10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___

Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)

Delaware	0-25732	13-4146982
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)
2000 Westchester Avenue, Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

(914) 701-8000
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [   ] No [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes [   ] No [X]

APPLICABLE ONLY TO CORPORATE ISSUERS: As of March 1, 2006, there were 19,884,991 shares of the registrant’s Common Stock outstanding.

EXPLANATORY NOTE

     We did not timely file our Quarterly Report on Form 10-Q for the quarter ended September 30, 2005. On December 9, 2005, we filed a Current Report on Form 8-K (the “Form 8-K”) containing, in Exhibit 99.2 furnished thereto, certain financial and other information relating to such quarter, consisting of unaudited Condensed Consolidated Financial Statements (“Financial Statements”), Management’s Discussion and Analysis of Financial Condition and Results of Operations, Quantitative and Qualitative Disclosures About Market Risk and Controls and Procedures, all as required by Part I, Items 1-4, of Form 10-Q, as well as the information required by Part II of Form 10-Q. As noted, the Financial Statements contained in such Form 8-K filing were not reviewed by our independent registered public accounting firm. Also on December 9, 2005, we issued a press release relating to the information provided in the Form 8-K. This Quarterly Report on Form 10-Q contains the information provided in the Form 8-K, the remainder of the items required by Form 10-Q, and certain additional or updated information relating to various developments that have occurred since the period covered by this report. The information reported herein is as of September 30, 2005, unless otherwise noted.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Statements of Operations for the Three and Nine Months	1
	Ended September 30, 2005 (Successor) and for the periods July 28, 2004 through
	September 30, 2004 (Successor), July 1, 2004 through July 27, 2004, and January
	1, 2004 through July 27, 2004 (Predecessor) (unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2005 (Successor)(unaudited)	2
	and December 31, 2004 (Successor)
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended	3
	September 30, 2005 (Successor) and for the periods July 28, 2004 through
	September 30, 2004 (Successor) and January 1, 2004 through July 27,2004
	(Predecessor) (unaudited)
	Notes to the Unaudited Condensed Consolidated Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition
	and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	36
Item 4.	Submission of Matters to a Vote of Security Holders	36
Item 5.	Other Information	37
Item 6.	Exhibits and Reports on Form 8-K	37
	Signatures	38
	Exhibit Index	39

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)

	Successor									Predecessor
				For the Nine			For the Period
	For the Three			Months			July 28, 2004			For the			For the Period
	Months Ended			Ended			through			Period July 1,			January 1,
	September 30,			September 30,			September 30,			2004 through			2004 through
	2005			2005			2004			July 27, 2004			July 27, 2004
Operating Revenues	$	404,899		$	1,147,030		$	250,571		$	99,605		$	735,367
Operating Expenses
Aircraft fuel		105,115			286,633			63,969			23,850			175,103
Salaries, wages and benefits		61,686			175,747			36,956			18,794			122,715
Maintenance, materials and repairs		49,467			172,422			47,883			18,458			133,336
Aircraft rent		37,552			111,981			24,761			10,072			81,886
Ground handling and airport fees		16,017			53,525			17,214			7,544			53,558
Landing fees and other rent		20,393			59,445			14,606			7,432			53,039
Depreciation and amortization		11,768			37,838			11,214			3,840			33,510
Insurance gain		(7,467	)		(7,467	)		-			-			-
Travel		14,896			44,248			10,134			4,760			29,549
Pre-petition and post-emergence costs and
related professional fees		504			2,988			364			-			9,439
Other		26,955			77,418			18,964			13,895			65,931
Total operating expenses		336,886			1,014,778			246,065			108,645			758,066
Operating income (loss)		68,013			132,252			4,506			(9,040	)		(22,699	)
Non-operating Expenses (Income)
Interest income		(2,015	)		(4,134	)		(297	)		(102	)		(572	)
Interest expense (excluding post-petition
contractual interest of $7,117 and $20,956
for the period July 1, 2004 through July 27,
2004 and January 1, 2004 through July 27,
2004, respectively)		19,634			55,432			12,273			7,091			50,222
Other, net		(228	)		1,942			(115	)		441			1,434
Reorganization items, net		-			-			-			(164,092	)		(112,513	)
Total non-operating expenses (income)		17,391			53,240			11,861			(156,662	)		(61,429	)
Income (loss) before income taxes		50,622			79,012			(7,355	)		147,622			38,730
Income tax expense (benefit)		20,759			32,620			(3,003	)		9,368			10,484
Net income (loss)	$	29,863		$	46,392		$	(4,352	)	$	138,254		$	28,246
Income (loss) per share:
Basic	$	1.47		$	2.29		$	(0.22	)	$	3.60		$	0.74
Diluted	$	1.44		$	2.24		$	(0.22	)	$	3.60		$	0.74

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)

	Successor
	September 30,			December 31,
	2005			2004
Assets	(Unaudited)
Current Assets
Cash and cash equivalents	$	277,791		$	133,917
Restricted funds held in trust		1,067			20,889
Accounts receivable, net of allowance of $4,227
and $11,252, respectively		101,848			141,012
Prepaid maintenance		56,178			71,363
Deferred taxes		11,339			11,339
Prepaid expenses and other current assets		31,416			16,703
Total current assets		479,639			395,223
Other Assets
Property and equipment, net		582,350			609,754
Deposits and other assets		29,495			33,779
Lease contracts and intangible assets, net		52,933			103,440
Total Assets	$	1,144,417		$	1,142,196
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	20,496		$	18,024
Accrued liabilities		169,112			169,024
Current portion of long-term debt and capital leases		48,845			36,084
Total current liabilities		238,453			223,132
Other Liabilities
Long-term debt and capital leases		551,678			602,985
Deferred tax liability		9,554			28,258
Other liabilities		19,423			9,859
Total other liabilities		580,655			641,102
Commitments and contingencies (Note 10)
Stockholders’ Equity
Preferred stock, $1 par value; 10,000,000 shares authorized;
no shares issued		—			—
Common stock, $0.01 par value; 50,000,000 shares authorized;
19,761,080 and 3,607,934 shares issued ,
19,694,511 and 3,607,934 shares outstanding (net of treasury stock)
at September 30, 2005 and December 31, 2004, respectively		198			36
Additional paid-in-capital		251,797			48,337
Common stock to be issued to creditors (Note 3)		13,903			216,069
Treasury stock (Note 12)		(2,260	)		—
Deferred compensation		(7,431	)		(9,190	)
Retained earnings		69,102			22,710
Total stockholders’ equity		325,309			277,962
Total Liabilities and Stockholders’ Equity	$	1,144,417		$	1,142,196

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

	Successor						Predecessor
				For the Period			For the Period
	For the Nine			July 28, 2004			January 1,
	Months Ended			through			2004 through
	September 30,			September 30,			July 27,
	2005			2004			2004
Cash Flow from Operating Activities:
Net income (loss)	$	46,392		$	(4,352	)	$	28,246
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities
Reorganization items, net		-			-			(156,722	)
Depreciation and amortization		37,838			11,214			33,510
Accretion of debt discount		12,729			2,909			-
Amortization of operating lease discount		1,376			306			-
Release of allowance for doubtful accounts		(3,586	)		(1,171	)		(2,329	)
Insurance gain		(7,467	)		-			-
Amortization of debt issuance cost and lease financing deferred gains		253			-			2,862
Recognition of compensation from restricted stock		3,051			665			-
Changes in certain operating assets and liabilities		98,449			(12,628	)		163,850
Net cash provided (used) by operating activities		189,035			(3,057	)		69,417
Cash Flows from Investing Activities:
Capital expenditures		(24,070	)		(4,388	)		(16,441	)
Insurance proceeds		12,550			-			-
Decrease (increase) in restricted funds held in trust		19,822			(87	)		(40,153	)
Net cash provided (used) by investing activities		8,302			(4,475	)		(56,594	)
Cash Flows from Financing Activities:
Proceeds from loan		10,000			-			18,000
Proceeds from sale of subscription shares		-			-			20,153
Proceeds from stock option exercises		164			-			-
Purchase of treasury stock		(2,260	)		-			-
Loan fees		(92	)		(424	)		(2,640	)
Payments on debt		(61,275	)		(4,946	)		(31,404	)
Net cash provided (used) by financing activities		(53,463	)		(5,370	)		4,109
Net increase (decrease) in cash and cash equivalents		143,874			(12,902	)		16,932
Cash and cash equivalents at the beginning of period		133,917			110,229			93,297
Cash and cash equivalents at the end of period	$	277,791		$	97,327		$	110,229
Supplemental disclosure of cash flow information
Cash paid for reorganization items	$	-		$	-		$	44,209
Supplemental disclosure of non cash flow financing and investing
information
Increase in debt and flight equipment	$	-		$	-		$	204,964

See accompanying notes to the unaudited Condensed Consolidated Financial Statements.

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Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements

1. Basis of Presentation

     The accompanying interim Condensed Consolidated Financial Statements (the “Financial Statements”) are unaudited and have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. As permitted by the rules and regulations of the Securities and Exchange Commission (the “SEC”), the Financial Statements exclude certain footnote disclosures normally included in audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In the opinion of management, the Financial Statements contain all adjustments, consisting of normal recurring items, necessary to fairly present the financial position of Atlas Air Worldwide Holdings, Inc. (“Holdings” or “AAWW”) and its consolidated subsidiaries as of September 30, 2005, the results of operations for the three and nine month periods ended September 30, 2005, and for the periods July 28, 2004 through September 30, 2004, July 1, 2004 through July 27, 2004, and January 1, 2004 through July 27, 2004, and cash flows for the nine month period ended September 30, 2005 and for the periods July 28, 2004 through September 30, 2004, and January 1, 2004 through July 27, 2004. The Financial Statements include the accounts of Holdings and its consolidated subsidiaries. All significant inter-company accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the fiscal year ended December 31, 2004 included in the Annual Report on Form 10-K of Holdings that was filed with the SEC on June 30, 2005 (“2004 10-K”). The Company’s (defined below) quarterly results have in the past been subject to seasonal and other fluctuations and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

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

     Holdings is the parent company of two principal operating subsidiaries, Atlas Air, Inc. (“Atlas”) and Polar Air Cargo, Inc. (“Polar”). Holdings, Atlas, Polar and Holdings’ other subsidiaries are referred to collectively as the “Company”. The Company provides air cargo and related services throughout the world, serving Asia, Australia, the Pacific Rim, Europe, South America and the United States through: (i) airport-to-airport scheduled air cargo service (“Scheduled Service”); (ii) contractual lease arrangements in which the Company provides the aircraft, crew, maintenance and insurance (“ACMI”), and (iii) seasonal, commercial, military and ad-hoc charter services (see Note 9). The Company operates only Boeing 747 freighter aircraft.

     The Predecessor (defined below) Financial Statements have been prepared in accordance with the American Institute of Certified Public Accountants (“AICPA”) Statement of Position 90-7, Financial Reporting by Entities in Reorganization under the Bankruptcy Code (“SOP 90-7”). Expenses (including professional fees), realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as “Reorganization Items, net”, for the periods July 1, 2004 through July 27, 2004, and January 1, 2004 through July 27, 2004. Also, interest expense was recorded only to the extent that it was to be paid during the pending Chapter 11 Cases (as defined below) or where it was probable that it would be an allowed claim in the Chapter 11 Cases. Cash used for reorganization items is disclosed separately in the Consolidated Statements of Cash Flows. References to “Predecessor Company” or “Predecessor” refer to the Company through July 27, 2004 (the “Effective Date” as described below). References to “Successor Company” or “Successor” refer to the Company after the Effective Date, after giving effect to the cancellation of the common stock of the Predecessor (“Old Common Stock”) and the issuance of new securities (“Common Stock”) in accordance with the Plan of Reorganization (defined in Note 2) and the application of fresh-start accounting. As a result of the application of fresh-start accounting, the Successor Company’s Financial Statements are not presented on a comparable basis with the Predecessor Company’s Financial Statements.

2. Bankruptcy

     On January 30, 2004 (the “Bankruptcy Petition Date”), Holdings, Atlas, Polar, Airline Acquisition Corp I (“Acquisition”) and Atlas Worldwide Aviation Logistics, Inc. (“Logistics,” and together with Holdings, Atlas, Polar and Acquisition, the “Debtors”), each filed voluntary bankruptcy petitions for relief under chapter 11 (“Chapter 11”) of title 11 of the United States Code, 11 U.S.C. §§ 101 et seq. (the “Bankruptcy Code”), in the United States Bankruptcy Court for the Southern District of Florida (the “Bankruptcy Court”). The Bankruptcy Court jointly administered these cases as “In re Atlas Air Worldwide Holdings, Inc., Atlas Air, Inc., Polar Air Cargo, Inc., Airline Acquisition Corp I, and Atlas Worldwide Aviation Logistics, Inc., Case No. 04-10792” (collectively, the “Chapter 11 Cases” or the “Chapter 11 Proceedings”).

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     Throughout the Chapter 11 Proceedings, the Debtors operated their respective businesses and managed their respective properties and assets as debtors-in-possession (“DIPs”) under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and the orders of the Bankruptcy Court. The Bankruptcy Court entered an order confirming the Final Modified Second Amended Joint Plan of Reorganization of the Debtors dated July 14, 2004 (the “Plan of Reorganization”), and the Debtors emerged from bankruptcy on the Effective Date. The Financial Statements include data for all subsidiaries of Holdings, including those that did not participate in the Chapter 11 Cases.

     While in Chapter 11, the Debtors, as DIPs, were authorized to continue to operate as ongoing businesses, but could not engage in transactions outside the ordinary course of business without the prior approval of the Bankruptcy Court.

     During the course of the Chapter 11 Proceedings, the Debtors generally were not permitted to make payments on debt deemed to be pre-petition debt. However, to the extent that the Debtors had reached agreements with certain lenders and lessors regarding specific aircraft governed by Section 1110 of the Bankruptcy Code with the approval of the Bankruptcy Court, the Debtors continued to make payments on their aircraft leases and debt financings. In addition, the Bankruptcy Court approved the payment of pre-petition obligations to certain foreign and critical vendors. Also during the Chapter 11 Cases, the Debtors rejected or abandoned ten aircraft (tail numbers N507MC, N518MC, N535MC, N24837, N354MC, N922FT, N923FT, N924FT, N858FT and N859FT) that were originally financed under secured notes or leases and that no longer formed part of the Company’s aircraft fleet plan. Subsequently, the Company purchased two of the ten rejected aircraft (tail numbers N858FT and N859FT).

     On February 10, 2004, the United States Trustee for the Southern District of Florida appointed two official committees of unsecured creditors (together, the “Creditors’ Committees”), one each for Atlas and Polar. The Creditors’ Committees and their respective legal representatives had a right to be heard on all matters that came before the Bankruptcy Court concerning the Debtors’ reorganization. Pursuant to a global settlement between the Creditors’ Committees and the Debtors (the “Global Settlement”), all litigation between the Creditors’ Committees was abated pending final documentation of the settlement terms and submission of a revised Disclosure Statement and Plan of Reorganization. By virtue of the Global Settlement, the Creditors’ Committees supported the confirmation of the Plan of Reorganization. On June 8, 2004, the Debtors’ Disclosure Statement was approved by the Bankruptcy Court, thereby allowing the Debtors to solicit votes to accept the Plan of Reorganization.

     As part of the Global Settlement and pursuant to the Plan of Reorganization, the holders of allowed unsecured claims against Polar will receive a 60.0% cash distribution. The cash settlement payments were funded by the Company with cash on hand, including proceeds of approximately $20.2 million derived from a subscription offering of Holdings Common Stock to unsecured creditors of Atlas completed in July 2004. Under the Global Settlement, the percentage of Holdings’ common stock initially anticipated to be allocated to unsecured creditors of Polar (the “Polar Creditors”) were offered for sale and sold to the unsecured creditors of Atlas with the proceeds placed in a trust for the benefit of the Polar Creditors. Unpaid amounts related to the Polar Creditors are shown on the accompanying balance sheet as “restricted funds held in trust” at September 30, 2005 and December 31, 2004. As of December 31, 2005, the Company has distributed approximately $24.5 million in cash payments under the Global Settlement and anticipates an additional distribution of up to $0.1 million. Based on the difference between the available cash balance in the trust and the estimated claims remaining, on July 20, 2005, the trust transferred $15.0 million back to the Company. The holders of allowed general unsecured claims against Holdings, Atlas, Acquisition and Logistics will receive, collectively, 17,202,666 shares of the Common Stock, which, excluding shares acquired pursuant to the subscription offering were valued under the Plan of Reorganization at approximately $216.2 million (at the Plan of Reorganization value of $12.57 per share).

