CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

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

This Annual Report on Form 10-K (the “Form 10-K”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements, within the meaning of the Act. Except for historical information contained in this Form 10-K, the matters discussed herein contain forward-looking statements that involve inherent risks and uncertainties. Such statements are provided under the “safe harbor” protection of the Act. Forward-looking statements are not statements of historical facts but are based on management’s current beliefs, assumptions and expectations regarding our future performance, taking into account the information currently available to management. Forward-looking statements include, but are not limited to, statements regarding anticipated operating results, prospects and levels of assets under management, technological developments, economic trends, expected transactions and similar matters. Forward-looking statements usually can be identified by the use of words such as “goal,” “objective,” “plan,” “expect,” “anticipate,” “intend,” “project,” “believe,” “estimate,” “may,” “target,” “guidance,” “forecast,” “outlook,” “could,” “will,” “continue,” “likely,” “should,” “hope,” “seek,” “would,” or other words of similar meaning. In addition, any statements that refer to projections of financial items, anticipated growth, future growth and revenues, future economic conditions and performance, plans, objectives and strategies for future operations, expectations, or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements provide our current expectations or forecasts of future events, results, circumstances or aspirations. We may also make forward-looking statements in our other documents filed or furnished with the SEC and in oral presentations. Forward-looking statements are based on assumptions and by their nature are subject to risks and uncertainties, many of which are outside of our control. Our actual results may differ materially from those set forth in our forward-looking statements. There is no assurance that any list of risks and uncertainties or risk factors is complete. Factors that could cause actual results to differ materially from those described in our forward-looking statements include, but are not limited to those discussed under the heading “Risk Factors” herein.

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

On November 3, 2024, Air Transport Services Group, Inc. (“ATSG”) entered into an Agreement and Plan of Merger with Stonepeak Nile Parent LLC ("Parent") and Stonepeak Nile MergerCo Inc. ("MergerCo") (the “Merger”), as discussed in Note P to the condensed consolidated financial statements included with this Form 10-K. Statements regarding the Merger, including the expected time period to consummate the Merger, the anticipated benefits (including synergies) of the Merger and integration and transition plans, opportunities, anticipated future performance, expected share buyback programs and expected dividends, are also provided under the “safe harbor” protection in the Act. Key factors that could cause actual results to differ materially include, but are not limited to, the expected timing and likelihood of completion of the Merger, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the Merger; the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement; the risk that the anticipated tax treatment of the Merger is not obtained; the risk that the parties may not be able to satisfy the conditions to the Merger in a timely manner or at all; risks related to disruption of management time from ongoing business operations due to the Merger; the risk that any announcements relating to the Merger could have adverse effects on the market price of ATSG's common stock; the risk that the Merger and its announcement could have an adverse effect on the parties’ business relationships and business generally, including the ability of the Company to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers, and on its operating results and businesses generally; the risk of unforeseen or unknown liabilities; customer, shareholder, regulatory and other stakeholder approvals and support; the risk of unexpected future capital expenditures; the impact of litigation relating to the Merger instituted against the Company and its directors and/or officers; the risk associated with third party contracts containing material consent, anti-assignment, transfer or other provisions that may be related to the Merger which are not waived or otherwise satisfactorily resolved; the risk of rating agency actions and the Company's ability to access short- and long-term debt markets on a timely and affordable basis; and the risks resulting from other effects of industry, market, economic, legal or legislative, political or regulatory conditions outside of the Company’s control.

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

CERTAIN DEFINED TERMS IN THIS FORM 10-K

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

PART I

ITEM 1. BUSINESS

Company Overview

We are the world’s largest lessor of freighter aircraft and provider of air cargo transportation and related services to blue-chip companies and organizations. We own the largest fleet of Boeing 767 converted freighters, a highly attractive aircraft for e-commerce package delivery networks, and have secured additional feedstock to support future demand. We are a critical partner to our customers that are under contracts for up to 10 years, which often provides us with high visibility into our future earnings and cash flows. We provide best-in-class reliable services through our teams of dedicated professionals, who value our customers, deliver on our promises, and contribute to sustainable development. As of December 31, 2024, our total fleet comprised 167 aircraft, including 33 externally sourced aircraft, and passenger aircraft, supported by over 4,700 employees.

We primarily operate through two reportable segments: Cargo Aircraft Management, Inc. ("CAM"), which includes the leasing of aircraft and aircraft engines, and ACMI Services (aircraft, crew, maintenance and insurance), which includes the cargo and passenger aircraft flight operations of our three airlines. Our other business operations, which primarily provide support services to the transportation industry, ranging from flight and ground operations to aircraft maintenance, repair and overhaul services, do not constitute reportable segments.

For 45 years, our subsidiaries have been providing airlift, ground operations, and maintenance services to the air transportation industry.  Originally incorporated in 1980, ABX Air Inc ("ABX") was reorganized in 2007 into a holding company structure with ABX becoming a wholly-owned subsidiary of ATSG. Between 1980 and August 2003, ABX was a subsidiary of Airborne, Inc., a former publicly traded integrated delivery service provider. In August 2003, DHL Worldwide Express B.V. acquired the ground operations of Airborne, Inc., and in conjunction with the acquisition, ABX was separated from Airborne, Inc. and became an independent public company.  Thereafter, in 2007, ATSG acquired the businesses of Cargo Holdings International, Inc. which included Air Transport International, Inc. ("ATI"). In 2018, ATSG acquired Omni Air International, LLC ("OAI"). ATSG is a Delaware corporation and headquartered at the Wilmington Air Park in Wilmington, Ohio.

As described in Note P to the accompanying consolidated financial statements, on November 3, 2024, ATSG entered into an Agreement and Plan of Merger (the "Merger Agreement") with Parent and MergerCo, pursuant to which, subject to the terms and conditions thereof, MergerCo will be merged with and into ATSG, with ATSG surviving the Merger (with its subsidiaries)  as a wholly owned subsidiary of Parent upon closing of the Merger, which is anticipated to occur in the first half of 2025. ATSG's stockholders approved the Merger on February 10, 2025.  Consummation of the Merger is subject to various other approvals including approval by the U.S Department of Transportation ("DOT")  and other customary closing conditions. If the Merger is consummated, ATSG's securities will be delisted from the Nasdaq Stock Market LLC as soon as practicable following the Effective Time (as defined in Note P to the accompanying consolidated financial statements), and the Company will become a privately held company. The Company has incurred and expects to incur certain costs relating to the proposed Merger, such as financial, advisory, legal, accounting and other professional services fees. 

Strategy

CAM is our primary business segment. Through CAM we acquire used medium wide-body and narrow-body passenger aircraft, manage their conversion into a freighter configuration and then lease the converted freighters to customers primarily under long-term contracts. We leverage our airline operating experience to acquire aircraft suitable for conversion and preparing these aircraft for reliable deployment.  The medium wide-body aircraft we target for conversion are ideal for express and e-commerce driven regional air networks as they can be deployed more economically than larger capacity aircraft, newly built aircraft or other competing alternatives.

Our CAM business is complemented by our ACMI Services segment and other operations. We offer our ACMI Services under primarily long-term contracts to generate incremental returns beyond our leasing revenues and maximize asset utilization. In addition to flying, we offer ancillary services, such as aircraft maintenance and modifications, engine leases and sort and gateway operations that can further entrench us with our customers and encourage re-leasing and contract renewals.

Services

Our business development and marketing efforts leverage the entire portfolio of our capabilities to create a customized bundled solution to meet our customers' needs. Our ability to offer our customers differentiated services, including aircraft leasing, airline express operations, aircraft line and heavy maintenance, and ground handling services makes us unique from other providers in our industry.

CAM

We own and lease aircraft through our subsidiary, CAM. We acquire used passenger aircraft, typically 15-20 years old, and cause them to be converted to a freighter configuration. Following conversion, we lease those aircraft externally under long-term contracts to a customer base that includes Amazon.com Services, LLC (“ASI”), DHL Network Operations (USA), Inc. and its affiliates (collectively, “DHL”), and other airlines, as well as internally to our own airline subsidiaries, typically for lease terms of up to five to ten years.

Our freighter fleet is composed primarily of Boeing 767 aircraft, which are desirable in regional air networks because of their reliability, cubic cargo capacity and efficient performance. We have agreements with two Boeing 767 aircraft conversion providers, Israel Aerospace Industries ("IAI") and The Boeing Company ("Boeing"), to convert additional Boeing aircraft.

We have also entered into an agreement with Elbe Flugzeugwerke (“EFW”) for conversion by EFW of Airbus A330 passenger aircraft to a freighter configuration. The first two aircraft freighter conversions are expected to be completed in the first quarter of 2025.  The Airbus A330 aircraft can provide capabilities similar to the Boeing 767 for medium wide-body airlift with additional space and greater range.  We have the right to 28 additional modification slots at EFW.

Through a joint venture with Precision Aircraft Solutions, LLC, we have developed a design for the conversion of Airbus A321 passenger aircraft into a freighter configuration and in 2021 were granted a Supplemental Type Certificate (“STC”) for such design. An STC is granted by the Federal Aviation Administration ("FAA") and European Aviation Safety Agency ("EASA") and represents an ownership right, similar to an intellectual property right, which authorizes the alteration of an airframe, engine or component (Boeing and IAI also have the necessary STCs for conversion of our Boeing aircraft). The converted Airbus A321 freighter is well suited for air-express service and e-commerce fulfillment over shorter routes with smaller payloads than the Boeing 767. The Airbus A321 can operate with greater fuel efficiency than the comparable freighter aircraft variants of the Boeing 737 and Boeing 757.

Under a typical lease arrangement, the customer maintains the aircraft in airworthy condition at its own cost. At the end of the lease term, the customer is typically required to return the aircraft in approximately the same maintenance condition that existed at the inception of the lease, as measured by airframe and engine time and cycles since the last scheduled maintenance event. CAM examines the creditworthiness of potential customers, their short and long-term growth prospects, their financial condition and backing, the experience of their management, and the impact of governmental regulations when determining the lease rate that is offered to the customer. In addition, CAM monitors the customer’s business and financial status throughout the term of the lease. From time to time, customers may request early termination of their leases, and we remain flexible to re-lease aircraft or arrange for their sale in order to manage our fleet.

ACMI Services

Our ACMI Services business segment consists of the cargo and passenger operations of our three airline subsidiaries: ABX, ATI, and OAI. Each of these airlines is independently certificated by the United States Department of Transportation ("DOT") and the FAA and is a "Part 121" airline. 

A typical operating agreement for airline services requires us to supply a combination of aircraft, crew, maintenance and/or insurance for specified transportation operations. These services are commonly referred to as ACMI, CMI or charter services depending on the selection of services contracted by the customer as further described below. The customer bears the responsibility for capacity utilization and unit pricing in all cases.

ACMI - Our airline provides the aircraft, flight crews, aircraft maintenance and aircraft hull and liability insurance while the customer is typically responsible for substantially all other aircraft operating expenses, including fuel, landing fees, parking fees and ground and cargo handling expenses.

CMI - The customer is responsible for providing the aircraft, in addition to the fuel and other operating expenses. Our airline provides the flight crews, aircraft hull and liability insurance and, typically, aircraft line maintenance as needed between network flights.

Charter - Our airline is responsible for providing full service, including fuel, aircraft, flight crews, maintenance, aircraft hull and liability insurance, landing fees, parking fees, catering, passenger handling fees, ground and cargo handling expenses and other operating expenses for a fixed, all-inclusive price.

The majority of the aircraft operated by our airlines are owned by CAM. These aircraft are either leased directly to a third-party customer or leased to one of our airlines. The following is a summary of our airlines:

ABX

ABX operates Boeing 767 aircraft exclusively in freighter configuration. ABX specializes in providing aircraft operations to customers in e-commerce and express delivery, with DHL and ASI as its largest customers.

ATI

ATI operates Boeing 767 freighter aircraft and Boeing 757 aircraft, the latter of which are commonly referred to as “combi” aircraft, which means they are capable of simultaneously carrying passengers and cargo containers on the main flight deck. ATI operates its fleet of Boeing 767 aircraft primarily for the express package industry and freight forwarders, with ASI as its largest customer. It operates its fleet of Boeing 757 “combi” aircraft primarily for the United States Department of Defense ("DoD").

OAI

OAI operates Boeing 767 and Boeing 777 passenger aircraft. OAI carries passengers worldwide for a variety of private sector customers, the DoD and other governmental agencies. OAI provides contract flying to the DoD and U.S. government agencies typically under mutli-year, government contract provisions. It provides tailored passenger and government charter services, airline startup and route development services.

ABX, ATI and OAI are each participants in the Civil Reserve Air Fleet (“CRAF”), a National Emergency Preparedness Program designed to augment the airlift capability of the DoD and to meet the national security interests and contingency requirements of the U.S. Transportation Command (“USTC”). The combined efforts of our airlines make us the nation’s largest provider of passenger charter service to DoD and other governmental agencies.

Support Services

In addition to our two reportable segments, we provide a wide range of air transportation related services to our customers, including aircraft maintenance and modification, ground support and crew training.

