Air Transport Services Group, Inc. provides aircraft leasing and air cargo transportation and related services.
The company leases converted freighter aircraft to customers throughout the world. The company’s total in-service fleet is composed of 130 freighter and passenger aircraft as of December 31, 2023. To support the needs of the company’s leasing customers and customers in the aviation and logistics industries at large, the company offers a broad array of complementary solutions ranging f...
Air Transport Services Group, Inc. provides aircraft leasing and air cargo transportation and related services.
The company leases converted freighter aircraft to customers throughout the world. The company’s total in-service fleet is composed of 130 freighter and passenger aircraft as of December 31, 2023. To support the needs of the company’s leasing customers and customers in the aviation and logistics industries at large, the company offers a broad array of complementary solutions ranging from flight and ground operations to aircraft maintenance, repair, and overhaul services.
The company primarily operates through two reportable segments: Cargo Aircraft Management, Inc. (‘CAM’), which includes the leasing of aircraft and aircraft engines, and ACMI Services, which includes the cargo and passenger aircraft flight operations of the company’s three airlines. The company’s other business operations, which primarily provide support services to the transportation industry, do not constitute reportable segments.
Strategy
CAM is the company’s primary business segment. Through CAM, the company acquires used medium wide-body and narrow-body passenger aircraft, manages their conversion into a freighter configuration--leveraging the company’s experience as an airline--and then leases the converted freighters to customers under long-term contracts. The aircraft the company targets for conversion are ideal for express and e-commerce driven regional air networks. As a result, the company’s aircraft can be deployed into regional markets more economically than larger capacity aircraft, newly built aircraft or other competing alternatives.
The company offers a breadth of integrated, complementary aviation- and logistics-related services through the company’s ACMI Services business segment and other operations. The company’s broad range of ancillary services include aircraft maintenance and modifications, engine leases and sort and gateway operations.
Services
The company’s business development and marketing efforts leverage the entire portfolio of the company’s capabilities to create a customized bundled solution to meet the company’s customers' needs. The company’s ability to offer its customers differentiated services, including aircraft leasing, airline express operations, line and heavy maintenance, and ground handling services makes the company unique from other providers in its industry.
CAM
The company owns and leases aircraft through its subsidiary, CAM. The company acquires used passenger aircraft, typically 15-20 years old, and cause them to be converted to a freighter configuration. Following conversion, the company leases 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 the company’s own airline subsidiaries, typically for lease terms of up to five to ten years.
The company’s 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. The company has agreements with two aircraft conversion providers, Israel Aerospace Industries (‘IAI’) and The Boeing Company (‘Boeing’), to convert additional Boeing aircraft.
Through a joint venture with Precision Aircraft Solutions, LLC, the company has 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 the company’s 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.
The company has also entered into an agreement with Elbe Flugzeugwerke (‘EFW’) to secure the right to convert up to 30 Airbus A330 passenger aircraft to a freighter configuration with EFW. The first aircraft induction occurred in the fourth quarter of 2023 and is expected to be completed later in 2024. The Airbus A330 aircraft can provide capabilities similar to the Boeing 767 for medium wide-body airlift with additional space and greater range.
Under a typical lease arrangement, the customer maintains the aircraft in serviceable 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 credit worthiness 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 the company remains flexible to re-lease aircraft or arrange for their sale in order to manage the company’s fleet.
ACMI Services
The company’s ACMI Services business segment consists of the cargo and passenger operations of the company’s 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 the company 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 - The company’s 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. The company’s airline provides the flight crews, aircraft hull and liability insurance, and typically, aircraft line maintenance as needed between network flights.
Charter - The company’s 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 the company’s airlines are owned by CAM. Those aircraft are either leased directly to CAM's customer or leased to one of the company’s airlines. A summary of the company’s airlines is below:
ABX
ABX operates Boeing 767 aircraft exclusively in freighter configuration. ABX specializes in providing aircraft operations to customers in the e-commerce and express delivery markets, with DHL as its largest customer.
