedule of Interest Rate Derivatives The table below provides information about the Company’s interest rate swaps (in thousands):
 
 
 
March 31, 2020
 
December 31, 2019
Expiration Date
Stated
Interest
Rate
 
Notional
Amount
 
Market
Value
(Liability)
 
Notional
Amount
 
Market
Value
(Liability)
May 5, 2021
1.090
%
 
18,750

 
(130
)
 
20,625

 
111

May 30, 2021
1.703
%
 
18,750

 
(243
)
 
20,625

 
(25
)
December 31, 2021
2.706
%
 
144,375

 
(5,889
)
 
146,250

 
(3,242
)
March 31, 2022
1.900
%
 
50,000

 
(1,617
)
 
50,000

 
(408
)
March 31, 2022
1.950
%
 
75,000

 
(2,496
)
 
75,000

 
(696
)
March 31, 2023
2.425
%
 
146,250

 
(8,677
)
 
148,125

 
(3,866
)

v3.20.1
Pension and Other Post-Retirement Benefit Plans (Net Periodic Benefit Costs) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Pension Plans [Member]    
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]    
Service cost $ 0 $ 0
Interest cost 6,970 7,825
Expected return on plan assets (11,168) (9,477)
Amortization of net loss 941 3,882
Net periodic benefit (income) loss (3,257) 2,230
Post-Retirement Healthcare Plans [Member]    
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]    
Service cost 35 27
Interest cost 23 37
Expected return on plan assets 0 0
Amortization of net loss 31 43
Net periodic benefit (income) loss $ 89 $ 107
v3.20.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Write off of Deferred Debt Issuance Cost $ 2,764 $ 3,816
Withholding taxes paid for conversion of employee stock awards 1,115 1,384
OPERATING ACTIVITIES:    
Net earnings from continuing operations 133,733 22,634
Net earnings from discontinued operations 3,772 31
Adjustments to reconcile net earnings to net cash provided by operating activities:    
Depreciation and amortization 77,001 69,579
Pension and post-retirement 972 3,925
Deferred income taxes 7,947 4,705
Amortization of stock-based compensation 1,821 1,474
Net gain on financial instruments 10,900 3,800
Changes in assets and liabilities:    
Accounts receivable (4,123) 15,754
Inventory and prepaid supplies (4,543) (4,441)
Accounts payable 6,169 2,206
Unearned revenue 3,604 3,080
Accrued expenses, salaries, wages, benefits and other liabilities (17,742) (9,267)
Pension and post-retirement assets (5,483) (2,252)
Other 186 658
NET CASH PROVIDED BY OPERATING ACTIVITIES 99,034 107,402
INVESTING ACTIVITIES:    
Expenditures for property and equipment (143,495) (91,856)
Proceeds from property and equipment 32 0
Investment in nonconsolidated affiliate (3,049) (15,844)
NET CASH USED IN INVESTING ACTIVITIES (146,512) (107,700)
FINANCING ACTIVITIES:    
Principal payments on long term obligations (499,064) (7,969)
Proceeds from borrowings 80,000 0
Proceeds from bond issuance 500,000 0
Proceeds from convertible notes 0 (264)
Payments for financing costs (7,481) 0
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 72,340 (9,617)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24,862 (9,915)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 46,201 59,322
CASH AND CASH EQUIVALENTS AT END OF YEAR 71,063 49,407
SUPPLEMENTAL CASH FLOW INFORMATION:    
Interest paid, net of amount capitalized 8,864 16,925
Federal alternative minimum and state income taxes paid 48 0
SUPPLEMENTAL NON-CASH INFORMATION:    
Accrued expenditures for property and equipment 27,914 15,812
Net (gain) loss on financial instruments $ 107,044 $ 4,500
v3.20.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
CURRENT ASSETS:    
Cash, cash equivalents and restricted cash $ 71,063 $ 46,201
Accounts receivable, net of allowance of $1,324 in 2020 and $975 in 2019 166,993 162,870
Inventory 43,278 37,397
Prepaid supplies and other 26,027 20,323
TOTAL CURRENT ASSETS 307,361 266,791
Property and equipment, net 1,835,176 1,766,020
Lease incentive 141,821 146,678
Other assets 62,189 68,733
Goodwill and acquired intangibles 524,795 527,654
Operating lease assets 48,698 44,302
Intangibles 128,821 131,680
Goodwill 395,974 395,974
TOTAL ASSETS 2,920,040 2,820,178
CURRENT LIABILITIES:    
Accounts payable 136,781 141,094
Accrued salaries, wages and benefits 49,328 59,429
Accrued expenses 19,716 17,586
Current portion of debt obligations 13,773 14,707
Current portion of lease obligations 13,340 12,857
Unearned revenue 20,863 17,566
TOTAL CURRENT LIABILITIES 253,801 263,239
Long term debt 1,546,867 1,469,677
Post-retirement obligations 33,021 36,744
Long term lease obligations 34,642 30,334
Other liabilities 50,324 49,293
Stock Warrants 265,104 383,073
Deferred income taxes 136,978 127,476
TOTAL LIABILITIES 2,320,737 2,359,836
Commitments and contingencies (Note I)
STOCKHOLDERS’ EQUITY:    
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock 0 0
Common stock, par value $0.01 per share; 150,000,000 shares authorized; 59,623,195 and 59,329,431 shares issued and outstanding in 2020 and 2019, respectively 596 593
Additional paid-in capital 476,423 475,720
Retained earnings 183,400 45,895
Accumulated other comprehensive loss (61,116) (61,866)
TOTAL STOCKHOLDERS’ EQUITY 599,303 460,342
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,920,040 $ 2,820,178
v3.20.1
Derivative Instruments (Details) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Jun. 28, 2019
Dec. 31, 2018
Sep. 25, 2017
Derivative [Line Items]            
Pre-tax (charge) on derivative instruments $ 107,044 $ 4,500        
Net gain on financial instruments $ 10,900 $ 3,800        
June 30, 2017 [Member] [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 2.706%          
Market Value (Liability) $ (5,889)   $ (3,242)      
Derivative Liability, Notional Amount $ 144,375   146,250   $ 150,000  
May 5, 2021 [Member] [Member] [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 1.09%          
Market Value (Liability) $ 130   (111)      
Derivative Liability, Notional Amount $ 18,750   20,625      
May 30, 2021 [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 1.703%          
Market Value (Liability) $ 243   25      
Derivative Liability, Notional Amount $ 18,750   20,625      
March 31, 2022 One [Member] [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 1.90%          
Market Value (Liability) $ 1,617   408      
Derivative Liability, Notional Amount $ 50,000   50,000      
March 31, 2022 Two [Member] [Member] [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 1.95%          
Market Value (Liability) $ 2,496   696      
Derivative Liability, Notional Amount $ 75,000   75,000      
March 31, 2023 [Member] | Swap [Member]            
Derivative [Line Items]            
Stated Interest Rate 2.425%          
Market Value (Liability) $ 8,677   3,866      
Derivative Liability, Notional Amount $ 146,250   $ 148,125 $ 150,000    
Convertible Debt [Member]            
Derivative [Line Items]            
Convertible note hedge shares           8,100
v3.20.1
Segment Information (Segment Reconciliation) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Segment Reporting Information [Line Items]      
Operating Expenses $ 339,470 $ 301,655  
REVENUES 389,277 348,183  
Customer revenues 389,277 348,183  
Depreciation and amortization expense 69,342 62,637  
Net unallocated interest expense (16,323) (17,390)  
Net gain on financial instruments 107,044 4,500  
Pre-tax earnings from continuing operations 140,774 27,567  
Assets 2,920,040   $ 2,820,178
Income Tax Expense (Benefit)   4,933  
Business Combination, Acquisition Related Costs 0 (373)  
Net Periodic Defined Benefits Expense (Reversal of Expense), Excluding Service Cost Component 2,898 (2,351)  
Net earnings from continuing operations 133,733 22,634  
Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 389,277 348,183  
Customer revenues 389,277 348,183  
ACMI Services [Member]      
Segment Reporting Information [Line Items]      
REVENUES 284,165 257,956  
Customer revenues 284,165 257,956  
Depreciation and amortization expense 25,312 23,095  
Segment earnings (loss) 18,378 12,310  
Net unallocated interest expense (5,301) (6,549)  
Assets 882,941   830,620
ACMI Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES   257,953  
Customer revenues   257,953  
All other [Member]      
Segment Reporting Information [Line Items]      
REVENUES 80,036 67,362  
Customer revenues 80,036 67,362  
Depreciation and amortization expense 983 747  
Segment earnings (loss) 53 1,903  
Assets 116,786   130,372
All other [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES   48,621  
Customer revenues   48,621  
CAM [Member]      
Segment Reporting Information [Line Items]      
REVENUES 74,163 70,350  
Customer revenues 74,163 70,350  
Depreciation and amortization expense 43,047 38,795  
Segment earnings (loss) 15,820 16,174  
Net unallocated interest expense (10,255) (9,965)  
Assets 1,918,286   1,857,687
CAM [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES   41,609  
Customer revenues   41,609  
Discontinued operations [Member]      
Segment Reporting Information [Line Items]      
Assets 2,027   $ 1,499
Significant Reconciling Items [Member]      
Segment Reporting Information [Line Items]      
Net unallocated interest expense (655) (780)  
Non-operating charges from a non-consolidating affiliate (2,764) (3,816)  
Eliminate inter-segment revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES (49,087) (47,485)  
Customer revenues (49,087) (47,485)  
Accounting Standards Update 2014-09 [Member]      
Segment Reporting Information [Line Items]      
Income Tax Expense (Benefit) (7,041)    
Accounting Standards Update 2014-09 [Member] | ACMI Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 284,161    
Customer revenues 284,161    
Accounting Standards Update 2014-09 [Member] | Ground Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 33,835 33,981  
Customer revenues 33,835 33,981  
Accounting Standards Update 2014-09 [Member] | All other [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 58,380 48,621  
Customer revenues 58,380 48,621  
Accounting Standards Update 2014-09 [Member] | CAM [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 46,736    
Customer revenues 46,736    
Accounting Standards Update 2014-09 [Member] | Ground Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 14,609 13,938  
Customer revenues 14,609 13,938  
Accounting Standards Update 2014-09 [Member] | All Other non MRO or Ground Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 9,936 702  
Customer revenues $ 9,936 $ 702  
v3.20.1
Commitments and Contingencies (Commitments) (Details)
$ in Millions
3 Months Ended
Mar. 31, 2020
USD ($)
Long-term Purchase Commitment [Line Items]  
aircraft purchase deposit $ 15.0
Long-term Purchase Commitment, Amount $ 302.2
v3.20.1
Debt Obligations (Schedule of Long Term Obligations) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Jan. 28, 2020
Dec. 31, 2019
Nov. 04, 2019
May 28, 2019
Debt Instrument [Line Items]          
Total long term obligations $ 1,560,640   $ 1,484,384    
Unsecured Debt 492,675   0    
Convertible Debt 215,663   213,461    
Other Long-term Debt 11,651   11,746    
Less: current portion (13,773)   (14,707)    
Total long term obligations, net $ 1,546,867   1,469,677    
Unsubordinated term loan and Revolving credit facility [Member]          
Debt Instrument [Line Items]          
Debt Instrument, Collateral, Coverage Percentage 115.00%        
Unsubordinated term loan [Member]          
Debt Instrument [Line Items]          
Total long term obligations $ 622,751   626,277    
Revolving credit facility [Member]          
Debt Instrument [Line Items]          
Total long term obligations 217,900   $ 632,900    
Line of Credit Facility, Maximum Borrowing Capacity 600,000 $ 600,000   $ 750,000 $ 645,000
line of credit, increase in maximum borrowing capacity $ 250,000        
v3.20.1
Goodwill and Other Intangibles Investment A321 (Details) - USD ($)
$ in Millions
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]    
Payments to Acquire Interest in Joint Venture $ 3.0 $ 3.8
v3.20.1
Label Element Value
Senior Notes [Member]  
Debt Instrument, Interest Rate During Period us-gaap_DebtInstrumentInterestRateDuringPeriod 2.865%
Revolving Credit Facility [Member]  
Debt Instrument, Interest Rate During Period us-gaap_DebtInstrumentInterestRateDuringPeriod 2.805%
Line of Credit Facility, Remaining Borrowing Capacity us-gaap_LineOfCreditFacilityRemainingBorrowingCapacity $ 297,000,000.0
v3.20.1
Acquisition of Business (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Business Acquisition [Line Items]      
REVENUES $ 389,277 $ 348,183  
Goodwill 395,974   $ 395,974
Business Combination, Acquisition Related Costs 0 $ 373  
Long-term Debt 1,560,640   1,484,384
Revolving Credit Facility [Member]      
Business Acquisition [Line Items]      
Long-term Debt $ 217,900   $ 632,900
v3.20.1
Segment Information
3 Months Ended
Mar. 31, 2020
Segment Reporting [Abstract]  
Segment Information SEGMENT AND REVENUE INFORMATION
The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations. The ACMI Services segment consists of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service agreements that the Company has with its customers. The Company's aircraft maintenance services, aircraft modification services, ground services and other services, are not large enough to constitute reportable segments and are combined in All other. Intersegment revenues are valued at arms-length market rates.
The Company's segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Total revenues:
 