Aircraft Maintenance and Modification

Our aircraft maintenance and modification services, which are provided primarily by our subsidiary Airborne Maintenance and Engineering Services, Inc. (“AMES”) and its Pemco World Air Services, Inc. subsidiary ("Pemco"), provide airframe modification and heavy maintenance, component repairs, engineering services and aircraft line maintenance. Another subsidiary, AMES Material Services, Inc., resells and brokers aircraft parts. AMES and Pemco are certified by the FAA under Part 145 of the Federal Aviation Regulations ("FARs"). Pemco performs passenger-to-freighter and passenger-to-combi conversions for certain Boeing series aircraft and passenger-to-freighter conversions for Airbus A321 aircraft using the STC we have developed with our joint venture. Both AMES and Pemco own many STCs and similar approvals issued by the FAA, which are marketed to our customers.

Ground Support

Through our subsidiary LGSTX Services Inc. ("LGSTX"), we provide labor and management for cargo load transfer and sorting; the design, installation and maintenance of material handling equipment; the leasing and maintenance of ground support equipment; and general facilities maintenance. LGSTX also resells aviation fuel at the air park in Wilmington, Ohio.

Crew Training

Our support services also involve the training of flight crews, which we offer through our subsidiary Airborne Training Services, Inc. ("ATS"). ATS is certificated under Part 142 of the FARs to offer flight crew training to customers. ATS also offers Boeing 757 and Boeing 767 flight simulators which can be rented by customers for use in conjunction with their flight training programs.

Major Customers

We have long-standing strategic customer relationships with ASI, the DoD, and DHL, described below. Additionally, we have a broad range of customers across end markets and geographies that rely on the aircraft we lease to them and the services we provide.

Amazon/ASI

We have been providing aircraft, flight operations, cargo handling and logistics support services to ASI, a subsidiary of Amazon.com, Inc. ("Amazon"), since September 2015. On March 8, 2016, we entered into an Air Transportation Services Agreement (as amended, the “ATSA”) with ASI pursuant to which we lease Boeing 767 freighter aircraft to ASI through CAM, operate these aircraft and additional aircraft provided by ASI via our airline subsidiaries and are responsible for complying with FAA airworthiness directives, the cost of Boeing 767 airframe maintenance and, for the aircraft leased to ASI that we operate, certain engine maintenance events. We also provide ground handling services through our subsidiaries. Under the ATSA, which has been amended multiple times, we operate aircraft based on pre-defined fees scaled for the number of aircraft hours flown, aircraft scheduled and flight crews provided to ASI for its network. On May 6, 2024, we entered into a 3rd Amended & Restated ATSA with ASI to operate ten additional Boeing 767-300 freighters through May 2029, with extension rights for an additional five years subject to mutual agreement. All ten of those Boeing 767-300 freighters were in operation by November 30, 2024. Revenues from our commercial arrangements with ASI comprised approximately 33% of our consolidated revenues for 2024. As of December 31, 2024, we were leasing 30 of CAM's Boeing 767 freighter aircraft to ASI under multi-year contracts. We operate all of these aircraft, including the additional 21 ASI-provided aircraft, under the CMI provisions of the ATSA.

In conjunction with the execution of the ATSA and its amendments, the Company and ASI entered into an Investment Agreement (the "2016 Investment Agreement") and a Stockholders' Agreement on March 8, 2016 and a second Investment Agreement on December 20, 2018 (the "2018 Investment Agreement"). Pursuant to the 2016 and 2018 Investment Agreements, we issued warrants to Amazon in conjunction with aircraft leases. For additional information about the warrants issued under the 2016 and 2018 Investment Agreements, see Note C to the Consolidated Financial Statements.

U.S. Department of Defense

We have been providing services to the DoD since the 1990s. Our business with the DoD and other government agencies expanded significantly as a result of our November 2018 acquisition of OAI. For 2024, the DoD comprised 29% of our consolidated revenues.

Our participation in the CRAF Program allows our airlines to operate military charters for passenger and cargo transportation. Our airlines provide charter operations to the Air Mobility Command ("AMC") through contracts awarded by the USTC, both of which are organized under the DoD. The CRAF Program permits the DoD to utilize the airlines' aircraft pledged to the Program during national emergencies when the need for military airlift exceeds the availability of military aircraft.

The USTC secures airlift capacity through fixed awards, which are awarded annually or on another periodic basis and for "expansion routes," which are awarded on a quarterly, monthly and as-needed basis. Under the applicable contracts, we are responsible for all operating expenses including fuel, landing and ground handling expenses. We receive reimbursements from the USTC each month if the price of fuel paid by us for the flights exceeds a previously set peg price. If the price of fuel paid by us is less than the peg price, then we pay the difference to the USTC. Airlines may participate in CRAF either independently, or through teaming arrangements with other airlines. Our airlines are members of the Patriot Team of CRAF airlines. We pay a commission to the Patriot Team, based on certain revenues we receive under USTC contracts.

ATI operates its unique fleet of four Boeing 757 "combi" aircraft under contract with the USTC. ATI has been operating combi aircraft for the DoD since 1993. OAI has been operating aircraft for the DoD since 1995. 

DHL

We have provided aircraft services to DHL under multi-year contracts since August 2003. For 2024, DHL accounted for 14% of our consolidated revenues. As of December 31, 2024, we were leasing 14 of our Boeing 767 freighter aircraft to DHL under multi-year contracts. We operate ten of these aircraft for DHL under a separate CMI agreement with DHL, along with six DHL-supplied freighter aircraft. We operate and maintain the aircraft based on pre-defined fees scaled for the number of aircraft hours flown, aircraft scheduled and flight crews provided to DHL for its network. Under the pricing structure of the DHL CMI agreement, we are responsible for complying with FAA airworthiness directives, the cost of Boeing 767 airframe maintenance and, for the aircraft leased to DHL that we operate, certain engine maintenance events. We also provide ground equipment and maintenance services to DHL in the U.S. In February 2022, DHL agreed to a six-year extension of the DHL CMI agreement through April 2028. Further, in the second half of 2022, we began to operate another four Boeing 767 aircraft provided by DHL under an additional CMI agreement which currently runs through August 2027.

Competitive Conditions

The competitive landscape varies among our businesses. Competition for aircraft lease placements is generally affected by aircraft type, aircraft availability and lease rates. The aircraft in our fleet provide cost-effective air transportation for medium range requirements. We target our leases to cargo airlines and delivery companies seeking medium widebody and narrow-body aircraft. Competitors in the aircraft leasing industry include AerCap Holdings N.V., Air Lease Corporation and Altavair Aviation Leasing, among others.

In the air transportation industry, the primary competitive factors are operating costs, fuel efficiency, geographic coverage, aircraft range, aircraft reliability and capacity. The cost of airline operations is significantly impacted by the cost of flight crewmembers, which can vary among airlines depending on their collective bargaining agreements. Competitors in the air transportation industry include Amerijet International, Inc., Atlas Air, Inc., Kalitta Air LLC, Northern Air Cargo, LLC, National Air Cargo Group, Inc., 21 Air, LLC and Western Global Airlines, LLC. Of these, Atlas Air, Inc. and National Air Cargo Group, Inc. (operating as National Airlines) also operate passenger aircraft as does Eastern Airlines, LLC. Cargo airlines also compete for cargo volumes with passenger airlines that have substantial belly cargo capacity.

The aircraft maintenance industry is labor intensive and typically competes based on cost, capabilities and reputation for quality. U.S. airlines may contract for aircraft maintenance with maintenance and repair organizations ("MROs") in other countries or geographies with a lower labor wage base, making the industry highly cost competitive. Other aircraft MROs include AAR Corp and Hong Kong Aircraft Engineering Co.

Overall, demand for air cargo transportation services correlates closely with general economic conditions and the level of commercial activity in a geographic area. Stronger general economic conditions and growth in a region typically increase the need for air transportation. E-commerce growth is a strong indicator of growth in the express and network flying businesses which we enable with our assets and services. Historically, the cargo industry has experienced higher volumes during the fourth calendar quarter of each year due to increased shipments during the holiday season. Generally, time-critical delivery needs, such as just-in-time inventory management, increase the demand for air cargo delivery, while higher costs of aviation fuel generally reduce the demand for air delivery services. When aviation fuel prices increase, shippers will consider using ground transportation if the delivery time allows.

Human Capital Resources

Workforce

As of December 31, 2024, our workforce was composed of 4,745 full-time and part-time employees. We employed approximately 1,120 flight crewmembers, 360 flight attendants, 245 flight support personnel, 1,935 aircraft maintenance managers and technicians, 540 employees for ground equipment and logistics services, 45 employees for sales and marketing and 500 employees for administrative functions. In addition to full-time and part-time employees, we often engage contractors and temporary employees to assist in aircraft line maintenance and package sortation during peak operational times. On December 31, 2023, we had approximately 5,095 full-time and part-time employees. Over 99% of our workforce is based in the United States.

The table below summarizes the representation of our unionized employees at December 31, 2024.

Under the Railway Labor Act, as amended (“RLA”), crewmember labor agreements do not expire, so the existing contract remains in effect throughout any negotiation process. If required, mediation under the RLA is conducted by the National Mediation Board ("NMB"), which has the sole discretion as to how long mediation can last and when it will end. In addition to direct negotiations and mediation, the RLA includes a provision for potential arbitration of unresolved issues and a 30-day “cooling-off” period before either party can resort to self-help, including, but not limited to, any work stoppage.

Objectives and Measures

Our employees are critical to our ongoing success. Our approach to managing human capital includes maintaining the health and safety of our employees; attracting and retaining skilled individuals; continually improving the skills of our workforce; promoting inclusive and engaging work environments; and compensating and treating all employees fairly. We believe that every person deserves an equally respectful work environment regardless of race, ethnicity, capability, age, gender, or sexual orientation. We work to maintain a culture of inclusion for all employees.

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

Our airline operations rely on flight crews, aircraft maintenance technicians and flight support personnel. We rely on a skilled workforce to perform aircraft maintenance. Similarly, we staff personnel near airports to sort customer packages, load aircraft and maintain related equipment. The job-safety of these employee is paramount to us. We maintain safety programs across all of our subsidiaries. We encourage our employees to take precautions and always place their own safety first.

Flight crewmembers are required to be licensed in accordance with FARs, with specific ratings for the aircraft type to be flown, and to be medically certified as physically fit to operate aircraft. Licenses and medical certifications are subject to recurrent requirements as set forth in the FARs, to include recurrent training and minimum amounts of recent flying experience.

The FAA requires initial and recurrent training for most flight and maintenance personnel. Quality control inspectors must also be licensed and qualified to perform maintenance inspections on Company-operated and maintained aircraft. The majority of our aircraft mechanics have one or more FAA licenses. Our subsidiaries pay for all of the required recurrent training and provide training for their ground service personnel as well. Their training programs have received all required FAA approvals. Similarly, our flight dispatchers and flight followers receive FAA approved training on the airlines' requirements and specific aircraft.

Information About Our Executive Officers

The following table sets forth information about the Company’s executive officers, including each officer's age as of March 3, 2025.

The executive officers of the Company are appointed annually, usually in May, and serve at the pleasure of the Board of Directors of ATSG (the "Board"). There are no family relationships between any directors or executive officers of the Company.

Information Systems

We depend on technology to conduct our daily operations including data processing, communications and regulatory compliance. We rely on critical computerized systems for aircraft maintenance records, flight planning, crew scheduling, employee training, financial records, cybersecurity and other processes. We utilize information systems to maintain records about the maintenance status and history of each major aircraft component, as required by FAA regulations. Using our information systems, we track aircraft maintenance schedules and also control inventories and maintenance tasks, including the work directives of personnel performing those tasks. We rely on information systems to track crewmember flight and duty times, and crewmember training status. Our flight operations systems coordinate flight schedules and crew schedules. We invest significant time and financial resources to acquire, develop and maintain information systems to facilitate our operations. Our information technology infrastructure includes cybersecurity measures, backup procedures and redundancy capabilities.

We rely increasingly on software applications, hosted technologies, data transmissions and cybersecurity safeguards provided by or in conjunction with third parties. The costs of technology and related services, including cybersecurity costs in response to ever evolving threats, continue to increase. To remain competitive, we must continue to deploy new technologies cost effectively while maintaining regulatory compliance and security safeguards.

Sustainability

We are committed to integrating sustainability practices into our operations. We have formalized governance and oversight of our sustainability initiatives through a Management Sustainability Committee, which provides reports to the ATSG Board of Directors (the "Board"), with the Nominating and Governance Committee of the Board responsible to review and assess the Company's significant policies relating to sustainability and to evaluate the Company's related performance. The Management Sustainability Committee, which is composed of (i) the respective presidents of each of ATSG's operating subsidiaries; (ii) the Vice President, Human Capital, the Vice President, Controller, the Vice President, Corporate Development, and the Manager, Internal Audit of ATSG; (iii) a representative from each of the ATSG Information Technology Department, the OAI Information Technology Department, the ATSG Communications Department, and the ATSG Legal Department; and (iv) other officers and employees as determined by from to time by the President and Chief Executive Officer of ATSG, focuses on creating long-term stockholder value through strategic goals and initiatives for environmental, social and governance ("ESG") management. The Management Sustainability Committee seeks opportunities to improve employee health and safety, support corporate social responsibility, enhance diversity and inclusion and coordinate activities related to stakeholder engagement and philanthropy. The Management Sustainability Committee reports to the ATSG Leadership Council, which is composed of the Chief Executive Officer, President, Chief Operating Officer, Chief Financial Officer, Chief Legal Officer and Chief Commercial Officer of ATSG, and provides updates to the Nominating and Governance Committee.