ATI
ATI operates Boeing 767 freighter aircraft and Boeing 757 ‘combi’ aircraft, which are capable of simultaneously carrying passengers and cargo containers on the main flight deck. ATI operates its fleet of Boeing 767 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 the 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 (ABX Air, Inc.), ATI (Air Transport International, Inc.), and OAI (Omni Air International, LLC) are each participants in the Civil Reserve Air Fleet (‘CRAF’), a National Emergency Preparedness Program designed to augment the airlift capability of the United States Department of Defense (DoD) and to meet the national security interests and contingency requirements of the U.S. Transportation Command (‘USTC’). The combined efforts of the company’s airlines make the company the nation’s largest provider of passenger charter service to DoD and other governmental agencies.
Support Services
In addition to the company’s two reportable segments, the company provides a wide range of air transportation related services to the company’s customers, including aircraft maintenance and modification, ground support and crew training.
Aircraft Maintenance and Modification
The company’s aircraft maintenance and modification services, which are provided primarily by the company’s 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 Federal Aviation Administration (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 has begun performing passenger-to-freighter conversions for Airbus A321 aircraft using the STC the company has developed with its joint venture. Both AMES and Pemco own many STCs and similar approvals issued by the FAA, which are marketed to the company’s customers.
Ground Support
Through the company’s subsidiary, LGSTX Services Inc. (‘LGSTX’), the company provides 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
The company’s support services also involve the training of flight crews, which the company offers through its 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
The company has long-standing strategic customer relationships with ASI, the DoD, and DHL, described below.
Amazon/ASI
The company has 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, the company entered into an Air Transportation Services Agreement (as amended, the ‘ATSA’) with ASI pursuant to which the company leases Boeing 767 freighter aircraft to ASI through CAM, operates the aircraft via the company’s airline subsidiaries and is responsible for complying with FAA airworthiness directives, the cost of Boeing 767 airframe maintenance, and for the aircraft leased to ASI that the company operates, certain engine maintenance events. The company also provides ground handling services through its subsidiaries. Under the ATSA, the company operates 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. The operating term of the ATSA runs through March 2026 and is thereafter subject to renewal by ASI for an additional three years. Revenues from the company’s commercial arrangements with ASI comprised approximately 34% of the company’s consolidated revenues for 2023. As of December 31, 2023, the company was leasing 37 of CAM's Boeing 767 freighter aircraft to ASI under multi-year contracts. The company operates all of these aircraft and ten more ASI-provided aircraft under the CMI provisions of the ATSA.
The U.S. Department of Defense
The company has been providing services to the DoD since the 1990s. The company’s business with the DoD and other government agencies expanded significantly as a result of the company’s November 2018 acquisition of OAI. For 2023, the DoD comprised 30% of the company’s consolidated revenues.
The company’s participation in the CRAF Program allows its airlines to operate military charters for passenger and cargo transportation. The company’s 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 and for ‘expansion routes,’ which are awarded on a quarterly, monthly and as-needed basis. Under the applicable contracts, the company is responsible for all operating expenses, including fuel, landing and ground handling expenses. The company’s airlines are members of the Patriot Team of CRAF airlines. The company pays a commission to the Patriot Team, based on certain revenues the company receives 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. The USTC contracted with ATI to provide combi aircraft operations through September 2024. OAI has been operating aircraft for the DoD since 1995. Contracts with the USTC are typically for a one-year period.
DHL
The company has provided aircraft services to DHL under multi-year contracts since August 2003. For 2023, DHL accounted for 12% of the company’s consolidated revenues. As of December 31, 2023, the company was leasing 13 of its Boeing 767 freighter aircraft to DHL under multi-year contracts. The company operates 11 of these aircraft for DHL under a separate CMI agreement with DHL, along with six DHL-supplied freighter aircraft. The company operates and maintains 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, the company is responsible for complying with FAA airworthiness directives, the cost of Boeing 767 airframe maintenance, and for the aircraft leased to DHL that the company operates, certain engine maintenance events. The company also provides 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, the company began to operate another four Boeing 767 aircraft provided by DHL under an additional CMI agreement, which runs through August 2027.