     The actual recovery percentage to be realized by holders of general unsecured claims against Atlas and Holdings under the Plan of Reorganization will depend upon the aggregate amount of general unsecured claims ultimately allowed against Holdings, Atlas, Acquisition and Logistics and the actual market value attributable to the stock received by each creditor (for a more detailed description of claims asserted against the Debtors’ bankruptcy estates, see Note 3 below).

     Pursuant to the Plan of Reorganization, the holders of outstanding equity of Holdings prior to the Effective Date do not receive distributions.

3. Reorganization

     Since the Effective Date, the Company has devoted significant effort to reconcile claims to determine the validity, extent, priority and amount of asserted claims against the Debtors’ bankruptcy estates. To further this process, the Company has filed several objections to general unsecured claims and to cure claims, including the objection to the

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November 12, 2004 claims made by the Internal Revenue Service (the “IRS”), which is described below.

Total Claims

     As of December 31, 2005, the Company had reviewed over 3,050 scheduled and filed claims aggregating approximately $7.6 billion, with a maximum of $740.3 million of claims that could potentially be allowed. Approximately $662.4 million of claims have been allowed as of December 31, 2005, including $13.0 million of cure claims and $1.2 million of other secured and priority claims. Claims of $77.9 million remain unresolved, including $41.1 million of unresolved administrative, priority and general unsecured IRS claims discussed below; however, the amount of unresolved claims continues to be reduced by virtue of the ongoing claims reconciliation process.

Atlas General Unsecured Claims

     Pursuant to the Plan of Reorganization, as of December 31, 2005, the Company has made pro rata distributions of 16,136,716 of the 17,202,666 shares of Common Stock (see Equity Distribution discussion below) allocated to holders of allowed general unsecured claims against Holdings, Atlas, Acquisition and Logistics, based on the allowed claims through October 12, 2005. General unsecured claims of approximately $2.6 billion were filed against these entities. As of December 31, 2005, claims of $606.9 million have been allowed, claims of $40.0 million, including general unsecured IRS claims of $4.0 million, remain disputed and the balance of claims have been withdrawn or disallowed; however, the amount of unresolved claims continues to be reduced by virtue of the ongoing claims reconciliation process.

Polar General Unsecured Claims

     Pursuant to the Plan of Reorganization, the Company will pay cash equal to sixty cents on the dollar for allowed unsecured claims against Polar. General unsecured claims of approximately $408.4 million were filed against Polar. As of December 31, 2005, claims of $41.2 million have been allowed, claims of $0.1 million remain disputed and the balance of claims have been withdrawn or disallowed; however, the amount of unresolved claims continues to be reduced by virtue of the ongoing claims reconciliation process. The Company estimates the additional allowed general unsecured claims against Polar will ultimately be approximately $0.1 million.

Administrative Claims

IRS Claim

     As part of an ongoing audit and in conjunction with the claims process of the Chapter 11 Cases, the IRS has submitted amended proofs of claim with the Bankruptcy Court for alleged income tax, employee withholding tax, Federal Unemployment Tax Act (“FUTA”) and excise tax obligations, including penalties and interest. The IRS currently asserts claims against Atlas and Polar for employee withholding tax, FUTA tax and excise taxes of approximately $0.1 million as administrative claims, $37.0 million as priority unsecured claims and $4.0 million as general unsecured claims. On November 7, 2005, the Company filed its Second Supplement to First Objection to Claims of the IRS. The Company believes that the IRS’ claims are significantly overstated and intends to defend against them vigorously.

Equity Distribution

     On the Effective Date, as a result of the Debtors’ emergence from bankruptcy and in accordance with the Plan of Reorganization, Holdings issued and distributed 740,000 shares of the Common Stock to GE Capital Aviation Services, Inc. (“GECAS”) and 320,000 shares of Common Stock to certain bank lenders under loans made to Atlas Freighter Leasing III, Inc. (“AFL III”) (the “AFL III Credit Facility”) and Atlas (the “Aircraft Credit Facility”). Additionally, pursuant to the terms of the Plan of Reorganization, 1,737,334 shares of Common Stock were offered for subscription and sold to certain Atlas, Holdings, Acquisition and Logistics unsecured creditors. Common Stock will not be distributed to holders of Polar general unsecured claims since each such holder will receive a fixed cash recovery equal to 60.0% of the amount of the individual allowed claim.

     Pursuant to the Plan of Reorganization, 17,202,666 shares of Common Stock are to be distributed to holders of allowed general unsecured claims of Atlas, Holdings, Acquisition and Logistics on a pro rata basis in the same proportion that each holder’s allowed claim bears to the total amount of all allowed claims. The exact number of shares to be received by each claimholder will depend upon the final total of allowed unsecured claims and other factors such as unclaimed distributions and fractional share interests.

     Distributions of shares of Common Stock to holders of various allowed senior note claims (relating to Atlas’ 10.75%

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Notes due 2005, 9.375% Notes due 2006, and 9.25% Notes due 2008) (the “Senior Notes”) have been made to the indenture trustee, who has transmitted the shares to the appropriate claimholders in accordance with the Plan of Reorganization and the Debtors’ respective indentures. Distributions to holders of other allowed general unsecured claims have been made directly to such claimholders in accordance with the Plan of Reorganization. Any such future distributions to such parties will follow the same process in accordance with the Plan of Reorganization.

     In addition, on August 26, 2004, the Bankruptcy Court entered an order approving the issuance of 200,000 shares of Common Stock to DVB Bank AG (“DVB”) as part of a settlement regarding the restructuring of the lease of aircraft tail number N409MC. These shares were not part of the original 20,000,000 shares of Common Stock allocated to holders of allowed general unsecured claims in the Plan of Reorganization.

     Excluding Holdings’ long-term incentive plan, which includes (i) an incentive plan in which management and the members of Holdings’ board of directors (“Board of Directors”) participate and (ii) an employee stock option plan (collectively, the “2004 LTIP”), the allocation of Common Stock under the Plan of Reorganization is illustrated in the table below:

	Equity				Shares to be
	Ownership%		Shares Allocated		Issued to
	under Plan of		under Plan of	Shares Issued at	Creditors at
Party	Reorganization		Reorganization	December 31, 2005	December 31, 2005
ACF/AFL III	1.6	%	320,000	320,000	-
GECAS	3.7	%	740,000	740,000	-
General unsecured claims	86.0	%	17,202,666	16,136,716	1,065,950
Shares sold under subscription	8.7	%	1,737,334	1,737,334	-
Shares issued to DVB	-		-	200,000	-
Total	100	%	20,000,000	19,134,050	1,065,950

     Pursuant to the Plan of Reorganization, an aggregate of 2,772,559 shares of Common Stock have been reserved for equity-based awards. As of December 31, 2005, a total of 1,957,279 shares of Common Stock have been awarded to directors, management and employees under the 2004 LTIP, comprised of 658,600 shares of restricted stock and non-qualified stock options to purchase 1,298,679 shares.

     Remaining share distributions of Common Stock to holders of general unsecured claims will take place on a periodic basis, subject to approval by the Bankruptcy Court.

Reorganization Items, net

     In accordance with SOP 90-7, the Company has segregated and classified certain income and expenses as reorganization items, net. The following reorganization items were incurred:

	For the period			For the period
	January 31, 2004			July 1, 2004
	through			through
	July 27, 2004			July 27, 2004
Legal and professional fees	$	44,209		$	21,636
Rejection of CF6-80 power-by-the-hour engine agreement		(59,552	)		-
Claims related to rejection of owned and capital leased aircraft		84,143			33,589
Claims related to rejection of aircraft leases		42,506			4,402
Other		7,782			7,882
Fresh-start adjustments		173,598			173,598
Gain on cancellation of pre-petition debt		(405,199	)		(405,199	)
Total	$	(112,513	)	$	(164,092	)

     Also in accordance with SOP 90-7, an interest expense of $3.2 million for the period July 1, 2004 through July 27, 2004, and $21.0 million for the period January 31, 2004 through July 27, 2004, has not been recognized because such interest does not constitute an allowed claim and will not otherwise be paid.

7

Fresh-Start

     In conjunction with its emergence from bankruptcy, the Company applied the provisions of fresh-start accounting as of the Effective Date, at which time a new reporting entity was deemed to have been created.

     Significant reorganization adjustments in the balance sheet result primarily from:

(i)	a reduction in flight and ground equipment carrying values;
(ii)	a reduction in inventory carrying values;
(iii)	an adjustment for net present value of future lease payments;
(iv)	an adjustment to record intangibles related to ACMI contracts;
(v)	forgiveness of the Company’s pre-petition debt and the other liabilities; and
(vi)	issuance of Holdings’ Common Stock pursuant to the Plan of Reorganization.

     The fresh-start valuation adjustments were based upon the work of the Company and its financial consultants. These adjustments principally reflect the following increases (decreases):

Current assets	$	(24,696	)
Fixed assets		(267,394	)
Prepaid maintenance		(9,126	)
Lease contracts and intangible assets		78,213
Prepaid aircraft rent		(88,703	)
Deferred credits and other liabilities		113,125
Long-term debt		24,983
	$	(173,598	)

     As a result of these fresh-start valuation adjustments, reported historical Financial Statements of the Company for periods prior to the Effective Date are not comparable with those for periods after the Effective Date.

     The Company valued its aircraft and leases using appraisals which were obtained from independent third parties that referenced market conditions. The Company valued debt at fair market value based on available market quotes and/ or the trading prices of its debt instruments, or if these measurements were not available, then by comparison to traded debt instruments with similar interest rates and collateral.

     The enterprise value of the Company was calculated by valuation consultants retained by the Company using a weighted average of two principal methods: the discounted cash flow growth method and multiples of comparable public companies. The discounted cash flow growth method included a term of four years, a weighted average cost of capital of 16.0% to 17.0%, an average cost of debt of 7.8%, an average cost of leases of 7.7%, a range of growth rates of 2.0% to 4.0% and an assumed tax rate of 37.0% . For the multiples method, the valuation consultants used a multiple of actual and forecasted EBITDA (defined as “earnings before interest, taxes, depreciation and amortization”) for the fiscal years 2003, 2004 and 2005. The range of EBITDA multiples for the comparable companies used in the valuation are 5.8 to 6.8 for 2003, 5.3 to 6.3 for 2004 and 5.0 to 6.0 for 2005.

     Uncertainties and contingencies beyond the Company’s control that could affect the above assumptions include changes in interest rates used for debt and lease calculations, a change in the growth rates based on the cyclical nature of the industry and changes in geopolitical policies. If different assumptions were used, the fair values of the Company’s assets and liabilities could have been materially increased or decreased.

     See Note 3 to the audited consolidated financial statements included in the 2004 Form 10-K for a full description of the Company’s adoption of fresh-start accounting.

4. Summary of Significant Accounting Policies

Use of Estimates

     The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the amounts reported in the Financial Statements and footnotes thereto. Actual results may differ from those estimates. Important estimates include asset lives, valuation allowances (including, but not limited to, those related to receivables, inventory and deferred taxes), income tax accounting, self-insurance employee benefit accruals and contingent liabilities.

8

Assets Held for Sale

     In August 2005, aircraft number N921FT and two related spare engines were listed for sale by the Company and were accounted for as assets held for sale, and depreciation ceased. The aggregate carrying value of the aircraft and spare engines at September 30, 2005 is $5.2 million, which is included within Prepaid expenses and other current assets on the condensed consolidated balance sheet.

Investments

     The Company holds a minority interest (49%) in a private company, which is accounted for under the equity method.

     The September 30, 2005 and December 31, 2004 aggregate carrying value of the investment of $15.2 million and $17.5 million, respectively, is included within deposits and other assets on the condensed consolidated balance sheets.

     These assets principally relate to the private company’s airline operating certificate and finite-lived intangible assets related to existing customer contracts. Fair value of this investment was determined by an independent appraisal as of July 27, 2004 as part of fresh start accounting. The finite lived intangible asset is amortized on a straight-line basis over the three year estimated life of the contracts.

Concentration of Credit Risk and Significant Customers

     United States Military Airlift Mobility Command (“AMC”) charters accounted for 28.5% and 26.9% of the Company’s total revenues for the three and nine month periods ended September 30, 2005, 20.9% for the period July 28 through September 30, 2004, 25.2% for the period July 1, 2004 through July 27, 2004, and 21.2% for the period January 1 through July 27, 2004. Accounts receivable from the United States Military were $7.6 million and $17.3 million at September 30, 2005 and December 31, 2004, respectively.

Debt Issuance Costs

     Costs associated with the issuance of debt are capitalized and amortized over the life of the respective debt obligation, using the effective interest method for amortization. Amortization of debt issuance costs was $0.1 million and $0.3 million for the three and nine month periods ended September 30, 2005, zero for the period July 28, 2004 through September 30, 2004, $0.9 million for the period July 1, 2004 through July 27, 2004, and $5.2 million for the period January 1, 2004 through July 27, 2004. Amortization of debt issuance costs is included as a component of interest expense on the condensed consolidated statements of operations.

Stock-Based Compensation

     Through December 31, 2005, the Company accounted for its stock-based employee compensation plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and its related interpretations (“APB 25”). The Company had adopted the disclosure only provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS No. 123”), as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure (“SFAS No. 148”). Had the Company elected to adopt the fair value recognition provisions of SFAS No. 123 and SFAS No. 148, pro forma net income (loss) and income (loss) per share would have been as follows:

	Successor									Predecessor
							For the Period
	For the Three			For the Nine			July 28, 2004			For the			For the Period
	Months Ended			Months Ended			through			Period July 1,			January 1, 2004
	September 30,			September 30,			September 30,			2004 through			through
	2005			2005			2004			July 27, 2004			July 27, 2004
Net income (loss), as reported	$	29,863		$	46,392		$	(4,352	)	$	138,254		$	28,246
Add: Restricted stock expense, net of tax		577			1,820			369			—			—
Deduct: Total stock-based employee
compensation expense determined
under fair value based method
for all awards, net of tax		(971	)		(2,790	)		(445	)		(1,109	)		(4,618	)
Pro forma net income (loss)	$	29,469		$	45,422		$	(4,428	)	$	137,145		$	23,628
Basic income (loss) per share:
As reported	$	1.47		$	2.29		$	(0.22	)	$	3.60		$	0.74
Pro forma	$	1.45		$	2.24		$	(0.22	)	$	3.57		$	0.62
Diluted income (loss) per share:
As reported	$	1.44		$	2.24		$	(0.22	)	$	3.60		$	0.74
Pro forma	$	1.42		$	2.20		$	(0.22	)	$	3.57		$	0.62

9

     On the Effective Date, the Predecessor Company’s stock-based employee compensation plans were terminated, and all outstanding options and restricted stock awarded thereunder were cancelled.

Reclassifications

     Certain reclassifications have been made in the prior year’s consolidated financial statement amounts and related footnote disclosures to conform to the current year’s presentation.

Recently Issued Accounting Standards

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS 123R”), which replaces SFAS 123 and supersedes APB 25. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based upon their fair values, beginning with the first interim or annual period after June 15, 2005, with early adoption encouraged. On April 14, 2005, the SEC decided to delay the implementation date to the beginning of the first fiscal year beginning after December 15, 2005. The Company has adopted SFAS 123R in the first quarter of 2006 using the modified prospective method, which requires that compensation expense be recorded over the vesting period of all unvested stock options and restricted stock awarded to date and at the beginning of the first quarter following adoption of SFAS 123R for any new grants. SFAS 123R also requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in the periods after adoption.