We have published a Sustainability Report since 2022 describing our environmental sustainability actions and initiatives as well as our efforts to create a more diverse and inclusive workplace and the contributions made to our surrounding communities. The disclosures contained in the Sustainability Report and other voluntary disclosures regarding environmental, social, and governance matters are responsive to various areas of stakeholder interests. We use our Annual Report on Form 10-K and other filings with the SEC to disclose any items that are material or that we otherwise consider to be responsive to SEC rules.

Regulation

Our subsidiaries’ airline operations are primarily regulated by the DOT, the FAA, and the U.S. Transportation Security Administration ("TSA"). Those operations must comply with numerous economic, safety, security and environmental laws, ordinances and regulations. In addition, they must comply with various other federal, state, local and foreign laws and regulations. We are committed to promoting an organizational culture that encourages ethical conduct and a commitment to compliance with the law. Each of our primary businesses maintains a compliance committee to monitor and maintain compliance with applicable laws and regulations, with the support of our internal audit function.

Environment

The U.S. Environmental Protection Agency ("EPA") is authorized to regulate aircraft emissions and has historically implemented emissions control standards adopted by the International Civil Aviation Organization ("ICAO"). In 2016, the EPA issued a finding on greenhouse gas ("GHG") emissions from aircraft and its relationship to air pollution. This finding is a regulatory prerequisite to the EPA’s adoption of a new certification standard for aircraft emissions. In January 2021, the EPA issued a final rule regarding GHG emissions standards for new aircraft engines consistent with ICAO standards that were adopted in 2017. The EPA final rule does not apply to engines on aircraft that are already in service, as is also the case with the ICAO standards. The EPA standards have been challenged by several states and environmental organizations and we cannot predict the outcome of legal challenges to the EPA’s final rules or the EPA’s position with respect to such rules under the Trump administration. Our subsidiaries’ aircraft meet all currently applicable requirements for engine emission levels.

Related to the EPA GHG finding, in February 2024 the FAA issued its final rule on fuel efficiency standards which, as finalized, applies, inter alia, to in-service aircraft types certificated before 2021 but modified post-2023 after the aircraft was issued an airworthiness certificate, such as the Boeing 767 aircraft type. Even if the final rule is interpreted as applicable to a number of our airline subsidiaries’ Boeing 767 converted freighter aircraft, the impact on our operations, financial position, and results of operations is expected to be minimal.

Under the Clean Air Act, individual states or the EPA may also adopt regulations requiring reductions in emissions for one or more localities based on the measured air quality at such localities. These regulations may seek to limit or restrict emissions by restricting the use of emission-producing ground service equipment or aircraft auxiliary power units. Further, the U.S. Congress has, in the past, considered legislation that would regulate GHG emissions. While some form of federal climate change legislation is possible in the future, the Trump administration is expected to disfavor climate change legislation and under the Trump administration, the EPA, FAA and other federal agencies may seek to modify, rescind or withdraw, or change their approach to implementation and enforcement of, rules and guidance relating to climate change and GHG emissions. We are unable at this time to determine the effect of future regulatory changes relating to climate change and GHG emissions on our operations, financial position or results of operations.

In addition, the European Commission has approved the extension of the European Union Emissions Trading Scheme ("ETS") for GHG emissions to the airline industry. Currently, under the European Union’s ETS, all ABX, ATI and OAI flights that are wholly within the European Union are covered by the ETS requirements, and each year our airlines are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. If the airline's flight activity during the year produces carbon emissions exceeding the number of carbon emissions allowances that it had been awarded, the airline must acquire allowances from other airlines in the open market. Our airlines operate intra-EU flights from time to time and management believes that such flights are operated in compliance with ETS requirements.

In September 2023, the EU Parliament approved sustainable aviation fuels (SAF) mandates for EU aviation that establish the amounts of SAF to be uploaded by airlines including U.S. carriers at EU airports beginning in January 2025. The mandates apply to U.S. cargo airlines that operated at least one weekly flight in the prior annual reporting period. The SAF mandate starts at 2% of all aviation fuels used in the EU in 2025; stepping up to 6% by 2030; and 63% by 2050. As noted, the Company’s airline subsidiaries are all capable of using SAF in their operations from EU airports although the availability of sufficient SAF to meet EU mandates is uncertain at this time.

Similarly, in 2016, the ICAO formally adopted a resolution adopting the Carbon Offsetting and Reduction Scheme for International Aviation (“CORSIA”), which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020. A pilot phase began in 2021 in which countries may voluntarily participate, followed by a first phase of the program beginning in 2024 that is also voluntary, and full mandatory participation is scheduled to begin in 2027. The United States has agreed to participate in the two voluntary phases. ICAO continues to develop details regarding implementation, but compliance with CORSIA will increase our operating costs, although the total impact on revenue and our overall financial position remains uncertain.

The Trump administration has issued an executive order directing the U.S. to withdraw from the Paris climate accord, an agreement among 196 countries to reduce GHG emissions. The impact of the U.S. exiting the Paris climate accord on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulation, and any resulting effects on our financial position and results of operations, is uncertain.

The U.S. government generally regulates aircraft engine noise at its source. However, local airport operators may, under certain circumstances, regulate airport operations based on aircraft noise considerations. The Airport Noise and Capacity Act of 1990 provides that, in the case of Stage 3 aircraft (all of our operating aircraft satisfy Stage 3 noise compliance requirements), an airport operator must obtain the carriers’ consent to, or the government’s approval of, the rule prior to its adoption. We believe the operation of our airline subsidiaries’ aircraft either complies with or is exempt from compliance with currently applicable local airport rules. However, some airport authorities have adopted local noise regulations, and, to the extent more stringent aircraft operating regulations are adopted on a widespread basis, our airline subsidiaries may be required to spend substantial funds, make schedule changes or take other actions to comply with such local rules.

Department of Transportation

The DOT maintains authority over certain aspects of domestic and international air transportation serving the United States, such as consumer protection, accommodation of passengers with disabilities, requiring a minimum level of insurance and the requirement that a company be “fit” to hold a certificate to engage in air transportation. In addition, the DOT continues to regulate many aspects of international aviation, including the award of certain international routes. In regard to our business:

By maintaining these certificates, the Company, through ABX and ATI, can and currently does conduct all-cargo charter operations worldwide subject to the receipt of any necessary foreign government approvals. Further, the certificates issued to ATI and OAI authorize the air carriers to conduct passenger charter operations worldwide subject to the receipt of any necessary foreign government approvals. Periodically, the DOT re-examines a carrier's managerial competence, financial resources and plans, compliance disposition and citizenship in order to determine whether the carrier remains fit, willing and able to engage in the transportation services it is authorized to provide.

The DOT has the authority to impose civil penalties, or to modify, suspend or revoke our certificates and exemption authorities for cause, including failure to comply with federal laws or DOT regulations. A company holding the above-referenced certificates and exemption authorities must continuously qualify as a citizen of the United States, which, pursuant to federal law, requires that (1) it be organized under the laws of the U.S. or a U.S. state, territory or possession, (2) that its president and at least two-thirds of its board of directors and other managing officers be U.S. citizens, (3) that no more than 25% of its voting interest be owned or controlled by non-U.S. citizens, and (4) that it not otherwise be subject to foreign control. We believe our airline subsidiaries possess all necessary DOT-issued certificates and authorities to conduct their current operations and that each continues to qualify as a citizen of the United States as described.

Federal Aviation Administration

The FAA regulates aircraft safety and flight operations generally, including equipment, ground facilities, maintenance, flight dispatch, training, communications, the carriage of hazardous materials and other matters affecting air safety. The FAA issues operating certificates and detailed "operations specifications" to carriers that possess the technical competence to safely conduct air carrier operations. In addition, the FAA issues certificates of airworthiness to each aircraft that meets the requirements for aircraft design and maintenance. We believe that ABX, ATI and OAI hold all airworthiness and other FAA certificates and authorities required for the conduct of their business and the operation of their aircraft. The FAA has the power to suspend, modify or revoke such certificates for cause and to impose civil penalties for any failure to comply with federal laws or FAA regulations.

The FAA has the authority to issue regulations, airworthiness directives and other mandatory orders relating to, among other things, the inspection, maintenance and modification of aircraft and the replacement of aircraft structures, components and parts, based on industry safety findings, the age of the aircraft and other factors. If the FAA were to determine that the aircraft structures or components are not adequate, it could order our airline subsidiaries and other operators to take certain actions, including but not limited to, grounding aircraft, reducing cargo loads, strengthening any structure or component found to be inadequate, or making other modifications to the aircraft. New mandatory directives could also be issued requiring our airline subsidiaries to inspect and replace aircraft components based on their age or condition. As a routine matter, the FAA issues airworthiness directives applicable to the aircraft operated by our airline subsidiaries, and our airlines comply, sometimes at considerable cost, as part of their aircraft maintenance programs.

In addition to the FAA practice of issuing regulations and airworthiness directives as conditions warrant, the FAA has adopted new regulations to address issues involving aging, but still economically viable, aircraft on a more systematic basis. FAA regulations mandate that aircraft manufacturers establish aircraft limits of validity and service action requirements based on the number of aircraft flight cycles (a cycle being one takeoff and one landing) and flight hours before widespread fatigue damage might occur. Service action requirements include inspections and modifications to preclude development of significant fatigue damage in specific aircraft structural areas. The Boeing Company has provided its recommendations of the limits of validity to the FAA, and the FAA has now approved the limits for the Boeing 757, 767 and 777 model aircraft. Consequently, after the limit of validity is reached for a particular model aircraft, air carriers will be unable to continue to operate the aircraft without the FAA first granting an extension of time to the operator. At this point, we do not foresee a situation in which we would seek an extension from the FAA for an aircraft. There can be no assurance that the FAA would extend the deadline, if an extension were to be requested.

The FAA issued an airworthiness directive ("AD") in January 2023 to address potential 5G C-Band interference with certain aircraft radio altimeters as U.S. wireless providers upgraded to 5G technology in various U.S. wireless markets. The AD requires that those U.S. aircraft types that do not meet “tolerance requirements” either need a radio frequency filter or upgraded 5G C-Band tolerant radio altimeter, or they risk operational restrictions at affected airports after February, 2024. Our airline subsidiaries have modified and upgraded their aircraft fleets as necessary in order to timely comply with the AD requirements.

The FAA requires each of our airline subsidiaries to implement a drug and alcohol testing program with respect to all employees performing safety sensitive functions and, unless already subject to testing, contractor employees that engage in safety sensitive functions. We believe that each of our airlines complies with these regulations.

Transportation Security Administration

The TSA, an administration within the U.S. Department of Homeland Security, is responsible for the screening of passengers and their baggage. TSA rules require airlines to adopt and comply with standard aircraft operator security programs, including, among other requirements, the manner in which cargo must be screened prior to being loaded on aircraft and plans to implement cybersecurity measures. We believe that our airline subsidiaries comply with all applicable aircraft, passenger and cargo security requirements. The TSA has adopted cargo security-related rules that have imposed additional requirements on our airlines and our customers. The TSA also requires each airline to perform criminal history background checks on all employees. In addition, we may be required to reimburse the TSA for the cost of security services it may provide to the Company’s airline subsidiaries in the future. The TSA holds (and has exercised) authority to issue regulations, including in cases of emergency the authority to do so without advance notice, including issuance of a grounding order as occurred on September 11, 2001. The TSA also requires airlines to develop a TSA-approved plan to maintain measures for cybersecurity and assess the effectiveness of those measures on an ongoing basis. The TSA's enforcement powers are similar to the DOT's and FAA's powers described above.

International Regulations

When operating in other countries, our airlines are subject to aviation agreements between the U.S. and the respective countries or, in the absence of such an agreement, the airlines' operating rights are governed by principles of reciprocity. International aviation agreements are periodically subject to renegotiation, and changes in U.S. or foreign governments could result in the alteration or termination of the agreements affecting our international operations. Commercial arrangements such as ACMI agreements between our airlines and our customers in other countries, may require the approval of foreign governmental authorities. Foreign authorities may limit or restrict the use of our aircraft in certain countries. Also, foreign government authorities often require licensing and business registration before beginning operations. Foreign laws, rules, regulations and licensing requirements governing air transportation are generally similar, in principle, to the regulatory scheme of the United States as described above, although in some cases foreign requirements are comparatively less onerous and in others, more onerous. Such authorities have enforcement powers generally similar to those of the U.S. agencies described above.

When we lease aircraft to customers operating in other countries, the aircraft must comply with the aviation authority designated by that country. For example, the European Aviation Safety Agency ("EASA") is a regulatory agency of the European Union, akin to the FAA, that governs many of our aircraft leased outside the U.S.