 
 
CAM
$
74,163

 
$
70,350

ACMI Services
284,165

 
257,956

All other
80,036

 
67,362

Eliminate inter-segment revenues
(49,087
)
 
(47,485
)
Total
$
389,277

 
$
348,183

Customer revenues:
 
 
 
CAM
$
46,736

 
$
41,609

ACMI Services
284,161

 
257,953

All other
58,380

 
48,621

Total
$
389,277

 
$
348,183


ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, cycles operated, the number of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter agreements, the Company's airline is obligated to provide full services for one or more flights having specific origins and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all flight services, the related costs are recorded in operating expenses. Any sales commissions paid for charter agreements are generally expensed when incurred because the amortization period is less than one year. ACMI Services are invoiced monthly or more frequently. (There are no customer rewards programs associated with services offered by the Company nor does the Company sell passenger tickets or issue freight bills.)
The Company's revenues for customer contracts for airframe maintenance and aircraft modification services that do not have an alternative use and for which the Company has an enforceable right to payment are generally recognized over time based on the percentage of costs completed. Services for airframe maintenance and aircraft modifications typically have project durations lasting a few weeks to a few months. Other revenues for aircraft part sales, component repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts include assurance warranties that are not sold separately.
The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the costs to costs input method. For such services, the Company estimates the earnings
on a contract as the difference between the expected revenue and estimated costs to complete a contract and recognizes revenues and earnings based on the proportion of costs incurred compared to the total estimated costs. Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of progress toward contract obligations. The Company's estimates consider the timing and extent of the services, including the amount and rates of labor, materials and other resources required to perform the services. These production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the adjustment is identified.
The Company's ground services revenues include load transfer and sorting services, facility and equipment maintenance services. These revenues are recognized as the services are performed for the customer over time. Revenues from related facility and equipment maintenance services are recognized over time and at a point in time depending on the nature of the customer contracts.
The Company's external customer revenues from other activities for the three month periods ended March 31, 2020 and 2019 are presented below (in thousands):
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Aircraft maintenance, modifications and part sales
 
$
33,835

 
$
33,981

Ground services
 
14,609

 
13,938

Other, including aviation fuel sales
 
9,936

 
702

Total customer revenues
 
$
58,380

 
$
48,621


CAM's aircraft lease revenues are recognized as operating leases on a straight-line basis over the term of the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in advance. CAM's leases do not contain residual guarantees. Approximately 11% of CAM's leases to external customers contain purchase options at projected market values. As of March 31, 2020, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $143.6 million for the remainder of 2020, $182.8 million, $156.6 million, $114.7 million, and $80.1 million, respectively, for each of the next four years ending December 31, 2024 and $195.5 million thereafter. As of December 31, 2019, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $186.8 million, $178.2 million, $152.0 million, $110.1 million and $75.5 million, respectively, for each of the next 5 years ending December 31, 2024 and $186.2 million thereafter.
For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service. During the three month periods ending March 31, 2020 and 2019, the Company recognized $2.7 million and $2.7 million of non lease revenue that was reported in deferred revenue at the beginning of the respective year. Deferred revenue was $4.0 million and $3.0 million at March 31, 2020 and December 31, 2019, respectively, for contracts with customers.
The Company's other segment information from continuing operations is presented below (in thousands):
 
Three Months Ending
 
March 31,
 
2020
 
2019
Depreciation and amortization expense:
 
 
 
CAM
$
43,047

 
$
38,795

ACMI Services
25,312

 
23,095

All other
983

 
747

Total
$
69,342

 
$
62,637

Interest expense
 
 
 
CAM
10,255

 
9,965

ACMI Services
5,301

 
6,549

Segment earnings (loss):
 
 
 
CAM
$
15,820

 
$
16,174

ACMI Services
18,378

 
12,310

     All other
53

 
1,903

Net unallocated interest expense
(655
)
 
(780
)
Net gain on financial instruments
107,044

 
4,500

Transaction fees

 
(373
)
Other non-service components of retiree benefit costs, net
2,898

 
(2,351
)
Loss from non-consolidated affiliate
(2,764
)
 
(3,816
)
Pre-tax earnings from continuing operations
$
140,774

 
$
27,567


The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.
 