     The Company has evaluated the impact SFAS 123R will have on its Financial Statements and based on its preliminary analysis expects to incur up to approximately $4.8 million of additional compensation expense over the vesting period of the unvested options as a result of the adoption of this new accounting standard ($2.6 million of which is expected for 2006).

5. Property and Equipment

     Property and equipment consisted of the following:

	Successor
	September 30,			December 31,
	2005			2004
Flight equipment	$	599,255		$	607,184
Ground equipment and buildings		15,461			13,541
Total		614,716			620,725
Less accumulated depreciation		(32,366	)		(10,971	)
Property, plant, and equipment—net	$	582,350		$	609,754

     One of the Company’s Boeing 747-200 aircraft (tail number N808MC) was damaged when it landed during poor winter weather conditions at Duesseldorf airport on January 24, 2005. As a result of this incident, the airframe and two of its engines were damaged beyond economic repair. Atlas negotiated a $12.6 million cash-in-lieu-of-repair settlement with its insurance carriers and received the insurance proceeds on July 22, 2005. On May 31, 2005, Atlas paid $12.25 million to its secured lender in exchange for release of its lien on this aircraft. Since the settlement amount exceeded the net book value of the aircraft, the Company recorded a gain of $7.5 million on July 22, 2005 upon receipt of the insurance proceeds.

6. Debt

     The Company’s debt obligations, including capital leases, were as follows:

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	Successor
	September 30,			December 31,
	2005			2004
Debt Obligations
Aircraft Credit Facility	$	33,692		$	35,024
AFL III Credit Facility		118,622			138,254
2000 Enhanced Equipment Trust Certificates		69,054			71,571
1999 Enhanced Equipment Trust Certificates		131,626			135,018
1998 Enhanced Equipment Trust Certificates		196,076			200,530
Capital leases		31,968			36,717
Other debt		19,485			21,955
Total debt and capital leases		600,523			639,069
Less current portion of debt and capital leases		(48,845	)		(36,084	)
Long-term debt and capital leases	$	551,678		$	602,985

     At September 30, 2005 and December 31, 2004, the Company had $110.7 million and $123.4 million, respectively, of unamortized discount related to the fair market value adjustments recorded against debt as a result of the application of fresh-start accounting.

      In three separate transactions in 1998, 1999 and 2000, the Company issued pass-through certificates, also known as Enhanced Equipment Trust Certificates (“EETCs”), for the purpose of financing the acquisition of 12 Boeing 747-400 aircraft. For further discussion of the EETCs, see the subsection of Note 10 to the Company’s audited consolidated financial statements, entitled, “Overview of EETC Transactions,” included in the Company’s 2004 10-K. In particular, however, the restructuring during the Chapter 11 Proceedings resulted in the Company acquiring four B747-400 aircraft previously held under operating leases.

     See Note 10 to the audited consolidated financial statements included in the 2004 10-K for a description of the Company’s debt obligations and amendments thereto during the bankruptcy proceedings.

Revolving Credit Facility

     On November 30, 2004, Holdings and certain of its subsidiaries entered into the revolving credit facility providing the borrowers with revolving loans of up to $60 million, including up to $10 million of letter of credit accommodations (the “Revolving Credit Facility”). Availability under the Revolving Credit Facility is based on a borrowing base, which is calculated as a percentage of certain eligible accounts receivable. The Revolving Credit Facility has an initial four-year term after which the parties can agree to enter into additional one-year renewal periods.

     The Revolving Credit Facility contains usual and customary covenants for transactions of this kind. At September 30, 2005, the Company had no borrowings outstanding under the Revolving Credit Facility, $19.6 million was available for borrowing thereunder, and letters of credit totaling $0.4 million had been issued.

7. Related Party Transactions

     The Company was party to two separate consulting agreements with Joseph J. Steuert, a former director of the Company. Pursuant to such consultancy agreements, the director agreed to provide the Company with consultancy services in connection with the restructuring of its financial obligations. The Company incurred consulting fees and expenses to this director of $0.8 million during such period. The agreement was rejected in bankruptcy and the Company is no longer subject to the agreement or the agreement’s automatic renewal.

     Another former director of the Company, Stephen A. Greene, is a partner in a law firm, Cahill Gordon & Reindel LLP that acted as outside counsel to the Company. The Company paid legal fees and expenses to this law firm of $0.2 million and $0.8 million for the three and nine month periods ended September 30, 2005, respectively, and $1.5 million for the period July 28, through September 30, 2004, zero for the period July 1, 2004 through July 27, 2004, and $1.9 million for the period January 1 through July 27, 2004, respectively.

     Effective July 27, 2004, the Company elected a new Board of Directors. The new Board includes James S. Gilmore III, a non-employee director of the Company, who is a partner at the law firm of Kelley Drye & Warren LLP, outside counsel to the Company, and Robert F. Agnew, also a non-employee director of the Company, who is an executive officer of Morten Beyer & Agnew, a consulting firm with which the Company transacts business. The Company paid legal fees to the firm of Kelley Drye & Warren LLP of $1.0 million and $3.5 million for the three and nine months ended September 30, 2005 and $1.0 million for the period July 28, through September 30, 2004, $0.7 million for the period July 1, 2004 through July 27, 2004, and $1.2 million for the period January 1 through July 27, 2004, respectively. The Company paid

11

fees and expenses to Morten Beyer & Agnew, of zero and $0.1 million for the three and nine months ended September 30, 2005 and $0.1 million for the period July 28, through September 30, 2004, and zero for the periods July 1, 2004 through July 27, 2004 and January 1 through July 27, 2004, respectively. At September 30, 2005 and December 31, 2004, the Company had a payable balance to Kelley Drye & Warren LLP of $0.9 million and $1.0 million, respectively, which is included in accrued liabilities on the condensed consolidated balance sheet. Neither Mr. Gilmore nor Mr. Agnew serves on the Audit Committee or Compensation Committee of the Board of Directors as of December 31, 2005.

     Atlas dry leases three owned aircraft to a company in which the Company owns a minority investment as of September 30, 2005. The investment is accounted for under the equity method. The leases have terms that mature at various dates through July 2007 and contain options for renewal by the lessee. The leases provide for payment of rent and a provision for maintenance costs associated with the aircraft. Total rental income for the three aircraft was $11.2 million and $33.5 million for the three and nine month periods ended September 30, 2005, $7.7 million for the period July 28, through September 30, 2004, $3.2 million for the period July 1 through July 27, 2004, and $24.8 million for the period January 1 through July 27, 2004, respectively.

8. Income Taxes

     The Company’s effective tax rate for the three and nine months ended September 30, 2005 differs from the U.S. statutory rate due to nondeductible professional fees related to the reorganization and the effect of incremental tax reserves. For the period January 1, 2004 to July 27, 2004, the Company recorded income related primarily to the cancellation of debt in the bankruptcy. No cash tax will be levied against this income; rather, it will reduce either existing net operating loss carryforwards or the tax basis of certain assets. Exclusive of these items, the Company’s effective tax rate for the predecessor period from January 1 through July 27, 2004 differs from the U.S. statutory rate due to losses for which no net tax benefit was provided and the effect of incremental tax reserves.

     During the nine months ended September 30, 2005, the Company recorded a deferred tax provision of approximately $32.6 million, and approximately $32.5 million of the valuation allowance previously recorded against deferred tax assets has been released. Pursuant to SOP 90-7, the reduction in the valuation allowance has been recorded as a reduction in intangible assets. In addition, deferred tax liabilities recorded in relation to such intangibles have been reduced by approximately $18.1 million and have also been recorded as a reduction in intangible assets. Therefore, entries totaling approximately $50.6 million have been recorded against intangible assets for the nine months ended September 30, 2005. As a result of these changes to the Company’s valuation allowance and deferred tax liabilities, the Company has a net deferred tax asset of approximately $1.8 million at September 30, 2005, compared with a net deferred tax liability of approximately $16.9 million at December 31, 2004.

     Due to the emergence from bankruptcy, and pursuant to SOP 90-7, tax contingencies, including valuation allowances on the Company's tax assets, are reversed first to intangible assets and then to additional paid-in-capital.

9. Segment Reporting

     The Company has four reportable segments: Scheduled Service, ACMI, AMC Charter and Commercial Charter. All reportable segments are engaged in the business of transporting air cargo but have different operating and economic characteristics which are separately reviewed by the Company’s management. The Company evaluates performance and allocates resources to its segments based upon pre-tax income (loss), excluding pre-petition and post-emergence costs and related professional fees, unallocated corporate and other and reorganization items (“Fully Allocated Contribution” or “FAC”). Management views FAC as the best measure to analyze profitability and contribution to net income or loss of the Company’s individual segments. Management allocates the cost of operating aircraft among the various segments on an average cost per aircraft type.

     The Scheduled Service segment provides airport-to-airport scheduled airfreight and available on-forwarding services provided primarily to freight forwarding customers. In transporting cargo in this way, the Company carries all of the commercial revenue risk (yields and cargo loads) and bears all of the direct costs of operation, including fuel. Distribution costs include direct sales costs through the Company’s own sales force and through commissions paid to general sales agents. Commission rates typically range between 2.5% and 5% of commissionable revenue sold. Scheduled Service is highly seasonal, with peak demand coinciding with the retail holiday season, which traditionally begins in September and lasts through mid December.

     The ACMI segment provides aircraft, crew, maintenance and insurance services whereby customers receive the use of an aircraft and crew in exchange for, in most cases, a guaranteed monthly level of operation at a predetermined rate for defined

12

periods of time. The customer bears the commercial revenue risk and the obligation for other direct operating costs, including fuel.

     The AMC Charter segment provides full-planeload charter flights to the U.S. Military through the AMC. The AMC Charter business is similar to the Commercial Charter business (described below) in that the Company is responsible for the direct operating costs of the aircraft. However, in the case of AMC operations, the price of fuel used during AMC flights is fixed by the military. The contracted charter rates (per mile) and fuel prices (per gallon) are established and fixed by the AMC for twelve-month periods running from October to September. The Company receives reimbursement from the AMC each month if the price of fuel paid by the Company to vendors for AMC missions exceeds the fixed price; if the price of fuel paid by the Company is less than the fixed price, then the Company pays the difference to the AMC. The AMC buys capacity on a fixed basis annually and on an ad-hoc basis continuously. The Company competes for this business through a teaming arrangement devised for the allocation of AMC flying among competing carriers. At September 30, 2005, there were two groups of carriers (or teams) and several independent carriers that are not part of either team that compete for the business. The Company is a member of a team led by FedEx Corporation (“FedEx”). The Company pays a commission to the FedEx team based upon the revenues the Company receives under such contracts. As of October 1, 2005, several members from the two teams split off to form a third team that is currently participating in the Civil Reserve Air Fleet Program (“CRAF Program”). The addition of the third team did not have a material impact on the allocation of the fixed basis awards the Company received in the October 2005 bid process. The formation of additional competing teaming arrangements, an increase by other air carriers in their commitment of aircraft to the CRAF Program, or the withdrawal of any of the current team members, could adversely affect the amount of AMC business awarded to the Company in the future.

     The Commercial Charter segment provides full-planeload airfreight capacity on one or multiple flights to freight forwarders, airlines and other air cargo customers. Charters typically are contracted in advance of the flight, and as with Scheduled Service, the Company bears the direct operating costs (except as otherwise defined in the charter contracts).

     All other revenue includes dry lease income and other incidental revenue not allocated to any of the four segments described above.

     Effective for 2005, the Company made changes to the way the Company determines FAC. The changes principally relate to the methodology used to allocate aircraft cost and related maintenance to segments. The Company has reclassified certain prior-period amounts to conform to the current period's presentation. The following table sets forth revenues, FAC for the Company’s four reportable business segments reconciled to operating income (loss) and income (loss) before income taxesas required bySFAS No. 131, Disclosure about Segments of an Enterprise and Related Information:

	Successor									Predecessor
							For the Period
	For the Three			For the Nine			July 28, 2004			For the Period			For the Period
	Months Ended			Months Ended			through			July 1, 2004			January 1, 2004
	September 30,			September 30,			September 30,			through			through
	2005			2005			2004			July 27, 2004			July 27, 2004
Revenues:
Scheduled Service	$	138,546		$	400,661		$	117,417		$	43,046		$	343,605
ACMI		115,876			348,037			63,111			26,230			194,332
AMC Charter		115,516			308,789			52,410			25,078			156,260
Commercial Charter		22,823			53,923			9,237			1,961			15,812
All Other		12,138			35,620			8,396			3,290			25,358
Total operating revenues	$	404,899		$	1,147,030		$	250,571		$	99,605		$	735,367
FAC:
Scheduled Service	$	6,913		$	(597	)	$	(9,669	)	$	(9,556	)	$	(60,773	)
ACMI		12,533			16,841			(5,333	)		(3,304	)		(6,191	)
AMC Charter		18,873			46,015			6,872			1,885			13,555
Commercial Charter		2,070			3,355			(190	)		(581	)		(3,531	)
Total FAC		40,389			65,614			(8,320	)		(11,556	)		(56,940	)
Add back (subtract):
Unallocated other		3,270			8,919			1,329			(4,914	)		(7,404	)
Gain on sale of assets		7,467			7,467			-			-			-
Pre-petition and post-
emergence costs and
related professional fees		(504	)		(2,988	)		(364	)		-			(9,439	)
Interest income		(2,015	)		(4,134	)		(297	)		(102	)		(572	)
Interest expense		19,634			55,432			12,273			7,091			50,222
Other, net		(228	)		1,942			(115	)		441			1,434
Operating income (loss)		68,013			132,252			4,506			(9,040	)		(22,699	)
(Add back) subtract:
Interest income		(2,015	)		(4,134	)		(297	)		(102	)		(572	)
Interest expense		19,634			55,432			12,273			7,091			50,222
Other, net		(228	)		1,942			(115	)		441			1,434
Reorganization items, net		-			-			-			(164,092	)		(112,513	)
Income (loss) before income taxes	$	50,622		$	79,012		$	(7,355	)	$	147,622		$	38,730

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10. Commitments and Contingencies

Aircraft Conversions

     On May 12, 2005, the Company entered into a slot conversion agreement with Israel Aircraft Industries Ltd. and PSF Conversions LLP pursuant to which the Company has the option to convert four Boeing 747-400 passenger aircraft to Boeing 747 special freighter (“747SF”) configuration during the period from late-2007 to mid-2009. The agreement also includes an option covering the modification of up to six additional Boeing 747-400 passenger aircraft to 747SF aircraft during the period from 2009 to 2011. The Company has not yet committed to acquire the related aircraft. At September 30, 2005, the Company had a balance of $2.5 million of capitalized option costs, which are included in Property and equipment in the consolidated balance sheets.

Labor

     The Air Line Pilots Association ("ALPA") represents all of the Company's U.S. pilots at both Atlas and Polar. Collectively, these employees represent approximately 49% of the Company's workforce as of September 30, 2005. Polar's collective bargaining agreement with ALPA became amendable in May 2003 and the Atlas collective bargaining agreement became amendable in February 2006.

     Negotiations with ALPA to amend the Polar agreement began in February 2003. Since July 2003, the parties' negotiations were under the direction of the National Mediation Board (the "NMB"). On August 16, 2005, and at the request of ALPA, the parties were released into a thirty-day cooling off period that must occur before either party can implement economic self-help. When no agreement was reached during this cooling off period, ALPA elected to exercise its right to economic self-help and called a strike on September 16, 2005. On October 2, 2005, the parties entered into a tentative agreement to settle the strike, which was ratified and became effective October 5, 2005. This agreement is for a term of eighteen months beginning October 5, 2005. The agreement also provides for a 10.5% base wage increase retroactive to June 1, 2005 and an increase in the Company’s matching component of the Polar crewmember 401k plan to 50% of the crewmembers contribution, with the maximum contribution eligible for Company match capped at 10% of the crewmember's earnings, effective January 1, 2006. In the third quarter, the Company accrued $1.7 million due to the retroactive provisions of this agreement.