Data Protection

There has been increased regulatory and enforcement focus on data protection in the U.S. (at both the state and federal level) and in other countries. For example, the European Union ("E.U.") General Data Protection Regulation ("GDPR"), which became effective in May 2018, greatly increases the jurisdictional reach of E.U. law and increases the requirements related to the protection of personal data, including individual notice and opt-out preferences and public disclosure of significant data breaches. Additionally, violations of the GDPR can result in significant fines. Other governments have enacted or are enacting similar data protection laws, and are considering data localization laws that would govern the use of data outside of their respective jurisdictions. Although nearly all of our employees are based in the U.S., which mitigates the impact of GDPR and other privacy regulations, various U.S. states have been adopting and may continue to adopt updated laws and regulations governing privacy that could have an impact on us, and the nature of our business involves transfer of certain data across state and international borders.

Other Regulations

Various regulatory authorities have jurisdiction over significant aspects of our business, and it is possible that new laws or regulations or changes in existing laws or regulations or the interpretations thereof could have a material effect on our financial position and results of operations. In addition to the above, other laws and regulations to which we are subject, and the agencies responsible for compliance with such laws and regulations, include the following:

Available Information

ATSG

ATSG's filings with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, as well as ATSG's definitive proxy materials, are available free of charge from the "Investors - Reports & Filings - SEC Filings" section of our website at www.atsginc.com as soon as reasonably practicable after filing with the SEC.

For more information concerning our sustainability initiatives, please refer to the "Responsibility - Sustainability" section of our website, www.atsginc.com.

The information contained on our website is not a part of this Annual Report on Form 10-K and is not incorporated into any other document that ATSG files or furnishes with the SEC unless expressly identified as such.

The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding ATSG at www.sec.gov.

ITEM 1A. RISK FACTORS

The risks described in this Item 1A could adversely affect our financial condition, results of operations, liquidity and capital resources as well as the market price of ATSG's common stock. Investors should carefully consider these risks before making an investment decision regarding ATSG's common stock. The risks below are not the only risks that we face, but these are the ones we currently believe have the potential to significantly affect ATSG’s stakeholders if they were to develop adversely (due to size, volatility, or both). Additional risks that are currently unknown to us or that we currently consider immaterial or unlikely could also adversely affect us. Please also see the “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this Form 10-K.

Risks Related to the Merger

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

On November 3, 2024, ATSG entered into the Merger Agreement, which provides that the consummation of the Merger is subject to certain customary closing conditions, including:

While it is anticipated that the Merger will be consummated during the second quarter of 2025, the conditions above may not be satisfied in a timely manner or at all, or an effect, event, development or change could delay or prevent these conditions from being satisfied. If the Merger is not consummated for any reason, the trading price of ATSG’s common stock may decline to the extent that the market price of the common stock reflects positive market assumptions that the Merger will be consummated and the related benefits will be realized. We may also be subject to additional risks if the Merger is not completed, including:

ATSG or Parent may terminate the Merger Agreement if the Merger has not been consummated on or before May 3, 2025, or such later date or time as may be agreed to in writing by Parent and ATSG (the “Outside Date”), subject to certain extensions provided in the Merger Agreement. ATSG or Parent also may terminate the Merger Agreement (i) by mutual written agreement; (ii) if a governmental authority of competent jurisdiction has issued an order, or applicable law is in effect, enjoining, restraining or otherwise making illegal, preventing or prohibiting the consummation of the Merger and such order or law is, or has become, final and non-appealable, (iii) if the Company Stockholder Approval shall not have been obtained at a meeting of ATSG’s stockholders; or (iv) the other party breaches or fails to perform in any material respect any representation, warranty or covenant that results in the failure of the related closing condition to be satisfied, subject to a cure period in certain circumstances. ATSG also may, under certain circumstances and subject to the terms of the Merger Agreement, terminate the Merger Agreement (x) in order for ATSG to enter into an alternative acquisition agreement with respect to a Superior Proposal (as defined in the Merger Agreement) or (y) if all of the applicable closing conditions have been satisfied and ATSG is prepared to consummate the Merger but Parent and MergerCo fail to consummate the Merger in accordance with the Merger Agreement. Additionally, Parent may, under certain circumstances and subject to the terms of the Merger Agreement, terminate the Merger Agreement if the Board withdraws or adversely modifies its recommendation that ATSG’s stockholders vote in favor of adopting the Merger Agreement. The occurrence of the aforementioned could adversely affect our stock price, business, financial condition and results of operations.

Additionally, in approving the Merger Agreement, the Board considered a number of factors and potential benefits, including the fact that the merger consideration to be received by holders of common stock represents a significant premium to the recent market price. If the Merger is not completed, neither ATSG nor the holders of its common stock will realize this benefit of the Merger. Moreover, we would also have nevertheless incurred substantial transaction-related costs and the loss of management time and resources.

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

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

The Merger Agreement may limit our ability to pursue alternatives to the Merger and may discourage other companies from trying to acquire us for greater consideration than what is specified in the Merger Agreement.

The Merger Agreement contains provisions that make it more difficult for us to sell our business to a buyer other than Parent, even if that party were prepared to pay consideration with a higher per-share value than the consideration payable in the Merger pursuant to the Merger Agreement. These provisions include restrictions on ATSG’s solicitation of alternative acquisition proposals from third parties outside of a defined go-shop period. Under the Merger Agreement, ATSG is required to pay a termination fee of up to $55,339,993 if the Merger Agreement is terminated under certain circumstances (including to accept certain superior acquisition proposals), which could deter other potential bidders from making an acquisition proposal prior to the consummation of the Merger and could impact ATSG's ability to engage in another transaction for up to twelve months if the Merger Agreement is terminated in certain circumstances.

We are the target of lawsuits challenging the Merger Agreement that may prevent the Merger from being consummated within the expected timeframe or at all and/or may results in substantial costs and damages.

Lawsuits have been filed against us, the Board of Directors and other parties to the Merger Agreement, challenging our acquisition by Parent, or making other claims in connection with the Merger. Even if these lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. Such lawsuits may be brought by purported stockholders or other interested parties, seeking, among other things, to enjoin consummation of the Merger. One of the conditions to the consummation of the Merger is that the consummation of the Merger is not enjoined, restrained or otherwise made illegal, prevented or prohibited by any order or legal or regulatory restraint or prohibition of a court of competent jurisdiction or any governmental entity. As such, if the plaintiffs in such potential lawsuits are successful in obtaining an injunction prohibiting the defendants from completing the Merger on the agreed upon terms, then such injunction may prevent the Merger from becoming effective within the expected timeframe or at all.

The announcement and pendency of the Merger and the other transactions contemplated by the Merger Agreement may adversely affect our business, results of operations and financial condition.

Uncertainty about the effect of the Merger and the other transactions contemplated by the Merger Agreement (collectively, the “Transactions”) on our employees, customers, suppliers, and other parties may have an adverse effect on our business, results of operations and financial condition, regardless of whether the Merger is completed. These risks include, but are not limited to, the following, all of which could be increased by a delay in or abandonment of the Merger:

We have incurred, and expect to continue to incur, substantial transaction costs in connection with the Transactions.

In connection with the Transactions, we have incurred and expect to continue to incur significant costs and expenses, including financial advisory, legal, accounting, consulting and other advisory fees and expenses, reorganization and restructuring costs, severance and employee benefit-related expenses and other related charges and costs. In addition, we may incur significant one-time charges as a result of costs associated with the Transactions. We will not be able to quantify the exact amount of these charges or the period in which they will be incurred until after the Transactions are completed. While we have assumed that a certain level of expenses will be incurred in connection with the Transactions, there are many factors that could affect the total amount or timing of any integration and implementation expenses. Some of the factors affecting the costs associated with the Transactions include the timing of the completion of the Transactions, the resources required for the completion of the Transactions and the reactions to the Transactions by third parties, including customers and suppliers, as well as the outcome of any potential litigation regarding the Transactions. There are also a large number of processes, policies, procedures, operations, technologies and systems that may be required to be updated or developed in connection with the Transactions. There may also be additional unanticipated significant costs in connection with the Transactions that we do not anticipate and may not be able to recoup.

Regulatory and Compliance Risk

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

Our airline subsidiaries have the necessary authority to conduct flight operations pursuant to the economic authority issued by the DOT and the safety-based authority issued by the FAA. The continued effectiveness of such authority is subject to their compliance with applicable statutes and DOT, FAA and TSA rules and regulations, including any new rules and regulations that may be adopted in the future. The loss of such authority by an airline subsidiary could cause a default of covenants in our syndicated credit agreement that includes the ability to obtain term loans and a revolving credit facility and is scheduled to mature on October 19, 2027 (the “Senior Credit Agreement”) (see Note F to the consolidated financial statements included in this Form 10-K for more information regarding the Senior Credit Agreement). Such a default or loss of authority would materially and adversely affect our financial position, results of operations, cash flows, and airline operations, effectively eliminating the airline's ability to continue to provide air transportation services.

Our business could be negatively impacted by cost-cutting measures implemented by the U.S. government or by adverse audit findings by the U.S. government.

Due to the focus on reduced spending by the Trump administration and U.S. government officials, the DoD may adopt various cost cutting initiatives that may include terminating some or all of our contracts and reducing the rates that the DoD will agree to pay us.  Such reductions may have a material adverse effect on our financial position, results of operations and cash flows. In addition, DoD contracts are subject to government audit, including with respect to performance, costs, internal controls and compliance with applicable laws and regulations. If an audit uncovers improprieties or we otherwise fail to adhere to applicable governmental rules or regulations, we may be subject to civil or criminal penalties, including termination of such contracts, forfeiture of profits, fines and suspension or debarment from doing business with the DoD. In addition, the DOT, FAA, TSA and other government agencies can initiate announced or unannounced investigations of our subsidiary air carriers, repair stations and other entities to determine if they are continuously conducting their operations in accordance with all applicable laws, rules and regulations. If an investigation uncovers a failure to comply, we could be subject to civil or criminal penalties that may adversely impact one or more of our subsidiaries. 

Our participation in the CRAF Program could adversely restrict our commercial business in times of national emergency.

All three of our airlines participate in the CRAF Program, which permits the DoD to utilize the airlines’ aircraft pledged to the CRAF Program during national emergencies when the need for military airlift exceeds the availability of military aircraft. In the event of such an emergency, our airline subsidiaries could incur the loss of use of such aircraft under commercial arrangements, which could have an adverse impact on our operating results.

Proposed rules from the DOT, FAA and TSA could increase our operating costs and reduce customer utilization of airfreight.

FAA rules for Flightcrew Member Duty and Rest Requirements ("FMDRR") for passenger airline operations apply to our operation of passenger and combi aircraft for the DoD and other customers. The FMDRR impact the required amount and timing of rest periods for pilots between work assignments and modified duty and rest requirements based on the time of day, number of scheduled segments, flight types, time zones and other factors. Failure to remain in compliance with these rules may subject us to fines or other enforcement action.

There are separate crew rest requirements applicable to all-cargo aircraft of the type operated by the Company. The FAA has rejected, as have the courts, an attempt to apply the passenger airline crew rest rules to all-cargo operations. If such rest requirements and restrictions were imposed on our cargo operations, these rules could have a significant impact on the costs incurred by our airlines. Our airline subsidiaries would attempt to pass such additional costs through to their customers in the form of price increases. Customers, as a result, may seek to reduce their utilization of aircraft in favor of less expensive transportation alternatives.

The NMB could determine that two or more of our airline subsidiaries constitute a single transportation system.

During 2017, the NMB ruled that ABX and ATI do not constitute a single transportation system for the purposes of collective bargaining. The NMB could reconsider whether the airlines constitute a single transportation system and require that the ABX and ATI crewmembers, or that the ABX, ATI and OAI crewmembers, be represented by the same union. A single transportation system determination by the NMB could give rise to complex contractual issues, including integrating the airlines' seniority lists, and materially impact the dynamics with respect to future collective bargaining agreement ("CBA") negotiations. While it is unlikely that the NMB would reconsider or find that ABX and ATI, or that ABX, ATI and OAI, constitute a single transportation system, the case-by-case analysis used by the NMB makes such predictions uncertain. Such a finding could have material adverse consequences to the Company.

We may be impacted by government requirements associated with transacting business with or in foreign jurisdictions and trade policies, including tariffs.

The U.S. and other governments have imposed trade and economic sanctions in certain geopolitical areas and on certain organizations and individuals. The U.S. Departments of Justice ("DOJ"), Commerce and Treasury, as well as other government agencies have a broad range of civil and criminal penalties they may seek to impose for violations of the Foreign Corrupt Practices Act (“FCPA”) or other regulations, including sanctions administered by the Office of Foreign Assets Control ("OFAC"). In addition, the DOT, FAA and TSA may at times limit the ability of our airline subsidiaries to conduct flight operations in certain areas of the world. Under such laws and regulations, we may be obliged to limit our business activities, incur additional costs for compliance programs and may be subject to enforcement actions or penalties for noncompliance. In recent years, the U.S. government has generally increased its oversight and enforcement activities with respect to these laws and the relevant agencies may continue to increase these activities. The current pause in certain FCPA enforcement activities while the DOJ enhances the related guidance does not relieve companies such as ours from compliance requirements, and we cannot predict the nature of any future DOJ guidance in this regard that may affect our compliance policies and activities.