March 31,
 
December 31,
 
2020
 
2019
Assets:
 
 
 
CAM
$
1,918,286

 
$
1,857,687

ACMI Services
882,941

 
830,620

Discontinued operations
2,027

 
1,499

All other
116,786

 
130,372

Total
$
2,920,040

 
$
2,820,178


During the first three months of 2020, the Company had capital expenditures for property and equipment of $25.9 million and $116.1 million for the ACMI Services and CAM, respectively.
v3.20.1
Fair Value Measurements (Tables)
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis
The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As of March 31, 2020
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
957

 
$

 
$
957

Total Assets
$

 
$
957

 
$

 
$
957

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(19,052
)
 
$

 
$
(19,052
)
Stock warrant obligations

 
(227,082
)
 
(38,022
)
 
(265,104
)
Total Liabilities
$

 
$
(246,134
)
 
$
(38,022
)
 
$
(284,156
)
As of December 31, 2019
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
1,129

 
$

 
$
1,129

Interest rate swap

 
111

 

 
111

Total Assets
$

 
$
1,240

 
$

 
$
1,240

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(8,237
)
 
$

 
$
(8,237
)
Stock warrant obligation

 
(340,767
)
 
(42,306
)
 
(383,073
)
Total Liabilities
$

 
$
(349,004
)
 
$
(42,306
)
 
$
(391,310
)

v3.20.1
Pension and Other Post-Retirement Benefit Plans (Tables)
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
Schedule of Net Benefit Costs ’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):
 
Three Months Ended March 31,
 
Pension Plans
 
Post-Retirement Healthcare Plan
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
35

 
$
27

Interest cost
6,970

 
7,825

 
23

 
37

Expected return on plan assets
(11,168
)
 
(9,477
)
 

 

Amortization of net loss
941

 
3,882

 
31

 
43

Net periodic benefit (income) loss
$
(3,257
)
 
$
2,230

 
$
89

 
$
107


v3.20.1
Significant Customers (Details) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Concentration Risk [Line Items]      
Accounts receivable $ 166,993   $ 162,870
Fair Value Adjustment of Warrants 118,000 $ 8,300  
Warrant liability $ 265,104   383,073
DHL [Member] | Revenues from Leases and Contracted Services [Member] | Customer Concentration Risk [Member]      
Concentration Risk [Line Items]      
Percentage of consolidated revenues 11.00% 15.00%  
DHL [Member] | Accounts Receivable [Member]      
Concentration Risk [Line Items]      
Accounts receivable $ 5,400   12,700
Amazon [Member] | Revenues from Leases and Contracted Services [Member] | Customer Concentration Risk [Member]      
Concentration Risk [Line Items]      
Percentage of consolidated revenues 29.00% 18.00%  
Amazon [Member] | Accounts Receivable [Member]      
Concentration Risk [Line Items]      
Accounts receivable $ 46,800   50,100
US Military [Member] | Revenues from Leases and Contracted Services [Member] | Customer Concentration Risk [Member]      
Concentration Risk [Line Items]      
Percentage of consolidated revenues 30.00% 37.00%  
US Military [Member] | Accounts Receivable [Member]      
Concentration Risk [Line Items]      
Accounts receivable $ 59,400   $ 44,500
Amazon Warrant AB [Member]      
Concentration Risk [Line Items]      
Class of Warrant or Right, Outstanding 14,800    
Warrant liability $ (129,700)    
Amazon Warrant C [Member] [Member]      
Concentration Risk [Line Items]      
Class of Warrant or Right, Outstanding 24,700    
Warrant liability $ (135,400)    
v3.20.1
Stock-Based Compensation (Tables)
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Schedule of Share-based Compensation, Equity Instruments Other Than Options, Activity The table below summarizes award activity.
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
Number of
Awards
 
Weighted
average
grant-date
fair value
 
Number of
Awards
 
Weighted
average
grant-date
fair value
Outstanding at beginning of period
963,832

 
$
17.67

 
969,928

 
$
15.89

Granted
435,254

 
18.86

 
276,496

 
23.24

Converted
(128,463
)
 
19.06

 
(130,764
)
 
16.74

Expired
(1,000
)
 
19.40

 

 

Forfeited

 

 

 

Outstanding at end of period
1,269,623

 
$
17.94

 
1,115,660

 
$
17.61

Vested
353,023

 
$
8.25

 
337,060

 
$
8.04


Schedule of Share-based Payment Award, Equity Instruments Other Than Options, Valuation Assumptions The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.7% and a volatility of 35.0% based on volatility over three years using daily stock prices.
v3.20.1
Stock-Based Compensation
3 Months Ended
Mar. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation STOCK-BASED COMPENSATION
The Company's Board of Directors has granted stock incentive awards to certain employees and board members pursuant to a long term incentive plan which was approved by the Company's stockholders in May 2005 and in May 2015. Employees have been awarded non-vested stock units with performance conditions, non-vested stock units with market conditions and non-vested restricted stock. The restrictions on the non-vested restricted stock awards lapse at the end of a specified service period, which is typically three years from the date of grant. Restrictions could lapse sooner upon a business combination, death, disability or after an employee qualifies for retirement. The non-vested stock units will be converted into a number of shares of Company stock depending on performance and market conditions at the end of a specified service period, lasting approximately three years. The performance condition awards will be converted into a number of shares of Company stock based on the Company's average return on invested capital during the service period. Similarly, the market condition awards will be converted into a number of shares depending on the appreciation of the Company's stock compared to the NASDAQ Transportation Index. Board members were granted time-based awards with vesting periods of approximately six or twelve months. The Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below summarizes award activity.
 
Three Months Ended
 
March 31, 2020
 
March 31, 2019
 
Number of
Awards
 
Weighted
average
grant-date
fair value
 
Number of
Awards
 
Weighted
average
grant-date
fair value
Outstanding at beginning of period
963,832

 
$
17.67

 
969,928

 
$
15.89

Granted
435,254

 
18.86

 
276,496

 
23.24

Converted
(128,463
)
 
19.06

 
(130,764
)
 
16.74

Expired
(1,000
)
 
19.40

 

 

Forfeited

 

 

 

Outstanding at end of period
1,269,623

 
$
17.94

 
1,115,660

 
$
17.61

Vested
353,023

 
$
8.25

 
337,060

 
$
8.04


The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2020 was $18.39, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted in 2020 was $20.41. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.7% and a volatility of 35.0% based on volatility over three years using daily stock prices.
For the three month periods ended March 31, 2020 and 2019, the Company recorded expense of $1.8 million and $1.5 million, respectively, for stock incentive awards. At March 31, 2020, there was $13.5 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.8 years. As of March 31, 2020, none of the awards were convertible, 353,023 units of the Board members' time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in a maximum number of 1,570,298 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2022.
v3.20.1
Fair Value Measurements
3 Months Ended
Mar. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements FAIR VALUE MEASUREMENTS
The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance sheets at fair values based on market values from comparable transactions. The fair value of the Company’s money market funds, convertible note, convertible note hedges and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions.
The fair value of the stock warrant obligations resulting from aircraft leased to Amazon were determined using a Black-Scholes pricing model which considers various assumptions, including the Company’s common stock price, the volatility of the Company’s common stock, the expected dividend yield, exercise price and the risk-free interest rate (Level 2 inputs). The fair value of the stock warrant obligations for unvested stock warrants, conditionally granted to Amazon for the execution of incremental, future aircraft leases, include additional assumptions including the expected exercise prices and the probabilities that future leases will occur (Level 3 inputs).
The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):
As of March 31, 2020
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
957

 
$

 
$
957

Total Assets
$

 
$
957

 
$

 
$
957

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(19,052
)
 
$

 
$
(19,052
)
Stock warrant obligations

 
(227,082
)
 
(38,022
)
 
(265,104
)
Total Liabilities
$

 
$
(246,134
)
 
$
(38,022
)
 
$
(284,156
)
As of December 31, 2019
Fair Value Measurement Using
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Assets
 
 
 
 
 
 
 
Cash equivalents—money market
$

 
$
1,129

 
$

 
$
1,129

Interest rate swap

 
111

 

 
111

Total Assets
$

 
$
1,240

 
$

 
$
1,240

Liabilities
 
 
 
 
 
 
 
Interest rate swap
$

 
$
(8,237
)
 
$

 
$
(8,237
)
Stock warrant obligation

 
(340,767
)
 
(42,306
)
 
(383,073
)
Total Liabilities
$

 
$
(349,004
)
 
$
(42,306
)
 
$
(391,310
)

As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $72.4 million less than the carrying value, which was $1,560.6 million at March 31, 2020. As of December 31, 2019, the fair value of the Company’s debt obligations was approximately $2.7 million less than the carrying value, which was $1,484.4 million. The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.
v3.20.1
Pension and Other Post-Retirement Benefit Plans
3 Months Ended
Mar. 31, 2020
Retirement Benefits [Abstract]  
Pension and Other Post-Retirement Benefit Plans PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS
Defined Benefit and Post-retirement Healthcare Plans
ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX crewmembers, which is unfunded. Benefits for covered individuals terminate upon reaching age 65 under the post-retirement healthcare plans.
The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement obligations. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations.
ABX measures plan assets and benefit obligations as of December 31 of each year. Information regarding ABX’s sponsored defined benefit pension plans and post-retirement healthcare plans follow below. The accumulated benefit obligation reflects pension benefit obligations based on the actual earnings and service to-date of current employees.
The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):
 
Three Months Ended March 31,
 
Pension Plans
 
Post-Retirement Healthcare Plan
 
2020
 
2019
 
2020
 
2019
Service cost
$

 
$

 
$
35

 
$
27

Interest cost
6,970

 
7,825

 
23

 
37

Expected return on plan assets
(11,168
)
 
(9,477
)
 

 

Amortization of net loss
941

 
3,882

 
31

 
43

Net periodic benefit (income) loss
$
(3,257
)
 