Regulation
The company’s subsidiaries’ airline operations are primarily regulated by the DOT, the FAA, and the U.S. Transportation Security Administration (‘TSA’).
The company’s airlines operate intra-EU flights from time to time and management believes that such flights are operated in compliance with the European Union Emissions Trading Scheme (ETS) requirements.
In regard to the company’s business:
The DOT has issued to ABX a Domestic All-Cargo Air Service Certificate for air cargo transportation between all points within the U.S., the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
The DOT has issued to ATI certificate authority to engage in scheduled interstate air transportation, which is limited to all-cargo operations. ATI's DOT certificate authority also authorizes it to engage in interstate and foreign charter air transportation of persons, property and mail.
The DOT has issued to ABX and ATI Certificates of Public Convenience and Necessity authorizing each of them to engage in scheduled foreign air transportation of cargo and mail between the U.S. and all U.S. open-skies partner countries, which consists of more than 130 foreign countries.
ABX and ATI also hold exemption authorities issued by the DOT to conduct scheduled all-cargo operations between the U.S. and certain foreign countries with which the U.S. does not have a liberal (‘open-skies’) air transportation agreement.
The DOT has issued to OAI a Certificate of Public Convenience and Necessity for Interstate Charter Air Transportation and a Certificate of Public Convenience and Necessity for Foreign Charter Air Transportation that authorizes it to engage in interstate and foreign charter air transportation of persons, property and mail.
In 2019, the DOT also issued OAI exemption authority to engage in scheduled foreign air transportation of property and mail between the U.S. and all existing and future countries with an open-skies air service agreement with the U.S.
The DOT has the authority to impose civil penalties, or to modify, suspend or revoke the company’s certificates and exemption authorities for cause, including failure to comply with federal laws or DOT regulations.
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. As a routine matter, the FAA issues airworthiness directives applicable to the aircraft operated by the company’s airline subsidiaries, and the company’s airlines comply, sometimes at considerable cost, as part of their aircraft maintenance programs.
The TSA has adopted cargo security-related rules that have imposed additional requirements on the company’s airlines and its customers. The European Aviation Safety Agency (‘EASA’) is a regulatory agency of the European Union, akin to the FAA, that governs many of the company’s aircraft leased outside the U.S.
In addition to the above, other laws and regulations to which the company is subject, and the agencies responsible for compliance with such laws and regulations, include the following:
As described under the heading ‘Human Capital Management’ above, the labor relations of the company’s airline subsidiaries are generally regulated under the Railway Labor Act, which vests in the NMB certain regulatory powers with respect to disputes between airlines and labor unions arising under collective bargaining agreements;
The Federal Communications Commission regulates the company’s airline subsidiaries’ use of radio facilities pursuant to the Federal Communications Act of 1934, as amended;
The U.S. Customs and Border Protection issues landing rights, inspects passengers entering the United States, and inspects cargo imported to the U.S. from the company’s subsidiaries’ international operations, and those operations are subject to similar regulatory requirements in foreign jurisdictions;
The U.S. Centers for Disease Control and Prevention has authority to impose requirements related to the mitigation of communicable diseases, such as requiring masking on aircraft, negative test results, collection of passenger data for contact tracing, and quarantine requirements;
The company must comply with the U.S. Citizenship and Immigration Services regulations regarding the eligibility of the company’s employees to work in the U.S., and the entry of passengers to the U.S.;
The company must comply with wage, working conditions and other regulations of the Department of Labor regarding the company’s employees; and
The Office of Foreign Assets Control (‘OFAC’) of the U.S. Department of the Treasury, the Bureau of Industry & Security (‘BIS’) of the U.S. Commerce Department, and other government agencies administer and enforce economic and trade sanctions based on the U.S. national security and foreign policy concerns, which may limit the company’s aircraft sale and leasing business activities in and for certain countries.
History
Air Transport Services Group, Inc. was founded in 1980. The company was incorporated in 2007.