Our operations and those of our customers also depend upon favorable trade relations between the U.S. and those foreign countries in which our customers, subcontractors and materials suppliers have operations. A protectionist trade environment in either the U.S. or those foreign countries in which we do business, such as the recently announced U.S. tariffs or other changes in the current tariff structures, export compliance or other trade policies, may materially and adversely affect our ability to operate or the demand for our services. While the complete scope of actions that the Trump administration may take with respect to existing and proposed trade agreements, or restrictions on trade generally, remains unclear, additional more stringent export and import controls may be ultimately imposed in the future. Any trade agreements that may be amended or entered into are subject to a number of uncertainties, including the imposition of new tariffs or adjustments and changes to the products covered by existing tariffs. The impact of these and other new laws, regulations and policies that affect global trade cannot be predicted.

Penalties, fines and sanctions levied by governmental agencies or the costs of complying with government regulations could negatively affect our results of operations.

The operations of our subsidiaries are subject to complex aviation, transportation, security, environmental, labor, employment and other laws and regulations. These laws and regulations generally require our subsidiaries to maintain and comply with the terms of a wide variety of certificates, permits, licenses and other approvals. Their inability to maintain required certificates, permits or licenses, or to comply with applicable laws, ordinances or regulations could result in substantial fines or, in the case of DOT and FAA requirements, possible suspension or revocation of their authority to conduct operations.

U.S. and international tax legislation may adversely affect our results of operations and cash flows.

We are subject to taxation at the federal, state and local levels in the United States, as well as taxation in some international jurisdictions.  Governments may enact significant changes to the taxation of business entities which could increase the Company’s tax payments. Numerous provisions of the U.S. Tax Cuts and Jobs Act are set to expire in 2025, which could have an adverse impact on the Company’s tax obligations and results of operations.

The costs of maintaining our aircraft in compliance with government regulations could negatively affect our results of operations and require further investment in our aircraft fleet.

Manufacturer Service Bulletins, FAA regulations and FAA Airworthiness Directives issued under its “Aging Aircraft” program cause our airlines, as operators of older aircraft, to be subject to additional inspections and modifications to address problems of corrosion and structural fatigue at specified times. The FAA may issue airworthiness directives that could require significant costly inspections and major modifications to such aircraft. The FAA may issue airworthiness directives that could limit the usability of certain aircraft types.

In addition, FAA regulations require that aircraft manufacturers establish limits on aircraft flight cycles to address issues involving aging, but still economically viable, aircraft, as described in Item 1 of this Form 10-K, under "Federal Aviation Administration." These regulations may increase our maintenance costs and eventually limit the use of our aircraft. See Item 2 of this Form 10-K, "Properties," for a description of our aircraft, including year of manufacture.

The FAA and ICAO are in the process of developing programs to modernize air traffic control and management systems. The FAA's program, Next Generation Air Transportation Systems, is an integrated system that requires updating aircraft navigation and communication equipment. The FAA has mandated the replacement of current ground based radar systems with more accurate satellite based systems on our aircraft. The ICAO began phasing in similar requirements for aircraft operating in Europe during 2015. These programs may increase our costs and limit the use of our aircraft. Aircraft not equipped with advanced communication systems may be restricted to certain airspace.

We may be negatively affected by global climate change or by legal, regulatory or market responses to such climate change.

We are subject to the regulations of the EPA and foreign, state and local governments regarding air quality and other matters. In part, because of the highly industrialized nature of many of the locations where we operate, there can be no assurance that we have discovered all environmental contamination or other matters for which we may have or share responsibility.

Concern over climate change, including the impact of global warming, has led to significant federal, state and international legislative and regulatory efforts to limit GHG emissions. The European Commission has mandated the extension of its ETS for GHG emissions to the airline industry. Under the European Union ETS, all ABX, ATI and OAI flights that are wholly within the European Union are now covered by the ETS requirements, and each year we are required to submit emission allowances in an amount equal to the carbon dioxide emissions from such flights. If we exceed the airlines' emission allowances, we will be required to purchase additional emission allowances on the open market.

Similarly, in 2016, the ICAO passed a resolution adopting CORSIA, which is a global, market-based emissions offset program to encourage carbon-neutral growth beyond 2020. A pilot phase began in 2021, in which countries may voluntarily participate, followed by a first phase of the program beginning in 2024 that is also voluntary, and full mandatory participation is scheduled to begin in 2027. The United States has agreed to participate in the two voluntary phases. ICAO continues to develop details regarding implementation, but although the magnitude remains to be determined, compliance with CORSIA will increase our operating costs.

The SAF mandates for EU aviation enacted in September 2023 establish the amounts of SAF fuels to be uploaded by airlines including U.S. carriers at EU airports beginning in January 2025. The mandates apply to U.S. cargo airlines that operated at least one weekly flight in the EU in the prior annual reporting period. The SAF mandate starts at 2% of all aviation fuels used in the EU in 2025; stepping up to 6% by 2030; and 63% by 2050, although the availability of sufficient SAF to meet EU mandates at commercially-acceptable prices is uncertain at this time.

All three of our airlines, ABX, ATI and OAI, as noted, are certified to use SAF, which has similar properties to conventional jet fuel but with a smaller carbon footprint. Depending on the type and production technique used, SAF can reduce GHG emissions up to 99% compared to conventional jet fuel. We support efforts to improve SAF production nationally and seek to use SAF at locations where it is available, but the production and supply of SAF is currently quite limited and significantly more expensive than traditional fuel. The Inflation Reduction Act passed by the U.S. Congress in 2022 would provide SAF tax credits of up to $1.75 per gallon for SAF producers which is expected to boost production of SAF and reduce its cost for the airlines. However, the future viability of SAF tax credits under the Inflation Reduction Act is uncertain. President Trump has indicated his opposition to the Inflation Reduction Act and has issued an Executive Order freezing all federal regulations pending a 60-day review, which would freeze Treasury guidance relating to the implementation of the SAF tax credits provided for by the Inflation Reduction Act. In addition, President Trump has recently announced U.S. tariffs, which may increase the price of feedstocks used in SAF production. The loss of, or less favorable terms for tax credits and other SAF production incentives as well the potential impact of any tariffs would render the cost to our airlines and their customers of using SAF prohibitive and any impacts on the availability and cost of SAF resulting from changes in the Trump administration’s policies and priorities could have a material adverse impact on our on our operations, cash flows, financial position, and results of operations.

The U.S. Congress and certain states have also considered legislation regulating GHG emissions. In addition, even in the absence of such legislation, the EPA has sought to regulate GHG emissions, especially aircraft engine emissions. In July 2016, the EPA issued a finding that aircraft engine emissions cause or contribute to air pollution that may reasonably be anticipated to endanger public health. This finding is a regulatory prerequisite to the EPA’s adoption of a new certificate standard for aircraft emissions. In January 2021, the EPA issued a final rule regarding GHG emissions standards for new aircraft engines consistent with ICAO standards that were adopted in 2017. The EPA final rule does not apply to engines on aircraft that are already in service, as is also the case with the ICAO standards. The EPA standards have been challenged by several states and environmental organizations and we cannot predict the outcome of legal challenges to the EPA’s final rules or the EPA’s position with respect to such rules under the Trump administration. In February 2024, the FAA issued its final rule on fuel efficiency standards which, as finalized, applies, inter alia, to in-service aircraft types certificated before 2021 but modified post-2023 after the aircraft was issued an airworthiness certificate, such as the Boeing 767 aircraft type. Even if the final rule is interpreted as applicable to a number of our airline subsidiaries’ Boeing 767 converted freighter aircraft, the impact on our operations, financial position, and results of operations is expected to be minimal.

The Trump administration has issued an executive order directing the U.S. to withdraw from the Paris climate accord, an agreement among 196 countries to reduce GHG emissions. The impact of the U.S. exiting the Paris climate accord on future U.S. policy regarding GHG emissions, on CORSIA and on other GHG regulations is uncertain. The extent to which other countries implement the agreement could have an adverse impact on us.

The cost to comply with new and potential environmental laws and regulations could be substantial for us. These costs could include an increase in capital costs associated with updating aircraft, among other things. We cannot predict the effect on our cost structure or operating results of complying with future environmental laws and regulations in the U.S. and in foreign jurisdictions until the timing, scope and extent of such laws and regulations becomes better known. The Trump administration is expected to disfavor climate change legislation and under the Trump administration, the EPA, FAA and other federal agencies may seek to modify, rescind or withdraw, or may change their approach to implementation and enforcement of, rules and guidance relating to climate change and GHG emissions. Even without such legislation or regulation, increased awareness and adverse publicity in the global marketplace about GHG emitted by companies in the airline and transportation industries could harm our reputation and reduce demand for our services.

We are required to safeguard proprietary information and sensitive or confidential data, including personal information of customers, employees and others.

To conduct our operations, we regularly move certain data across national borders, and consequently we are subject to a variety of continuously evolving and developing laws and regulations in the United States and abroad regarding privacy, data protection and security. The scope of the laws that may be applicable to us is often uncertain and may be conflicting, particularly with respect to foreign laws. GDPR, which greatly increases the jurisdictional reach of European Union law and adds a broad array of requirements for handling personal data, including the public disclosure of significant data breaches, became effective in May 2018. Other countries and states have enacted or are enacting privacy and data localization laws that require data to stay within their borders. All of these evolving compliance and operational requirements impose significant costs that are likely to increase over time.

Operational Risk

Our costs incurred in providing airline services could be more than the contractual revenues generated.

Each airline develops business proposals for the performance of ACMI, CMI, charter and other services for its customers, crew productivity and maintenance expenses. Projections contain key assumptions, including maintenance costs, flight hours, aircraft reliability, crewmember productivity and crewmember compensation and benefits. We may overestimate revenues, the level of crewmember productivity, and/or underestimate the actual costs of providing services when preparing business proposals. If actual costs are higher than projected or aircraft reliability is less than expected, future operating results may be negatively impacted.

The supply of licensed pilots and qualified mechanics could negatively impact our operations and financial results.

We rely on a skilled workforce to pilot our airplanes and perform scheduled aircraft maintenance. Our industry has experienced a shortage of crewmembers and mechanics. While we have taken steps to attract, recruit, train and incentivize employees, situations may occur in which we cannot operate scheduled flights or commit to charter opportunities because we lack the appropriate personnel. Our revenues from flight operations as well as our aircraft maintenance businesses could be constrained due to the lack of personnel. We may raise compensation and incentive levels to maintain or improve revenues levels. As a result, our profitability levels could be lower than expected.

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

Our combined aircraft fleet is currently concentrated in four aircraft types, and we are expanding into one additional aircraft type. If any of these aircraft types encounter technical difficulties that result in significant FAA ADs or grounding, our ability to lease the aircraft would be adversely impacted, as would our airlines' operations, which could be exacerbated if we are constrained for any reason in our access to replacement aircraft or additional capital.

The cost of aircraft repairs and unexpected delays in the time required to complete aircraft maintenance could negatively affect our operating results.

Our airlines provide flight services throughout the world, sometimes operating in remote regions. Our aircraft have experienced, from time to time, and may in the future experience maintenance events in locations that do not have the necessary repair capabilities or are difficult to reach. As a result, we may incur additional expenses and lose billable revenues that we would have otherwise earned. Under certain customer agreements, we are required to provide a spare aircraft while scheduled maintenance is completed. If delays occur in the completion of aircraft maintenance, we may incur additional expense to provide airlift capacity and forgo revenues.

Our operating results could be adversely impacted by negotiations regarding collective bargaining agreements ("CBAs") with employee union representatives.

The flight crewmembers for each of the Company's airlines are unionized. ABX and OAI's crewmembers are represented by the International Brotherhood of Teamsters ("IBT") while ATI's crewmembers are represented by the Air Line Pilots Association ("ALPA"). Approximately 20% of our employees are parties to CBAs that are now amendable and the parties, after negotiations, have jointly sought mediation through the NMB. Another CBA becomes amendable in 2030. During the negotiation of CBA amendments, the airline and the union are each required to maintain the status quo of the CBA; neither the airline nor the union may engage in a lock-out, strike or other self-help until such time as they are released from further negotiations by the mediator for the NMB, and after the conclusion of a mandatory 30-day “cooling off” period. It is rare for mediators to declare an impasse and release the parties. Instead, the NMB prefers to require the parties to remain in negotiations until such time as they come to an agreement. Despite this process, it's possible for disruptions in customer service to occur from time to time, resulting in increased costs for the airline and monetary penalties under certain customer agreements if monthly on-time reliability thresholds are not achieved. Further, if we do not maintain minimum on-time reliability thresholds over an extended period of time, we could be found in default of one or more customer agreements.

Contract negotiations with a union could result in reduced flexibility for scheduling employees and higher operating costs for the airlines, making our airlines less competitive. If amendments to a CBA increase our costs and we cannot recover such costs through price increases, our operating results would be negatively impacted. In such event, it may be necessary for us to terminate customer contracts or curtail planned growth.