     On August 30, 2005, a lawsuit was filed in the United States District Court for the Eastern District of New York by ALPA against Holdings, Atlas and Polar. ALPA alleged that Holdings, Atlas and Polar violated various provisions of the Railway Labor Act. Following the successful negotiation and ratification of the new labor agreement described above, the complaint was withdrawn, and the matter was dismissed.

Legal Proceedings

Department of Justice Investigation and Related Litigation

     The Department of Justice (the “DOJ”) has initiated an investigation into the pricing practices of a number of cargo carriers, including Polar (the “DOJ Investigation”). In connection with the DOJ Investigation, Polar was served with a search warrant at its Long Beach, California office on February 14, 2006, pursuant to which government agents obtained certain files and interviewed a number of office staff members. Polar also received a subpoena for records dated February 14, 2006 requesting discovery of additional relevant documents. The Company is fully cooperating with the DOJ in its investigation. Other than the subpoena, there has been no complaint or demand of the Company by the DOJ in regard to the matters that are the subject of the DOJ Investigation.

     As a result of the DOJ Investigation, AAWW, Polar and a number of other cargo carriers have been named co-defendants in approximately 20 class action suits filed in multiple jurisdictions of the U.S. Federal District Court. The complaints, universally alleged, among other things, that the defendants, including AAWW and Polar, manipulated the market price for

14

air cargo services sold domestically and abroad through the use of surcharges. They seek treble damages and injunctive relief.

     Polar has also received notification from Swiss authorities that they have opened an investigation into the freight pricing practices of several carriers, including Polar, on routes between Switzerland and the United States. While there has been no specific complaint or demand by the Swiss authorities of Polar in respect of the matters that are the subject of the Swiss investigation, based on the notice, Polar anticipates that it may be called upon to provide information to the Swiss authorities at some future time.

Stockholder Derivative Actions

     On October 25, 2002 and November 12, 2002, stockholders of Holdings filed two separate derivative actions on behalf of Holdings against various former officers and former members of the Holdings’ Board of Directors in the Supreme Court of New York, Westchester County. Both derivative actions charged that members of the Board of Directors violated: (1) their fiduciary duties of loyalty and good faith, (2) generally accepted accounting principles and (3) the Company’s Audit Committee Charter by failing to implement and maintain an adequate internal accounting control system. Furthermore, the actions alleged that a certain named former director breached her fiduciary duties of loyalty and good faith by using material non-public information to sell shares of the Company’s Old Common Stock at artificially inflated prices. The complaints sought unspecified compensatory damages and other relief against the individual defendants. On February 3, 2004, Holdings provided notice of its January 30, 2004 bankruptcy filing to the court hearing the consolidated action. Because these derivative actions are property of the Company’s estate at the time of filing bankruptcy, all proceedings were stayed during the bankruptcy case. Under the Plan of Reorganization, Holdings became the holder of these claims and will decide whether to pursue some or all of the derivative claims against former officers and directors.

Securities Class Action Complaints

     Seven putative class action complaints have been filed against Holdings and several of its former officers and former directors in the United States District Court for the Southern District of New York. The seven class actions were filed on behalf of purchasers of the Company’s publicly traded Old Common Stock during the period April 18, 2000 through October 15, 2002. These class actions alleged, among other things, that during the time period asserted, Holdings and the individual defendants knowingly issued materially false and misleading statements to the market in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). The class actions included claims under the Securities Act of 1933 (the “Securities Act”) on behalf of purchasers of Old Common Stock issued by Holdings in a September 2000 secondary public offering pursuant to, or traceable to, a prospectus supplement dated September 14, 2000 and filed with the SEC on September 18, 2000 (the “September Secondary Offering”). The complaints sought unspecified compensatory damages and other relief. On May 19, 2003, these seven class actions were consolidated into one proceeding. A lead plaintiff and a lead counsel were appointed by that court.

     Plaintiffs filed a single consolidated amended class action complaint in August 2003. Before any response thereto was made by any defendant, plaintiffs filed a second consolidated amended class action complaint in October 2003. The second consolidated amended class action complaint in October 2003 supersedes and replaces all prior complaints and alleges: (i) violation of Sections 10(b) and 20(a) of the Exchange Act against Holdings and six of its current or former officers or directors on behalf of all persons who purchased or otherwise acquired the Old Common Stock of Holdings between April 18, 2000 and October 15, 2002, inclusive and (ii) violation of Sections 11 and 15 of the Securities Act against Holdings, four of its former officers or directors and Morgan Stanley Dean Witter on behalf of all persons who purchased or otherwise acquired Atlas Old Common Stock issued in the September Secondary Offering. Each defendant moved to dismiss the second consolidated amended class action complaint on or about December 17, 2003. On February 3, 2004, Holdings notified the court hearing the consolidated action of the Company’s January 30, 2004 bankruptcy filing staying the litigation against Holdings.

     The parties have engaged in several mediation sessions and continue to engage in settlement discussions. Since confirmation of the Plan of Reorganization, the Bankruptcy Court has entered an order subordinating claims arising from these class action proceedings to general unsecured claims. The Plan of Reorganization provides that subordinated claims receive no distribution; therefore the Company has no liability for these claims.

SEC Investigation

     On October 17, 2002, the SEC commenced an investigation arising out of the Company’s October 16, 2002 announcement that it would restate its 2000 and 2001 financial statements. In October 2002, the Board of Directors appointed a special committee which in turn retained the law firm of Skadden, Arps, Slate, Meagher & Flom, LLP for the

15

purpose of performing an internal review concerning the restatement issues and assisting Holdings in its cooperation with the SEC investigation. A Formal Order of Investigation was subsequently issued authorizing the SEC to take evidence in connection with its investigation. The SEC has served several subpoenas on Holdings that require the production of documents and witness testimony, and the Company has been fully cooperating with the SEC throughout the investigation.

     On October 28, 2004, the SEC issued a Wells Notice to Holdings indicating that the SEC staff is considering recommending to the SEC that it bring a civil action against Holdings alleging that it violated certain financial reporting provisions of the federal securities laws from 1999 to 2002. In addition, the SEC has filed one or more proofs of claim in the Chapter 11 Cases. Any financial recovery on these claims will be in the form of stock distributions to unsecured creditors. Holdings is currently engaging in discussions with the SEC regarding the possible resolution of this matter and will continue to cooperate fully with the SEC in respect of its investigation.

Action Against Genesis Insurance Company

     On July 22, 2004, the Company and certain former officers and directors commenced an adversary proceeding in the Bankruptcy Court against Genesis Insurance Company (“Genesis”), which was the Company’s directors’ and officers’ insurance carrier until October 2002. The complaint filed in that action addresses various coverage disputes between Genesis and the plaintiffs with respect to the SEC investigation and the class action stockholder litigation described above. While the case remains pending, the parties continue to have ongoing discussions in an attempt to settle this matter.

Southern Lawsuit

     On August 7, 2001, Atlas sued Southern Air, Inc. (“Southern”) and Hernan Galindo in Miami-Dade County Circuit Court seeking damages in excess of $13.0 million. Atlas’ original complaint alleged, among other things, that the defendants had engaged in unfair competition and conspiracy and committed tortious interference with Atlas’ contracts and/or business relationships with Aerofloral, Inc. Atlas subsequently filed a Second Amended Complaint joining additional defendants James K. Neff, Randall P. Fiorenza, Jay Holdings LLC and EFF Holdings LLC on the same legal theories asserted in the original complaint. On November 15, 2002, Southern filed a bankruptcy petition for relief under Chapter 11 of the Bankruptcy Code. Southern has since emerged from bankruptcy and has reorganized. Pursuant to an order entered in Southern’s bankruptcy case, Atlas may proceed with its claims against Southern as a setoff against any claims asserted by Southern against Atlas.

     The defendants moved to dismiss the Second Amended Complaint filed by Atlas. The Miami-Dade County Circuit Court subsequently denied the defendants’ motions to dismiss, and the defendants answered the Second Amended Complaint by denying any liability to Atlas. Southern also filed a counterclaim against Atlas and a Third Party Complaint against Holdings. The counterclaim and Third Party Complaint alleged, among other things, that Atlas and Holdings were alter egos of each other and committed various torts against Southern, including tortious interference with contract and with advantageous business relationships, unfair competition, conspiracy and other anti-competitive acts in violation of Florida law. The trial court granted Holdings’ motion to dismiss for lack of personal jurisdiction over Holdings and also granted Atlas’ motion to dismiss for failure to state a cause of action, both with leave to amend. Southern filed an Amended Counterclaim and Amended Third Party Complaint, to which both Atlas and Holdings again moved to dismiss. The Miami-Dade County Circuit Court again granted Atlas’ motion to dismiss for failure to state a cause of action and Holdings’ motion to dismiss for lack of personal jurisdiction, each with leave to amend.

     In February 2005, Atlas filed a Third Amended Complaint joining the law firm of Greenberg & Traurig, PA and three of its stockholders (collectively, the “GT Defendants”) as additional defendants. The claims include tortious interference, aiding and abetting tortious interference, conspiracy, fraud and other related claims. The GT Defendants and the other defendants have moved to dismiss Atlas’ Third Amended Complaint. Recently, the Miami-Dade County Circuit Court denied the motions to dismiss filed by the defendants other than the GT Defendants and ordered these defendants to answer the Third Amended Complaint. Such defendants answered and asserted with defenses accordingly. The Company is awaiting the GT Defendants’ answer. Recently, the defendants other than the GT Defendants filed a motion for judgment on the pleadings with respect to the Third Amended Complaint. That motion will be set for hearing in due course.

     Southern also filed a Second Amended Counterclaim and Second Amended Third Party Complaint against Atlas and Holdings, respectively, and other additional parties, Air Global International, LLC (“AGI”) and Frank Visconti, alleging various anti-trust claims asserting monopoly and price fixing. Atlas and Holdings both moved to dismiss for failure to state a cause of action and Holdings moved to dismiss for lack of personal jurisdiction. AGI and Visconti also filed motions to dismiss for failure to state a cause of action. These motions are pending.

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Trademark Matters

     To complement its existing Benelux trademark registration and obtain broader geographic protection, Atlas, in late 2003, filed an application to register its name and logo with the European Union (the “EU”). The application was opposed in early 2005 by Atlas Transport GmbH, a German-based surface transportation company that had an EU trademark registration dating back to 1997. In addition to filing an objection to the Company’s application, Atlas Transport GmbH advised the Company that it might seek a preliminary injunction against the Company’s continued use of the Atlas name in the EU, but it has yet to do so. The Company has filed a protective letter with the German courts, asserting its prior and continuing use of the Atlas name on flights to and from Germany. No injunction has been sought, but Atlas Transport continues to pursue its objection to the Company’s trademark application. On August 22, 2005, Atlas Transport filed a written statement asserting confusion between the “Atlas” mark and its own EU trademark registration. The Company’s position is that if confusion in fact existed, the Atlas Transport registration should be cancelled because the Company had prior rights to the “Atlas” mark under the business designation laws of various EU Member States and its own Benelux registration.

     In December 2005, Atlas filed a motion with the EU Trademark Division seeking cancellation of the Atlas Transport trademark registration on the grounds that Atlas had prior rights. Atlas also sought a stay of proceedings involving the Atlas trademark application pending a ruling on the motion to cancel the Atlas Transport registration. The EU Trademark Division recently granted the Atlas’ motion for a stay.

Bankruptcy Proofs of Claim

     In addition to the proofs of claim filed by the IRS as described below, incident to administering the Company’s bankruptcy estates, the Company is currently reconciling the proofs of claim filed in the bankruptcy. As part of this reconciliation process, the Company has objected to a multitude of claims, which may result in litigation between the Company and the various claimants that will be resolved by the Bankruptcy Court. Except for the IRS claims described below, the Company does not believe that any one of these claims, if resolved against the Company, will have a material adverse effect on the Company’s financial condition and results of operations.

IRS Claim

     As part of an ongoing audit and in conjunction with the claims process of the Chapter 11 Cases, the IRS has submitted amended proofs of claim with the Bankruptcy Court for alleged income tax, employee withholding tax, FUTA and excise tax obligations, including penalties and interest. The IRS currently asserts claims against Atlas and Polar for employee withholding tax, FUTA tax and excise taxes of approximately $0.1 million as administrative claims, $37.0 million as priority unsecured claims and $4.0 million as general unsecured claims. On November 7, 2005, the Company filed its Second Supplement to First Objection to Claims of the IRS. The Company believes that the IRS’ claims are significantly overstated and intends to defend against them vigorously.

Other Matters

     The Company has certain other contingencies resulting from litigation and claims incident to the ordinary course of business. Management believes that the ultimate disposition of these contingencies, with the exception of those noted above, is not expected to materially affect the Company’s financial condition, results of operations and liquidity.

11. Stock-Based Compensation Plans

Successor

     Pursuant to the Plan of Reorganization, the Company made a second award of stock options and restricted stock to its employees in March 2006, in which an additional 407,000 stock options were granted and 18,000 restricted shares of stock were awarded. The first award was made immediately following the Effective Date (see Note 3). In addition, there have been 30,000 shares of restricted stock and 65,000 stock options issued to management during the nine months ended September 30, 2005.

12. Treasury Stock

     During the year ended December 31, 2005, the Company repurchased Common Stock from several members of the Board of Directors and management, representing purchases of 1,375 and 65,194 shares at a price of $29.25 and $34.00 per share, respectively, and held the shares as treasury shares. The proceeds were to be used to pay individual tax liabilities related to restricted shares that had previously vested. The issuance of such shares, along with the repurchase, was pursuant to the 2004 LTIP.

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13. Income (Loss) Per Share and Number of Common Shares Outstanding

     Basic income (loss) per share represents the income (loss) divided by the weighted average number of common shares outstanding during the measurement period. Diluted income (loss) per share represents the income (loss) divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period. Potentially dilutive common securities consist of 0.8 million stock options and 0.5 million shares of restricted stock for the period July 28, 2004 through September 30, 2004, and 1.8 million stock options outstanding for the periods July 1, 2004 through July 27, 2004 and January 1, 2004 through July 27, 2004. The impact of these options and restricted shares would be anti-dilutive in 2004 due to either losses incurred during the period or out-of-the-money options and are not included in the diluted loss per share calculation.

     The calculations of basic and diluted income (loss) per share were as follows:

	Successor								Predecessor
	For the Three				For the Period
	Months		For the Nine		July 28, 2004				For the			For the Period
	Ended		Months Ended		through				Period July 1,			January 1, 2004
	September 30,		September 30,		September 30,				2004 through			through
	2005		2005		2004				July 27, 2004			July 27, 2004
Numerator:
Net income (loss)	$	29,863	$	46,392	$	(4,352	)		$	138,254		$	28,246
Denominator for basic earnings
per share		20,306		20,243		20,207				38,378			38,378
Effect of dilutive securities:
Stock options		273		238		-		(a)		-	(a)		-	(a)
Restricted stock		208		229		-		(a)		-			-
Denominator for diluted earnings
per share		20,787		20,710		20,207				38,378			38,378
Basic income (loss) per share	$	1.47	$	2.29	$	(0.22	)		$	3.60		$	0.74
Diluted income (loss) per share	$	1.44	$	2.24	$	(0.22	)		$	3.60		$	0.74

(a)Antidilutive

14. Subsequent Events.

     On October 31, 2005, the Company amended the Revolving Credit Facility. This amendment removed the liens on aircraft N921FT, several spare engines at both Atlas and Polar and certain spare parts. Such amendment also lowered the Company’s minimum spare parts value requirement from $50 million to $30 million, lowered the credit line from $60 million to $50 million and lowered the borrowing limits on eligible foreign receivables.

     On November 10, 2005, in two separate transactions, the Company sold one of its Boeing 747-100 airframes (tail number N859FT) and one of its 747-200 airframes (tail number N808MC) for parts and salvage at a combined price of $0.3 million. These airframes were not part of the operating fleet on September 30, 2005 (see also Note 5).