$
2,230

 
$
89

 
$
107


During the three month period ending March 31, 2020, the Company contributed $1.3 million to the pension plans. The Company expects to contribute an additional $9.6 million during the remainder of 2020.
v3.20.1
Consolidated Statements of Operations - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
REVENUES $ 389,277 $ 348,183
OPERATING EXPENSES    
Salaries, wages and benefits 125,531 99,341
Fuel 43,799 34,950
Maintenance, materials and repairs 41,677 44,538
Depreciation and amortization 69,342 62,637
Travel 21,657 20,098
Contracted ground and aviation services 14,349 15,598
Rent 3,486 3,753
Landing and ramp 2,745 3,048
Insurance 1,668 1,911
Transaction fees 0 373
Other operating expenses 15,216 15,408
Operating Expenses 339,470 301,655
OPERATING INCOME 49,807 46,528
OTHER INCOME (EXPENSE)    
Interest income 112 96
Non-service component of retiree benefit costs 2,898 (2,351)
Non-service component of retiree benefit gains (costs) (16,323) (17,390)
Net gain on financial instruments 107,044 4,500
Other Nonoperating Income (Expense) 90,967 (18,961)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 140,774 27,567
INCOME TAX EXPENSE   (4,933)
EARNINGS FROM CONTINUING OPERATIONS 133,733 22,634
EARNINGS FROM DISCONTINUED OPERATIONS, NET OF TAXES 3,772 31
NET EARNINGS $ 137,505 $ 22,665
BASIC EARNINGS PER SHARE    
Basic earnings per share from continuing operations (in dollars per share) $ 2.27 $ 0.38
Discontinued operations (in dollars per share) 0.06 0.01
TOTAL BASIC EARNINGS PER SHARE (in dollars per share) 2.33 0.39
DILUTED EARNINGS PER SHARE    
Diluted earnings per share from continuing operations (in dollars per share) 0.84 0.25
Discontinued operations (in dollars per share) 0.06 0
TOTAL DILUTED NET EARNINGS PER SHARE (in dollars per share) $ 0.90 $ 0.25
WEIGHTED AVERAGE SHARES    
Basic (in shares) 59,040 58,838
Diluted (in shares) 67,947 60,437
v3.20.1
Income Taxes (Income Tax Provision (Benefit)) (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2019
USD ($)
Deferred taxes:  
Total income tax expense from continuing operations $ 4,933
v3.20.1
Stock-Based Compensation (Details) - USD ($)
$ / shares in Units, $ in Millions
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]        
Outstanding at beginning of period (in shares) 963,832 969,928 969,928  
Granted (in shares) 435,254 276,496    
Converted (in shares) (128,463) (130,764)    
Expired (in shares) (1,000) 0    
Forfeited (in shares) 0 0    
Outstanding at end of period (in shares) 1,269,623 1,115,660 963,832 969,928
Vested (in shares) 353,023 337,060    
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]        
Outstanding at beginning of period, Weighted average grant-date fair value (in dollars per share) $ 17.67 $ 15.89 $ 15.89  
Granted, Weighted average grant-date fair value (in dollars per share) 18.86 23.24    
Converted, Weighted average grant-date fair value (in dollars per share) 19.06 16.74    
Expired, Weighted average grant-date fair value (in dollars per share) 19.40 0    
Forfeited, Weighted average grant-date fair value (in dollars per share) 0 0    
Outstanding at end of period, Weighted average grant-date fair value (in dollars per share) 17.94 17.61 $ 17.67 $ 15.89
Vested (in dollars per share) $ 8.25 $ 8.04    
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]        
Share-based compensation expense $ 1.8 $ 1.5    
Unrecognized share-based compensation expense $ 13.5      
Unrecognized share-based compensation, weighted average recognition period 1 year 9 months 18 days      
Restricted Stock [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Requisite service period 3 years      
Stock Units [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Requisite service period 3 years      
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]        
Historical volatility period 3 years   3 years  
Risk-free interest rate 0.70%      
Expected volatility rate 35.00%      
Market Condition Award [Member]        
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]        
Granted, Weighted average grant-date fair value (in dollars per share) $ 20.41      
Performance Condition Award [Member]        
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]        
Granted, Weighted average grant-date fair value (in dollars per share) $ 18.39      
Time-Based Awards [Member] | Maximum [Member]        
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]        
Number of additional outstanding shares issued (in shares) 1,570,298      
Director [Member] | Time-Based Awards [Member]        
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]        
Vested (in shares) 353,023      
Director [Member] | Time-Based Awards [Member] | Minimum [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Requisite service period       6 months
Director [Member] | Time-Based Awards [Member] | Maximum [Member]        
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]        
Requisite service period 12 months      
v3.20.1
Summary of Financial Statement Preparation and Significant Accounting Policies
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Summary of Financial Statement Preparation and Significant Accounting Policies SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations
Air Transport Services Group, Inc. is a holding company whose subsidiaries lease aircraft, provide contracted airline operations, ground services, aircraft modification and maintenance services and other support services mainly to the air transportation, e-commerce and package delivery industries. The Company's subsidiaries offer a range of complementary services to delivery companies, freight forwarders, airlines and government customers.
The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees. The Company's airlines, ABX Air, Inc. (“ABX”), Air Transport International, Inc. (“ATI”) and Omni Air International, LLC ("OAI" ) each have the authority, through their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates, to transport cargo worldwide. The Company provides air transportation services to a concentrated base of customers. The Company provides a combination of aircraft, crews, maintenance and insurance services for a customer's transportation network through customer "CMI" and "ACMI" agreements and through charter contracts in which aircraft fuel is also included. In addition to its aircraft leasing and airline services, the Company sells aircraft parts, provides aircraft maintenance and modification services, equipment maintenance services and arranges load transfer and package sorting services for customers.
Basis of Presentation
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with the financial statements reflected in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the air cargo industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year or any interim period. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. The accounting estimates reflect the best judgment of management, but actual results could differ materially from those estimates.
The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions are eliminated. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Investments in affiliates in which the Company has significant influence but does not exercise control are accounted for using the equity method of accounting. Under the equity method, the Company’s share of the nonconsolidated affiliate's income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Investments in affiliates in which the Company does not exercise control or have significant influence are reflected at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
On February 1, 2019, the Company acquired a group of companies under common control, referred to as TriFactor. Trifactor resells material handling equipment and provides engineering design solutions for warehousing, retail distribution and e-commerce operations. Revenues and operating expenses include the activities of TriFactor for periods since its acquisition by the Company. The excess purchase price over the estimated fair value of net assets acquired
was recorded as goodwill. The acquisition of TriFactor did not have a significant impact on the Company's financial statements or results of operations.
COVID-19 Uncertainties
In late 2019, an outbreak of a coronavirus, COVID-19, was identified in China and has since spread globally, becoming a pandemic. The pandemic has had an impact on our operations and financial results. Beginning in late February 2020, revenues were negatively impacted when customers began canceling scheduled passenger flights and the Company began to incur additional costs, including expenses to protect employees. Additionally, disruptions to the Company's operations, such as shortages of personnel, shortages of parts, maintenance delays, shortages of transportation and hotel accommodations for flight crews, facility closures and other issues can be caused by the pandemic.
The extent of the impact that the coronavirus pandemic will have on future financial and operational results will depend on developments, including the duration, spread, severity and any recurrence of the COVID-19 virus; the duration and scope of government orders and restrictions; and the extent of the pandemic on overall economic conditions. These are highly uncertain. If the cornavirus pandemic persists or reemerges or expectations of operating cash flows decline significantly, the value of airframes, engines and certain intangible assets could decline significantly for the foreseeable future. If such circumstances occur or appear likely to occur, the Company may need to impair the carrying value of certain recorded assets.
Currently, the pandemic has not had a significant financial impact on the Company's leasing business or its airline operations for customers' freight networks. Management believes that the Company's current cash balances and forecasted cash flows provided from its customer leases and operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, capital spending and scheduled debt payments for at least the next 12 months.
Accounting Standards Updates
Effective January 1, 2019, the Company adopted the FASB's ASU No. 2016-02, “Leases (Topic 842)” which superseded previous lease guidance ASC 840, Leases. Topic 842 is a new lease model that requires a company to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company adopted the standard using the modified retrospective approach that does not require the restatement of prior year financial statements. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The adoption of Topic 842 resulted in the recognition of ROU assets and corresponding lease liabilities as of January 1, 2019 in the amount of $52.6 million for leases classified as operating leases. Topic 842 also applies to the Company's aircraft lease revenues, however, the adoption of Topic 842 did not have a significant impact on the Company's accounting for its customer lease agreements.
The Company adopted the package of practical expedients and transition provisions available for expired or existing contracts, which allowed the Company to carryforward its historical assessments of 1) whether contracts are or contain leases, 2) lease classification, and 3) initial direct costs. Additionally, for real estate leases, the Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Further, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements for leases with terms of 12 months or less. See Note H for additional information about leases.
In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-based Payment Accounting" ("ASU 2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC 718"), with the intent of simplifying the accounting for share-based payments granted to non-employees for goods and services and aligning the accounting for share-based payments granted to non-employees with the accounting for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2019 using the modified retrospective approach as required. ASU 2018-07 replaced ASC 505-50, "Equity-Based Payments to Nonemployees" ("ASC 505-50") which was previously applied by the Company for warrants granted to Amazon.com, Inc. ("Amazon") as customer incentives. As a result of ASU 2018-07, the Company applied accounting guidance for financial instruments to the unvested warrants conditionally granted to Amazon in conjunction with an investment agreement reached with Amazon on December 22, 2018. Applying ASU 2018-07 as of January 1, 2019, through the modified retrospective approach, resulted in the recognition of $176.9 million for unvested warrant liabilities, $100.1
million for customer incentive assets and cumulative-effect adjustments of $71.4 million, net of tax, to reduce retained earnings for customer incentives that were not probable of being realized.
The adoption of ASU 2018-07 on January 1, 2019 did not have an impact on the accounting for vested warrants.
The Company adopted "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ("ASU 2016-13") on January 1, 2020. Under ASU 2016-13, an entity is required to utilize an “expected credit loss model” on certain financial instruments, including trade receivables. This model requires an entity to estimate expected credit losses over the lifetime of the financial asset including trade receivables that are not past due. Operating lease receivables are not within the scope of Topic 326. The Company's adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements or related disclosures.
v3.20.1
Segment Information (Entity-Wide Disclosures) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Segment Reporting Information [Line Items]    
Customer revenues $ 389,277 $ 348,183
Customer Revenues [Member]    
Segment Reporting Information [Line Items]    
Customer revenues 389,277 348,183
ACMI Services [Member]    
Segment Reporting Information [Line Items]    
Property, Plant and Equipment, Additions 25,900  
Customer revenues 284,165 257,956
ACMI Services [Member] | Customer Revenues [Member]    
Segment Reporting Information [Line Items]    
Customer revenues   257,953
CAM [Member]    
Segment Reporting Information [Line Items]    
Property, Plant and Equipment, Additions 116,100  
Customer revenues 74,163 70,350
CAM [Member] | Customer Revenues [Member]    
Segment Reporting Information [Line Items]    
Customer revenues   41,609
All other [Member]    
Segment Reporting Information [Line Items]    
Customer revenues $ 80,036 67,362
All other [Member] | Customer Revenues [Member]    
Segment Reporting Information [Line Items]    
Customer revenues   $ 48,621
v3.20.1
Debt Obligations (Narrative) (Details) - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 12 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2017
Jan. 28, 2020
Dec. 31, 2019
May 10, 2018
Sep. 25, 2017
Debt Instrument [Line Items]              
Long term obligations $ 1,560,640       $ 1,484,384    
Unsecured Debt 492,675       0    
Proceeds from Issuance of Unsecured Debt 500,000 $ 0          
Convertible Debt 215,663       213,461    
Proceeds from Convertible Debt $ 0 $ (264)          
Unsecured Debt [Member]              
Debt Instrument [Line Items]              
Variable interest rate 4.75%            
Unsubordinated term loan and Revolving credit facility [Member]              
Debt Instrument [Line Items]              
Collateral coverage percentage 115.00%            
Maximum amount of common stock authorized for repurchase $ 100,000            
Bonds [Member]              
Debt Instrument [Line Items]              
Unsecured Debt       $ 500,000      
Debt Instrument, Interest Rate, Stated Percentage       4.75%      
Proceeds from Issuance of Unsecured Debt $ 495,000            
Minimum [Member] | Unsubordinated term loan and Revolving credit facility [Member]              
Debt Instrument [Line Items]              
Collateral coverage percentage 50.00%            
Convertible Debt [Member]              
Debt Instrument [Line Items]              
Convertible Debt $ 258,750       258,750   $ 258,800
Debt Conversion, Converted Instrument, Rate 1.125%            
Debt Instrument, Interest Rate, Effective Percentage 5.15%            
Proceeds from Convertible Debt     $ 252,300        
Convertible note hedge shares             8,100
Warrants and Rights Outstanding $ 38,500            
Unamortized Debt Issuance Expense (4,625)       (4,864)    
Debt Instrument, Unamortized Discount (38,462)       (40,425)    
Fair Value, Inputs, Level 2 [Member] | Fair Value, Recurring [Member]              
Debt Instrument [Line Items]              
Note conversion obligation fair value           $ (51,300) $ (57,400)
Convertible note hedge fair value           $ 50,600 $ 56,100
Unsecured Debt [Member]              
Debt Instrument [Line Items]              
Debt Issuance Costs, Line of Credit Arrangements, Net 7,300            
Unsubordinated term loan and Revolving credit facility [Member]              
Debt Instrument [Line Items]              
Debt Issuance Costs, Line of Credit Arrangements, Net $ 8,300       $ 8,700    
v3.20.1
Property and Equipment (Schedule of Property and Equipment) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Property, Plant and Equipment, Net, by Type [Abstract]    
Property and equipment, gross $ 3,041,734 $ 2,912,217
Accumulated depreciation (1,206,558) (1,146,197)
Property and equipment, net 1,835,176 1,766,020
Flight Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Operating Leases, Future Minimum Payments Receivable, Current 143,600 186,800
Property, Plant and Equipment, Net, by Type [Abstract]    
Property and equipment, gross 2,649,370 2,598,113
Operating Leases, Future Minimum Payments Receivable, in Two Years 182,800 178,200
Operating Leases, Future Minimum Payments Receivable, in Three Years 156,600 152,000
Operating Leases, Future Minimum Payments Receivable, in Four Years 114,700 110,100
Operating Leases, Future Minimum Payments Receivable, in Five Years 80,100 75,500
Ground equipment [Member]    
Property, Plant and Equipment, Net, by Type [Abstract]    
Property and equipment, gross 60,400 59,628
facilities, leasehold improvements and office equipment [Member]    
Property, Plant and Equipment, Net, by Type [Abstract]    
Property and equipment, gross 34,173 33,649
Construction in Progress [Member]    
Property, Plant and Equipment, Net, by Type [Abstract]    
Property and equipment, gross $ 297,791 $ 220,827
v3.20.1
Summary of Financial Statement Preparation and Significant Accounting Policies (Tables)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Property, Plant and Equipment Property and equipment, to be held and used, is summarized as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Flight equipment
$
2,649,370

 
$
2,598,113

Ground equipment
60,400

 
59,628

Leasehold improvements, facilities and office equipment
34,173

 
33,649

Aircraft modifications and projects in progress
297,791

 
220,827

 
3,041,734

 
2,912,217

Accumulated depreciation
(1,206,558
)
 
(1,146,197
)
Property and equipment, net
$
1,835,176

 
$
1,766,020


v3.20.1
Debt Obligations (Tables)
3 Months Ended
Mar. 31, 2020
Debt Disclosure [Abstract]  
Convertible Debt [Table Text Block] The carrying value of the Company's convertible debt is shown below.
 
 
March 31,
 
December 31,
 
 
2020
 
2019
Principal value, Convertible Senior Notes, due 2024
 
258,750

 
258,750

Unamortized issuance costs
 
(4,625
)
 
(4,864
)
Unamortized discount
 
(38,462
)
 
(40,425
)
Convertible debt
 
215,663

 
213,461


Schedule of Long-term Debt Instruments
Debt obligations consisted of the following (in thousands):
 
March 31,
 
December 31,
 
2020
 
2019
Unsubordinated term loan
$
622,751

 
$
626,277

Revolving credit facility
217,900

 
632,900

Senior notes
492,675

 

Convertible debt
215,663

 
213,461

Other financing arrangements
11,651

 
11,746

Total debt obligations
1,560,640

 
1,484,384

Less: current portion
(13,773
)
 
(14,707
)
Total long term obligations, net
$
1,546,867

 
$
1,469,677


v3.20.1
Segment Information (Narrative) (Details)
$ in Thousands
3 Months Ended
Mar. 31, 2020
USD ($)
segments
Mar. 31, 2019
USD ($)
Dec. 31, 2019
USD ($)
Segment Reporting Information [Line Items]      
REVENUES $ 389,277 $ 348,183  
Deferred Revenue, Revenue Recognized 2,700 2,700  
Deferred Revenue $ 4,000   $ 3,000
Number of reportable segments (in segments) | segments 2    
Interest expense $ 16,323 17,390  
Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES 389,277 348,183  
ACMI Services [Member]      
Segment Reporting Information [Line Items]      
REVENUES 284,165 257,956  
Interest expense 5,301 6,549  
Property, Plant and Equipment, Additions 25,900    
ACMI Services [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES   257,953  
CAM [Member]      
Segment Reporting Information [Line Items]      
REVENUES 74,163 70,350  
Interest expense 10,255 9,965  
Property, Plant and Equipment, Additions 116,100    
CAM [Member] | Customer Revenues [Member]      
Segment Reporting Information [Line Items]      
REVENUES   $ 41,609  
Flight Equipment [Member]      
Segment Reporting Information [Line Items]      
Operating Leases, Future Minimum Payments Receivable, Current 143,600   186,800
Operating Leases, Future Minimum Payments Receivable, in Two Years 182,800   178,200
Operating Leases, Future Minimum Payments Receivable, in Three Years 156,600   152,000
Operating Leases, Future Minimum Payments Receivable, in Four Years 114,700   110,100
Operating Leases, Future Minimum Payments Receivable, in Five Years 80,100   75,500
Operating Leases, Future Minimum Payments Receivable, Thereafter $ 195,500   $ 186,200
v3.20.1
Investments in Non-Consolidated Affiliates (Unaudited) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Noncontrolling Interest [Line Items]      
Assets, Current $ 307,361   $ 266,791
NET EARNINGS 137,505 $ 22,665  
Liabilities, Current 253,801   263,239
Liabilities 2,320,737   $ 2,359,836
REVENUES $ 389,277 $ 348,183  
v3.20.1
Commitments and Contingencies (Operating Lease Payments) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Operating Leased Assets [Line Items]      
Right-of-Use Asset Obtained in Exchange for Operating Lease Liability $ 12,900 $ 1,100  
Operating Lease, Weighted Average Discount Rate, Percent 4.06%   4.70%
Operating Lease, Weighted Average Remaining Lease Term 4 years 8 months 12 days   4 years 7 months 6 days
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]      
2017 $ 11,682    
Total minimum lease payments 47,982    
lessee, operating lease, interest due (4,437)    
Operating Lease, Liability, Current 13,340   $ 12,857
Operating Lease, Liability, Noncurrent 34,642   $ 30,334
Operating Lease, Payments 3,900 $ 5,200  
Property Subject to Operating Lease [Member]      
Operating Leases, Future Minimum Payments Due, Fiscal Year Maturity [Abstract]      
2018 12,054    
2019 8,336    
2020 7,608    
2021 6,398    
2022 and beyond 6,341    
Lessee, Operating Lease, Liability, Payments, Due $ 52,419    
v3.20.1
Property and Equipment (Narrative) (Details) - Flight Equipment [Member] - USD ($)
$ in Millions
Mar. 31, 2020
Dec. 31, 2019
Operating Leases, Future Minimum Payments Receivable [Abstract]    
Minimum future lease payments, Due within next 12 months $ 143.6 $ 186.8
Minimum future lease payments, Due within next 2 years 182.8 178.2
Minimum future lease payments, Due within next 3 years 156.6 152.0
Minimum future lease payments, Due within next 4 years 114.7 110.1
Minimum future lease payments, Due within next 5 years 80.1 75.5
CAM [Member]    
Property, Plant and Equipment [Line Items]    
Leased aircraft, carrying value $ 887.1 $ 889.3
v3.20.1
Summary of Financial Statement Preparation and Significant Accounting Policies (Policies)
3 Months Ended
Mar. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Presentation
Basis of Presentation
The financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The accompanying unaudited condensed interim consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and such principles are applied on a basis consistent with the financial statements reflected in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations promulgated by the SEC related to interim financial statements. In the opinion of management, the accompanying financial statements contain all adjustments, including normal recurring adjustments, necessary for the fair presentation of the Company’s results of operations and financial position for the periods presented. Due to seasonal fluctuations, among other factors common to the air cargo industry, the results of operations for the periods presented are not necessarily indicative of the results of operations to be expected for the entire year or any interim period. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. The accounting estimates reflect the best judgment of management, but actual results could differ materially from those estimates.
The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions are eliminated. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").
Investments in affiliates in which the Company has significant influence but does not exercise control are accounted for using the equity method of accounting. Under the equity method, the Company’s share of the nonconsolidated affiliate's income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. Investments in affiliates in which the Company does not exercise control or have significant influence are reflected at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
New Accounting Pronouncements
Accounting Standards Updates
Effective January 1, 2019, the Company adopted the FASB's ASU No. 2016-02, “Leases (Topic 842)” which superseded previous lease guidance ASC 840, Leases. Topic 842 is a new lease model that requires a company to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The Company adopted the standard using the modified retrospective approach that does not require the restatement of prior year financial statements. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statement of operations and consolidated statement of cash flows. The adoption of Topic 842 resulted in the recognition of ROU assets and corresponding lease liabilities as of January 1, 2019 in the amount of $52.6 million for leases classified as operating leases. Topic 842 also applies to the Company's aircraft lease revenues, however, the adoption of Topic 842 did not have a significant impact on the Company's accounting for its customer lease agreements.
The Company adopted the package of practical expedients and transition provisions available for expired or existing contracts, which allowed the Company to carryforward its historical assessments of 1) whether contracts are or contain leases, 2) lease classification, and 3) initial direct costs. Additionally, for real estate leases, the Company adopted the practical expedient that allows lessees to treat the lease and non-lease components of leases as a single lease component. The Company also elected the hindsight practical expedient to determine the reasonably certain lease term for existing leases. Further, the Company elected the short-term lease exception policy, permitting it to exclude the recognition requirements for leases with terms of 12 months or less. See Note H for additional information about leases.
In June 2018, the FASB issued ASU No. 2018-07 “Improvements to Non-employee Share-based Payment Accounting" ("ASU 2018-07"). ASU 2018-07 amends ASC 718, "Compensation - Stock Compensation" ("ASC 718"), with the intent of simplifying the accounting for share-based payments granted to non-employees for goods and services and aligning the accounting for share-based payments granted to non-employees with the accounting for share-based payments granted to employees. The Company adopted ASU 2018-07 on January 1, 2019 using the modified retrospective approach as required. ASU 2018-07 replaced ASC 505-50, "Equity-Based Payments to Nonemployees" ("ASC 505-50") which was previously applied by the Company for warrants granted to Amazon.com, Inc. ("Amazon") as customer incentives. As a result of ASU 2018-07, the Company applied accounting guidance for financial instruments to the unvested warrants conditionally granted to Amazon in conjunction with an investment agreement reached with Amazon on December 22, 2018. Applying ASU 2018-07 as of January 1, 2019, through the modified retrospective approach, resulted in the recognition of $176.9 million for unvested warrant liabilities, $100.1
million for customer incentive assets and cumulative-effect adjustments of $71.4 million, net of tax, to reduce retained earnings for customer incentives that were not probable of being realized.
The adoption of ASU 2018-07 on January 1, 2019 did not have an impact on the accounting for vested warrants.
The Company adopted "Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ("ASU 2016-13") on January 1, 2020. Under ASU 2016-13, an entity is required to utilize an “expected credit loss model” on certain financial instruments, including trade receivables. This model requires an entity to estimate expected credit losses over the lifetime of the financial asset including trade receivables that are not past due. Operating lease receivables are not within the scope of Topic 326. The Company's adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements or related disclosures.
v3.20.1
Property and Equipment (Tables)
3 Months Ended
Mar. 31, 2020
Property, Plant and Equipment [Abstract]  
Property, Plant and Equipment Property and equipment, to be held and used, is summarized as follows (in thousands):
 
March 31,
2020
 
December 31,
2019
Flight equipment
$
2,649,370

 
$
2,598,113

Ground equipment
60,400

 
59,628

Leasehold improvements, facilities and office equipment
34,173

 
33,649

Aircraft modifications and projects in progress
297,791

 
220,827

 
3,041,734

 
2,912,217

Accumulated depreciation
(1,206,558
)
 
(1,146,197
)
Property and equipment, net
$
1,835,176

 
$
1,766,020


v3.20.1
Goodwill and Other Intangibles (Schedule of Goodwill) (Details) - USD ($)
$ in Thousands
Mar. 31, 2020
Dec. 31, 2019
Goodwill [Roll Forward]    
Carrying value, beginning balance $ 395,974 $ 395,974
Carrying value, ending balance 395,974  
ACMI Services [Member]    
Goodwill [Roll Forward]    
Carrying value, beginning balance 234,571 234,571
Carrying value, ending balance 234,571  
CAM [Member]    
Goodwill [Roll Forward]    
Carrying value, beginning balance 153,290 153,290
Carrying value, ending balance 153,290  
MRO Services [Member] [Member]    
Goodwill [Roll Forward]    
Carrying value, beginning balance 8,113 $ 8,113
Carrying value, ending balance $ 8,113  
v3.20.1
Earnings Per Share (Tables)
3 Months Ended
Mar. 31, 2020
Earnings Per Share [Abstract]  
Schedule of Earnings Per Share, Basic and Diluted
The calculation of basic and diluted earnings per common share are as follows (in thousands, except per share amounts):
 
Three Months Ending March 31,
 
2020
 
2019
Numerator:
 
 
 
Earnings from continuing operations - basic
$
133,733

 
$
22,634

Gain from stock warrants revaluation, net of tax
(76,361
)
 
(7,653
)
Earnings from continuing operations - diluted
$
57,372

 
$
14,981

 
 
 
 
Denominator:
 
 
 
Weighted-average shares outstanding for basic earnings per share
59,040

 
58,838

Common equivalent shares:
 
 
 
Effect of stock-based compensation awards and warrants
8,907

 
1,599

Weighted-average shares outstanding assuming dilution
67,947

 
60,437

Basic earnings per share from continuing operations
$
2.27

 
$
0.38

Diluted earnings per share from continuing operations
$
0.84

 
0.25


v3.20.1
Goodwill and Other Intangibles
3 Months Ended
Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangibles GOODWILL, INTANGIBLES AND EQUITY INVESTMENTS
The carrying amounts of goodwill, by operating segment, are as follows (in thousands):
 
 
CAM
 
ACMI Services
 
All Other
 
Total
Carrying value as of December 31, 2019
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974

Carrying value as of March 31, 2020
 
$
153,290

 
$
234,571

 
$
8,113

 
$
395,974


The Company's acquired intangible assets are as follows (in thousands):
 
 
Airline
 
Amortizing
 
 
 
 
Certificates
 
Intangibles
 
Total
Carrying value as of December 31, 2019
 
$
9,000

 
$
122,680

 
$
131,680

Amortization
 

 
(2,859
)
 
(2,859
)
Carrying value as of March 31, 2020
 
$
9,000

 
$
119,821

 
$
128,821


The airline certificates have an indefinite life and therefore are not amortized. The Company amortizes finite-lived intangibles assets, including customer relationship and STC intangibles, over 3 to 19 years.
Stock warrants issued to a lessee (see Note C) as an incentive are recorded as a lease incentive asset using their fair value at the time that the lessee has met its performance obligations and amortized against revenues over the duration of related aircraft leases. The Company's lease incentive granted to the lessee was as follows (in thousands):
 
 
Lease
 
 
Incentive
Carrying value as of December 31, 2019
 
$
146,678

Amortization
 
(4,857
)
Carrying value as of March 31, 2020
 
$
141,821


In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, West Atlantic UK and West Atlantic Sweden, operates a fleet of aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 767 and 737 aircraft. In April 2019, West issued additional shares to a new investor in conjunction with a capital investment and purchase agreement which reduced the Company's ownership to approximately 10% and reduced the Company's influence over West. West leases three Boeing 767 aircraft from the Company.
On August 3, 2017 the Company entered into a joint-venture agreement with Precision Aircraft Solutions, LLC, to develop a passenger-to-freighter conversion program for Airbus A321-200 aircraft. The Company anticipates approval of a supplemental type certificate from the FAA in 2020. The Company expects to make contributions equal to its 49% ownership percentage of the program's total costs over the next two years. During the first three months of
2020 and 2019, the Company contributed $3.0 million and $3.8 million to the joint venture, respectively. The Company accounts for its investment in the aircraft conversion joint venture under the equity method of accounting, in which the carrying value of each investment is reduced for the Company's share of the non-consolidated affiliates' operating results.
The carrying value of West and the joint venture totaled $11.2 million and $10.9 million at March 31, 2020 and December 31, 2019, respectively, and are reflected in “Other Assets” in the Company’s consolidated balance sheets. The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded carrying value and the fair value of the investment. The fair value is generally determined using an income approach based on discounted cash flows or using negotiated transaction values.
v3.20.1
Commitments and Contingencies
3 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies COMMITMENTS AND CONTINGENCIES
CARES Act
The Company's airline subsidiaries, OAI and ATI, each submitted an application to the Secretary of the Treasury for a grant of funds pursuant to the payroll support program under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). On April 24, 2020, OAI was notified by the U.S. Department of the Treasury that its application for funds under the payroll support program had been approved on a preliminary basis. OAI expects to receive total funding of approximately $67 million to be paid in installments through September 2020. ATI’s application for a grant under the payroll support program remains pending at this time. As a condition to receiving the funds, OAI and ATI must agree to refrain from conducting involuntary furloughs or reducing employee rates of pay or benefits through September 30, 2020; limit, on behalf of themselves and their affiliate air carriers, executive compensation through March 24, 2022; maintain certain air transportation service through March 1, 2022 as may be required by the U.S. Department of Transportation pursuant to its authority under the CARES Act; and maintain certain internal controls and records relating to the CARES Act funds and comply with certain reporting requirements. In addition, the Company may not pay dividends or repurchase its shares through September 30, 2021.
Lease Commitments
The Company leases property, five aircraft, aircraft engines and other types of equipment under operating leases. Property leases include hangars, warehouses, offices and other space at certain airports with fixed rent payments and lease terms ranging from one month to seven years. The Company is obligated to pay the lessor for maintenance, real estate taxes, insurance and other operating expenses on certain property leases. These expenses are variable and are not included in the measurement of the lease asset or lease liability. These expenses are recognized as variable lease expense when incurred and are not material. Equipment leases include ground support and industrial equipment as well as computer hardware with fixed rent payments and terms of one month to five years.
The Company records the initial right-to-use asset and lease liability at the present value of lease payments scheduled during the lease term. For the first three months of 2020 and 2019, non-cash transactions to recognize right-to-use assets and corresponding liabilities for new leases were $12.9 million and $1.1 million, respectively. Unless the rate implicit in the lease is readily determinable, the Company discounts the lease payments using an estimated incremental borrowing rate at the time of lease commencement. The Company estimates the incremental borrowing rate based on the information available at the lease commencement date, including the rate the Company could borrow for a similar amount, over a similar lease term with similar collateral. The Company's weighted-average discount rate for operating leases at March 31, 2020 was 4.06% compared to 4.7% at December 31, 2019. Leases often include rental escalation clauses, renewal options and/or termination options that are factored into the determination of lease payments when appropriate. Although not material, the amount of such options is reflected below in the maturity of operating lease liabilities table. Lease expense is recognized on a straight-line basis over the lease term. Our weighted-average remaining lease term is 4.7 years and 4.6 years as of March 31, 2020 and December 31, 2019, respectively.
For the three month periods ended March 31, 2020 and 2019, cash payments against operating lease liabilities were $3.9 million and $5.2 million, respectively. As of March 31, 2020, the maturities of operating lease liabilities are as follows (in thousands):
 
 
Operating Leases
Remaining 2020
 
$
11,682

2021
 
12,054

2022
 
8,336

2023
 
7,608

2024
 
6,398

2025 and beyond
 
6,341

Total undiscounted cash payments
 
52,419

Less: amount representing interest
 
(4,437
)
Present value of future minimum lease payments
 
47,982

Less: current obligations under leases
 
13,340

Long-term lease obligation
 
$
34,642


The Company expects to lease one additional passenger aircraft and additional facilities commencing later in 2020 that are not reflected in the table above.
Purchase Commitments
The Company has agreements with Israel Aerospace Industries Ltd. ("IAI") for the conversion of Boeing 767 passenger aircraft into a standard configured freighter aircraft. The conversions primarily consist of the installation of a standard cargo door and loading system. As of March 31, 2020, the Company had 12 aircraft that were in or awaiting the modification process. As of March 31, 2020, the Company had placed non-refundable deposits of $15.0 million to purchase ten more Boeing 767-300 passenger aircraft through 2021. As of March 31, 2020, the Company's commitments to acquire and convert aircraft totaled $302.2 million through 2021.
Guarantees and Indemnifications
Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.
Other
In addition to the foregoing matters, the Company is also a party to legal proceedings in various federal and state jurisdictions from time to time arising out of the operation of the Company's business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, the Company believes that its ultimate liability, if any, arising from pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations.
Employees Under Collective Bargaining Agreements
As of March 31, 2020, the flight crewmember employees of ABX, ATI and OAI and flight attendant employees of ATI and OAI were represented by the labor unions listed below:
Airline
Labor Agreement Unit
Percentage of
the Company’s
Employees
ABX
International Brotherhood of Teamsters
5.1%
ATI
Air Line Pilots Association
8.3%
OAI
International Brotherhood of Teamsters
7.0%
ATI
Association of Flight Attendants
0.9%
OAI
Association of Flight Attendants
7.1%

v3.20.1
Accumulated Other Comprehensive Income (Loss)
3 Months Ended
Mar. 31, 2020
Other Comprehensive Income [Abstract]  
Accumulated Other Comprehensive Income ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ending March 31, 2020 and 2019 (in thousands):
 
 
Defined Benefit Pension
 
Defined Benefit Post-Retirement
 
Foreign Currency Translation
 
Total
Balance as of January 1, 2019
 
(89,042
)
 
(841
)
 
(1,479
)
 
(91,362
)
Other comprehensive income (loss) before reclassifications:
 
 
 
 
 
 
 
 
Foreign currency translation adjustment
 

 

 
(7
)
 
(7
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
3,882

 
43

 

 
3,925

Income Tax (Expense) or Benefit
 
(931
)
 
(10
)
 
2

 
(939
)
Other comprehensive income (loss), net of tax
 
2,951

 
33

 
(5
)
 
2,979

Balance as of March 31, 2019
 
(86,091
)
 
(808
)
 
(1,484
)
 
(88,383
)
 
 
 
 
 
 
 
 
 
Balance as of January 1, 2020
 
$
(61,152
)
 
$
(702
)
 
$
(12
)
 
$
(61,866
)
Amounts reclassified from accumulated other comprehensive income:
 
 
 
 
 
 
 
 
Actuarial costs (reclassified to salaries, wages and benefits)
 
941

 
31

 

 
972

Income Tax Expense
 
(215
)
 
(7
)
 

 
(222
)
Other comprehensive income, net of tax
 
726

 
24

 

 
750

Balance as of March 31, 2020
 
(60,426
)
 
(678
)
 
(12
)
 
(61,116
)

v3.20.1
Significant Customers
3 Months Ended
Mar. 31, 2020
Significant Customers [Abstract]  
Significant Customers SIGNIFICANT CUSTOMERS
DHL
The Company has had long-term contracts with DHL Network Operations (USA), Inc. and its affiliates ("DHL") since August 2003. Revenues from aircraft leases and related services performed for DHL were approximately 11% and 15% of the Company's consolidated revenues from continuing operations for the three month periods ending March 31, 2020 and 2019, respectively. The Company’s balance sheets include accounts receivable with DHL of $5.4 million and $12.7 million as of March 31, 2020 and December 31, 2019, respectively.
The Company leases Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases. The Company also provides additional air cargo transportation services for DHL through ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, air starts and related maintenance services to DHL under separate agreements.
Amazon
The Company has been providing freighter aircraft and services for cargo handling and logistical support for Amazon.com Services, LLC ("ASI"), successor to Amazon.com Services, Inc., a subsidiary of Amazon.com, Inc. ("Amazon") since September 2015. On March 8, 2016, the Company entered into an Air Transportation Services Agreement (the “ATSA”) with ASI, pursuant to which CAM leases 20 Boeing 767 freighter aircraft to ASI, including 12 Boeing 767-200 freighter aircraft for a term of five years and eight Boeing 767-300 freighter aircraft for a term of seven years. The ATSA also provides for the operation of those aircraft by the Company’s airline subsidiaries, and the management of ground services by the Company's subsidiary LGSTX Services Inc. ("LGSTX"). The ATSA became effective on April 1, 2016 and had an original term of five years.
In conjunction with the execution of the ATSA, the Company and Amazon entered into an Investment Agreement and a Stockholders Agreement on March 8, 2016. The Investment Agreement calls for the Company to issue warrants in three tranches which will grant Amazon the right to acquire up to 19.9% of the Company’s outstanding common shares as described below. The first tranche of warrants, issued upon the execution of the Investment Agreement and all of which are now fully vested, granted Amazon the right to purchase approximately 12.81 million ATSG common shares, with the first 7.69 million common shares vesting upon issuance on March 8, 2016, and the remaining 5.12 million common shares vesting as the Company delivered additional aircraft leased under the ATSA. The second tranche of warrants, which were issued and vested on March 8, 2018, grants Amazon the right to purchase approximately 1.59 million ATSG common shares. The third tranche of warrants will be issued and vest on September 8, 2020, and will grant Amazon the right to purchase such additional number of ATSG common shares as is necessary to bring Amazon’s ownership to 19.9% of the Company’s pre-transaction outstanding common shares measured on a GAAP-diluted basis, adjusted for share issuances and repurchases by the Company following the date of the Investment Agreement and after giving effect to the warrants granted. The exercise price of the warrants is $9.73 per share, which represents the closing
price of ATSG’s common shares on February 9, 2016. Each of the three tranches of warrants are exercisable in accordance with its terms through March 8, 2021.
On December 22, 2018 the Company announced agreements with Amazon to 1) lease and operate ten additional Boeing 767-300 aircraft for ASI, 2) extend the term of the 12 Boeing 767-200 aircraft currently leased to ASI by two years to 2023 with an option for three more years, 3) extend the term of the eight Boeing 767-300 aircraft currently leased to ASI by three years to 2026 and 2027 with an option for three more years and 4) extend the ATSA by five years through March 2026, with an option to extend for an additional three years. The Company delivered six of the 767-300 aircraft in 2019 and plans to deliver the remainder in 2020. All ten of these aircraft leases will be for ten years.
In conjunction with the commitment for ten additional 767 aircraft leases, extensions of twenty existing Boeing 767 aircraft leases and the ATSA described above, Amazon and the Company entered into another Investment Agreement on December 20, 2018. Pursuant to the 2018 Investment Agreement, Amazon was issued warrants for 14.8 million common shares which could expand its potential ownership in the Company to approximately 33.2%, including the warrants described above for the 2016 agreements.  Warrants for 11.1 million common shares vested as existing leases were extended and six additional aircraft leases were executed and added to the ATSA operations. More of these warrants will vest as four additional aircraft leases were executed. These new warrants will expire if not exercised within seven years from their issuance date. They have an exercise price of $21.53 per share.
Additionally, Amazon will be able to earn incremental warrant rights, increasing its potential ownership from 33.2% up to approximately 39.9% of the Company, by leasing up to seventeen more cargo aircraft from the Company before January 2026. Incremental warrants granted for Amazon’s commitment to any such future aircraft leases will have an exercise price based on the volume-weighted average price of the Company's shares during the 30 trading days immediately preceding the contractual commitment for each lease.
The warrants issuable under these new agreements with Amazon required an increase in the number of authorized common shares of the Company. Management submitted proposals for shareholder consideration at the Company's annual meeting of shareholders on May 9, 2019 calling for an increase in the number of authorized common shares and approval of the warrants as required under the rules of the Nasdaq Global Select Market. Both proposals were approved by shareholders on May 9, 2019.
The Company’s accounting for the warrants has been determined in accordance with the financial reporting guidance for financial instruments. Warrant obligations are marked to fair value at the end of each reporting period. The value of warrants is recorded as a customer incentive asset if it is probable of vesting at the time of grant and further changes in the fair value of warrant obligations are recorded to earnings. Upon a warrant vesting event, the customer incentive asset is amortized as a reduction of revenue over the duration of the related revenue contract.
As of March 31, 2020, the Company's liabilities reflected 14.8 million warrants from the 2016 Investment Agreement having a fair value of $129.7 million and 24.7 million warrants from the 2018 Amazon agreements having a fair value of $135.4 million. During the three month periods ended March 31, 2020 and 2019, the re-measurements of all the warrants to fair value resulted in net non-operating gains of $118.0 million and $8.3 million before the effect of income taxes, respectively.
Revenues from Amazon comprised approximately 29% and 18% of the Company's consolidated revenues from continuing operations for the three month periods ending March 31, 2020 and 2019, respectively. The Company’s balance sheets include accounts receivable with Amazon of $46.8 million and $50.1 million as of March 31, 2020 and December 31, 2019, respectively.
The Company's earnings in future periods will be impacted by the re-measurements of warrant fair value, amortizations of the lease incentive asset and the related income tax effects. For income tax calculations, the value and timing of related tax deductions will differ from the guidance described above for financial reporting.
DoD
The Company is a provider of cargo and passenger airlift services to the DoD. The DoD awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the DoD were approximately 30% and 37% of the Company's total revenues from continuing operations for the years ended March 31, 2020 and 2019, respectively. The Company's balance sheets included accounts receivable with the DoD of $59.4 million and $44.5 million as of March 31, 2020 and December 31, 2019, respectively.
v3.20.1
Pension and Other Post-Retirement Benefit Plans (Cash Flows) (Details) - Pension Plans [Member]
$ in Millions
3 Months Ended
Mar. 31, 2020
USD ($)
Defined Benefit Plan Disclosure [Line Items]  
Employer contributions $ 1.3
Estimated future employer contributions $ 9.6
v3.20.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
NET EARNINGS $ 137,505 $ 22,665
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax 0 (5)
OTHER COMPREHENSIVE INCOME (LOSS):    
TOTAL COMPREHENSIVE INCOME, net of tax 138,255 25,644
Pension Plans [Member]    
Other comprehensive income (loss), net of tax 726 2,951
OTHER COMPREHENSIVE INCOME (LOSS):    
Income tax (expense) or benefit (215) (931)
Post-Retirement Plans [Member]    
Other comprehensive income (loss), net of tax 24 33
OTHER COMPREHENSIVE INCOME (LOSS):    
Income tax (expense) or benefit $ (7) $ (10)
v3.20.1
Document and Entity Information - shares
3 Months Ended
Mar. 31, 2020
May 11, 2020
Cover [Abstract]    
Document Type 10-Q  
Document Annual Report true  
Document Period End Date Mar. 31, 2020  
Document Transition Report false  
Entity File Number 000-50368  
Entity Registrant Name Air Transport Services Group, Inc.  
Entity Central Index Key 0000894081  
Current Fiscal Year End Date --12-31  
Amendment Flag false  
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 26-1631624  
Entity Address, Address Line One 145 Hunter Drive  
Entity Address, City or Town Wilmington  
Entity Address, State or Province OH  
Entity Address, Postal Zip Code 45177  
City Area Code 937  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Local Phone Number 382-5591  
Title of 12(b) Security Common Stock, par value $0.01 per share  
Trading Symbol ATSG  
Entity Common Stock, Shares Outstanding   59,590,270
v3.20.1
Accumulated Other Comprehensive Income (Loss) (Details) - USD ($)
$ in Thousands
3 Months Ended
Mar. 31, 2020
Mar. 31, 2019
Dec. 31, 2019
Dec. 31, 2018
Schedule of Accumulated Other Comprehensive Income [Line Items]        
Accumulated Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Net of Tax $ (12) $ (1,484) $ (12) $ (1,479)
Accumulated other comprehensive income (loss), beginning balance (61,866) (91,362)    
Other comprehensive income (loss) before reclassifications:        
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Gain (Loss), before Reclassification and Tax   (7)    
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax 0 2    
Amounts reclassified from accumulated other comprehensive income:        
Actuarial costs (reclassified to salaries, wages and benefits) 972 3,925    
Income Tax (Expense) or Benefit (222) (939)    
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax 0 (5)    
Other comprehensive income (loss), net of tax   2,979    
Accumulated other comprehensive income (loss), ending balance (61,116) (88,383)    
Total comprehensive income (loss) 138,255 25,644    
Pension Plans [Member]        
Schedule of Accumulated Other Comprehensive Income [Line Items]        
Accumulated other comprehensive income (loss), beginning balance (61,152) (89,042)    
Amounts reclassified from accumulated other comprehensive income:        
Actuarial costs (reclassified to salaries, wages and benefits) 941 3,882    
Income Tax (Expense) or Benefit (215) (931)    
Other comprehensive income (loss), net of tax 726 2,951    
Accumulated other comprehensive income (loss), ending balance (60,426) (86,091)    
Post-Retirement Plans [Member]        
Schedule of Accumulated Other Comprehensive Income [Line Items]        
Accumulated other comprehensive income (loss), beginning balance (702) (841)    
Amounts reclassified from accumulated other comprehensive income:        
Actuarial costs (reclassified to salaries, wages and benefits) 31 43    
Income Tax (Expense) or Benefit (7) (10)    
Other comprehensive income (loss), net of tax 24 33    
Accumulated other comprehensive income (loss), ending balance $ (678) $ (808)