The rate of aircraft deployments may adversely impact our operating results and financial condition.

Our future operating results and financial condition will depend in part on our subsidiaries’ ability to successfully deploy aircraft in support of customers' operations while generating a positive return on investment. Our success will depend, in part, on our customers' ability to secure additional cargo volumes, in U.S. and international markets. Deploying aircraft in international markets can pose additional risks, costs and regulatory requirements which could result in periods of delayed deployments. In addition, deploying an aircraft into service typically requires various approvals from the FAA or EASA. Aircraft deployments could be delayed if such FAA or EASA approvals are delayed.

We may lose revenue if we fail to meet the scheduled delivery date for aircraft required by customer agreements.

If CAM cannot meet the agreed delivery schedule for an aircraft lease, the customer may have the right to cancel the aircraft lease, thus delaying revenues until the aircraft can be completed and re-marketed successfully and exposing CAM to potential liability to the original customer.

Our airline operating agreements include on-time reliability requirements which can impact our operating results and financial condition.

Certain of our airline operating agreements contain monthly incentive payments for reaching specific on-time reliability thresholds. Additionally, such airline operating agreements contain monetary penalties for aircraft on-time reliability below certain thresholds. As a result, our operating revenues may vary from period to period depending on the achievement of monthly incentives or the imposition of penalties. Further, an airline could be found in default of an agreement if it does not maintain minimum on-time reliability thresholds over an extended period of time. If our airlines are placed in default due to the failure to maintain on-time reliability thresholds, the impacted customer(s) may elect to terminate all or part of the services we provide under certain customer agreements after a cure period.

If ABX fails to maintain aircraft on-time reliability above a minimum threshold under the restated CMI agreement with DHL for two consecutive calendar months or three months in a rolling twelve-month period, we would be in default of the restated CMI agreement with DHL. In that event, DHL may elect to terminate the restated CMI agreement, unless we maintain the minimum on-time reliability threshold during a 60-day cure period. If DHL terminates the CMI agreement due to an ABX event of default, we would be subject to a monetary penalty payable to DHL.

If our airlines fail to maintain aircraft on-time reliability above a minimum threshold under the ATSA with ASI for either a specified number of consecutive calendar months or a specified number of calendar months (whether or not consecutive) in a specified trailing period, we could be held in default. In that event, ASI may elect to terminate the ATSA and pursue those rights and remedies available to it at law or in equity.

If OAI fails to maintain aircraft on-time reliability above a minimum threshold under its contract with the DoD with respect to the flight segments flown during a given month, we could be held in default. In that event, the DoD may elect to terminate the contract. In addition, missions that experience carrier controllable delays are subject to monetary penalties. Depending on the delay interval, the compensation paid to OAI for the performance of the services can be reduced by a specified percentage amount.

Customers and Market Risk

A limited number of key customers are critical to our business and the loss of one or more of such customers could materially adversely affect our business, results of operations and financial condition.

Our business is dependent on a limited number of key customers. There is a risk that any one of our key customers may not renew their contracts with us on favorable terms or at all, perhaps due to reasons beyond our control. As discussed in the risk factor below, certain key customers have the ability to terminate their agreements in advance of the expiration date.

The actual demand for Boeing 777, 767, 757 and Airbus A321 and A330 aircraft may be lower than we anticipate. Customers may develop preferences for other aircraft types, instead of the aircraft that make up our fleet, and we may not be able to secure replacement aircraft or additional capital for our fleet. The actual lease rates for aircraft available for lease may be lower than we projected, or new leases may start later than we expect. Further, other airlines and lessors may be willing to offer aircraft to the market under terms more favorable to lessees. In the event of any of the foregoing occurrences, we could experience a material adverse effect on our financial position, results of operations or cash flows.

Geopolitical uncertainties could result in reduced revenues

Beginning in February 2022, the war in Ukraine escalated. On October 7, 2023, war started in Israel. These wars, or the development of military conflicts or geopolitical uncertainties in other regions, may impact our customers' operations and their ability to meet their commitments and pay for our services. We have experienced and may experience disruptions to our operations due to shortages of personnel, parts shortages, maintenance delays, shortages of transportation and hotel accommodations for flight crews, information systems outages, disruption of data transmissions, reduced customer flight schedules and other issues which could stem from geopolitical tensions, cyber attacks or virus outbreaks effecting us, our suppliers or our customers.

Inflation and expenses may outpace customer rate increases.

General inflation in the United States declined during 2024 before arriving at the end of the year at a level that is still somewhat elevated compared to many previous years and that could increase in 2025 and beyond. Although a large portion of our operating costs are contractual with escalation clauses, the price escalation clauses may be insufficient to counteract prolonged or elevated rates of inflation, and a portion of our costs are subject to inflationary pressures. Salaries, wages and contract labor rates of individuals may continue to come under inflationary pressures to keep up with market demands. We have experienced, and may continue to experience increased costs to retain and attract employees. Additionally parts, materials, travel accommodations and shipping costs may increase. Any of these circumstances continuing for a prolonged period of time, without the ability to increase our prices at a sufficient rate or adequately reduce costs, may negatively impact our financial results.

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

Customers can typically terminate for convenience one or more of the aircraft we operate for them under an airline operating agreement at any time during the term, subject to a 60-day notice period and paying us a fee. Additionally, our aircraft lease agreements may contain provisions for terminating an aircraft lease for convenience, including a notice period and paying a lump sum amount to us.

ASI may terminate the ATSA in its entirety after providing 180 days of advance notice and paying to the Company a termination fee which reduces over the term of the agreement. DHL may terminate the CMI agreement in its entirety after providing 180 days of advance notice and paying a termination fee which reduces during the term of the agreement. In the event of a termination by ASI, DHL, DoD, or any other key customer, we could experience a material adverse effect on our financial position, results of operations or cash flows.

We may have disputes with our customers.

From time to time, we may have disputes with customers over contractual terms such as performance levels, service obligations, billing rates, cost responsibilities, return conditions and other matters. Our customer contracts often stipulate procedures for dispute resolution. The resolution of such disputes, if they arise, may result in unexpected financial costs or outcomes that would have a material adverse effect on our financial position, results of operations or cash flows.

The DoD or other government agencies may not renew our contracts or may reduce the number of routes that we expect to operate.

Our contracts with the DoD are typically for a fixed duration and are not required to be renewed. The DoD may terminate the contracts for convenience or in the event we were to fail to satisfy reliability requirements or for other reasons. The number and frequency of routes are sensitive to changes in military priorities and U.S. defense budgets, which are not necessarily correlated with any specific economic cycle and, together with budgets for non-DoD agencies, may be adversely impacted by any failure by Congress to approve future budgets on a timely basis.

The majority of OAI's business currently consists of flights chartered by the DoD for the transportation of DoD personnel and a significant amount of ATI's revenue is derived from flights for the DoD. Increased competition from other airlines to bid the same routes or a downturn or other change in the DoD's or other government agencies' need for such services could adversely affect our operating results.

Lessees of our aircraft may fail to make contractual payments or fail to maintain the aircraft as required.

Our financial results depend in part on our lease customers' ability to make lease payments and maintain the related aircraft. Our customers' ability to make payments could be adversely impacted by changes to their financial liquidity, competitiveness, economic conditions and other factors. A default of an aircraft lease by a customer could negatively impact our operating results and cash flows and result in our right to repossession of the aircraft, which we may be unable to accomplish timely or at all.

While we often require leasing customers to pay monthly maintenance deposits, customers are normally responsible for maintaining our aircraft during the lease term. Failure of a customer to perform required maintenance and maintain the appropriate records during the lease term could result in higher maintenance costs, a decrease in the value of the aircraft, a lengthy delay in or even our inability to redeploy the aircraft in a subsequent lease, any of which could have an adverse effect on our results of operations and financial condition.

The economic conditions in the United States and in other geographies may negatively impact the demand for our aircraft and services.

Air transportation volumes are strongly correlated to general economic conditions, including the price of aviation fuel. An economic downturn could reduce the demand for delivery services offered by DHL, ASI and other delivery businesses, in particular expedited shipping services utilizing aircraft, as well as the demand for the chartered passenger flights OAI operates. Further, during an economic slowdown, cargo customers generally prefer to use ground-based or marine transportation services instead of more expensive air transportation services. Accordingly, an economic downturn could reduce the demand for airlift and aircraft leases.

Additionally, if the price of aviation fuel rises significantly, the demand for aircraft and air transportation services may decline. During periods of downward economic trends and rising fuel costs, freight forwarders and integrated delivery businesses are more likely to defer market expansion plans. When the cost of air transportation increases, the demand for passenger transportation may decline.

On occasion, declines in demand may stem from other uncontrollable factors such as geopolitical tensions or conflicts, trade embargoes or tariffs, and human health crises. We may experience delays in the deployment of available aircraft with customers under lease, ACMI or charter arrangements and our revenues may be adversely affected.

Aircraft leasing generally has also experienced periods of aircraft oversupply in times past and could experience such circumstances again in the future. Certain airlines that lease aircraft from us may experience weaknesses in demand from time to time from the large integrators and markets they serve. This could lead to a breakage in scheduled lease revenues from one or more customers, which could have an adverse effect on our future operating results.

A reduction in customer demand for aircraft maintenance facilities could negatively impact our financial results.

We lease and operate a 310,000 square foot, four-hangar aircraft maintenance facility and a 100,000 square foot component repair shop in Wilmington, Ohio. Additionally, we lease and operate a 311,500 square foot, two-hangar aircraft maintenance complex in Tampa, Florida. Accordingly, a large portion of the operating costs for our aircraft maintenance and conversion business are fixed. As a result, we need to retain existing aircraft maintenance business levels to maintain a profitable operation. The actual level of revenues may not be sufficient to cover our operating costs. Additionally, revenues from aircraft maintenance can vary among periods due to the timing of scheduled maintenance events and the completion level of work during a given period.

Strategic investments in other businesses may not result in the desired benefits.

We enter into joint venture and other business acquisition and investment agreements from time to time with the expectation that such investments will result in various benefits including revenue growth through geographic diversification and product diversification, improved cash flows and better operating efficiencies. The process to identify such investments may divert management’s attention and expose us to unanticipated liabilities and costs. Also, we may not be able to identify attractive investments on terms beneficial to us, and even if we do, achieving the anticipated benefits from such agreements is subject to a number of challenges and uncertainties. The expected benefits may be only partially realized or not at all, or may take longer to realize than expected, which could adversely impact our financial condition and results of operations.

We may be a party to litigation, investigations, or other legal proceedings, whether in the normal course of business or otherwise, which could affect our financial position, results of operations, cash flows, and liquidity.

From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the U.S., whether arising in the ordinary course of our business or otherwise. We are currently involved in various legal proceedings and claims that have not yet been fully resolved, and additional claims may arise in the future. See also the risks described in this Item 1A under the headings “Risks Related to the Merger – We are the target of lawsuits challenging the Merger Agreement that may prevent the Merger from being consummated within the expected timeframe or at all” Legal proceedings can be complex and take many months, or even years, to reach resolution, with the final outcome depending on a number of variables, some of which are not within our control. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. Although we expect we will vigorously defend ourselves in such legal proceedings, their ultimate resolution and potential financial and other impacts on us are uncertain, and may vary based upon a variety of factors, including our judgment of potential benefits and risks. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit. If a legal proceeding is resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to operate or market our services, our consolidated financial position, results of operations, cash flows, or liquidity could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can come as a result of or lead to adverse publicity and damage to our reputation, which could adversely impact our business.

Risks Related to Business Interruptions and Cybersecurity Incidents

Our operating results could be negatively impacted by disruptions of our information technology and communication systems and data breaches.

Our businesses depend heavily on information technology, computerized systems and data transmissions to operate effectively. We continue to expand our reliance on third party providers for technical support, management, and hosting of systems. Our systems and technologies, or those of third parties on which we rely, could fail or become unreliable due to equipment failures, software viruses, ransomware attacks, malware attacks, cyberattacks, natural disasters, power failures, data transmission disruptions, telecommunication outages, or other causes. Hackers, foreign governments, cyber-terrorists and cyber-criminals, acting individually or in coordinated groups, may launch distributed denial of service attacks or other coordinated attacks that may cause service outages, gain inappropriate or block legitimate access to systems or information, or result in other interruptions to our business. In addition, the foregoing breaches in security could expose us and our customers, or the individuals affected, to a risk of loss, disclosure or misuse of proprietary information and sensitive or confidential data, including personal information of customers, employees and others. Certain disruptions could prevent our airlines from flying as scheduled, possibly for an extended period of time, which could have a negative impact on our financial results and operating reliability. A cybersecurity attack or system outage could limit our ability to conduct some operations or result in the complete shutdown of all of our operations. A cybersecurity attack impacting onboard or other flight systems could result in an accident or operational disruptions, which could adversely affect our reputation, regulatory oversight and financial position.

We continually monitor the risks of disruption, take preventative measures, develop backup plans and maintain redundancy capabilities. The measures we use may not prevent the causes of disruptions we could experience or help us recover failed systems quickly.