     On November 17, 2005, Holdings and Atlas entered into a Third Amendment (the “ACF Amendments”) to the Fifth Amended and Restated Credit Agreement dated as of July 27, 2004 (the “ACF Credit Agreement”) by and among Holdings, Atlas, the lenders party thereto and Deutsche Bank Trust Company Americas, as administrative agent for the lenders party thereto, and the collateral documents in the ACF Credit Agreement. AFL III entered into a Consent and Third Amendment (the “AFL III Amendments”) to the Amended and Restated Credit Agreement dated as of July 27, 2004 (the “AFL III Credit Agreement”) by and among AFL III, the lenders party thereto and Deutsche Bank Trust Company Americas, as administrative agent for the lenders party thereto.

     The ACF Amendments and the AFL III Amendments eased and removed several restrictive covenants, including, but not limited to, the following:

• extension of the required delivery date of the 2005 audited financial statement to June 29, 2006;



• removal of the debt incurrence, contingent obligation, lease incurrence, and capital expenditure covenants;
  
  
• increase in the allowed amount of investments and liens;

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• easing of the restrictions on asset sales and mergers;
  
  
• expansion of the allowed lines of business and business mix to any aviation-related or any cargo-related businesses; and
  
  
• easing of the restrictions on junior payments.

     Certain corresponding provisions in the financing documents related to all twelve of Atlas’ Enhanced Equipment Trust Certificates were concurrently and similarly modified.

     On January 10, 2006, the Company made an additional distribution of shares, consisting of 7,493 shares of Common Stock to certain holders of allowed general unsecured claims against Holdings and certain of its subsidiaries.

     On January 29, 2006, the Company’s chief executive officer announced his retirement effective no later than six months from the date of his retirement agreement. Pursuant to his retirement agreement dated January 29, 2006, the Company will incur additional costs totaling $1.7 million in 2006. In addition to the restricted stock and stock options that were scheduled to vest on July 27, 2006, he will vest in 17,333 stock options which would otherwise not vest until January 23, 2007. All other unvested restricted stock and stock options are forfeited.

     On February 15, 2006, Polar entered in an agreement to sell aircraft tail number N921FT and one spare engine for $8.2 million which was classified as held for sale at December 31, 2005. The transaction closed on April 7, 2006 and the Company expects to record a gain on sale of approximately $2.7 million in the second quarter of 2006.

     On March 23, 2006, the Board established the Nominating and Governance Committee, thereby terminating the standing Nominating Committee of the Board. In conjunction with these matters, the Audit and Governance Committee was renamed the Audit Committee, and all related corporate governance matters are now within the domain of the Nominating and Governance Committee.

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

     The following discussion and analysis should be read in conjunction with our unaudited Financial Statements and notes thereto appearing in this report and our audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2004 included in our 2004 10-K.

     In this report, references to “we,” “our” and “us” are references to AAWW and its subsidiaries, as applicable.

Background and Bankruptcy

     On January 30, 2004, the Debtors each filed voluntary bankruptcy petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Bankruptcy Court jointly administered the Chapter 11 Cases. During the course of the Chapter 11 Proceedings, the Debtors operated their respective businesses and managed their respective properties and assets as DIPs under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code, the Federal Rules of Bankruptcy Procedure and applicable court orders. The Bankruptcy Court entered an order confirming the Plan of Reorganization on July 14, 2004 and the Debtors emerged from bankruptcy on July 27, 2004. The Financial Statements and other financial disclosures in this report include data for all of our subsidiaries, including those that did not file for relief under Chapter 11.

Certain Terms

     The following terms represent industry-related items and statistics specific to the airline and cargo industry sectors. They are used by management for statistical analysis purposes to better evaluate and measure operating levels, results, productivity and efficiency.

Glossary

ATM	Available Ton Miles, which represent the maximum available tons (capacity) per actual miles flown.
	It is calculated by multiplying the available capacity (tonnage) of the aircraft against the miles flown
	by the aircraft.
Block Hours	The time interval between when an aircraft departs the terminal until it arrives at the destination
	terminal.
RATM	Revenue per Available Ton Mile, which represents the average revenue received per available ton
	mile flown. It is calculated by dividing operating revenues by ATMs.
Revenue Per	Calculated by dividing operating revenues by Block Hours.
Block Hour
RTM	Revenue Ton Mile, which is calculated by multiplying actual revenue tons carried against miles
	flown.
Load Factor	The average amount of weight flown per the maximum available capacity. It is calculated by dividing
	RTMs by ATMs.
Yield	The average amount a customer pays to fly one ton of cargo one mile. It is calculated by dividing
	operating revenues by RTMs.
A/B Checks	Low level maintenance checks performed on aircraft at an interval of approximately 400 to 1,100
	flight hours.
C Checks	High level or “heavy” airframe maintenance checks which are more intensive in scope than an A/B
	Check and are generally performed on a 15 to 24 month interval.
D Checks	High level or “heavy” airframe maintenance checks, which are the most extensive in scope and are
	generally performed on an interval of 5 to 10 years or 25,000 to 28,000 flight hours, whichever comes
	first.

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Business Overview

     Our principal business is the airport-to-airport transportation of heavy freight cargo. We have four primary lines of business, each constituting its own reportable segment. These segments are (i) ACMI, (ii) Scheduled Service, (iii) AMC Charters for the U.S. Military and (iv) Commercial Charter. In addition, we occasionally dry lease aircraft to other airlines. We do not consider dry leasing to be a substantial component of our business.

     In our ACMI business, customers receive an aircraft, which is crewed, maintained and insured by us in exchange for an agreed upon level of operation over a defined period of time. We are paid a defined hourly rate for the time the aircraft is operated or a minimum contractual rate when hourly activity falls below minimum guaranteed levels. All other direct operating expenses, such as aviation fuel, landing fees and ground handling costs, are the customer’s responsibility. Our ACMI contracts typically have terms ranging from several months to five years. We measure the performance of our ACMI business in terms of revenue per Block Hour and FAC. FAC is also used to analyze the profitability or contribution to net income or loss of our other business segments.

     Our Scheduled Service business is conducted principally through Polar, although pursuant to an alliance agreement between Atlas and Polar, Atlas may also provide Scheduled Service on behalf of Polar. We operate airport-to-airport specific routes on a specific schedule and customers pay to have their freight carried on that route and schedule. Our Scheduled Service all-cargo network serves four principal economic regions: North America, South America, Asia and Europe. We offer access to Japan through route and operating rights at Tokyo’s Narita Airport, and, as of December 2, 2004, we offer access to the People’s Republic of China through route and operating rights at Shanghai’s Pudong Airport. As of September 30, 2005, our Scheduled Service operation provides 18 daily departures to 16 cities in nine countries across four continents. Our Scheduled Service business is designed to provide:

• prime time arrivals and departures on key days of consolidation for freight forwarders and shippers; and
  
  
• connection or through-service between economic regions to achieve higher overall unit revenues.

     In our Scheduled Service business we bear all the direct costs of operation, including fuel, and we assume the commercial risk of both load and yield. We measure performance of our Scheduled Service business in terms of RATM and FAC.

     Our AMC Charter business continues to be a profitable but unpredictable line of business. AMC Charter revenues are driven by miles flown and the rate per flown mile. The AMC Charter rate is set by the AMC each October, based on an audit of all AMC carriers and an assumed fuel price. The AMC buys capacity on a fixed basis annually and on an ad hoc basis continuously. Block Hours are difficult to predict and are subject to certain minimum levels set by the AMC. We bear the direct operating costs of AMC flights, however, the price of fuel consumed in AMC operations is fixed at the annual agreed upon rate. We receive reimbursement from the AMC each month if the price of fuel we pay to vendors exceeds the fixed price and if the price of fuel we pay is less than the fixed price then we pay the difference to the AMC.

     Our Commercial Charter business provides full-planeload airfreight capacity on one or multiple flights to freight forwarders, airlines and other air cargo customers. The revenue associated with our Commercial Charter business is contracted in advance of the flight, and, as with Scheduled Service, we bear the direct operating costs (except as otherwise agreed in the charter contracts).

     Our AMC and Commercial Charter businesses complement our ACMI and Scheduled Service businesses by:

• increasing aircraft utilization during slow seasons;
  
  
• positioning flights for Scheduled Service operations in directionally weak markets;
  
  
• enabling the performance of extra flights to respond to peak season Scheduled Service demand; and
  
  
• diversifying revenue streams.

     We measure performance of our AMC and Commercial Charter businesses in terms of revenue per Block Hour and FAC.

     The most significant trends that are evident when comparing our operations for the nine months ended September 30, 2005 to 2004 are:

• a reduction in Scheduled Service ATMs and RTMs as aircraft were reallocated to more profitable ACMI and AMC opportunities;

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• improved performance in our ACMI businesses, due primarily to improvements in Revenue per Block Hour, increased Block Hour activity, a reduction in overhead costs per Block Hour and the elimination of non- operating or “parked” aircraft; and
  
  
• an increase in AMC Block Hour activity resulting from the continuing military activity in the Middle East.

     Overall, Block Hours increased 6.7% for the first three quarters of 2005 compared with the same period in 2004. Specifically, Block Hours increased 31.7% for ACMI, decreased 33.4% for Scheduled Service, increased 29.2% for AMC Charters and increased 66.6% for Commercial Charters for the first three quarters of 2005 compared with the same period in 2004.

Business Strategy and Outlook

     Our primary focus is to maintain a safe and efficient operation, sustain profitability and grow stockholder value. We are undertaking a number of strategic measures designed to achieve these objectives. These measures include the following:

• optimizing our Scheduled Service network so that this business segment can sustain profitability. The elimination of certain unprofitable markets and an increased presence in China are two factors that are expected to improve financial results;



• continuing our efforts to reduce our overhead and operating costs and to maximize productivity. Examples of these measures include: (i) reductions in crew travel costs and improvements in crew scheduling and efficiencies, (ii) rationalizing station overhead in connection with our ground operations and (iii) optimizing our maintenance program and our maintenance facilities to lower unit maintenance costs;



• improving the flexibility and efficiency of our operations by overhauling our procedures in several key facets of flight operations, ground operations and maintenance;



• selectively disposing of assets, which may include aging aircraft, and replacing them in the future with newer, more efficient aircraft;



• pursuing growth opportunities, including forming strategic alliances with synergistic carriers and offering customers new services and fleet types; and



• continuing our efforts to maximize our financial flexibility, which may include refinancing certain indebtedness and issuing new debt and/or equity securities.

     While we still face a number of significant challenges, a number of which are beyond our control, we believe that implementing these and other strategic measures will enable us to become the world’s most efficient, capable and diversified operators of long-haul freighter aircraft.

     We announced late last year that, with the assistance of an external consulting firm, we had devised a cost savings and revenue enhancement program that, if successfully implemented, could benefit our operating performance by more than $100 million over the next several years. We expect approximately one quarter to one third of such potential benefits associated with these opportunities to be derived from revenue enhancements. Our focus will include developing a better Scheduled Service revenue and capacity management capability. Costs savings are expected to be generated principally through improved procurement policies and procedures, especially with respect to outsourced maintenance, travel services for our crews, aircraft fuel and ground handling and trucking. Additionally, we are pursuing improved fuel efficiency measures, reducing overhead through process improvement, reducing labor costs through increased crew productivity and increasing maintenance efficiency through reduced downtime and extended maintenance intervals. We currently expect that the benefits of this program which could be realized over the next two years may be substantial.

     Our objectives for 2006 include; 1) transforming our operations into a more efficient and low cost operating platform, 2) continuing our fleet renewal and asset optimization efforts, and, 3) leveraging additional frequencies in China to drive profitability in the Scheduled Service segment.

     Our fleet renewal efforts are currently focused on phasing out the older aircraft in our fleet. The 747-200 ACMI market is generally less profitable and is also experiencing weaker market conditions than our 747-400 ACMI business. We intend to reduce our presence in the 747-200 ACMI market over time, and depending on market conditions, we may accelerate the retirement of older aircraft in 2006. Replacement aircraft will not be incorporated into our fleet until after 2006. Although not necessarily indicative of the balance of fiscal 2006, Block Hours operated in the ACMI segment declined during the first two months of 2006 compared with the same period in 2005, primarily due to declining 747-200 aircraft Block Hours.

     AMC flying is expected to continue to be a significant contributor to our 2006 business activity. Block Hours, however, are not expected to equal the level experienced in 2005.

     We expect improvement in the performance of our Scheduled Service segment in 2006 associated with three additional weekly frequencies awarded to Polar for services between the United States and China (bringing the total frequencies to 12), despite continuing high fuel prices. Aviation fuel is a significant operating cost in our Scheduled Service Business. During 2005, the average price per gallon for aviation fuel was 175 cents, an increase of 40.0% over the average price of 125 cents per gallon during 2004. We expect to recover only as much as 60% of the fuel price increase through a fuel surcharge.

Results of Operations

Three Months Ended September 30, 2005 and 2004

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

     The discussion below provides comparative information on our historical consolidated results of operations. The information provided below with respect to aircraft rent, depreciation and interest expense for periods after July 27, 2004, were materially affected by several factors, which did not affect such items for comparable periods during the first seven

22

months of 2004. In conjunction with our emergence from bankruptcy, we applied the provisions of fresh-start accounting effective as of July 27, 2004, at which time a new reporting entity was deemed to be created.

     Fresh-start accounting requires us to revalue our assets and liabilities to estimated fair values at July 27, 2004 in a manner similar to that of purchase accounting. Significant adjustments included a downward revaluation of our owned aircraft fleet and the recording of additional intangible assets (principally related to Atlas’ ACMI contracts). In addition, fair-value adjustments were recorded in respect to our debt and lease agreements.

     Notwithstanding the lack of comparability, we have prepared the following analysis to facilitate the 2005 and 2004 quarter-on-quarter and year-to-date discussion of operating results. The numbers provided in the successor and predecessor periods have been prepared in accordance with GAAP, however the combined results for the three months ended September 30, 2004 provided below have not been presented in accordance with GAAP and, as noted, results after July 27, 2004 are not on the same basis as results prior to that date (in millions).

	Successor			Successor		Predecessor			Combined
				For the Period
	For the Three			July 28, 2004		For the Period			For the Three
	Months Ended			Through		July 1, 2004			Months Ended
	September 30,			September 30,		Through July 27,			September 30,
	2005			2004		2004			2004
Operating Revenues
Scheduled Service	$	138.6		$	117.4	$	43.0		$	160.4
ACMI		115.9			63.1		26.2			89.3
AMC Charter		115.5			52.4		25.1			77.5
Commercial Charter		22.8			9.2		2.0			11.2
Other revenue		12.1			8.5		3.3			11.8
Total operating revenues		404.9			250.6		99.6			350.2
Operating expenses
Aircraft fuel		105.1			64.0		23.9			87.9
Salaries, wages and benefits		61.7			36.9		18.8			55.7
Maintenance, materials and repairs		49.5			47.9		18.5			66.4
Aircraft rent		37.5			24.8		10.1			34.9
Ground handling and airport fees		16.0			17.2		7.5			24.7
Landing fees and other rent		20.4			14.6		7.4			22.0
Depreciation and amortization		11.8			11.2		3.8			15.0
Insurance gain		(7.5	)		-		-			-
Travel		14.9			10.1		4.8			14.9
Pre-petition costs and post-emergence
Costs and related professional fees		0.5			0.4		-			0.4
Other		27.0			19.0		13.8			32.8
Total operating expenses		336.9			246.1		108.6			354.7
Operating income (loss)	$	68.0		$	4.5	$	(9.0	)	$	(4.5	)

Consolidated Results

     Scheduled Service revenue was $138.6 million for the third quarter of 2005, compared with $160.4 million for the third quarter of 2004, a decrease of $21.8 million, or 13.6%, primarily due to a reduction in capacity, partially offset by higher yields and higher load factors. RTMs in the Scheduled Service segment were 343.6 million on a total capacity of 519.2 million ATMs in the third quarter of 2005, compared with RTMs of 522.2 million on a total capacity of 808.2 million ATMs in the third quarter of 2004. Block Hours were 8,972 in the third quarter of 2005, compared with 13,765 for the third quarter of 2004, a decrease of 4,793, or 34.8% . Load factor was 66.2% with a yield of $0.404 in the third quarter of 2005, compared with a load factor of 64.6% and a yield of $0.307 in the third quarter of 2004. RATM in our Scheduled Service segment was $0.267 in the third quarter of 2005, compared with $0.199 in the third quarter of 2004, representing an increase of 34.2% .

     The significant decrease in Scheduled Service revenue is the result of our reallocation of aircraft to ACMI and AMC flying and the reduction in Scheduled Service business during the Polar strike, which in the aggregate reduced ATMs by approximately 289.1 million. The Polar strike started on September 16, 2005 and was settled on October 5, 2005 following the ratification of a new labor agreement (see Note 10 to our Financial Statements). The revenue impact of the significant reduction in capacity was partially offset by an increase in unit revenue and load factor, which continued to improve due to a

23

number of factors, including the impact of our continued optimization of the scheduled network. While we believe that both the 2005 and 2004 periods were affected by increases in fuel surcharges, we cannot quantify the increases due to system limitations.

     ACMI revenue was $115.9 million for the third quarter of 2005, compared with $89.3 million for the third quarter of 2004, an increase of $26.6 million, or 29.8%, primarily due to higher Block Hours, an increase in the number of ACMI contracts on aircraft, and an increase in our average ACMI rates. ACMI Block Hours were 20,804 for the third quarter of 2005, compared with 17,066 for the third quarter of 2004, an increase of 3,738 Block Hours, or 21.9% . Revenue per Block Hour was $5,570 for the third quarter of 2005, compared with $5,235 for the third quarter of 2004, an increase of $335 per Block Hour, or 6.4% .. Total aircraft under full-time ACMI contracts as of September 30, 2005 were seven 747-200 aircraft and ten 747-400 aircraft, compared with September 30, 2004, when we had ten 747-200 aircraft and six 747-400 aircraft under ACMI contracts.

     AMC Charter revenue was $115.5 million for the third quarter of 2005, compared with $77.5 million for the third quarter of 2004, an increase of $38.0 million, or 49.0%, primarily due to a higher volume of AMC Charter flights and an increase in our AMC Charter rates. AMC Charter Block Hours were 8,194 for the third quarter of 2005, compared with 6,198 for the third quarter of 2004, an increase of 1,996 Block Hours, or 32.2% . Revenue per Block hour was $14,098 for the third quarter of 2005, compared with $12,502 for the third quarter of 2004, an increase of $1,596 per Block Hour, or 12.8 %. The increase in AMC Charter activity was primarily the result of the U.S. Military’s continued involvement with the conflict in the Middle East. The increase in rate was primarily a function of an increase in the fixed rate for AMC fuel, which increased from 101 cents per gallon for the third quarter of 2004 to 140 cents per gallon for the third quarter of 2005.

     Commercial Charter revenue was $22.8 million for the third quarter of 2005, compared with $11.2 million for the third quarter of 2004, an increase of $11.6 million, or 103.6%, primarily as a result of both a higher volume of Commercial Charter flights and higher revenue per Block Hour. Commercial Charter Block Hours were 1,364 for the third quarter of 2005, compared with 891 for the third quarter of 2004, an increase of 473, or 53.1% . Revenue per Block Hour was $16,732 for the third quarter of 2005, compared with $12,568 for the third quarter of 2004, an increase of $4,164 per Block Hour, or 33.1% . The increase in Commercial Charter revenue was primarily due to the increase in charter activity, driven in part by one-way charter flights on the return legs of AMC flights and the increases in rates reflecting higher fuel prices.

     Aircraft fuel expense was $105.1 million for the third quarter of 2005, compared with $87.9 million for the third quarter of 2004, an increase of $ 17.2 million, or 19.6%, as a result of an increase in fuel prices, partially offset by a decrease in Block Hours for Scheduled Service. Average fuel price per gallon was approximately 164 cents for the third quarter of 2005, compared with approximately 121 cents for the third quarter of 2004, an increase of 43 cents, or 35.5 %, partially offset by a 8.5 million gallon, or 11.7%, decrease in fuel consumption to 64.2 million gallons for the third quarter of 2005 from 72.7 million gallons during the third quarter of 2004. The decrease in our overall fuel consumption corresponds to the decrease of 4,793 Scheduled Service Block Hours, partially offset by a 1,996 increase in AMC Block Hours and a 473 increase in Commercial Charter Block Hours.

     Salaries, wages and benefitswere $61.7 million for the third quarter of 2005, compared with $55.7 million for the third quarter of 2004, an increase of $6.0 million, or 10.8% . Crew salaries, wages, and benefits increased $4.3 million year over year due to an increase in Block Hours, contractual pay rate increases and a $1.7 million charge for crew salary for the retroactive items included in the new Polar crew labor agreement ratified on October 5, 2005 (see Note 10 to our Financial Statements).

     Other increases include restricted stock expense, such restricted stock having first been granted late in the third quarter and in the fourth quarter of 2004, as well as profit sharing and incentive compensation expense, which were not accrued in 2004 due to losses incurred.

     Maintenance materials and repairswere $49.5 million for the third quarter of 2005, compared with $66.4 million for the third quarter of 2004, a decrease of $16.9 million, or 25.5% . The decrease in maintenance expense was primarily the result of fewer C Checks, D Checks, and engine overhauls. There were two C Checks on Boeing 747-200 aircraft in the third quarter of 2005, as compared with four C Checks on Boeing 747-200 aircraft during the third quarter of 2004. There was one D Check on Boeing 747-200 aircraft in the third quarter of 2005 compared with two D Checks on Boeing 747-200 aircraft during the third quarter of 2004. There were 13 engine overhauls in the third quarter of 2005 compared with 15 during the third quarter of 2004.

     Ground handling and airport feeswere $16.0 million for the third quarter of 2005, compared with $24.7 million for the third quarter of 2004, a decrease of $8.7 million, or 35.2% . The primary cause of the decrease was the result of reduced Scheduled Service flying which is the primary service which incurs these costs.

24

     Insurance gain of $7.5 million in the third quarter of 2005 relates to the insurance claim on aircraft tail number N808MC. The gain represents the amount by which insurance proceeds exceeded the net book value of the aircraft (see Note 5 to our Financial Statements).

     Travelwas $14.9 million for each of the third quarters of 2005 and 2004.

     Pre-petition and post-emergence costs and related professional fees were $0.5million in the third quarter of 2005. We incurred expenses (primarily professional fees) in the successor period related to the winding down of the bankruptcy proceedings during the period. These expenses are recorded as incurred. Such expenses incurred during the bankruptcy are classified within reorganization items net, and were $21.6million in the third quarter of 2004. Other operating expensewas $27.0 million in the third quarter of 2005, compared with $32.8 million in the third quarter of 2004, a decrease of $5.8 million, or 17.7% . The decrease in other operating expenses was due primarily to fines accrued in 2004 that did not recur in 2005 and a reduction in legal and audit fees, partially offset by the increase in consulting fees related to our initiatives to document and improve internal controls.

     Interest incomewas $2.0 million for the third quarter of 2005, compared with $0.4 million for the third quarter of 2004, an increase of $1.6 million due primarily to an increase in our available cash balances, augmented by a general increase in interest rates.

     Other, netwas income of $0.2 million during the third quarter of 2005, due primarily to unrealized gains on the revaluation of foreign denominated receivables into U.S. dollars at September 30, 2005. The U.S. dollar had weakened against most foreign currencies during the period

     Reorganization items, net were the following for the period July 1, 2004 through July 27, 2004:

Legal and professional fees	$	21,636
Claims related to rejection of owned and leased aircraft		37,991
Other		7,882
Fresh-start adjustments		173,598
Gain on cancellation of pre-petition debt		(405,199	)
Total	$	(164,092	)

     The costs included in reorganization items, net, reflect the cash and non-cash expenses recognized by us in connection with our reorganization and are separately reported as required by SOP 90-7 (see Note 3 to our Financial Statements).

     Income taxes. Our effective tax rate for the quarter ended September 30, 2005 differs from the U.S. statutory rate due to nondeductible professional fees related to the reorganization and the effect of incremental tax reserves. For the period July 1, 2004 to July 27, 2004, we recorded income related primarily to the cancellation of debt in our bankruptcy. No cash tax will be levied against this income; rather, it will reduce either existing net operating loss carryforwards or the tax basis of certain assets. Exclusive of this item. our effective tax rate for the predecessor period from July 1 through July 27, 2004 differs from the U.S. statutory rate due to losses for which no net tax benefit was provided and the effect of incremental tax reserves. The Company’s effective tax rate for the successor period July 28 through September 30, 2004 differs from the U.S statutory rate due to nondeductible professional fees related to the reorganization and the effect of incremental tax reserves.

Segments (Three months ended September 30, 2005 and June 30, 2005)

     As discussed above, the application of fresh-start accounting following our emergence from bankruptcy, which among other things, reduced rent expense, reduced depreciation expense and increased amortization expense due to recognition of additional intangible assets, results in segment operating income and loss for 2005 that is not comparable with prior periods. A comparative discussion of the segments would be misleading or overly confusing based on the changes described above. In lieu of a comparative segment discussion for the 2005 versus the 2004 period, which we have not included, we are presenting a separate segment discussion for the third quarter of 2005 compared with the second quarter of 2005 (see Note 9 to our Financial Statements for the definition of FAC and the reconciliation to operating income (loss)).

Scheduled Service Segment

     FAC relating to the Scheduled Service segment was income of $6.9 million based on revenue of $138.6 million for the three months ended September 30, 2005, compared with a loss of $0.6 million based upon revenue of $141.0 million for the three months ended June 30, 2005. The improvement in FAC was primarily due to a decrease in maintenance expense, higher

25

yields and RATM, partially offset by a reduction in capacity and load factors. RTMs in the Scheduled Service segment were 343.6 million on a total capacity of 519.2 million ATMs in the third quarter of 2005, compared with RTMs of 385.6 million on a total capacity of 580.2 million ATMs in the second quarter of 2005. Block Hours were 8,972 in the third quarter of 2005, compared with 9,935 for the second quarter of 2005, a decrease of 963, or 9.7% . Load factor was 66.2% with a yield of $0.404 in the third quarter of 2005, compared with a load factor of 66.5% and a yield of $0.366 in the second quarter of 2005. RATM in our Scheduled Service segment was $0.267 in the third quarter of 2005, compared with $0.243 in the second quarter of 2005, representing an increase of 9.9% .

     The decrease in Scheduled Service revenue is the result our reallocation of aircraft to AMC and the reduction in Scheduled Service business during the Polar strike, which in the aggregate reduced ATMs by approximately 61.0 million. The Polar strike started on September 16, 2005 and was settled on October 5, 2005 following the ratification of a new labor agreement. The reduction in capacity (ATM’s), however, was partially offset by an increase in unit revenue caused by the seasonal improvements in the Scheduled Service business.

ACMI Segment

     FAC relating to the ACMI segment was income of $12.5 million based on revenue of $115.9 million for the three months ended September 30, 2005, compared with income of $9.1 million based upon revenue of $122.6 million for the three months ended June 30, 2005. The improvement in FAC was primarily due to a decrease in maintenance expense, an increase in our average ACMI contract rates, partially offset by a decrease in Block Hours. ACMI Block Hours were 20,804 for the third quarter of 2005, compared with 22,611 for the second quarter of 2005, a decrease of 1,807 Block Hours, or 8.0% . Revenue per Block Hour was $5,570 for the third quarter of 2005, compared with $5,423 for the second quarter of 2005, an increase of $147 per Block Hour, or 2.7% .

AMC Charter Segment

     FAC relating to the AMC Charter segment was income of $18.9 million based on revenue of $115.5 million for the three months ended September 30, 2005, compared with income of $14.3 million based upon revenue of $104.4 million for the three months ended June 30, 2005. The improvement in FAC was primarily due to a higher volume of AMC Charter flights and an increase in our AMC Charter rates. AMC Charter Block Hours were 8,194 for the third quarter of 2005, compared with 7,507 for the second quarter of 2005, an increase of 687 Block Hours, or 9.2% . Revenue per Block Hour was $14,098 for the third quarter of 2005, compared with $13,901 for the second quarter of 2005, an increase of $197 per Block Hour, or 1.4 %. The increase in AMC Charter activity was primarily the result of the U.S. Military’s continued involvement in the conflict in the Middle East.

Commercial Charter Segment

     FAC relating to the Commercial Charter segment was income of $2.1 million based on revenue of $22.8 million for the three months ended September 30, 2005, compared with income of $2.1 million based upon revenue of $15.6 million for the three months ended June 30, 2005. The slight improvement in FAC was primarily as a result of a higher volume of Commercial Charter flights and higher revenue per Block Hour, substantially offset by higher fuel costs. Commercial Charter Block Hours were 1,364 for the third quarter of 2005, compared with 998 for the second quarter of 2005, an increase of 366, or 36.7% . Revenue per Block Hour was $16,732 for the third quarter of 2005, compared with $15,593 for the second quarter of 2005, an increase of $1,139 per Block Hour, or 7.3% . The increase in Commercial Charter revenue per Block Hour was primarily due to the increase in fuel prices.

Nine Months Ended September 30, 2005 and 2004

     Reference is made to the discussion and tables appearing elsewhere in this report for a description of the lack of comparability between successor and predecessor operating results.

26

	Successor			Successor		Predecessor			Combined
				For the Period
	For the Nine			July 28, 2004		For the Period			For the Nine
	Months Ended			Through		January 1,			Months Ended
	September 30,			September 30,		2004 Through			September 30,
	2005			2004		July 27, 2004			2004
Operating Revenues
Scheduled Service	$	400.7		$	117.4	$	343.6		$	461.0
ACMI		348.0			63.1		194.3			257.4
AMC Charter		308.8			52.4		156.3			208.7
Commercial Charter		53.9			9.2		15.8			25.0
Other revenue		35.6			8.5		25.4			33.9
Total operating revenues		1,147.0			250.6		735.4			986.0
Operating expenses
Aircraft fuel		286.6			64.0		175.1			239.1
Salaries, wages and benefits		175.7			36.9		122.7			159.6
Maintenance, materials and repairs		172.4			47.9		133.3			181.2
Aircraft rent		112.0			24.8		81.9			106.7
Ground handling and airport fees		53.6			17.2		53.6			70.8
Landing fees and other rent		59.4			14.6		53.0			67.6
Depreciation and amortization		37.7			11.2		33.5			44.7
Loss on disposal of equipment		0.2			-		-			-
Insurance gain		(7.5	)		-		-			-
Travel		44.3			10.1		29.5			39.6
Pre-petition costs and post-emergence
costs and related professional fees		3.0			0.4		9.4			9.8
Other		77.4			19.0		66.1			85.1
Total operating expenses		1,014.8			246.1		758.1			1,004.2
Operating income (loss)	$	132.2		$	4.5	$	(22.7	)	$	(18.2	)

Consolidated Results

     Scheduled Service revenue was $400.7 million for the first three quarters of 2005, compared with $461.0 million for the first three quarters of 2004, a decrease of $60.3 million, or 13.1%, primarily due to lower capacity and Block Hours, partially offset by higher yields and higher load factors. RTMs in the Scheduled Service segment were 1,065.9 million on a total capacity of 1,629.1 million ATMs in the first three quarters of 2005 compared with RTMs of 1,541.9 million on a total capacity of 2,469.8 million ATMs in the first three quarters of 2004. Block Hours were 27,989 in the first three quarters of 2005, compared with 42,049 for the first three quarters of 2004, a decrease of 14,060, or 33.4% . Load factor was 65.4% with a yield of $0.376 in the first three quarters of 2005, compared with a load factor of 62.4% and a yield of $0.299 in the first three quarters of 2004. RATM in our Scheduled Service segment was $0.246 in the first three quarters of 2005, compared with $0.187 in the first three quarters of 2004, representing an increase of 31.6 %.

     The significant decrease in Scheduled Service revenue is the result of our reallocation of aircraft to ACMI and AMC and the reduction in Scheduled Service business during the Polar strike, which in the aggregate reduced ATMs by approximately 840.8 million. The revenue impact of the significant reduction in capacity was partially offset by an increase in unit revenue and Load Factor, which continued to improve due to a number of factors including the impact of our continued optimization of the scheduled network. While we believe that both the 2004 and 2005 periods were affected by increases in fuel surcharges, we cannot quantify the increases due to system limitations.

     ACMI revenue was $348.0 million for the first three quarters of 2005, compared with $257.4 million for the first three quarters of 2004, an increase of $90.6 million, or 35.2%, primarily due to higher Block Hours, an increase in the number of ACMI contracts, and an increase in our average ACMI contract rates. ACMI Block Hours were 63,901 for the first three quarters of 2005, compared with 48,520 for the first three quarters of 2004, an increase of 15,381 Block Hours, or 31.7% . Revenue per Block hour was $5,446 for the first three quarters of 2005, compared with $5,306 for the first three quarters of 2004, an increase of $140 per Block hour, or 2.6% . Total aircraft under full-time ACMI contracts as of September 30, 2005 were seven 747-200 aircraft and ten 747-400 aircraft, compared with September 30, 2004, when we had ten 747-200 aircraft and six 747-400 aircraft under ACMI contracts.

     AMC Charter revenue was $308.8 million for the first three quarters of 2005, compared with $208.7 million for the first three quarters of 2004, an increase of $100.1 million, or 48.0%, primarily due to a higher volume of AMC Charter flights and an increase in our AMC Charter rates. AMC Charter Block Hours were 21,932 for the first three quarters of 2005, compared with 16,972 for the first three quarters of 2004, an increase of 4,960 Block Hours, or 29.2% . Revenue per Block Hour was $14,079 for the first three quarters of 2005, compared with $12,295 for the first three quarters of 2004, an increase of $1,784 per Block Hour, or 14.5% . The increase in AMC Charter activity was primarily the result of the U.S. Military’s continued involvement with the conflict in the Middle East. The increase in rate was primarily a function of an increase in the agreed upon rate for AMC fuel, which increased from 101 cents for the first three quarters of 2004 to 140 cents for the first three quarters of 2005.

27

     Commercial Charter revenue was $53.9 million for the first three quarters of 2005, compared with $25.0 million for the first three quarters of 2004, an increase of $28.9 million, or 115.6% . The increase is a result of both a higher volume of Commercial Charter flights and higher revenue per Block Hour. Commercial Charter Block Hours were 3,595 for the first three quarters of 2005, compared with 2,158 for the first three quarters of 2004, an increase of 1,437, or 66.6% . Revenue per Block Hour was $14,999 for the first three quarters of 2005, compared with $11,608 for the first three quarters of 2004, an increase of $3,391 per Block Hour, or 29.2% . The increase in Commercial Charter revenue was primarily due to the increase in charter activity, driven in part by one-way charter flights on the return legs of AMC flights and the increases in rates reflecting higher fuel prices.

     Aircraft fuel expense was $286.6 million for the first three quarters of 2005, compared with $239.1 million for the first three quarters of 2004, an increase of $47.5 million, or 19.9%, as a result of the increase in fuel prices, partially offset by a shift in Block Hours for Scheduled Service to ACMI. Average fuel price per gallon was approximately 158 cents for the first three quarters of 2005, compared with approximately 115 cents for the first three quarters of 2004, an increase of 43 cents, or 37.4%, partially offset by a 25.6 million gallon, or 12.4%, decrease in fuel consumption to 182.0 million gallons for the first three quarters of 2005 from 207.6 million gallons during the first three quarters of 2004. The decrease in our overall fuel consumption corresponds to the decrease of 14,060 Scheduled Service Block Hours, partially offset by a 4,960 increase in AMC Block Hours and a 1,437 increase in Commercial Charter Block Hours.

     Salaries, wages and benefitswere $175.7 million for the first three quarters of 2005, compared with $159.6 million for the first three quarters of 2004, an increase of $16.1 million, or 10.1% . Crew salaries, wages, and benefits increased $3.5 million from last year due to an increase in Block Hours, contractual pay rate increases and a $1.7 million charge for crew salary for the retroactive items included in the new Polar crew labor agreement ratified on October 5, 2005 (see Note 10 to our Financial Statements).

     Other increases of $10.9 million include restricted stock expense, such restricted stock having first been granted late in the third quarter and in the fourth quarter of 2004, as well as profit sharing and incentive compensation expense, which were not accrued in 2004 due to losses incurred.

     Maintenance materials and repairswere $172.4 million for the first three quarters of 2005, compared with $181.2 million for the first three quarters of 2004, a decrease of $8.8 million, or 4.9% . The decrease in maintenance expense was primarily the result of a decrease in expense for D Checks offset by an increase in engine overhaul expense. There were four D Checks on Boeing 747-400 aircraft and two on Boeing 747-200 aircraft in the first three quarters of 2005 compared with five D Checks on Boeing 747-400 aircraft and six D Checks on Boeing 747-200 aircraft during the first three quarters of 2004. There were 48 engine overhauls in the first three quarters of 2005, compared with 38 events in the first three quarters of 2004.

     Ground handling and airport feeswere $53.6 million for the first three quarters of 2005, compared with $70.8 million for the first three quarters of 2004, a decrease of $17.2 million, or 24.3% . The primary cause of the decrease was the reduction in Scheduled Service flying which is the primary segment that incurs these costs.

     Insurance gain of $7.5 million in the first nine months of 2005 relates to the insurance claim on aircraft tail number N808MC. The gain represents the amount by which insurance proceeds exceeded the net book value of the aircraft (see Note 5 to our Financial Statements).

     Travelwas $44.3 million for the first three quarters of 2005, compared with $39.6 million for the first three quarters of 2004, an increase of $4.7 million, or 11.9% . The primary cause was the 6.7% increase in total Block Hours and an eight to ten percent increase in hotel and air fares globally, which results in higher crew travel costs.

     Pre-petition and post-emergence costs and related professional fees were $3.0million in the first three quarters of 2005 compared with $9.8million in the first three quarters of 2004, a decrease of $6.8million, or 69.4% . The primary cause of the decrease was our emergence from bankruptcy on July 27, 2004. We incurred expenses (primarily professional fees) in the successor period related to the winding down of the bankruptcy proceedings. These expenses are recorded as incurred. Such expenses incurred during our bankruptcy are classified as reorganization items net, and were $44.2million in addition to the $9.8million recorded as pre-petition.

     Other operating expenseswere $77.4 million in the first three quarters of 2005, compared with $ 85.1 million in the first three quarters of 2004, a decrease of $7.7 million, or 9.0% . The decrease in other operating expenses was due primarily to fines accrued in 2004 that did not recur in 2005, a reduction in legal and audit fees, outside services, commissions, and bad debt expense, partially offset by an increase in consulting fees related to our initiatives to document and improve internal controls.

28

     Interest incomewas $4.1 million for the first three quarters of 2005, compared with $0.9 million for the first three quarters of 2004, an increase of $3.2 million due primarily to the increase in our available cash balances, augmented by a general increases in interest rates

     Other, netwas a loss of $1.9 million during the first three quarters of 2005, due primarily to unrealized losses on the revaluation of foreign denominated receivables into U.S. dollars at September 30, 2005. The U.S. dollar had strengthened against most foreign currencies during the period.

     Reorganization items, net were the following for the period from January 31, 2004 to July 27, 2004:

Legal and professional fees	$	44,209
Rejection of CF6-80 power-by-the hour engine agreement		(59,552	)
Claims related to rejection of owned and leased aircraft		126,649
Other		7,782
Fresh-start adjustments		173,598
Gain on cancellation of pre-petition debt		(405,199	)
Total	$	(112,513	)

     The costs included in reorganization items, net reflect the cash and non-cash expenses recognized by us in connection with our reorganization and are separately reported as required by SOP 90-7 (see Note 3 to our Financial Statements).

     Income taxes. Our effective tax rate for the nine months ended September 30, 2005 differs from the U.S. statutory rate due to nondeductible professional fees related to the reorganization and the effect of incremental tax reserves. For the period January 1, 2004 to July 27, 2004, we recorded income related primarily to the cancellation of debt in the bankruptcy. No cash tax will be levied against this income; rather it will reduce either existing net operating loss carryforwards or the tax basis of certain assets. Exclusive of this item our effective tax rate for the predecessor period from January 1 through July 27, 2004 differs from the U.S. statutory rate due to losses for which no net tax benefit was provided and the effect of incremental tax reserves. The Company’s effective tax rate for the successor period July 28 through September 30, 2004 differs from the U.S statutory rate due to nondeductible professional fees related to the reorganization and the effect of incremental tax reserves.

Operating Statistics

     The table below sets forth selected operating data for the periods indicated:

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
OPERATING STATISTICS
Block Hours
Scheduled Service		8,972			13,765			27,989			42,049
ACMI		20,804			17,066			63,901			48,520
AMC Charter		8,194			6,198			21,932			16,972
Commercial Charter		1,364			891			3,595			2,158
All other		182			328			649			918
Total block hours		39,516			38,248			118,066			110,617
Revenue Per Block Hour
ACMI	$	5,570		$	5,235		$	5,446		$	5,306
AMC Charter		14,098			12,502			14,079			12,295
Commercial Charter		16,732			12,568			14,999			11,608
Scheduled Service Traffic
RTM’s (000’s)		343,607			522,203			1,065,903			1,541,872
ATM’s (000’s)		519,169			808,220			1,629,053			2,469,819
Load Factor		66.2	%		64.6	%		65.4	%		62.4	%
RATM	$	0.267		$	0.199		$	0.246		$	0.187
Yield	$	0.404		$	0.307		$	0.376		$	0.299
Fuel
Average fuel cost per gallon	$	1.64		$	1.21		$	1.58		$	1.15
Fuel gallons consumed (000’s)		64,178			72,706			181,968			207,612
Operating Fleet: (average during the period)*
Aircraft count		39.0			36.7			39.0			37.4
Dry Leased		3.0			4.0			3.0			4.0
Out of service		-			2.8			0.6			4.3

          * Dry leased and out of service aircraft are not included in the operating fleet aircraft count average.

29

Liquidity and Capital Resources

     At September 30, 2005, we had cash and cash equivalents of $ 277.8 million, compared with $133.9 million at December 31, 2004, an increase of $143.9 million, or 107.5 %. Cash on hand, cash generated from operations and cash available under the Revolving Credit Facility (described below) was sufficient to meet our debt and lease obligations and to finance capital expenditures of approximately $29.0 million for 2005.

     Operating Activities. Net cash provided by operating activities for the first three quarters of 2005 was $189.0 million, compared with net cash provided by operating activities of $66.4 million for the first three quarters of 2004. The increase in cash provided by operating activities is primarily related to improved operating results, a reduction in accounts receivable and the lack of reorganization payments in the first three quarters of 2005.

     Investing Activities. Net cash provided by investing activities was $8.3 million for the first three quarters of 2005, which reflects insurance proceeds of $12.6 million and a decrease in restricted funds held in trust of $19.8 million, offset by capital expenditures of $24.1 million. Net cash used by investing activities was $61.1 million in the first three quarters of 2004, which reflects capital expenditures of $20.8 million and an increase in restricted funds held in trust of $40.3 million.

     Financing Activities. Net cash used by financing activities was $53.5 million for the first three quarters of 2005, which consisted primarily of $61.3 million of payments on long-term debt and capital lease obligations, and $2.3 million of purchases of treasury stock, offset by $10.0 million in loan proceeds from the Revolving Credit Facility that was subsequently repaid. Net cash used by financing activities was $1.3 million for the first three quarters of 2004, which consisted primarily of $36.4 million of payments on long-term debt and capital lease obligations, offset by $18.0 million in loan proceeds from our DIP financing facility and $20.1 million in proceeds from the sale of subscription shares in July 2004 (see Note 2 to our Financial Statements).

Debt Agreements

     On November 17, 2005, Holdings and Atlas entered into the ACF Amendments to the ACF Credit Agreement. AFL III also entered into the AFL III Amendments to the AFL III Credit Agreement at that time.

     The ACF Amendments and the AFL III Amendments eased and removed several restrictive covenants, including, but not limited to, the following:

• extension of the required delivery date of the 2005 audited financial statement to June 29, 2006;
  
  
• removal of the debt incurrence, contingent obligation, lease incurrence, and capital expenditure covenants;
  
  
• increase in the allowed amount of investments and liens;
  
  
• easing of the restrictions on asset sales and mergers;
  
  
• expansion of the allowed lines of business and business mix to any aviation-related or any cargo-related businesses; and
  
  
• easing of the restrictions on junior payments.

     Certain corresponding provisions in the financing documents relating to all twelve of Atlas’ EETCs were concurrently and similarly modified.

     See Note 10 to the audited consolidated financial statements included in the 2004 10-K for a description of the Company’s debt obligations and amendments thereto during the bankruptcy proceedings.

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Revolving Credit Facility

     On November 30, 2004, we entered into a Revolving Credit Facility. This facility currently provides us with revolving loans of up to $60 million, including up to $10 million of letter of credit accommodations. Availability under the Revolving Credit Facility will be based on a borrowing base, which is calculated as a percentage of certain eligible accounts receivable. The Revolving Credit Facility has an initial four-year term after which the parties may agree to enter into additional one-year renewal periods.

     The Revolving Credit Facility contains usual and customary covenants for transactions of this kind. At December 31, 2005, the Company had no borrowings outstanding under the Revolving Credit Facility, $19.6 million was available for borrowing thereunder, and letters of credit totaling $0.4 million had been issued.

     On October 31, 2005, the Company amended the Revolving Credit Facility. This amendment removed the liens on aircraft N921FT, several spare engines at both Atlas and Polar, and certain spare parts. It also lowered the Company’s minimum spare parts value requirement from $50 million to $30 million, lowered the credit line from $60 million to $50 million and lowered the borrowing limits on eligible foreign receivables (see Note 13 to our Financial Statements for a further description of such amendment).

Off-Balance Sheet Arrangements

     There were no material changes in our off balance sheet arrangements during the three months ended September 30, 2005.

Contractual Obligations

     There were no material changes in our non-cancelable contractual cash obligations during the three months ended September 30, 2005.

Critical Accounting Policies

     There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," included in our 2004 10-K.

Recent Accounting Pronouncements

     The information required in response to this Item is set forth in Note 4 to our Financial Statements contained in this report, and such information is incorporated by reference.

Other Matters

     On March 23, 2006, our Board restructured the current Audit and Governance Committee and Nominating Committee, establishing instead a Nominating and Governance Committee of the Board and an Audit Committee of the Board, thereby terminating the standing Nominating Committee. All related corporate governance matters are now within the domain of the Nominating and Governance Committee.

     As reported in a Current Report on Form 8-K filed with the SEC on February 1, 2006, Jeffrey H. Erickson, our President and Chief Executive Officer (“CEO”), announced his retirement from such positions and as an employee, effective no later than six months from January 29, 2006 (the “Retirement Date”). Until the Retirement Date, Mr. Erickson will continue to serve as our President and CEO. Mr. Erickson will resign from the Board as of the Retirement Date, unless at such time there is a vacancy on the Board. Additionally, Mr. Erickson is not foreclosed from being included in the slate of directors presented to the Company’s stockholders at the Company’s next annual meeting.

     As reported in a Current Report on Form 8-K filed with the SEC on October 20, 2005, T. Wakelee Smith, our Senior Vice President and Chief Operating Officer, resigned effective October 31, 2005. Mr. Erickson has assumed Mr. Smith’s responsibilities until a successor is found.

     On September 19, 2005, our Board created a Nominating Committee, which was replaced by the Nominating and Governance Committee on March 23, 2006, as described above. In addition, on September 19, 2005, the Board elected certain individuals to serve as members of the Audit Committee and the Compensation Committee. Duncan Cocroft (Chairman), Eugene I. Davis, Ronald L. Kerber and Herbert J. Lanese were elected as members of the Audit Committee. Keith E. Butler (Chairman), Eugene I. Davis, Ronald L. Kerber and Frederick McCorkle were elected as members of the Compensation Committee.