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

Our systems are subject to evolving cybersecurity threats. Our exposure to cybersecurity risk also increases as we expand the number of airports and locations at which we operate, as well as the number of employees working from remote locations. Part of our insurance program provides coverage for cybersecurity incidents, but in the event of such an incident, the amount or nature of our insurance coverage may prove to be inadequate for reasons we were unable to foresee. The costs of maintaining safeguards, recovery capabilities and preventive measures may continue to rise. Further, the costs of recovering or replacing a failed system could be very expensive.

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

Severe weather or other natural or anthropogenic disasters and epidemics could adversely affect our business.

Air transportation has historically been disrupted, sometimes severely, by the occurrence of unexpected events outside of our and our customers’ control. Severe weather conditions and other natural or anthropogenic disasters, including storms, floods, fires or earthquakes, epidemics or pandemics, conflicts or unrest, or terrorist attacks, whether directly affecting our flight operations or impacting the air transportation industry in general, may result in decreased revenues, including as our customers reduce their transportation needs, or increased costs to operate our business, which could have a material adverse effect on our results of operations for an indeterminate period of time. Any such event affecting one of our major facilities could result in a significant interruption in or disruption of our business.

Our operating results may be impacted by outbreaks of highly contagious diseases, or other health crises, and the various government, industry and consumer actions related thereto

The COVID-19 pandemic had an adverse impact on our availability of labor resources resulting in increased labor costs to maintain sufficient staffing for operations. 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 the effects of another disease or health crisis, or if they are subject to governmental actions including curfews or “shelter in place” health orders. We staff personnel near airports to sort customer packages, load aircraft and maintain related equipment. A COVID-19 or other pandemic outbreak or health crisis at certain maintenance facilities, customer sorting centers or airports could result in workforce shortages or closures causing reduced revenues and higher expenses.

In addition to workforce shortages, a COVID-19 or other pandemic outbreak or health crisis may result in parts shortages, maintenance delays, shortages of transportation and hotel accommodations for flight crews, and declines in the value of our aircraft and other assets, any of which could result in reduced revenues and additional expenses. Similarly, the effects of such a crisis 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 could be adversely impacted by a COVID-19 or other pandemic outbreak or health crisis if passenger airlines reduce their needs for scheduled heavy airframe maintenance.

Third-Party Reliance Risk

Global supply chain disruptions and macroeconomic or geopolitical uncertainties could impact our financial results.

Pandemic fears, economic recession concerns, geopolitical uncertainties and other macroeconomic factors have led to global supply chain disruptions and other delays and uncertainties in recent years. In particular, the aircraft conversion operations that we contract to third parties rely on part manufacturers and labor from several global sources, any adverse impact to which could delay aircraft deployments to our customers. The war in Ukraine or the development of instabilities in other regions of the globe may result in further supply chain disruptions. Our businesses may experience delays in receiving parts from our global supply chain partners for aircraft conversions, and prolonged disruptions to the supply chain would impact the completion of aircraft and our corresponding leases to customers. Additionally, when coupled with inflationary pressures, such delays could have a significant impact on overall economic conditions as well as our operations and financial results.

Israel is the location of our primary vendor that converts our Boeing 767-300 passenger aircraft into freighters. The Israel-Hamas war and other regional conflicts may impact the progress of aircraft conversions, particularly those produced in Israel. The conflict may create labor shortages and slow the availability of required parts, resulting in the delayed completion of aircraft modification projects and pushing our contractual obligations into later periods. Such delays and reductions may have a material adverse effect on our capital resources, financial condition, results of operation and liquidity.

We rely on third parties to modify aircraft and provide aircraft and engine maintenance.

We rely on third party aircraft modification service providers, including in Israel, which is subject to the war described above, and third party aircraft and engine maintenance service providers that have expertise or resources that we do not have. Third party service providers may seek to impose price increases that could negatively affect our competitiveness in the airline markets. An unexpected termination or delay involving service providers could have a material adverse effect on our operations and financial results. A delay in an aircraft modification could adversely impact our revenues and our ability to place the aircraft. We must manage third party service providers to meet schedules and turn-times and to control costs in order to remain competitive to our customers.

We rely on a limited number of engine maintenance providers for our engines that power our fleet of aircraft. If our providers do not complete the refurbishment of our engines within the contractual turn-times or if an unplanned replacement of a maintenance provider is required due to the deterioration of their performance, a contract dispute or some other reason, our operations and financial results may be adversely impacted. Further, if replacement engines cannot be sourced or if the cost of replacement engines increases, our operations and financial results may be adversely impacted.

Financial Risks

Our Senior Credit Agreement and our Senior Notes include covenants that could limit our operating and financial flexibility, and our Convertible Notes may be subject to acceleration in the event of a cross-default.

The Senior Credit Agreement contains covenants including, among other requirements, limitations on certain additional indebtedness and guarantees of indebtedness. The Senior Credit Agreement is collateralized by certain of our Boeing 777, 767 and 757 aircraft. Under the terms of the Senior Credit Agreement, we are required to maintain aircraft collateral coverage equal to 125% of the outstanding balance of the revolving credit facility. We also have various outstanding notes, including $500.0 million in senior unsecured notes issued January 2020 (the “Senior Notes”), $200.0 million of additional notes issued April 2021 (the “Additional Notes”) under the existing Senior Notes, and $400.0 million in convertible notes issued August 2023 (the "2023 Convertible Notes"). Our Senior Notes and related Indenture also include a number of restrictions and covenants including limitations on our ability to incur additional indebtedness, grant liens, make investments, repurchase or redeem capital stock, pay dividends, enter into transactions with affiliates, merge with other entities or transfer or sell assets. Our 2023 Convertible Notes contain certain cross-default provisions that may be triggered if we were to breach one of our other debt agreements without achieving an adequate cure. The covenants under the Senior Notes, which are generally no more restrictive than those set forth in the Senior Credit Agreement, are subject to exceptions and qualifications as described in the Indenture. Complying with these covenants in the Senior Credit Agreement and the Senior Notes may impair our ability to finance our operations or capital needs or to take advantage of other business opportunities. Our ability to comply with these covenants will depend on our future performance, which may be affected by events beyond our control. Our failure to comply with these covenants would represent an event of default. An event of default under the Senior Credit Agreement or the Senior Notes could result in all indebtedness thereunder, as well as under the 2023 Convertible Notes, being declared due and payable immediately, which could have an adverse effect on our financial position and results of operations.

Operating results may be affected by fluctuations in interest rates.

We enter into interest rate derivative instruments from time to time in conjunction with our debt levels. We typically do not designate the derivative instruments as hedges for accounting purposes. Future fluctuations in the Secured Overnight Financing Rate ("SOFR") will result in the recording of gains and losses on interest rate derivatives that we hold.

Under the Senior Credit Agreement, interest rates are adjusted monthly based on the prevailing SOFR rates and may be adjusted at any time for prime rates and a ratio of our outstanding debt level to earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). At our current debt-to-EBITDA ratio, the revolving credit facility bears variable interest rates of 6.69% per annum. In addition to the impact of higher SOFR rates, additional debt or lower EBITDA may also result in higher interest rates on the variable rate portion of our debt. Higher interest rates may adversely impact our operating results.

We sponsor defined benefit pension plans and post-retirement healthcare plans for certain eligible employees. Our related pension expense, the plans' funded status and funding requirements are sensitive to changes in interest rates. The plans' funded status and annual pension expense are recalculated at the beginning of each calendar year using the fair value of plan assets and market-based interest rates at that point in time, as well as assumptions for asset returns and other actuarial assumptions. Future fluctuations in interest rates, including the impact on asset returns, could result in the recording of additional expense and require additional contributions for pension and other post-retirement healthcare plans.

The costs of insurance coverage or changes to our reserves for self-insured claims could affect our operating results and cash flows.

We are self-insured for certain claims related to workers’ compensation, aircraft, automobile, general liability and employee healthcare. We record a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Changes in claim severity and frequency could negatively impact our results of operations and cash flows.

Our future earnings and earnings per share, as calculated and presented in accordance with accounting principles generally accepted in the United States ("GAAP"), will be impacted by the warrants to acquire ATSG's common stock held by Amazon.

The warrants held by Amazon are subject to fair value measurements during periods that they are outstanding. Accordingly, future fluctuations in the fair value of the warrants held by Amazon are expected to adversely impact our reported earnings measures from time to time. See Note C in the accompanying consolidated financial statements for further information about the warrants held by Amazon.

The market price of ATSG’s common stock is subject to fluctuation due to a variety of market and other factors, including that if Amazon exercises its right to acquire shares of ATSG's common stock pursuant to the outstanding warrants it holds, such exercise will dilute the ownership interests of ATSG's then-existing stockholders and could adversely affect the market price of ATSG's common stock.

The trading price of ATSG's common stock is subject to material fluctuations in response to a variety of factors, including the pendency of the Merger, quarterly variations in our operating results, conditions of the air cargo industry and global economic conditions or other events and factors that are beyond our control. In the past, following periods of significant volatility in the overall market and in the market price of other companies’ securities, securities class action litigation has been instituted against these companies in some circumstances. If this type of litigation were instituted against us following a period of volatility in the market price for our common stock, it could result in substantial costs and a diversion of our management's attention and resources, which could have a material adverse effect on our business, results of operations and financial condition. In addition, if Amazon exercises its right to acquire shares of ATSG's common stock pursuant to the warrants, it will dilute the ownership interests of our then-existing stockholders and reduce our earnings per share. Any sales in the public market of ATSG's common stock issuable upon the exercise of the warrants by Amazon could also adversely affect prevailing market prices of ATSG's common stock.

Changes in the fair value of certain financial instruments could impact our financial results.

Certain financial instruments, including warrants issued to Amazon, are subject to fair value measurements at the end of each reporting period. Accordingly, future fluctuations in their fair value may adversely impact our reported earnings.

We may need to reduce the carrying value of our assets.

We own a significant amount of aircraft, aircraft parts and related equipment. The removal of aircraft from service or continual losses from aircraft operations could require us to evaluate the recoverability of the carrying value of those aircraft, related parts and equipment and record an impairment charge through earnings to reduce the carrying value.  Additionally, our balance sheet reflects assets for income tax carryforwards and other deferred tax assets. Our ability to use our NOLs and other carryforwards depends on the amount of taxable income generated in future periods.  NOL carryforwards are subject to adjustment on audit by the Internal Revenue Service and other respective taxing authorities. 

We have recorded goodwill and other intangible assets related to acquisitions and equity investments. If we are unable to achieve the projected levels of operating results, it may be necessary to record an impairment charge to reduce the carrying value of goodwill, equity investments and related intangible assets. Similarly, if we were to lose a key customer or one of our airlines were to lose its authority to operate, it could be necessary to record an impairment charge.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 1C. CYBERSECURITY

ITEM 2. PROPERTIES

Principal Facilities

We lease portions of an air park in Wilmington, Ohio, under lease agreements with a regional port authority, the terms of which expire in June 2026 and June 2036 with options for us to extend the terms. The leases include corporate offices, 310,000 square feet of maintenance hangars and a 100,000 square foot component repair shop at the air park. We also have the non-exclusive right to use the Wilmington airport, which includes one active runway, taxiways and ramp space. We also lease and operate a 311,500 square foot, two hangar aircraft maintenance complex at the Tampa International Airport in Florida. Our CAM and ACMI Services reportable operating segments, together with our other business lines, make use of these facilities. We lease approximately 82,500 square feet of office and warehouse space at the Tulsa International Airport in Oklahoma, which is primarily used in ACMI Services.

Other Facilities

We lease a facility having approximately 335,000 square feet in Chicago, Illinois and another facility having approximately 100,000 square feet in Orlando, Florida for our USPS mail handling contracts. In addition, we lease smaller maintenance stations, offices and ramp space at certain airport and regional locations, typically on a short-term basis. Further, we lease warehousing space inside or near certain U.S. airports to support our customers' parcel handling requirements. The facilities in this paragraph are primarily used in ACMI Services and our other lines of business (other than CAM).

Aircraft Fleet

As of December 31, 2024, our in-service aircraft fleet consisted of 112 Boeing aircraft and three Airbus aircraft that we owned and 33 Boeing aircraft leased from third parties. The majority of these aircraft were formerly passenger aircraft that have been modified for cargo operations. These cargo aircraft are generally described as being mid-size or having medium wide-body cargo capabilities. The cargo aircraft carry gross payloads ranging from approximately 47,900 pounds to 129,000 pounds and are well suited for intra-continental flights and medium range inter-continental flights. The table below shows the combined fleet of aircraft in service condition as of December 31, 2024.

In addition, as of December 31, 2024 CAM owned other aircraft not presently in service, including five Airbus 321-200 PCF which had completed the standard freighter conversion and are expected to be leased in 2025.  CAM also owns seven Boeing 767-300 aircraft, one Airbus A321-200 aircraft and six Airbus A330 aircraft which were undergoing or preparing to undergo modification to a standard freighter configuration and are expected to be completed in 2025 or 2026.