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Forward Looking Statements

     Our disclosure and analysis in this report, including but not limited to the information discussed in the Outlook section above, contain forward-looking information about our company's financial results and estimates and business prospects that involve substantial risks and uncertainties. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historic or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "will," "target" and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance, sales efforts, expenses, interest rates, foreign exchange rates, the outcome of contingencies such as legal proceedings, and financial results. For a more complete description of the Company’s risks, we refer you to Item 1, “Risk Factors” in our 2004 10-K.

     We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from past results and those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements.

     We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Forms 10-Q, 8-K and 10-K reports to the SEC. Our 2004 10-K listed various important factors that could cause actual results to differ materially from expected and historic results. We note these factors for investors as permitted by the Private Securities Litigation Reform Act of 1995. Readers can find them in Item 1 of that filing under the heading "Risk Factors." We incorporate that section of that Form 10-K in this filing and investors should refer to it. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     There have been no material changes in market risks from the information provided in Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our 2004 10-K, except as follows:

     Aviation fuel. Our results of operations are affected by changes in the price and availability of aviation fuel. Market risk is estimated at a hypothetical 10% increase in the average cost per gallon of fuel for the first three quarters of 2005. Based on actual first three quarters of 2005 fuel consumption for the Scheduled Service and Commercial Charter business segments, such an increase would result in an increase to aviation fuel expense of approximately $18.2 million for the first three quarters of 2005. Fuel prices for AMC are set each September by the military and are fixed for the year and adjusted to actual costs incurred. ACMI does not present an aviation fuel market risk, as the cost of fuel is borne by the customer.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Internal Controls

     Rule 13a-15(b) under the Exchange Act and Item 307 of Regulation S-K require management to evaluate the effectiveness of the design and operation of our disclosure controls and procedures as of the end of each fiscal quarter. Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including our CEO and Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required disclosure. Rule 13a-15(c) and (d) of the Exchange Act and Item 308 of Regulation S-K require management to evaluate the effectiveness of the operation of our internal controls over financial reporting as of the end of each fiscal year and any changes that occurred during each fiscal quarter. Internal controls are procedures which are designed with the objective of providing reasonable assurance that (i) our transactions are properly authorized; (ii) our assets are safeguarded against unauthorized or improper use and (iii) our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”).

     The certifications of the CEO and CFO required pursuant to Rule 13a-14(d)/15d-14(a) under the Exchange Act and 18 U.S.C. Section 1350 (the “Certifications”) are furnished as exhibits to this Report. This section of the Report contains the information concerning the evaluation of our disclosure controls and changes to our internal controls referred to in the Certifications and this information should be read in conjunction with the Certifications for a more complete understanding of the topics presented.

     We have taken a number of steps to ensure that all information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported as specified in the SEC’s rules and forms. In particular, we have formed a Disclosure Committee (the “Disclosure Committee”), which is governed by a written committee charter. Senior management meets on a weekly basis to report, review and discuss material aspects of its business. In addition, the Disclosure Committee, comprised of key management, holds regular quarterly meetings and members of the Disclosure Committee meet in person or act by unanimous written consent electronically (as permitted by the Disclosure Committee charter) upon the occurrence of an event that may require disclosure with the SEC. Additionally, management has implemented a “sub-certification” process to ensure that the persons required to sign the Certifications are provided with timely and accurate information and to provide them with the opportunity to address the quality and accuracy of our operating and financial results. Finally, with respect to internal controls, we have implemented a “Sarbanes-Oxley 404 Project”, which is further described below.

General Limitations on the Effectiveness of Controls

     We are committed to maintaining effective disclosure controls and internal controls. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, any system of controls may become inadequate because of changes in conditions or the degree of compliance with the policies or procedures may deteriorate.

Remediation of Material Weaknesses

     On March 9, 2004, the Public Company Accounting Oversight Board adopted Auditing Standard No. 2, An Audit of Internal Controls Over Financial Reporting Performed in Conjunction with An Audit of Financial Statements (“PCAOB No. 2”), which somewhat modified the definition of material weakness and added the terms “significant deficiency” and “internal control deficiency”. Under PCAOB No. 2, an internal control deficiency (or a combination of internal control

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deficiencies) should be classified as a significant deficiency if, by itself or in combination with other internal control deficiencies, such deficiencies result in more than a remote likelihood that a misstatement of a company’s annual or interim financial statements that is more than inconsequential will not be prevented or detected. A significant deficiency should be classified as a material weakness if, by itself or in combination with other internal control deficiencies, such deficiency results in more than a remote likelihood that a material misstatement in the company’s annual or interim financial statements will not be prevented or detected.

     At the conclusion of the audit of our consolidated financial statements for the year ended December 31, 2004, our independent registered public accounting firm, Ernst & Young LLP (“E&Y”), noted in a letter to management and the Audit Committee of our Board of Directors, a copy of which was presented to our Board of Directors, certain matters involving internal controls that they consider to be “material weaknesses” and “significant deficiencies” as defined above. However, E&Y was not engaged to perform an audit of our internal controls over financial reporting. Accordingly, the firm has not expressed an opinion on the effectiveness of our internal controls over financial reporting.

     Management, with the assistance of a professional services firm, has implemented the Sarbanes-Oxley 404 Project to address, among other things, the matters noted in E&Y’s letter to management, as well as to prepare us for compliance with the requirements of Section 404 of the Sarbanes-Oxley Act. The documentation phase of the Sarbanes-Oxley 404 Project, which was initiated to evaluate the design effectiveness of our internal controls over financial reporting, has identified a number of internal control deficiencies that would likely meet the PCAOB No. 2 definition of a material weakness or significant deficiency. These material weaknesses and significant deficiencies are comprised of items that had been identified by E&Y, as well as several additional matters that were identified separately by management as part of the Sarbanes-Oxley 404 Project.

     Previously, we have identified, among other things, material weaknesses in the processes and procedures associated with our purchasing and payables, billing and receivables, inventory, the financial accounting close process, payroll and human resources and certain weaknesses in the information technology general control environment. Examples of the issues identified include, among many others, inadequate segregation of duties, insufficient staffing in the finance department, failure to reconcile or analyze accounts, lack of effective review of the reconciliations and analysis that are prepared and, in some instances, poor design of controls and poor compliance with existing policies and procedures.

     Management has initiated substantial efforts and has made significant progress to remediate the identified weaknesses and deficiencies and to establish adequate disclosure controls and internal controls over financial reporting. In that regard, the steering committee established by management has been monitoring and driving the progress of the Sarbanes-Oxley 404 Project and its project teams. The committee meets on a regular basis to receive reports and provide feedback and instruction for further progress. Management also provides regular reports to the Audit Committee of our Board of Directors on the Sarbanes-Oxley 404 Project. Management has recently reported back to the Audit Committee that it has substantially completed the redesign, documentation and implementation of new and/or enhanced processes. We believe the redesigned processes contain the appropriate elements of internal control. As we begin to evaluate the operating effectiveness of internal controls in 2006, it is possible that management will identify additional deficiencies that meet the definition of a material weakness or significant deficiency.

Conclusions

     As described above, we are in the process of taking various steps to remediate the items communicated by E&Y and identified by management as part of our Sarbanes-Oxley 404 Project. However, a substantial effort will be required before all such items and matters are fully addressed. Accordingly, we cannot provide any assurance that there will be no material weaknesses when management is to required to report on its assessment of the Company’s Internal Controls over financial reporting, which is expected to occur as of December 31, 2006, or whether there are material weaknesses as of the date hereof.

     Based on our management’s evaluation, for the reasons described above, our CEO and CFO have concluded that as of September30, 2005, our disclosure controls were ineffective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act was properly recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. As a result, additional time was required to complete this report for the period ended September30, 2005, in order to enable our management to rely on mitigating controls and utilize alternate procedures to ensure that information required to be disclosed by us in this report was properly recorded, processed, summarized and reported.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     With respect to the fiscal quarter ended September 30, 2005, the information required in response to this Item is set forth in Note 10 to our Financial Statements contained in this report, and such information is hereby incorporated herein by reference. Such description contains all of the information required with respect hereto.

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

     We made the following repurchases of shares of our Common Stock during the fiscal quarter ended September 30, 2005:

				Maximum Number (or
			Total Number of	Approximate Dollar
			Shares Purchased as	Value) of Shares that
	(a) Total Number		Part of Publicly	May Yet Be Purchased
	of Shares	Average Price Paid	Announced Plans or	Under the Plans or
Period	Purchased	per Share	Programs	Programs
July 1, 2005 through July	56,338	$34.00	—	—
31, 2005
August 1, 2005 through	—	—	—	—
August 31, 2005
September 1, 2005	8,856	$34.00	—	—
through September 30,
2005
Total	65,194	$34.00	—	—

(a)      This column reflects (i) our repurchase of 8,856 shares of Common Stock from several members of our Board of Directors to cover their individual tax liabilities related to restricted shares that had vested in 2005 and (ii) the surrender to us by certain members of management of 56,338 shares of Common Stock to satisfy individual tax liabilities related to restricted shares that had vested in 2005.

     Additionally, not reflected above is our third quarter adjustment of 1,409 shares of Common Stock to certain Board members. In April 2005 we repurchased 2,784 shares of Common Stock from several directors, which repurchase was subsequently reduced in the third quarter to 1,375 repurchased shares, resulting in such 1,409 share adjustment.

     The issuance of our shares of Common Stock to certain of our creditors beginning on July 12, 2005 was exempt from the registration requirements of the Securities Act of 1933 and equivalent provisions of state securities laws, under Section 1145(a) of the Bankruptcy Code. Such Section generally exempts from registration the issuance of securities if the following conditions are satisfied: (i) the securities are issued by a debtor under a plan of reorganization, and (ii) the securities are issued in exchange for a claim against, or interest in, the debtor, or are issued principally in such exchange and partly for cash or property (see also Note 3 to our Financial Statements for a further discussion of such issuance).

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     On September 19, 2005, we held our annual meeting of stockholders in New York, New York. At the meeting, our stockholders elected directors, and the shares present at the meeting were voted for or withheld from each nominee as follows:

Name	Number of Shares Voted For	Number of Shares Withheld
Robert F. Agnew	15,718,200	617,936
Keith E. Butler	16,280,696	55,440
Duncan H. Cocroft	16,280,696	55,440
Eugene I. Davis	16,280,696	55,440

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Jeffrey H. Erickson	16,280,696	55,440
James S. Gilmore	15,713,200	622,936
Ronald L. Kerber	16,280,696	55,440
Herbert J. Lanese	16,280,696	55,440
Frederick McCorkle	16,280,696	55,440

     Atthe meeting, our stockholders also approved the Atlas Air Worldwide Holdings, Inc. 2005 Annual Incentive Plan for Senior Executives (“2005 Plan”). The shares present at the meeting were voted on the proposal as follows; 15,494,050 shares voted for approval, 4,852 shares voted against the proposal, with 836,234 shares abstaining. There were no broker non-votes in respect of this proposal.

     The 2005 Plan includes, among other things, the requirement to pay incentive awards primarily in the form of cash and provisions that protect our ability to take a tax deduction for performance-based awards made under the 2005 Plan, in conformance with Section 162(m) of the Internal Revenue Code of 1986 (the “Code”) and related regulations, in case certain executive officers who are awardees individually have more than $1.0 million of compensation in any one year. Section 162(m) of the Code limits the deductibility of certain compensation in excess of $1.0 million per year paid to “covered employees,” defined as our CEO and our other four most highly-compensated executive officers. The 2005 Plan addresses the limitation on deductibility by providing for compensation that qualifies as “performance-based compensation,” which is not subject to the limitation.

     The following paragraphs provide a summary of the principal features of the 2005 Plan. This summary is subject to, and qualified in its entirety by, the provisions of the 2005 Plan, which was filed as Exhibit 10.27.4 to our 2004 Form 10-K, Amendment No. 1.

     The 2005 Plan is administered by the Compensation Committee of our Board of Directors. The Plan’s participants include our CEO, President, Executive Vice Presidents and Senior Vice Presidents (5 persons at the time of stockholder approval of the 2005 Plan). All eligible employees will be eligible to participate in the 2005 Plan if they are employed as eligible employees as of the first day of the 2005 Plan year, which is the calendar year. An individual who becomes an eligible employee during the 2005 Plan year will participate immediately, but only with respect to base salary earned on and after the date he or she first becomes an eligible employee, except as determined by the Compensation Committee in its sole discretion to allow exceptions (e.g., the consideration of base salary on an annualized basis).

     Each participant in the 2005 Plan is entitled to receive a cash payment based upon our achievement of a 2005 financial goal and the participant’s individual performance, which will be measured against five or more objectives approved by the Compensation Committee and communicated to the participant. Our 2005 financial goal is based upon our 2005 pre-tax profits. Each participant has a target bonus amount equal to fifty percent (50%) of base salary, and the potential bonus payout ranges from one hundred percent (100%) to two hundred percent (200%) of the target amount; however, no bonus awards will be paid unless we achieve a minimum pre-tax profit amount. If the financial goal is satisfied and such satisfaction is certified by the Compensation Committee, a participant is automatically entitled to one-half of his or her bonus, with payment of the remaining half dependent upon the participant’s individual performance.

     All amounts payable for an award will be paid in cash or our stock, as determined by the Compensation Committee, but our stock may be used, if at all, only for the portion of an award that exceeds fifty percent (50%) of a participant’s base salary. If the Board of Directors determines in good faith that exigent circumstances exist which could have a material adverse impact on us if awards are paid, the Board of Directors will have the authority, in its absolute and sole discretion, to determine that (i) no awards will be paid under the 2005 Plan; (ii) awards will be reduced, (iii) payment of awards will be deferred for possible payment at a future date, or (iv) other adjustments will be made to the awards otherwise payable.

ITEM 5. OTHER INFORMATION

     With respect to the fiscal quarter ended September 30, 2005, the information required in response to this Item is set forth in Item 4 above (with respect to the 2005 Plan), and such information is hereby incorporated herein by reference. Such description contains all of the information required with respect hereto.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     a. Exhibits

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

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SIGNATURES

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

		Atlas Air Worldwide Holdings, Inc.
Dated: April 12, 2006	By:	/s/ Jeffrey H. Erickson
		Jeffrey H. Erickson
		President and Chief Executive Officer
Dated: April 12, 2006	By:	/s/ Michael L. Barna
		Michael L. Barna
		Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit Number	Description
31.1	Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
31.2	Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
32.1	Section 1350 Certifications, furnished herewith.

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EX-31.1

Exhibit 31.1

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

I, Jeffrey H. Erickson,President and Chief Executive Officer of Atlas Air Worldwide Holdings, Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.;
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.	Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
	b)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation;
	c)           Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 12, 2006	By:	/s/ Jeffrey H. Erickson
		Jeffrey H. Erickson
		President and Chief Executive Officer

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EX-31.2

Exhibit 31.2

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

     I,Michael L. Barna,Senior Vice President and Chief Financial Officer of Atlas Air Worldwide Holdings, Inc., certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Atlas Air Worldwide Holdings, Inc.;
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.	Based on my knowledge, the Financial Statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
	a)           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
	b)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation;
	c)           Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: April 12, 2006	By:	/s/ Michael L. Barna
		Michael L. Barna
		Senior Vice President and Chief
		Financial Officer

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EX-32.1

EXHIBIT 32.1

Section 1350 Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

     In connection with the Quarterly Report of Atlas Air Worldwide Holdings, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2005 as filed with the Securities and Exchange Commission (the “Report”), we, Jeffrey H. Erickson and Michael L. Barna, Chief Executive Officer and Chief Financial Officer, respectively, of the Company certify that to our knowledge:

     1. the Report complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange of 1934, as amended; and

     2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: April 12, 2006	/s/ Jeffrey H. Erickson
	Jeffrey H. Erickson
	President and Chief Executive Officer
	/s/ Michael L. Barna
	Michael L. Barna
	Senior Vice President and Chief Financial Officer

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