We believe that our existing facilities and aircraft fleet are appropriate for our current operations. As described in Note H to the accompanying financial statements, we plan to invest in additional aircraft to meet our growth plans. We may make additional investments in aircraft and facilities if we identify favorable opportunities in the markets that we serve.

ITEM 3. LEGAL PROCEEDINGS

We are currently a party to legal proceedings in various federal and state jurisdictions arising out of the proposed Merger and  operation of our business. The amount of alleged liability, if any, from these proceedings cannot be determined with certainty; however, we believe that the Company's ultimate liability, if any, arising from the pending legal proceedings, as well as from asserted legal claims and known potential legal claims which are probable of assertion, taking into account established accruals for estimated liabilities, should not be material to our financial condition or results of operations. In addition, we carry various forms of aviation, commercial, property and casualty, cybersecurity, product liability, and other forms of insurance; however, such insurance may not be applicable or adequate to cover the costs associated with a judgment against us.

For more information on various legal proceedings, see the discussion in Note H to our Consolidated Financial Statements included in Item 8, of this Form 10-K. The information set forth therein related to legal proceedings is incorporated into this Item 3 by reference.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

ATSG's common stock is publicly traded on The Nasdaq Stock Market under the symbol "ATSG." The closing price of ATSG’s common stock was $22.33 on February 28, 2025.

Holders

On February 28, 2025, there were approximately 1,082 stockholders of record of ATSG’s common stock.

Dividends

We currently do not pay a dividend. Future dividends, if any, and the timing of declaration of any such dividends, will be at the discretion of the Board and will depend upon many factors including, but not limited to, certain restrictions that we have on our ability to pay dividends. We are restricted under the Merger Agreement from declaring and paying a dividend on ATSG's common stock. We are also restricted from paying dividends on our common stock in excess of $100.0 million during any calendar year under the provisions of the Senior Credit Agreement. Additionally, the Senior Notes and related Indenture generally restrict our ability to pay dividends on or make distributions in respect of capital stock or make certain other restricted payments or investments, subject to certain exceptions therein including, upon the satisfaction of certain conditions, the making of permitted dividends up to $100.0 million during any calendar year and other additional permitted dividends, investments and other restricted payments not to exceed the amounts set forth therein.

Purchases of equity securities by the issuer and affiliated purchasers

The Senior Credit Agreement permits cash dividends and share repurchases provided the secured leverage ratio is less than 3.00 to 1.00 and the total leverage ratio is less than 3.50 to 1.00 after giving effect to the repurchase or dividend. (For additional information about the Senior Credit Agreement, see Note F to the accompanying consolidated financial statements.) We are restricted under the Merger Agreement from repurchasing ATSG’s common stock, except in connection with the requirement under certain of our benefit plans or in connection with the conversion of the 2023 Convertible Notes in connection with the Merger.

On July 27, 2023, the Board authorized the repurchase of up to $120.0 million of ATSG's outstanding common stock (the "2023 Repurchase Program") exclusively in conjunction with a convertible bond offering that the Company was marketing at that time. The 2023 Repurchase Program is separate from the 2022 Repurchase Program described below. The Company subsequently purchased shares in August 2023. The Company did not purchase any ATSG common stock under the 2023 Repurchase Program during the fourth quarter of 2023. The remaining available authorization under the 2023 Repurchase Program is $1.5 million which can only be used in conjunction with the repurchase of our 2017 Convertible Notes. 

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

Performance Graph

The following performance graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall the information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.

The graph below compares the cumulative total stockholder return on a $100 investment in ATSG’s common stock with the cumulative total return of a $100 investment in the Nasdaq Composite Index and the cumulative total return of a $100 investment in the Nasdaq Transportation Index for the period beginning on December 31, 2019 and ending on December 31, 2024.

ITEM 6. [RESERVED]

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management’s Discussion and Analysis has been prepared with reference to our historical financial condition and results of operations. It should be read in conjunction with the accompanying consolidated financial statements and related notes included in Item 8 of this Form 10-K as well as Strategy described in Item 1 of this Form 10-K. Certain statements we make in this Item 7 constitute forward-looking statements under the Act. You should consider our forward-looking statements in light of the “Cautionary Note Regarding Forward-Looking Statements” preceding Part I of this Form 10-K and the risks discussed under the heading “Risk Factors” in Item 1A of this Form 10-K.

OVERVIEW

We provide aircraft leasing and air cargo transportation and related services. Our total in service fleet was composed of 148 freighter and passenger aircraft as of December 31, 2024. To support the needs of our leasing customers and customers in the aviation and logistics industries at large, we offer a broad array of complementary solutions ranging from flight and ground operations to aircraft maintenance, repair, and overhaul services. Our principal subsidiaries include our aircraft leasing company (CAM) and three independently certificated airlines (ABX, ATI and OAI).

We primarily operate through two reportable segments, CAM and ACMI Services:

CAM offers aircraft leasing and related services. Through CAM we acquire used medium wide-body and narrow-body passenger aircraft and manage their conversion into freighter configuration. We lease the aircraft externally to third party customers, as well as internally to our own airline subsidiaries, typically for lease terms of up to ten years. CAM currently leases Boeing 767, 757 and 777 aircraft, Airbus A321 freighter aircraft and aircraft engines, and is in the process of adding Airbus A330 freighter aircraft to its fleet. Demand for medium widebody and narrow-body freighters is driven primarily by express delivery networks. To expand and diversify our freighter fleet, we secured aircraft conversion slots through 2027. We partner with IAI, Boeing and EFW for passenger aircraft conversions and also perform our own conversions of the Airbus A321 aircraft through our joint venture arrangement 321 Precision Conversions, LLC.

ACMI Services consists of the cargo and passenger operations of our three airline subsidiaries. Our airlines operate under contracts to provide a combination of aircraft, flight crews, aircraft maintenance, aircraft hull and liability insurance and aviation fuel. Our customers are typically responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses such as landing fees, ramp expenses, certain aircraft maintenance expenses and fuel procured directly by the airline. Aircraft charter agreements, including passenger services for the DoD, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price.

Our other business operations, which primarily provide support services to the transportation industry, include providing aircraft maintenance and modification services to customers, cargo load transfer and sorting services as well as related equipment maintenance services. These operations do not constitute reportable segments.

At December 31, 2024, we owned 112 Boeing aircraft and three Airbus aircraft that were in revenue service. We also own aircraft that were not in revenue service, including five Airbus A321-200 freighter aircraft that have completed the freighter conversion process but were not in service and are expected to be re-leased in 2025, and seven Boeing 767-300 aircraft, one Airbus 321-200 aircraft and six Airbus A330 aircraft, with such aircraft already undergoing or awaiting induction into the freighter conversion process. In addition to our owned aircraft, we leased six passenger aircraft from third parties and operated 27 freighter aircraft provided by customers.

Customers

Our largest customers are ASI, which is a subsidiary of Amazon, the DoD and DHL.

Revenues from our commercial arrangements with ASI comprised approximately 33%, 34% and 34% of our consolidated revenues during 2024, 2023 and 2022, respectively. As of December 31, 2024, we leased 30 Boeing 767 freighter aircraft to ASI with lease expirations between 2026 and 2031 and we operate those aircraft for ASI. The aircraft lease terms typically range from 5 to 10 years. We operate 21 other Boeing 767 aircraft provided by ASI. We also provide ground services and aircraft maintenance services to ASI.

The DoD comprised 29%, 30% and 30% of our consolidated revenues during 2024, 2023 and 2022, respectively, derived from operating passenger and combi charter flights.

DHL comprised 14%, 12% and 12% of our consolidated revenues during 2024, 2023 and 2022, respectively. In February 2022, ATSG and DHL agreed to a six-year extension of its dry leases for five Boeing 767 freighters as well as an extension of the CMI agreement for ABX to operate aircraft through April 2028. The CMI agreement was expanded to include two additional 767 freighters. As of December 31, 2024, we leased 14 Boeing 767 freighter aircraft to DHL comprising one Boeing 767-200 aircraft and 13 Boeing 767-300 aircraft. Ten of the 14 Boeing 767 aircraft were being operated by our airlines for DHL. Additionally, as of December 31, 2024, we operated six Boeing 767 aircraft that were provided by DHL.

RESULTS OF OPERATIONS

Revenue and Earnings Summary

External customer revenues from continuing operations decreased by $108.6 million, or 5%, to $1,962.0 million during 2024 compared to 2023. Revenues were lower during 2024 for aircraft leasing, customer flying, engine power services, fuel sales and all other services. Revenues for 2023 and 2022 were $2,070.6 million and $2,045.5 million respectively.  Customer revenues increased in 2023 compared to 2022 due primarily to aircraft leasing revenues while ground services declined. 

During 2024, we took redelivery of nine newly converted, CAM-owned Boeing 767-300 freighter aircraft and began leasing all of these aircraft to external customers under long-term leases. We also added eleven more customer-provided aircraft to the fleet that our airlines operate under CMI agreements with such customers and we added two more passenger aircraft leased from third parties.  During 2023, we took redelivery of ten newly converted CAM-owned Boeing 767-300 freighter aircraft and our first three newly converted, CAM-owned Airbus A321-200 freighter aircraft and began leasing all of these aircraft to external customers under long-term leases. Also in 2023, we added three more customer-provided aircraft to the fleet that our airlines operate for our customers under CMI agreements. During 2024 and 2023, we removed five and ten Boeing 767-200 freighter aircraft from revenue service, respectively.  These Boeing 767-200 freighter aircraft have either been sold or their engines and parts have been used to support our aircraft fleet.

Consolidated earnings from continuing operations were $27.4 million for 2024 compared to $59.7 million for 2023 and $196.4 million for 2022. Pre-tax earnings from continuing operations were $42.3 million for 2024 compared to $84.2 million for 2023 and $260.5 million for 2022. Earnings were affected by the following specific events and certain adjustments that do not directly reflect our underlying operations among the years presented.

After removing the effects of these items, adjusted pre-tax earnings from continuing operations, a non-GAAP financial measure (a definition and reconciliation of adjusted pre-tax earnings from continuing operations and reconciliations to the pre-tax earnings from continuing operations, the most directly comparable financial measure calculated and presented in accordance with GAAP follows), were $83.0 million for 2024 $146.7 million for 2023 and $263.3 million for 2022.

Adjusted pre-tax earnings from continuing operations declined by $63.7 million for 2024 compared to 2023 and declined by $116.6 million for 2023 compared to 2022.  In addition to the declines in revenues for customer flying, engine services, fuel sales and all other services, expenses increased in each of 2024 and 2023 compared to the prior year.  In both years, expenses increased primarily for depreciation of newly modified Boeing 767-300 aircraft, interest expense and inflationary impacts on employee compensation, travel and aircraft parts.

A summary of our revenues and pre-tax earnings from continuing operations and adjusted pre-tax earnings from continuing operations is shown below (in thousands):

We define adjusted pre-tax earnings from continuing operations, a non-GAAP financial measure, as pre-tax earnings from continuing operations excluding the impact of the following items: (i) pension settlement charges and other non-service components of retiree benefit costs; (ii) gains and losses for the fair value re-measurement of financial instruments including warrants issued to Amazon and, during 2022, gains from the repurchase of unsecured notes; (iii) customer lease incentive amortization; (iv) the charge-off of debt issuance costs associated with the repurchase of debt; (v) the results of non-consolidated joint ventures; (vi) charges related to the discharge of a fire suppression system in the Company's aircraft hangar, net of related insurance recoveries, and (vii) professional fees related to the Merger.  We exclude these items from adjusted pre-tax earnings from continuing operations because they are distinctly different in their predictability among periods or not closely related to our ongoing operating activities. Management uses adjusted pre-tax earnings from continuing operations 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 results should not be considered in isolation or as a substitute for analysis of our results as reported in accordance with GAAP.

Our earnings for the reported periods were impacted by the fair value re-measurement of the Amazon warrants classified in liabilities at the end of each reporting period, customer incentive amortization and the related income tax effects. The fair value of the warrants issued or issuable to Amazon was recorded as a customer incentive asset and are amortized against revenues over the duration of the aircraft leases. Our accounting for the warrants issued to Amazon has been determined in accordance with the financial reporting guidance for financial instruments. For additional information about the warrants issued to Amazon, see the accompanying notes to the financial statements.

Aircraft Fleet Summary

Our fleet of cargo and passenger aircraft is summarized in the following table as of December 31, 2024, 2023 and 2022. Our operating aircraft fleet has increased by twenty aircraft since the end of 2022.  This includes four more CAM-owned aircraft, 14 more customer-provided aircraft and two more aircraft leased from external lessors.  Our freighters, converted from passenger aircraft, utilize standard shipping containers and can be deployed into regional cargo markets more economically than larger capacity aircraft, newly built freighters or other competing alternatives. At December 31, 2024, we owned seven Boeing 767-300 aircraft, one Airbus A321-200 aircraft and six Airbus A330 aircraft that were either already undergoing or awaiting induction into the freighter conversion process. As of December 31, 2024, we also owned five Airbus A321-200 freighter aircraft which have completed the conversion process and are available for future lease.

Aircraft fleet activity during 2024 is listed below: