10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

________________________________________________________________

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2014

Commission file number 000-50368

________________________________________________________________

(Exact name of registrant as specified in its charter)

________________________________________________________________

Delaware	26-1631624
(State of Incorporation)	(I.R.S. Employer Identification No.)

145 Hunter Drive, Wilmington, OH 45177

(Address of principal executive offices)

937-382-5591

(Registrant’s telephone number, including area code)

________________________________________________________________

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 x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulations S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO  x

As of May 12, 2014, 64,947,495 shares of the registrant’s common stock, par value $0.01, were outstanding.

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Unaudited Condensed Consolidated Statements of Earnings	4
	Unaudited Condensed Consolidated Statements of Comprehensive Income	5
	Unaudited Condensed Consolidated Balance Sheets	6
	Unaudited Condensed Consolidated Statements of Cash Flow	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	30
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	31
Item 5.	Other	31
Item 6.	Exhibits	32
SIGNATURES		33

FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION

The financial information, including the financial statements, included on this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission on March 10, 2014.

The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements and other information regarding Air Transport Services Group, Inc. at www.sec.gov. Additionally, our filings with the Securities and Exchange Commission, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports, are available free of charge from our website at www.atsginc.com as soon as reasonably practicable after filing with the SEC.

FORWARD LOOKING STATEMENTS

Statements contained in this Quarterly Report on Form 10-Q that are not historical facts are considered forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995). Words such as “projects,” “believes,” “anticipates,” “will,” “estimates,” “plans,” “expects,” “intends” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are based on expectations, estimates and projections as of the date of this filing, and involve risks and uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in the forward-looking statements for any number of reasons, including those described in this report and in our 2013 Annual Report filed on Form 10-K with the Securities and Exchange Commission.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

	Three Months Ended
	March 31
	2014			2013
REVENUES	$	143,593		$	143,279
OPERATING EXPENSES
Salaries, wages and benefits	43,065			43,309
Maintenance, materials and repairs	24,879			22,134
Depreciation and amortization	24,979			20,920
Fuel	12,260			14,361
Rent	7,310			6,779
Travel	4,573			4,727
Landing and ramp	2,738			4,065
Insurance	1,205			1,511
Other operating expenses	8,748			9,060
	129,757			126,866
OPERATING INCOME	13,836			16,413
OTHER INCOME (EXPENSE)
Interest income	19			21
Interest expense	(3,823		)	(3,132		)
Net gain on derivative instruments	299			290
	(3,505		)	(2,821		)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	10,331			13,592
INCOME TAX EXPENSE	(3,809		)	(5,091		)
EARNINGS FROM CONTINUING OPERATIONS	6,522			8,501
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	211			(1		)
NET EARNINGS	$	6,733		$	8,500
BASIC EARNINGS PER SHARE
Continuing operations	$	0.10		$	0.13
Discontinued operations	—			—
TOTAL BASIC EARNINGS PER SHARE	$	0.10		$	0.13
DILUTED EARNINGS PER SHARE
Continuing operations	$	0.10		$	0.13
Discontinued operations	—			—
TOTAL DILUTED EARNINGS PER SHARE	$	0.10		$	0.13
WEIGHTED AVERAGE SHARES
Basic	64,148			63,810
Diluted	65,141			64,524

See notes to condensed consolidated financial statements.

4

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

	Three Months Ended
	March 31
	2014			2013
NET EARNINGS	$	6,733		$	8,500
OTHER COMPREHENSIVE INCOME (LOSS):
Defined Benefit Pension	(1		)	1,958
Defined Benefit Post-Retirement	(504		)	(834		)
Gains and Losses on Derivatives	(7		)	(8		)
TOTAL COMPREHENSIVE INCOME, net of tax	$	6,221		$	9,616

See notes to condensed consolidated financial statements.

5

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	March 31,			December 31,
	2014			2013
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	27,102		$	31,699
Accounts receivable, net of allowance of $698 in 2014 and $717 in 2013	50,827			52,247
Inventory	10,608			9,050
Prepaid supplies and other	12,754			9,730
Deferred income taxes	13,957			13,957
Aircraft and engines held for sale	2,487			2,995
TOTAL CURRENT ASSETS	117,735			119,678
Property and equipment, net	817,441			838,172
Other assets	36,761			21,143
Pension assets, net of obligations	16,887			14,855
Intangibles	4,826			4,896
Goodwill	34,395			34,395
TOTAL ASSETS	$	1,028,045		$	1,033,139
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	30,361		$	34,818
Accrued salaries, wages and benefits	23,400			23,163
Accrued expenses	9,497			9,695
Current portion of debt obligations	23,873			23,721
Unearned revenue	8,887			8,733
TOTAL CURRENT LIABILITIES	96,018			100,130
Long term debt	350,718			360,794
Post-retirement obligations	30,207			30,638
Other liabilities	62,243			62,740
Deferred income taxes	113,273			109,869
TOTAL LIABILITIES	652,459			664,171
Commitments and contingencies (Note G)
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock	—			—
Common stock, par value $0.01 per share; 75,000,000 shares authorized; 64,850,537 and 64,618,305 shares issued and outstanding in 2014 and 2013, respectively	649			646
Additional paid-in capital	525,347			524,953
Accumulated deficit	(120,080		)	(126,813		)
Accumulated other comprehensive loss	(30,330		)	(29,818		)
TOTAL STOCKHOLDERS’ EQUITY	375,586			368,968
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	1,028,045		$	1,033,139

See notes to condensed consolidated financial statements.

6

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Three Months Ended
	March 31
	2014			2013
OPERATING ACTIVITIES:
Net earnings from continuing operations	$	6,522		$	8,501
Net loss from discontinued operations	211			(1		)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	24,979			20,920
Pension and post-retirement	(793		)	1,765
Deferred income taxes	3,696			5,005
Amortization of stock-based compensation	570			626
Amortization of DHL promissory note	(1,550		)	(1,550		)
Net gain on derivative instruments	(299		)	(290		)
Changes in assets and liabilities:
Accounts receivable	1,650			4,720
Inventory and prepaid supplies	(5,045		)	1,263
Accounts payable	(3,627		)	(1,866		)
Unearned revenue	(1,371		)	(1,261		)
Accrued expenses, salaries, wages, benefits and other liabilities	209			(494		)
Pension and post-retirement assets	(2,463		)	(5,610		)
Other	(887		)	(1,078		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	21,802			30,650
INVESTING ACTIVITIES:
Capital expenditures	(4,362		)	(59,369		)
Proceeds from property and equipment	190			158
Investment in nonconsolidated affiliate	(15,000		)	—
NET CASH (USED IN) INVESTING ACTIVITIES	(19,172		)	(59,211		)
FINANCING ACTIVITIES:
Principal payments on long term obligations	(23,374		)	(12,858		)
Proceeds from borrowings	15,000			60,000
Reimbursement of hanger construction costs	1,147			1,119
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(7,227		)	48,261
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(4,597		)	19,700
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	31,699			15,442
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	27,102		$	35,142
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized	$	3,616		$	2,739
Federal alternative minimum and state income taxes paid	$	55		$	100
SUPPLEMENTAL NON-CASH INFORMATION:
Debt extinguished	$	1,550		$	1,550
Accrued capital expenditures	$	225		$	5,867

See notes to condensed consolidated financial statements.

7

AIR TRANSPORT SERVICES GROUP, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Nature of Operations

Air Transport Services Group, Inc. is a holding company whose principal subsidiaries include an aircraft leasing company and two independently certificated airlines. The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the cargo transportation and package delivery industries. Through the Company's subsidiaries, it offers a range of complementary services to delivery companies, freight forwarders, airlines and government customers.

The airlines, ABX Air, Inc. (“ABX”) and Air Transport International, Inc. (“ATI”), each have the authority, through their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates, to transport cargo worldwide. The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees.

The Company provides aircraft and airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI") services. The Company serves a base of concentrated customers who have a diverse line of international cargo traffic. DHL Network Operations (USA), Inc. and its affiliates, “DHL,” is the Company's largest customer. ATI provides passenger transportation, primarily to the U.S. Military, using "combi" aircraft, which are certified to carry passengers as well as cargo on the main deck.

In addition to its airline operations and aircraft leasing services, the Company sells aircraft parts, provides aircraft and equipment maintenance services, and operates mail sorting facilities for the U.S. Postal Service (“USPS”).

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions have been eliminated. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Estimates and assumptions are used to record allowances for uncollectible amounts, self-insurance reserves, spare parts inventory, depreciation and impairments of property, equipment, goodwill and intangibles, post-retirement obligations, income taxes, contingencies and litigation. Changes in estimates and assumptions may have a material impact on the consolidated financial statements.

Investment in Nonconsolidated Affiliate

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of approximately 40 aircraft and is Europe’s largest regional cargo aircraft operator. West operates its aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 737 aircraft. In addition, Atlantic Airlines Ltd. is currently adding the Boeing 767 aircraft to its operating capability.

The Company does not exercise control over West. Accordingly, the investment in West is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the West’s income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. The Company’s carrying value of West is reflected in “Other Assets” in the Company’s consolidated balance sheets.

8

Cash and Cash Equivalents

The Company classifies short-term, highly liquid investments with maturities of three months or less at the time of purchase as cash and cash equivalents. These investments, consisting of money market funds, are recorded at cost, which approximates fair value. Substantially all deposits of the Company’s cash are held in accounts that exceed federally insured limits. The Company deposits cash in common financial institutions which management believes are financially sound.

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note B), other airlines, the USPS and freight forwarders. The Company performs a quarterly evaluation of the accounts receivable and the allowance for uncollectible accounts by reviewing specific customers' recent payment history, growth prospects, financial condition and other factors that may impact a customer's ability to pay. The Company establishes an allowance for uncollectible accounts for probable losses due to a customer's potential inability or unwillingness to make contractual payments. Account balances are written off against the allowance when the Company ceases collection efforts.

Inventory

The Company’s inventory is comprised primarily of expendable aircraft parts and supplies used for aircraft maintenance. Inventory is generally charged to expense when issued for use on a Company aircraft. The Company values its inventory of aircraft parts and supplies at weighted-average cost and maintains a related obsolescence reserve. The Company records an obsolescence reserve on a base stock of inventory for each fleet type. The amortization of base stock for the obsolescence reserve corresponds to the expected life of each fleet type. Additionally, the Company monitors the usage rates of inventory parts and segregates parts that are technologically outdated or no longer used in its fleet types. Slow moving and segregated items are actively marketed and written down to their estimated net realizable values based on market conditions.

Management analyzes the inventory reserve for reasonableness at the end of each quarter. That analysis includes consideration of the expected fleet life, amounts expected to be on hand at the end of a fleet life, and recent events and conditions that may impact the usability or value of inventory. Events or conditions that may impact the expected life, usability or net realizable value of inventory include additional aircraft maintenance directives from the FAA, changes in DOT regulations, new environmental laws and technological advances.

Goodwill and Intangible Assets

The Company assesses, during the fourth quarter of each year, the carrying value of goodwill. Finite-lived intangible assets are amortized over their estimated useful economic lives. The Company also conducts impairment assessments of goodwill, indefinite-lived intangible assets and finite-lived intangible assets whenever events or changes in circumstance indicate an impairment may have occurred.

Property and Equipment

Property and equipment held for use is stated at cost, net of any impairment recorded. The cost and accumulated depreciation of disposed property and equipment are removed from the accounts with any related gain or loss reflected in earnings from operations.

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s useful life or lease term. Depreciable lives are summarized as follows:

Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

The Company periodically evaluates the useful lives, salvage values and fair values of property and equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result from changes in

9

the estimated useful lives of assets due to a number of reasons, such as excess aircraft capacity or changes in regulations governing the use of aircraft.

Aircraft and other long-lived assets are tested for impairment when circumstances indicate the carrying value of the assets may not be recoverable. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable. For assets held for sale, impairment is recognized when the fair value less the cost to sell the asset is less than the carrying value.

The Company’s accounting policy for major airframe and engine maintenance varies by subsidiary and aircraft type. The costs for ABX's Boeing 767-200 airframe maintenance, which is the majority of the Company's aircraft fleet, are expensed as they are incurred. The costs of major airframe maintenance for the Company's other aircraft are capitalized and amortized over the useful life of the overhaul. The Company's General Electric CF6 engines that power the Boeing 767-200 aircraft are maintained under “power by the hour” agreements with an engine maintenance provider. Under the power by the hour agreements, the engines are maintained by the service provider for a fixed fee per flight hour; accordingly, the cost of engine maintenance is generally expensed as flight hours occur. Maintenance for the airlines’ other aircraft engines, including those on the Boeing 767-300 and Boeing 757 aircraft, are typically contracted to service providers on a time and material basis and the costs of those engine overhauls are capitalized and amortized over the useful life of the overhaul.

Under certain leases, the Company is required to make periodic payments to the lessor for future maintenance events such as engine overhauls and major airframe maintenance. These payments are recorded as deposits until drawn for qualifying maintenance costs. The maintenance costs are expensed or capitalized in accordance with the airline's accounting policy for major airframe and engine maintenance. The Company evaluates at the balance sheet date, whether it is probable that an amount on deposit will be returned by the lessor to reimburse the costs of the maintenance activities. When an amount on deposit is less than probable of being returned, it is recognized as additional maintenance expense. 

Capitalized Interest

Interest costs incurred while aircraft are being modified are capitalized as an additional cost of the aircraft until the date the asset is placed in service. Capitalized interest was $0.1 million and $0.7 million for the three month periods ending March 31, 2014 and 2013, respectively.

Self-Insurance

The Company is self-insured for certain workers’ compensation, employee healthcare, automobile, aircraft, and general liability claims. The Company maintains excess claim coverage with common insurance carriers to mitigate its exposure to large claim losses. The Company records a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Other liabilities included $27.9 million and $28.3 million at March 31, 2014 and December 31, 2013, respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims being materially different than the costs accrued.

Pension and Post-Retirement Benefits

The costs of benefits provided by defined benefits pension and post-retirement health care plans are recorded in the period the employees provide service. Costs adjustments for plan amendments are amortized over the expected working life or the life expectancy of plan participants. The funded status of the Company's plans is measured as the difference between the fair value of plan assets and the accumulated benefit obligations to plan participants. The overfunded or underfunded status of a plan is recorded as an asset or liability. The funded status is ordinarily measured annually at year end.

10

Income Taxes

Income taxes have been computed using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

The Company recognizes the benefit of a tax position taken on a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. An uncertain income tax benefit is not recognized if it has a less than a 50% likelihood of being sustained. The Company recognizes interest and penalties accrued related to uncertain tax positions in operating expense.

Comprehensive Income

Comprehensive income includes net earnings and other comprehensive income or loss. Other comprehensive income or loss results from certain changes in the Company’s liabilities for pension and other post-retirement benefits and gains and losses associated with interest rate hedging instruments.

Fair Value Information

Assets or liabilities that are required to be measured at fair value are reported using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820-10 Fair Value Measurements and Disclosures establishes three levels of input that may be used to measure fair value:

• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation.

Revenue Recognition

Revenues generated from airline service agreements are typically recognized based on hours flown or the amount of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Revenues from the sale of aircraft parts and engines are recognized when the parts are delivered. Revenues earned and expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period in which the services are completed and delivered to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which the services are performed.

11

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The objective of the update is to change the requirements for reporting discontinued operations in Subtopic 205-20. It is effective in the first quarter of 2015, and the impact to the consolidated financial statements is not expected to be material.

NOTE B—SIGNIFICANT CUSTOMERS

DHL

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"). The Company has had long term contracts with DHL since August 2003. Revenues from continuing operations performed for DHL were approximately 56% and 53% of the Company's consolidated revenues from continuing operations for the three month periods ended March 31, 2014 and 2013, respectively. The Company’s balance sheets include accounts receivable with DHL of $25.7 million and $24.1 million as of March 31, 2014 and December 31, 2013, respectively.

The Company leases Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company and Boeing 767 aircraft that DHL owns. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases or owns. The Company also provides Boeing 767 and Boeing 757 air cargo transportation services for DHL through additional ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, air starts and related maintenance services to DHL under separate agreements.

U.S. Military

A substantial portion of the Company's revenues are also derived from the U.S. Military. The U.S. Military awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the U.S. Military were approximately 16% and 18% of the Company's total revenues from continuing operations for the three month periods ended March 31, 2014 and 2013, respectively. The Company's balance sheets included accounts receivable with the U.S. Military of $4.8 million and $4.8 million as of March 31, 2014 and December 31, 2013, respectively.

NOTE C—GOODWILL AND OTHER INTANGIBLES

The Company has one reporting unit that has goodwill, CAM. The carrying amounts of goodwill are as follows (in thousands):

	CAM		Total
Carrying value as of December 31, 2013	$	34,395	$	34,395
Carrying value as of March 31, 2014	$	34,395	$	34,395

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The Company's intangible assets relate to the ACMI Services segment and are as follows (in thousands):

	Customer			Airline
	Relationships			Certificates		Total
Carrying value as of December 31, 2013	$	1,896		$	3,000	$	4,896
Amortization	(70		)	—		(70		)
Carrying value as of March 31, 2014	$	1,826		$	3,000	$	4,826

The customer relationship intangible amortizes over seven more years. The airline certificates have an indefinite life and therefore are not amortized.

NOTE D—FAIR VALUE MEASUREMENTS

The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance sheets at fair values based on market values from identical or comparable transactions. The fair value of the Company’s money market funds and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions. The use of significant unobservable inputs (Level 3) was not necessary in determining the fair value of the Company’s financial assets and liabilities.

The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):

As of March 31, 2014	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	2,304		$	—	$	2,324
Total Assets	$	20	$	2,304		$	—	$	2,324
Liabilities
Interest rate swap	$	—	$	(2,217	)	$	—	$	(2,217	)
Total Liabilities	$	—	$	(2,217	)	$	—	$	(2,217	)

As of December 31, 2013	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	301		$	—	$	321
Total Assets	$	20	$	301		$	—	$	321
Liabilities
Interest rate swap	$	—	$	(2,515	)	$	—	$	(2,515	)
Total Liabilities	$	—	$	(2,515	)	$	—	$	(2,515	)

As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed and variable rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $5.5 million more than the carrying value, which was $374.6 million at March 31, 2014. As of December 31, 2013, the fair value of the Company’s debt obligations was approximately $6.3 million more than the carrying value, which was $384.5 million. The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.

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NOTE E—PROPERTY AND EQUIPMENT

The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):

	March 31, 2014			December 31, 2013
Aircraft and flight equipment	$	1,238,297		$	1,236,225
Support equipment	51,319			51,179
Vehicles and other equipment	1,787			1,771
Leasehold improvements	1,134			1,154
	1,292,537			1,290,329
Accumulated depreciation	(475,096		)	(452,157		)
Property and equipment, net	$	817,441		$	838,172

CAM owned aircraft with a carrying value of $256.6 million and $250.9 million that were under leases to external customers as of March 31, 2014 and December 31, 2013, respectively.

The carrying value of Boeing 727 and DC-8 freighter aircraft and engines available for sale totaled $2.5 million and $3.0 million as of March 31, 2014 and December 31, 2013, respectively.

NOTE F—DEBT OBLIGATIONS

Long term obligations consisted of the following (in thousands):

	March 31,			December 31,
	2014			2013
Unsubordinated term loan	$	127,500		$	131,250
Revolving credit facility	188,000			190,500
Aircraft loans	52,891			55,015
Promissory note due to DHL, unsecured	6,200			7,750
Total long term obligations	374,591			384,515
Less: current portion	(23,873		)	(23,721		)
Total long term obligations, net	$	350,718		$	360,794

The Company executed a syndicated credit agreement ("Senior Credit Agreement") in May 2011 which includes an unsubordinated term loan and a revolving credit facility. On May 6, 2014, the Company executed an amendment to the Senior Credit Agreement (the "Third Credit Amendment"). The Third Credit Amendment extends the maturity of the term loan and revolving credit facility to May 6, 2019, provides for annual, one year extension options, provides for an accordion feature whereby the Company can draw up to an additional $50.0 million subject to the lenders' consent, reduces the EBITDA-based pricing, eases requirements for stock dividends and stock buybacks and reduces the collateral requirements. The Senior Credit Agreement is collateralized by the Company's fleet of Boeing 767 and 757 aircraft that are not collateralized under the aircraft loans. Under the amended terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 150% of the outstanding balances of the term loan and the revolving credit facility or 175% of the outstanding balance of the term loan and the total funded revolving credit facility, whichever is less. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $275.0 million. The Third Credit Amendment does not change the repayment terms of the Senior Credit Agreement. Beginning May 6, 2015, and each year thereafter through May 6, 2019, the Company may request a one year extension of the final maturity date, subject to the lenders' consent.

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Under the terms of the Senior Credit Agreement, interest rates are adjusted quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"), its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan and revolving credit facility bear a variable interest rate of 2.535% and 2.535%, respectively. The Third Credit Amendment reduced the EBITDA-based pricing but did not affect the covenants of the Senior Credit Agreement other than the collateral covenant. The Senior Credit Agreement provides for the issuance of letters of credit on the Company's behalf. As of March 31, 2014, the unused revolving credit facility totaled $76.8 million, net of draws of $188.0 million and outstanding letters of credit of $10.2 million.

The aircraft loans are collateralized by six aircraft, and amortize monthly with a balloon payment of approximately 20% with maturities between 2016 and early 2018. Interest rates range from 6.74% to 7.36% per annum payable monthly.

The promissory note payable to DHL becomes due in August 2028 as a balloon payment, unless it is extinguished sooner under the terms of the CMI agreement. Beginning April 1, 2010 and extending through the term of the CMI agreement, the balance of the note is amortized ratably without cash payment in exchange for services provided and, thus, is expected to be completely amortized by April 2015. The promissory note bears interest at a rate of 5% per annum, and DHL reimburses ABX the interest expense from the note through the term of the CMI agreement.

The Senior Credit Agreement is collateralized by certain of the Company's Boeing 767 and 757 aircraft that are not collateralized under aircraft loans. The Senior Credit Agreement contains covenants including, among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement. The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $50.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under 2.5 times, after giving effect to the dividend or repurchase. Under the provisions of its promissory note due to DHL, the Company is required to prepay the DHL note in the amount of $0.20 for each dollar of dividend distributed to its stockholders. The same prepayment stipulation applies to stock repurchases.

NOTE G—COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases six Boeing 767 aircraft, airport facilities, office space, maintenance facilities and certain equipment under operating leases. In December 2012, the Company entered into agreements with the Clinton County Port Authority ("CCPA") to construct and lease an aircraft hangar in Wilmington, Ohio, adjacent to the existing aircraft maintenance facility currently leased by the Company. The Company acts as construction agent for the CCPA and began construction of a 100,000 square foot aircraft hangar in 2013. While the current facility houses aircraft as large as the Boeing 767, the new hangar will provide the capability of servicing aircraft as large as a Boeing 747 and a Boeing 777. The hangar is anticipated to cost approximately $15.7 million and is expected to be completed in the second quarter of 2014. The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of Ohio loan on incremental taxes. The costs incurred to build the hangar are included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the CCPA are included in "Other liabilities" on the Company's balance sheet. The Company began to make lease payments for the hangar directly to the trustee for the State of Ohio beginning in 2014.

Guarantees and Indemnifications

Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.

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Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of Belgium that oversees the enforcement of environmental matters, imposed four separate administrative penalties on ABX in the approximate aggregate amount of €0.4 million ($0.5 million) for numerous alleged violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport) during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to three of the administrative penalties.

The ordinance in question is controversial for the reason that it was adopted by the Brussels-Capital Region and is more restrictive than the noise limitations in effect in the Flemish Region, which is where the Brussels Airport is located. The ordinance is the subject of several court cases currently pending in the Belgian courts and numerous airlines have been levied fines thereunder.

Other

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

Employees Under Collective Bargaining Agreements

As of March 31, 2014, the flight crewmember employees of ABX and ATI were represented by the labor unions listed below:

Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	14.6%
ATI	Air Line Pilots Association	6.9%

NOTE H—PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded.

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The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations. The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):

	Three Months Ended March 31,
	Pension Plans						Post-Retirement Healthcare Plan
	2014			2013			2014			2013
Service cost	$	—		$	—		$	60		$	69
Interest cost	9,879			8,989			71			66
Expected return on plan assets	(11,528		)	(11,498		)	—			—
Amortization of prior service cost	—			—			(872		)	(1,414		)
Amortization of net (gain) loss	(1		)	3,074			80			105
Net periodic benefit cost	$	(1,650	)	$	565		$	(661	)	$	(1,174	)

During the three month period ended March 31, 2014, the Company contributed $0.7 million to the pension plans. The Company expects to contribute and additional $5.6 million during the remainder of 2014.

NOTE I—INCOME TAXES

The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2014 have been estimated utilizing a 36.9% rate based upon year-to-date income and projected results for the full year. The final effective tax rate applied to 2014 will depend on the actual amount of pre-tax book income generated by the Company for the full year.

The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, management does not expect to pay federal income taxes until 2016 or later. The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes before then.

NOTE J—DERIVATIVE INSTRUMENTS

The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least fifty percent of the outstanding balance of term loan. As a result, the Company entered into an interest rate swap in July of 2011 having an initial notional value of $75.0 million and a forward start date of December 31, 2011. Under this swap, the Company pays a fixed rate of 2.02% and receives a floating rate that resets quarterly based on LIBOR. In addition to the interest rate swap above, the Company entered into an interest rate swap in June of 2013 having an initial notional value of $65.6 million and a forward start date of December 31, 2013. Under this swap, the Company will pay a fixed rate of 1.1825% and receive a floating rate that resets monthly based on LIBOR.

The outstanding interest rate swaps are not designated as hedges for accounting purposes. The effects of future fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains and losses into the statement of operations. The Company recorded an unrealized gain on derivatives of $0.3 million

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and $0.3 million for the three month periods ending March 31, 2014 and 2013, respectively, to reflect the interest rate swaps at market value. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses. The table below provides information about the Company’s interest rate swaps (in thousands):

			March 31, 2014			December 31, 2013
Expiration Date	Stated Interest Rate		Notional Amount	Market Value (Liability)		Notional Amount	Market Value (Liability)
May 9, 2016	2.020	%	63,750	(1,765	)	65,625	(1,988	)
June 30, 2017	1.183	%	63,750	(452	)	65,625	(527	)

NOTE K—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ended March 31, 2014 and 2013 (in thousands):

	Defined Benefit Pension		Defined Benefit Post-Retirement		Gains and Losses on Derivative		Total
Balance as of December 31, 2012	(121,602	)	4,277		38		(117,287	)
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)	3,074		104		—		3,178
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(1,413	)	—		(1,413	)
Hedging gain (reclassified to interest expense)	—		—		(13	)	(13	)
Income Tax (Expense) or Benefit	(1,116	)	475		5		(636	)
Other comprehensive income (loss), net of tax	1,958		(834	)	(8	)	1,116
Balance as of March 31, 2013	(119,644	)	3,443		30		(116,171	)
Balance as of December 31, 2013	(31,072	)	1,245		9		(29,818	)
Amounts reclassified from accumulated other comprehensive income
Actuarial costs (reclassified to salaries, wages and benefits)	(1	)	80		—		79
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(872	)	—		(872	)
Hedging gain (reclassified to interest expense)	—		—		(11	)	(11	)
Income Tax (Expense) or Benefit	—		288		4		292
Other comprehensive income (loss), net of tax	(1	)	(504	)	(7	)	(512	)
Balance as of March 31, 2014	(31,073	)	741		2		(30,330	)

NOTE L—STOCK-BASED COMPENSATION

The Company's Board of Directors has granted stock incentive awards to certain employees and board members pursuant to a long term incentive plan which was approved by the Company's stockholders in May 2005. Employees have been awarded non-vested stock units with performance conditions, non-vested stock units with market conditions and non-vested restricted stock. The restrictions on the non-vested restricted stock awards lapse at the end of a specified service period, which is typically approximately three years from the date of grant. Restrictions could lapse sooner upon a business combination, death, disability or after an employee qualifies for retirement. The non-vested stock units will be converted into a number of shares of Company stock depending on performance and market conditions at the

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end of a specified service period, lasting approximately three years. The performance condition awards will be converted into a number of shares of Company stock based on the Company's average return on invested capital during the service period. Similarly, the market condition awards will be converted into a number of shares depending on the appreciation of the Company's stock compared to the NASDAQ Transportation Index. Board members were granted time-based awards with vesting periods of approximately six or twelve months. The Company expects to settle all of the stock unit awards by issuing new shares of stock. The table below summarizes award activity.

	Three Month Ended
	March 31, 2014				March 31, 2013
	Number of Awards		Weighted average grant-date fair value		Number of Awards		Weighted average grant-date fair value
Outstanding at beginning of period	1,477,762		$	5.83	1,463,272		$	5.97
Granted	467,567		7.52		627,488		5.73
Converted	(68,950	)	11.17		(296,400	)	4.80
Expired	—		—		—		—
Forfeited	(2,600	)	5.79		(2,200	)	5.99
Outstanding at end of period	1,873,779		$	6.06	1,792,160		$	6.08
Vested	517,379		$	5.27	533,560		$	4.91

The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2014 was $7.44, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted in 2014 was $7.83. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.8% and a volatility of 48.9% based on volatility over three years using daily stock prices.

For the years ended March 31, 2014 and 2013, the Company recorded expense of $0.6 million and $0.6 million, respectively, for stock incentive awards. At March 31, 2014, there was $5.5 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.8 years. As of March 31, 2014, none of the awards were convertible, 517,379 units of the Board members time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in a maximum number of 2,213,679 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2016.

NOTE M—EARNINGS PER SHARE

The calculation of basic and diluted earnings per common share follows (in thousands, except per share amounts):

	Three Months Ending March 31,
	2014		2013
Earnings (loss) from continuing operations	$	6,522	$	8,501
Weighted-average shares outstanding for basic earnings per share	64,148		63,810
Common equivalent shares:
Effect of stock-based compensation awards	993		714
Weighted-average shares outstanding assuming dilution	65,141		64,524
Basic earnings (loss) per share from continuing operations	$	0.10	$	0.13
Diluted earnings (loss) per share from continuing operations	$	0.10	$	0.13

The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution, because their effect would have been anti-dilutive, was none and none at March 31, 2014 and 2013, respectively.

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NOTE N—SEGMENT INFORMATION

The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations and its segment earnings includes an allocation of interest expense. The ACMI Services segment consists of the Company's airline operations, including the CMI agreement with DHL as well as ACMI and charter service agreements that the Company has with other customers. Due to the similarities among the Company's airline operations, the airline operations are aggregated into a single reportable segment, ACMI Services. The Company's other activities, which include contracts with the USPS, the sale of aircraft parts and maintenance services, facility and ground equipment maintenance services and management services for workers' compensation do not constitute reportable segments and are combined in “All other” with inter-segment profit eliminations. Inter-segment revenues are valued at arms-length, market rates. Cash, cash equivalents and deferred tax assets are reflected in Assets - All other below. The Company's segment information from continuing operations is presented below (in thousands):

	Three Months Ending March 31,
	2014			2013
Total revenues:
CAM	$	40,635		$	38,969
ACMI Services	108,596			113,051
All other	26,808			26,254
Eliminate inter-segment revenues	(32,446		)	(34,995		)
Total	$	143,593		$	143,279
Customer revenues:
CAM	$	18,413		$	18,336
ACMI Services	108,596			111,315
All other	16,584			13,628
Total	$	143,593		$	143,279
Depreciation and amortization expense:
CAM	$	18,345		$	14,516
ACMI Services	6,835			6,138
All other	(201		)	266
Total	$	24,979		$	20,920
Segment earnings (loss):
CAM	$	14,440		$	16,873
ACMI Services	(7,046		)	(5,404		)
All other	3,017			2,181
Net unallocated interest expense	(379		)	(348		)
Net gain (loss) on derivative instruments	299			290
Pre-tax earnings from continuing operations	$	10,331		$	13,592

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The Company's assets are presented below by segment (in thousands):

	March 31,		December 31,
	2014		2013
Assets:
CAM	$	792,220	$	808,987
ACMI Services	146,065		141,664
Discontinued operations	623		294
All other	89,137		82,194
Total	$	1,028,045	$	1,033,139

Interest expense of $0.1 million and $0.2 million for the three month periods ending March 31, 2014 and 2013, respectively, was reimbursed through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest expense allocated to CAM was $3.3 million and $2.6 million for the three month periods ending March 31, 2014 and 2013, respectively.

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

The following Management’s Discussion and Analysis has been prepared with reference to the historical financial condition and results of operations of Air Transport Services Group, Inc. and its subsidiaries. Air Transport Services Group, Inc. and its subsidiaries may hereinafter individually and collectively be referred to as "the Company", "we", "our" or "us" from time to time. The following discussion and analysis describes the principal factors affecting the results of operations, financial condition, cash flows, liquidity and capital resources. It should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the related notes prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") contained in this report and our Annual Report on Form 10-K for the year ended December 31, 2013.

BACKGROUND

The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the air cargo transportation and package delivery industries. Through the Company's subsidiaries, we offer a range of complementary services to delivery companies, freight forwarders, airlines and government customers. The Company's principal subsidiaries include two independently certificated airlines, ABX Air, Inc. (“ABX”) and Air Transport International, Inc. (“ATI”), and an aircraft leasing company, Cargo Aircraft Management, Inc. (“CAM”).

At March 31, 2014, the Company owned 51 cargo aircraft in service condition and leased six more under operating leases. The combined fleets consisted of forty Boeing 767-200 aircraft, nine Boeing 767-300 aircraft, four Boeing 757-200 aircraft and four Boeing 757 "combi" aircraft. The Boeing 757 combi aircraft are capable of simultaneously carrying passengers and cargo containers on the main flight deck.

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"), which accounted for 56% of the Company's consolidated revenues for the first three months of 2014 compared with 53% of the Company's consolidated revenues in the corresponding period in 2013. The Company has had long term contracts with DHL since August 2003. On March 31, 2010, the Company and DHL executed commercial agreements under which DHL leases 13 Boeing 767 freighter aircraft from CAM and contracted with ABX to operate those aircraft under a separate crew, maintenance and insurance (“CMI”) agreement. The CMI agreement pricing is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The initial term of the CMI agreement is five years and the terms of the aircraft leases are seven years, with early termination provisions. In addition to the 13 CAM-owned Boeing 767 aircraft, ABX also operates four DHL-owned Boeing 767 aircraft under the CMI agreement. ATI provides four Boeing 757 aircraft to DHL's U.S. network. Additionally ABX provides seven other Boeing 767 aircraft primarily to DHL's U.S network under contracts and arrangements having durations of one year or less. During 2013, ATI provided three Boeing 767 aircraft to DHL's Middle East operations, however, these agreements were terminated during the first quarter of 2014.

The U.S. Military comprised 16% and 18% of the Company's consolidated revenues during the three month periods ended March 31, 2014 and 2013, respectively. The Company's airlines contract their services to the Air Mobility Command ("AMC"), through the U.S. Transportation Command ("USTC"), both of which are organized under the U.S. Military. During 2013, ATI retired its four DC-8 combi aircraft and replaced them with three Boeing 757 combi aircraft operating for the U.S. Military. Our fourth and final Boeing 757 combi aircraft entered service in the first quarter of 2014 after completing the necessary regulatory certification.

The Company has two reportable segments: ACMI Services, which primarily includes the cargo transportation operations of its airlines, and the CAM segment. The Company's other business operations, which primarily provide support services to the transportation industry, include aircraft maintenance, aircraft parts sales, ground equipment leasing and mail handling services. These operations do not constitute reportable segments due to their size.

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RESULTS OF OPERATIONS

Summary

The consolidated net earnings from continuing operations were $6.5 million and $8.5 million for the first quarter of 2014 and 2013, respectively. The pre-tax earnings from continuing operations were $10.3 million and $13.6 million for the first quarter of 2014 and 2013, respectively. The decrease in earnings from continuing operations for the first quarter 2014 as compared to 2013 was due to lower airline services revenues and additional depreciation expense. Although customer revenues from continuing operations increased by $0.3 million to $143.6 million during the first quarter of 2014 compared to 2013, revenues (excluding directly reimbursed revenues) decreased 2%, or by $2.6 million during the first quarter of 2014 compared with 2013, reflecting fewer block hours flown for customers. Revenues were negatively impacted by the discontinuation of ACMI services to DHL's Middle East operation during the first quarter of 2014. Total operating expenses increased primarily due to higher depreciation expense, partially offset by lower fuel expenses and other variable airline operating expenses. Depreciation expense increased as a result of adding seven aircraft to the Company's fleet since March 31, 2013.

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

	Three Months Ending March 31
	2014			2013
Revenues from Continuing Operations:
CAM	$	40,635		$	38,969
ACMI Services
Airline services	87,507			94,892
Reimbursable	21,089			18,159
Total ACMI Services	108,596			113,051
Other Activities	26,808			26,254
Total Revenues	176,039			178,274
Eliminate internal revenues	(32,446		)	(34,995		)
Customer Revenues	$	143,593		$	143,279
Pre-Tax Earnings from Continuing Operations:
CAM, inclusive of interest expense	$	14,440		$	16,873
ACMI Services	(7,046		)	(5,404		)
Other Activities	3,017			2,181
Net unallocated interest expense	(379		)	(348		)
Net gain (loss) on derivative instruments	299			290
Pre-Tax Earnings from Continuing Operations	10,331			13,592
Less Net (gain) loss on derivative instruments	(299		)	(290		)
Adjusted Pre-Tax Earnings	$	10,032		$	13,302

Reimbursable revenues include certain operating costs that are reimbursed to the airlines by their customers. Such costs include fuel expense, landing fees and certain aircraft maintenance expenses. The types of costs that are reimbursed varies by customer operating agreement.

Adjusted pre-tax earnings, a non-GAAP measure, is pre-tax earnings excluding interest rate derivative gains. Management uses adjusted pre-tax earnings to compare the performance of core operating results between periods. Adjusted pre-tax earnings should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP.

CAM

Through the CAM subsidiary, we offer aircraft leasing to external customers and also lease aircraft internally to the Company's airlines. Aircraft leases normally cover a term of five to seven years. In a typical leasing agreement, customers pay rent and maintenance deposits on a monthly basis.

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As of March 31, 2014, CAM had 51 freighter aircraft in service condition, 30 of them leased internally to the Company's airlines. CAM's revenues grew $1.7 million during the first quarter of 2014 compared to 2013, as a result of additional internal aircraft leases. CAM's revenues from the Company's airlines totaled $22.2 million during the first quarter of 2014, compared to $20.6 million for 2013. Since March 31, 2013, CAM has placed two Boeing 767-300 freighter aircraft, one Boeing 757-200 freighter aircraft and four Boeing 757 combi aircraft under leases with internal airlines. CAM leased 20 freighter aircraft to external customers as of March 31, 2014 and 2013. Revenues from external customers were flat for the first quarter of 2014 compared to 2013.

CAM's pre-tax earnings, inclusive of an interest expense allocation, were $14.4 million and $16.9 million during the first quarter of 2014 and 2013, respectively. Reduced earnings reflect additional internal lease revenues offset by higher depreciation expense of $3.8 million for additional Boeing 767 and Boeing 757 aircraft and higher allocated interest expense compared to 2013.

During the first quarter of 2014, CAM's fourth and final Boeing 757 combi aircraft completed its airworthiness certification and began operations for ATI in service to the U.S Military. Also, CAM completed the modification of a Boeing 767-300, which was not under lease, in the first quarter of 2014. In May 2014, CAM executed agreements to lease two Boeing 767-200 aircraft, currently leased to ATSG airlines, to a Canadian airline for a term of up to three years. Additionally, in May 2014, CAM executed agreements to lease two Boeing 767-300 aircraft to a Florida based airline under six year terms. Both airlines are existing customers of CAM. The first of these four aircraft leases is expected to begin in June of 2014 with the remaining three by the end of the third quarter of 2014. One customer is expected to return a Boeing 767-200 currently leased from CAM when the Boeing 767-300 aircraft are deployed.

ACMI Services Segment

The ACMI Services segment provides airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI"). Our customers are usually responsible for supplying the necessary aviation fuel and cargo handling services and reimbursing our airline for other operating expenses, such as landing fees, ramp expenses and certain aircraft maintenance expenses. Aircraft charter agreements, including those for the U.S. Military, usually require the airline to provide full service, including fuel and other operating expenses for a fixed, all-inclusive price. As of March 31, 2014, ACMI Services included 49 in-service aircraft, including 30 leased internally from CAM, six leased from external providers and 13 CAM-owned freighter aircraft which are under lease to DHL and operated by ABX under the CMI agreement.

Revenues from ACMI Services were $108.6 million and $113.1 million during first quarter of 2014 and 2013, respectively. ACMI Services incurred pre-tax losses of $7.0 million and $5.4 million for first quarter of 2014 and 2013, respectively. Larger pre-tax losses in 2014 compared to 2013 were primarily a result of lower revenues. Revenues from ACMI Services declined $4.5 million during 2014 compared with 2013. Airline services revenues from external customers, which do not include revenues for the reimbursement of fuel and certain operating expenses, declined $7.4 million, while block hours declined 3%. Lower revenues were primarily due to the discontinuation of services for DHL's Middle East operations in February 2014. Excluding our services for DHL's Middle East operations, block hours increased 5% compared to the first quarter of 2013, driven by additional hours for DHL's U.S. and South American network. Block hours flown for the U.S. Military for the first quarter of 2014 were down 5% compared to the first quarter of 2013 due to less expansion flying for Boeing 767 freighters.

Airline revenues declined relatively more than block hours declined compared to the first quarter of 2013, reflecting the redeployment of aircraft recently returned from the Middle East into competitive markets with high levels of airlift capacity. Also, since March of 2013, we have deployed additional Boeing 767 aircraft into the DHL CMI agreement, which contains elements of fixed revenue charges.

Operating expense for ACMI Services declined $4.0 million during the first quarter of 2014 compared to the corresponding period of 2013. Lower expense for employee wages and benefits, travel, aircraft landing fees and fuel were partially, offset by higher expenses for aircraft depreciation and maintenance. Employee wages and benefits expense declined due to a 10% reduction in the number of airline personnel since March 31, 2013 and lower pension expense. Lower fuel expense reflects the replacement of DC-8 combi aircraft with Boeing 757 combi aircraft for service with the U.S. Military since May of 2013. Operating expenses for landings and travel declined primarily due to the discontinuation of service for DHL in the Middle East. Higher aircraft maintenance expenses reflect one additional airframe heavy check compared to the first quarter of 2013.

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In March 2014, DHL notified us that it plans to terminate the services of one of the Company's Boeing 767 aircraft that ABX operates for DHL in the U.S. under a short term contract. We understand that DHL will replace the Boeing 767 aircraft operated by ABX in a lower volume cargo market with a smaller Boeing 737 aircraft operated by another airline beginning in the second quarter of 2014. Additionally, the ACMI Services segment has five aircraft that are underutilized. We expect to convert some of these aircraft into aircraft leases between CAM and its customers, as described above. We may further reallocate aircraft from ACMI Services to external lease customers after considering a number of factors including the duration of the customer commitment, the underlying credit quality of the customer and market pricing for each opportunity. Achieving profitability in the ACMI Services segment in the future will depend on new revenue opportunities for airline services, the corresponding costs of flight operations and number of aircraft we operate, as well as other factors. We expect continued improvement in the results of ACMI Services over the course of the year but do not expect this segment to return to quarterly profitability during 2014.

Other Activities

The Company sells aircraft parts and provides aircraft maintenance and modification services primarily through its aircraft maintenance and repair business, Airborne Maintenance and Engineering Services, Inc. ("AMES"). The Company also provides services to the U.S. Postal Service (“USPS”), which mainly consists of sorting services at five USPS facilities. The Company also leases and maintains ground support equipment and provides facility maintenance services. Other activities also include the management of workers' compensation claims under an agreement with DHL, and gains from the reduction in employee post-retirement obligations.

External customer revenues from all other activities were $16.6 million and $13.6 million for the three month periods ending March 31, 2014 and 2013, respectively, increasing 22% during the first quarter compared to a year ago. Our revenue from AMES aircraft maintenance, USPS sort operations and facility maintenance each increased compared to the first quarter of 2013. Pre-tax earnings from other activities were impacted by additional headcount levels and higher employee benefit costs in 2014 compared to the first quarter of 2013. The pre-tax earnings from other activities were $3.0 million and $2.2 million for the three month periods ending March 31, 2014 and 2013, respectively.

In 2013, the Company, as construction agent for the Clinton County Port Authority ("CCPA") in Wilmington, Ohio, began construction of a 100,000 square foot aircraft hangar facility adjacent to the existing aircraft maintenance facility currently utilized by AMES. While the current facility houses aircraft as large as the Boeing 767, the new facility will provide AMES the capability of servicing aircraft as large as a Boeing 747-400 and the Boeing 777. The hangar is anticipated to cost approximately $15.7 million and is expected to be completed in the second quarter of 2014. The Company leases the facility from the CCPA and began to make related rent payments beginning in 2014. We could incur incremental costs associated with the new hangar, including the costs of aircraft maintenance personnel before the hangar is completed. Further, we will need to grow aircraft maintenance revenues utilizing the expanded hangar capabilities by expanding business with current customers and contracting with new customers. Our future operating results could be adversely impacted if anticipated revenues do not coincide with our costs of operating the new facility.

Discontinued Operations

Pre-tax gains related to the former sorting operations were $0.3 million for the first quarter of 2014 compared to pre-tax losses of less than $0.1 million for the corresponding period of 2013. The results of discontinued operations primarily reflect the effects of defined benefit pension plans for former employees that supported sort operations under a hub services agreement with DHL.

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Fleet Summary 2014

The Company’s cargo aircraft fleet is summarized below as of March 31, 2014 ($'s in thousands):

	ACMI Services	CAM	Total
In-service aircraft
Aircraft owned
Boeing 767-200	16	20	36
Boeing 767-300	6	—	6
Boeing 757-200	4	—	4
Boeing 757-200 Combi	4	—	4
Total	30	20	50
Carrying value			$	725,090
Operating lease
Boeing 767-200	4	—	4
Boeing 767-300	2	—	2
Total	6	—	6
Carrying value			$	1,035
Other aircraft
Boeing 767-300 available for lease	—	1	1

As of March 31, 2014, ACMI Services leased 30 of its in-service aircraft internally from CAM. As of March 31, 2014, 13 of CAM's 20 Boeing 767-200 aircraft shown above were leased to DHL and operated by ABX. CAM leased the other seven Boeing 767-200 aircraft to external airlines.

Aircraft fleet activity during 2014 is summarized below:

- CAM completed the modification of one Boeing 767-300 freighter aircraft and it is available for lease.

- CAM completed the modification of one Boeing 757 combi aircraft and leased the aircraft internally to ATI, which deployed the aircraft for the U.S. Military.

- CAM began to lease its only Boeing 767-200 passenger aircraft to an external airline.

As of March 31, 2014, the Company had Boeing 727 and DC-8 airframes and engines with a carrying value of $2.5 million that were available for sale. This carrying value is based on fair market values less the estimated costs to sell the airframes, engines and parts.

Expenses from Continuing Operations

Salaries, wages and benefits expense decreased $0.2 million during the quarter ended March 31, 2014, compared to the corresponding period of 2013. While the number of airline employees declined 10% from March 31, 2013, the total level of headcount was unchanged. We have added staff for our USPS sort operations, facility maintenance operations and AMES, driven by additional revenues in these businesses since March of 2013.

Fuel expense decreased by $2.1 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. Fuel expense reflects the costs of fuel to operate U.S. Military charters, reimbursable fuel billed to DHL, fuel used to position aircraft for service and for maintenance purposes. The decrease during 2014 compared to 2013 reflects the use of the more fuel efficient Boeing 757 combi aircraft instead of DC-8 combi aircraft and an increased level of reimbursable fuel for customers. The average cost per gallon of fuel increased about 2.5% compared to the first quarter of 2013.

Maintenance, materials and repairs expense increased by $2.7 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. Maintenance expense increased primarily due to higher engine maintenance expenses, including engine expenses that are directly reimbursed through the CMI agreement with DHL.

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Maintenance expense for 2014 also includes one more airframe heavy check compared to the first quarter of 2013. Aircraft maintenance expenses can vary among periods due to the number of scheduled airframe maintenance checks and the scope of the checks that are performed.

Depreciation and amortization expense increased $4.1 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. The increase in depreciation expense reflects the removal of the DC-8 combi aircraft from service, offset by incremental depreciation expense for two Boeing 767 aircraft, one Boeing 757 freighter aircraft and four Boeing 757 combi aircraft added to the in-service fleet since March 2013.

Travel expense decreased by $0.2 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. The decrease reflects the lower level of employee headcount in the airlines and less international travel needed to support fewer international flight operations during 2014.

Rent expense increased by $0.5 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. Rent expense increased primarily for aircraft simulator facilities for pilot training.

Landing and ramp expense decreased by $1.3 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. Landing and ramp expense, and our reimbursable revenues, included fees for certain DHL locations prior to March 31, 2013. Since that time, these costs for certain U.S. locations have been managed directly by DHL.

Insurance expense decreased by $0.3 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013, primarily due to the reduction in DC-8 combi aircraft.

Other operating expenses decreased by $0.3 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. Other operating expenses include professional fees, navigational services, employee training, utilities and the cost of parts sold to customers. Operating expenses also includes the net gains from the sales of spare aircraft engines.

Interest expense increased by $0.7 million during the quarter ended March 31, 2014 compared to the corresponding period of 2013. The higher interest expense was primarily due to lower capitalized interest during the first three months of 2014 compared to 2013 and higher interest rates under the Senior Credit Agreement. Capitalized interest was higher in 2013 while aircraft were undergoing the freighter modification process. Interest rates were 2.54% and 2.46% at March 31 2014 and 2013, respectively.

The Company recorded pre-tax net gains on derivatives of $0.3 million during the quarters ended March 31, 2014 and 2013, reflecting the impact of fluctuating market interest rates.

The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2014 have been estimated utilizing a 36.9% rate based upon year-to-date income and projected results for the full year. The final effective tax rate applied to 2014 will depend on the actual amount of pre-tax book income generated by the Company for the full year. The effective tax rate from continuing operations for the three month period ended March 31, 2013 was 37.5%, based on projections of taxable income and tax deductions at that time.

As of December 31, 2013, the Company had operating loss carryforwards for U.S. federal income tax purposes of approximately $97.5 million, which will begin to expire in 2024 if not utilized before then. We expect to utilize the loss carryforwards to offset federal income tax liabilities in the future. As a result, we do not expect to pay federal income taxes until 2016 or later. The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes before then. The Company's taxable income earned from international flights are primarily sourced to the United States under international aviation agreements and treaties. If we begin to operate in countries without such agreements, the Company could incur additional foreign income taxes.

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FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Net cash generated from operating activities totaled $21.8 million and $30.7 million for the first three months of 2014 and 2013, respectively. Cash flows generated from operating activities decreased in the first three months of 2014 compared to 2013 primarily due to lower operating profitability, lower payments received from DHL and increased costs of inventory and billable work in process, partially offset by lower payments to vendors. Cash outlays for pension contributions were $0.7 million compared to $2.9 million for the corresponding period of 2013.

Investing cash flows for the first quarter of 2014, included $15.0 million to acquire a 25% interest in West Atlantic AB of Sweden. Cash payments for capital expenditures were $4.4 million and included $0.1 million for the costs of completing the Boeing 757 and Boeing 767 aircraft modifications, $0.6 million for required heavy maintenance, $1.4 million for construction of a new aircraft hangar, and $2.3 million for purchases of aircraft engines and rotables. Capital spending for the first quarter of 2013 was $59.4 million and included $54.3 million for the acquisition and modification of aircraft, $3.6 million for required heavy maintenance, $0.6 million for construction of the new aircraft hangar and $0.9 million for other equipment costs.

Net cash used by financing activities was $7.2 million for the first three months of 2014 compared to $48.3 million of cash provided by financing activities in the corresponding period of 2013. During the first three months of 2014, we drew $15.0 million from the revolving credit facility to fund the investment in West Atlantic AB and capital spending, and we made debt principal payments of $23.4 million. During the first three months of 2013, we drew $60.0 million from the revolving credit facility to fund capital expenditures as described above and we made debt principal payments of $12.9 million. Additionally, $1.6 million of the principal balance of the DHL promissory note was extinguished during the first three months of 2014 and 2013, respectively, pursuant to the CMI agreement with DHL.

Commitments

We estimate that capital expenditures for 2014 will be $45 million for airframe and engine maintenance, hangar construction and other expenditures. Actual capital spending for any future period will be impacted by aircraft maintenance and modification processes and hangar construction. We expect to finance the capital expenditures from current cash balances, future operating cash flow and the Senior Credit Agreement.

Liquidity

The Company's Senior Credit Agreement is through a consortium of banks and includes an unsubordinated term loan of $127.5 million and a revolving credit facility from which the Company has drawn $188.0 million, net of repayments as of March 31, 2014. On May 6, 2014, the Company executed the third amendment to the Senior Credit Agreement (the "Third Credit Amendment"). The Third Credit Amendment extends the maturity of the term loan and revolving credit facility to May 6, 2019, provides for annual, one year extension options, provides for an accordion feature whereby the Company can draw up to an additional $50 million subject to the lenders' consent, reduces the EBITDA based pricing, eases requirements for stock dividends and stock buybacks and reduces the collateral requirements. The Senior Credit Agreement is collateralized by the Company's fleet of Boeing 767 and 757 aircraft that are not collateralized under aircraft loans. Under the amended terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 150% of the outstanding balances of the term loan and the revolving credit facility or 175% of the outstanding balance of the term loan and the total funded revolving credit facility, whichever is less. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $275 million. The Third Credit Amendment does not change the repayment terms of the Senior Credit Agreement. Beginning May 6, 2015, and each year thereafter through May 6, 2019, the Company may request a one year extension of the final maturity date, subject to the lenders' consent.

Under the Senior Credit Agreement, the Company is subject to covenants and warranties that are usual and customary, including among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default including unspecified events that may have a material adverse effect on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement.

Additional debt or lower EBITDA may result in higher interest rates. Under the Senior Credit Agreement, interest rates are adjusted quarterly based on the prevailing LIBOR or prime rates and a ratio of the Company's outstanding

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debt level to earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"). At the Company's current debt-to-EBITDA ratio, the unsubordinated term loan and the revolving credit facility both bear a variable interest rate of 2.535%.

At March 31, 2014, the Company had $27.1 million of cash balances. The Company had $76.8 million available under the revolving credit facility, net of outstanding letters of credit, which totaled $10.2 million. As specified under the terms of ABX's CMI agreement with DHL, the $6.2 million balance at March 31, 2014 of the unsecured note payable to DHL will be extinguished ratably without payment through March 31, 2015. We believe that the Company's current cash balances and forecasted cash flows provided from its operating agreements, combined with its Senior Credit Agreement, will be sufficient to fund operations, scheduled debt payments, required pension funding and planned capital expenditures for at least the next 12 months.

Off-Balance Sheet Arrangements

As part of our ongoing business, we do not participate in transactions that generate relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities (“SPEs”), which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. As of March 31, 2014, we were not involved in any material unconsolidated SPE transactions.

Certain of our operating leases and agreements contain indemnification obligations to the lessor or one or more other parties that are considered usual and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after the expiration of the respective lease or agreement. No amounts have been recognized in our financial statements for the underlying fair value of guarantees and indemnifications.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

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-Critical Accounting Estimates included in our Annual Report on Form 10-K for the year ended December 31, 2013 except as described below.

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). The Company exercises significant influence but does not exercise control over West. Accordingly, the investment in West is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the West’s income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. The Company’s carrying value of West is reflected in “Other Assets” in the Company’s consolidated balance sheets.

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For information regarding recently issued accounting pronouncements and the expected impact on our annual statements, see Note A "SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES" in the accompanying notes to Condensed Consolidated Financial Statements included in Part II, Item 1 of this Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk for changes in interest rates and changes in the price of jet fuel. The risk associated with jet fuel, however, is largely mitigated by reimbursement through the agreements with our customers.

No significant changes have occurred to the market risks the Company faces since information about those risks were disclosed in item 7A of the Company's 2013 Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 10, 2014.

ITEM 4. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

As of March 31, 2014, the Company carried out an evaluation, under the supervision and with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based upon the evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within time periods specified in the Securities and Exchange Commission rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls

There were no changes in internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of Belgium that oversees the enforcement of environmental matters, imposed four separate administrative penalties on ABX in the approximate aggregate amount of €0.4 million ($0.5 million) for numerous alleged violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport) during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to three of the administrative penalties.

The ordinance in question is controversial for the reason that it was adopted by the Brussels-Capital Region and is more restrictive than the noise limitations in effect in the Flemish Region, which is where the Brussels Airport is located. The ordinance is the subject of several court cases currently pending in the Belgian courts and numerous airlines have been levied fines thereunder.

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Other

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

ITEM 1A. RISK FACTORS

The Company faces risks that could adversely affect its condition or results of operations. Many of these risks are disclosed in Item 1A of the Company's 2013 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on March 10, 2014. Other risks that are currently unknown to management or are currently considered immaterial or unlikely, could also adversely affect the Company.

ITEM 5. OTHER

The Company maintains an omnibus long-term incentive plan entitled the Air Transport Services Group, Inc. Amended and Restated 2005 Long-Term Incentive Plan (the “LTI Plan”), which was adopted and approved by the Company’s stockholders in 2005. The Company's non-employee directors, executives, including the named executive officers, and senior management are eligible to participate in the LTI Plan. The purpose of the LTI Plan is to foster and promote the long-term financial success of the Company, to reward performance and to increase stockholder value by providing participants appropriate incentives and awards, to enable the Company to attract and retain the services of outstanding individuals, to encourage stock ownership in the Company, and to align the interests of management and directors with that of stockholders. The LTI Plan authorizes a wide range of equity awards, including stock options, restricted stock awards, restricted stock units, stock awards, stock appreciation rights and performance-based awards payable in shares or cash and other forms of equity compensation.

Since its adoption, the Board of Directors (the “Board”) of the Company has granted time-based restricted stock unit awards (“RSUs”) to the Company’s non-employee directors on an annual basis under the terms of the LTI Plan. On March 20, 2014, the Company issued to the non-employee directors a revised form of restricted stock unit award agreement under the LTI Plan in conjunction with the grant of RSUs to the non-employee directors for fiscal year 2014, the form of which had previously been approved by the Board upon the recommendation of the Compensation Committee of the Board. The revised form of restricted stock unit award agreement provides that the units will be settled on the first anniversary of the grant date, unless the non-employee director provides the Company with written notice of his or her election to defer the settlement to either a specified date beyond the first anniversary of the date of grant or the date that his or her board service ends. The written notice is required to be provided to the Company on or before December 31^st of year immediately preceding the year in which the grant is made. The prior form of restricted stock unit award agreements issued to the non-employee directors provides that the RSUs will be settled when the non-employee director’s board service ends.

The description of the revised form restricted stock unit award agreement is a summary and is qualified by and subject to the full text of the revised form of agreement, which is filed as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference into this report.

10.1	Form of Restricted Stock Unit Award Agreement under Air Transport Service Group, Inc. 2005 Amended and Restated Long-Term Incentive Plan, filed herewith.
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

____________________

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

		AIR TRANSPORT SERVICES GROUP, INC.,
		a Delaware Corporation
		Registrant
		/S/  JOSEPH C. HETE
		Joseph C. Hete
		Chief Executive Officer (Principal Executive Officer)
Date:	May 12, 2014
		/S/  QUINT O. TURNER
		Quint O. Turner
		Chief Financial Officer (Principal Financial Officer
Date:	May 12, 2014	and Principal Accounting Officer)

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EX-10.1

Ex 10.1

THIS FORM OF AWARD AGREEMENT IS PART OF A PROSPECTUS COVERING

SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES

ACT OF 1933

AIR TRANSPORT SERVICES GROUP

AMENDED AND RESTATED

2005 LONG-TERM INCENTIVE PLAN

RESTRICTED STOCK UNITS AWARD AGREEMENT

GRANTED TO [NAME] ON [DATE]

Air Transport Services Group (“Company”) and its shareholders believe that their business interests are best served by extending to you an opportunity to earn additional compensation based on the growth of the Company’s business. To this end, the Company and its shareholders adopted the Air Transport Services Group 2005 Long-Term Incentive Plan (“Plan”) as a means through which you may share in the Company’s success. This is done by granting Awards to non-employee directors like you. If you satisfy the conditions described in this Agreement (and the Plan), your Award will mature into common shares of the Company.

This Award Agreement describes many features of your Award and the conditions you must meet before you may receive the value associated with your Award. To ensure you fully understand these terms and conditions, you should:

• Read the Plan and the Plan’s Prospectus carefully to ensure you understand how the Plan works;

• Read this Award Agreement carefully to ensure you understand the nature of your Award and what you must do to earn it; and,

• Contact W. Joseph Payne at (937) 382-5591 ext. 62686 if you have any questions about your Award.

Also, no later than [Date], you must return a signed copy of the Award Agreement to:

W. Joseph Payne

Air Transport Services Group

145 Hunter Drive

Wilmington, Ohio 45177

If you do not do this, your Award will be revoked automatically as of the date it was granted and you will not be entitled to receive anything on account of the retroactively revoked Award.

Section 409A of the Internal Revenue Code (“Section 409A”) imposes substantial penalties on persons who receive some forms of deferred compensation (see the Plan’s Prospectus for more information about these penalties). Your Award has been designed to avoid these penalties. As a

1

condition of accepting this Award, you must agree to accept any revisions to your Award Agreement that the Company subsequently determines to be necessary in order for you to avoid these penalties, without any further consideration, even if those revisions change the terms of your Award and reduce its value or potential value.

1. Nature of Your Award

You have been granted Restricted Stock Units (“RSUs”). If you satisfy the conditions described in this Award Agreement, your RSUs will be converted into an equal number of shares of Company stock. Federal income tax rules apply to RSUs. These and other conditions affecting your RSUs are described in this Award Agreement, the Plan and the Plan’s Prospectus, all of which you should read carefully.

No later than [Date] you must return a signed copy of this Award Agreement to:

W. Joseph Payne

Air Transport Services Group

145 Hunter Drive

Wilmington, Ohio 45177

If you do not do this, your Award will be revoked automatically as of the Grant Date and you will not be entitled to receive anything on account of the retroactively revoked Award.

a. Grant Date: Your RSUs were issued on [Date].

This is the date you begin to earn your Award.

b. Number of RSUs: You have been granted [Number] RSUs. The conditions that you must meet before the Award matures into shares of Company stock are discussed below in the section titled “When Your Award Will Be Settled.”

c. Restriction Period: The period that begins on the Grant Date (i.e., [Date]) and ends on the first anniversary of the Grant Date.

This is the period over which the Plan committee will determine if you have met the conditions imposed on your Award.

2. When Your Award Will Be Settled

• Normal Settlement Date: If you continue to serve as a non-employee director throughout the Restriction Period, your RSUs will be converted to an equal number of shares of Company stock and distributed to you within 60 days following the end of the Restriction Period. However, if you do not continue to serve as a non-employee director throughout the Restriction Period, your RSUs will be forfeited. However, your RSUs may be settled earlier or later under the circumstances described in the next sections.

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• How Your RSUs Might Be Settled Earlier Than the Normal Settlement Date: All restrictions on your RSUs will be removed automatically and [Number] shares of Company stock will be distributed to you if, before the end of the Restriction Period:

• Your board service terminates because of death, Disability (as defined in the Plan) or after completing one full term as a board member; or

• There is a Business Combination (as defined in the Plan).

• How Your RSUs Might Be Settled Later Than The Normal Settlement Date: You may elect to defer settlement of your RSUs to either a specific date after the end of the Restriction Period or to your Termination of Service (as defined in the Plan) by completing a deferral election form (in the form attached to this Agreement) by no later than December 31 immediately preceding the calendar year during which you are to perform services to the Company as a non-employee director for which such RSUs are to be granted.

• How Your RSUs May Be Forfeited: You will forfeit any RSUs if, before your RSUs are settled:

• Without the Company’s advance written consent, you agree to or actually serve in any capacity for a business or entity that competes with any portion of the Company’s or any Subsidiary’s (as defined in the Plan) business or provide services (including business consulting) to an entity that competes with any portion of the Company’s or any Subsidiary’s business;

• You refuse or fail to consult with, supply information to or otherwise cooperate with the Company after having been requested to do so; or

• You deliberately engage in any action that the Company decides harms the Company or any Subsidiary.

3. Settling Your Award

If all applicable conditions have been met, your RSUs will be settled. At that time, you will receive one share of Company stock for each RSU you have earned.

4. Other Rules Affecting Your Award

a. Until Your RSUs are Settled: Until your RSUs are settled, you may not exercise any voting rights associated with shares underlying your RSUs. Nor will you be entitled to receive any dividends paid on these shares.

b. Beneficiary Designation: You may name a Beneficiary or Beneficiaries to receive any portion of your Award that is settled after you die. This may be done only on the attached

3

Beneficiary Designation Form and by following the rules described in that form and in the Plan. If you have not made an effective Beneficiary designation, your Beneficiary will be your surviving spouse or, if you do not have a surviving spouse, your estate.

c. Tax Withholding: You (and not the Company) are solely responsible for any income and other tax withholding obligation associated with this Award or its conversion to shares of Company stock.

d. Transferring Your RSUs: Normally your RSUs may not be transferred to another person. However, you may complete a Beneficiary Designation Form to name the person to receive the value of any RSUs that are settled after you die. Also, the Committee may allow you to place your RSUs into a trust established for your benefit or the benefit of your family. Contact W. Joseph Payne at (937) 382-5591 ext. 62686 or at the address given below if you are interested in doing this.

e. Governing Law: This Award Agreement will be construed in accordance with and governed by the laws (other than laws governing conflicts of laws) of the United States and of the State of Ohio, except to the extent that the Delaware General Corporation Law is mandatorily applicable.

f. Other Agreements: Also, your RSUs will be subject to the terms of any other written agreements between you and the Company.

g. Adjustments to Your RSUs: Your Award will be adjusted, if appropriate, to reflect any change to the Company’s capital structure (e.g., the number of your RSUs will be adjusted to reflect a stock split).

h. Other Rules: Your RSUs also are subject to more rules described in the Plan and in the Plan’s Prospectus. You should read both these documents carefully to ensure you fully understand all the conditions of this Award.

5. Tax Treatment of Your Award

The federal income tax treatment of your RSUs is discussed in the Plan’s Prospectus which you should read carefully.

*****

You may contact W. Joseph Payne at (937) 382-5591 ext. 62686 or at the address given below if you have any questions about your Award or this Award Agreement.

4

*****

6. Your Acknowledgment of Award Conditions

Note: You must sign and return a copy of this Award Agreement to W. Joseph Payne at the address given below no later than [Date].

By signing below, I acknowledge and agree that:

• A copy of the Plan has been made available to me;

• I have received a copy of the Plan’s Prospectus;

• I understand and accept the conditions placed on my Award and understand what I must do to earn my Award;

• I will consent (on my own behalf and on behalf of my beneficiaries and without any further consideration) to any change to my Award or this Award Agreement to avoid paying penalties under Section 409A of the Internal Revenue Code, even if those changes affect the terms of my Award and reduce its value or potential value; and,

• If I do not return a signed copy of this Award Agreement to the address shown below not later than [Date], my Award will be revoked automatically as of the date it was granted and I will not be entitled to receive anything on account of the retroactively revoked Award.

[NAME]

(signature)

Date signed:

A signed copy of this form must be sent to the following address no later than [Date]:

W. Joseph Payne

Air Transport Services Group

145 Hunter Drive

Wilmington, Ohio 45177

After it is received, the Air Transport Services Group 2005 Long-Term Incentive Plan Committee will acknowledge receipt of your signed agreement.

5

*****

Committee’s Acknowledgment of Receipt

A signed copy of this Award Agreement was received on ________________.    

By:

Committee signature

[NAME]:

Has complied with the conditions imposed on the grant and the Award and the Award Agreement remains in effect; or

Has not complied with the conditions imposed on the grant and the Award and the Award Agreement are revoked as of the Grant Date because

describe deficiency

Air Transport Services Group 2005 Long-Term Incentive Plan Committee

By:

Date:

Note:Send a copy of this completed form to W. Joseph Payne and keep a copy as part of the Plan’s permanent records.

6

AIR TRANSPORT SERVICES GROUP

AMENDED AND RESTATED

2005 LONG-TERM INCENTIVE PLAN
BENEFICIARY DESIGNATION FORM

RELATING TO RESTRICTED STOCK UNITS ISSUED TO

[NAME] ON [DATE]

Instructions for Completing This Form

You may use this form to [1] name the person you want to receive any amount due under the Air Transport Services Group 2005 Long-Term Incentive Plan after your death or [2] change the person who will receive these benefits.

There are several things you should know before you complete this form.

First, if you do not elect another Beneficiary, any amount due to you under the Plan when you die will be paid to your surviving spouse or, if you have no surviving spouse, to your estate.

Second, your election will not be effective (and will not be implemented) unless you complete all applicable portions of this form.

Third, your election will be effective only if this form is completed properly and returned to W. Joseph Payne at the address given below.

Fourth, all elections will remain in effect until they are changed (or until all death benefits are paid).

Fifth, if you designate your spouse as your Beneficiary but are subsequently divorced from that person (or your marriage is annulled), your Beneficiary designation will be revoked automatically.

Sixth, if you have any questions about this form or if you need additional copies of this form, please contact W. Joseph Payne at (937) 382-5591 ext. 62686 or at the address given below.

7

1.00    Designation of Beneficiary

1.01Primary Beneficiary:

I designate the following persons as my Primary Beneficiary or Beneficiaries to receive any amount due under the Award Agreement described at the top of this form after my death. This benefit will be paid, in the proportion specified, to:

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

1.02 Contingent Beneficiary

If one or more of my Primary Beneficiaries dies before I die, I direct that any amount due under the Award Agreement described at the top of this form after my death:

_____ Be paid to my other named Primary Beneficiaries in proportion to the allocation given above (ignoring the interest allocated to the deceased Primary Beneficiary); or

_____ Be distributed among the following Contingent Beneficiaries.

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

% to

(Name)    (Relationship)

Address:

8

****

Elections made on this form will be effective only after this form is received by W. Joseph Payne and only if it is fully and properly completed and signed.

Name: [NAME]

Soc. Sec. No.:

Date of Birth:

Address:

Sign and return this form to W. Joseph Payne at the address given below

____________________________    __________________________________

Date                    Signature

Return this signed form to W. Joseph Payne at the following address:

W. Joseph Payne

Air Transport Services Group

145 Hunter Drive

Wilmington, Ohio 45177

Received on:

7/17/2013 17136928

By: __________________________

9

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Joseph C. Hete, certify that:

1. I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 12, 2014

/s/ JOSEPH C. HETE

Joseph C. Hete

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Quint O. Turner, certify that:

1. I have reviewed this report on Form 10-Q of Air Transport Services Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 12, 2014

/s/ QUINT O. TURNER

Quint O. Turner

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Joseph C. Hete, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

/S/ JOSEPH C. HETE

Joseph C. Hete

Chief Executive Officer

Date: May 12, 2014

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Air Transport Services Group, Inc. (the “Company”) on Form 10-Q for the quarter ending March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Quint O. Turner, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, as enacted by § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

A signed original of this written statement required by Section 906 has been provided to Air Transport Services Group, Inc. and will be retained by Air Transport Services Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ QUINT O. TURNER

Quint O. Turner

Chief Financial Officer

Date: May 12, 2014

XML

Property and Equipment (Schedule of Property and Equipment) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	$ 1,292,537	$ 1,290,329
Accumulated depreciation	(475,096)	(452,157)
Property and equipment, net	817,441	838,172
Aircraft and flight equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	1,238,297	1,236,225
Support equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	51,319	51,179
Vehicles and other equipment [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	1,787	1,771
Leasehold improvements [Member]
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	$ 1,134	$ 1,154

XML

Derivative Instruments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 May 9, 2016 [Member] Swap [Member]	Dec. 31, 2013 May 9, 2016 [Member] Swap [Member]	Jul. 31, 2011 May 9, 2016 [Member] Swap [Member]	Mar. 31, 2014 June 30, 2017 [Member] [Member] Swap [Member]	Dec. 31, 2013 June 30, 2017 [Member] [Member] Swap [Member]	Jun. 30, 2013 June 30, 2017 [Member] [Member] Swap [Member]
Derivative [Line Items]
Stated Interest Rate			2.02%			1.1825%
Net gain on derivative instruments	$ (299)	$ (290)
Market Value (Liability)			(1,765)	(1,988)		(452)	(527)
Derivative Liability, Notional Amount			$ 63,750	$ 65,625	$ 75,000	$ 63,750	$ 65,625	$ 65,625

XML

Pension and Other Post-Retirement Benefit Plans (Net Periodic Benefit Costs) (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Pension Plans [Member]
Defined Benefit Plan, Net Periodic Benefit Cost [Abstract]
Service cost	$ 0	$ 0
Interest cost	9,879,000	8,989,000
Expected return on plan assets	(11,528,000)	(11,498,000)
Amortization of prior service cost	0	0
Amortization of net (gain) loss	(1,000)	3,074,000
Net periodic benefit cost	(1,650,000)	565,000
Employer contributions	705,000
Estimated future employer contributions	5,600,000
Post-Retirement Healthcare Plans [Member]
Defined Benefit Plan, Net Periodic Benefit Cost [Abstract]
Service cost	60,000	69,000
Interest cost	71,000	66,000
Expected return on plan assets	0	0
Amortization of prior service cost	(872,000)	(1,414,000)
Amortization of net (gain) loss	80,000	105,000
Net periodic benefit cost	$ (661,000)	$ (1,174,000)

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The Company's segment information from continuing operations is presented below (in thousands):

	Three Months Ending March 31,
	2014			2013
Total revenues:
CAM	$	40,635		$	38,969
ACMI Services	108,596			113,051
All other	26,808			26,254
Eliminate inter-segment revenues	(32,446		)	(34,995		)
Total	$	143,593		$	143,279
Customer revenues:
CAM	$	18,413		$	18,336
ACMI Services	108,596			111,315
All other	16,584			13,628
Total	$	143,593		$	143,279
Depreciation and amortization expense:
CAM	$	18,345		$	14,516
ACMI Services	6,835			6,138
All other	(201		)	266
Total	$	24,979		$	20,920
Segment earnings (loss):
CAM	$	14,440		$	16,873
ACMI Services	(7,046		)	(5,404		)
All other	3,017			2,181
Net unallocated interest expense	(379		)	(348		)
Net gain (loss) on derivative instruments	299			290
Pre-tax earnings from continuing operations	$	10,331		$	13,592

Reconciliation of Assets from Segment to Consolidated

The Company's assets are presented below by segment (in thousands):

	March 31,		December 31,
	2014		2013
Assets:
CAM	$	792,220	$	808,987
ACMI Services	146,065		141,664
Discontinued operations	623		294
All other	89,137		82,194
Total	$	1,028,045	$	1,033,139

XML

Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2014

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

Depreciable lives are summarized as follows:

Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

Property and equipment, to be held and used, is summarized as follows (in thousands):

	March 31, 2014			December 31, 2013
Aircraft and flight equipment	$	1,238,297		$	1,236,225
Support equipment	51,319			51,179
Vehicles and other equipment	1,787			1,771
Leasehold improvements	1,134			1,154
	1,292,537			1,290,329
Accumulated depreciation	(475,096		)	(452,157		)
Property and equipment, net	$	817,441		$	838,172

XML

Stock-Based Compensation (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Outstanding at beginning of period (in shares)	1,477,762	1,463,272
Granted (in shares)	467,567	627,488
Converted (in shares)	(68,950)	(296,400)
Expired (in shares)	0	0
Forfeited (in shares)	(2,600)	(2,200)
Outstanding at end of period (in shares)	1,873,779	1,792,160
Vested (in shares)	517,379	533,560
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Outstanding at beginning of period, Weighted average grant-date fair value (in dollars per share)	$ 5.83	$ 5.97
Granted, Weighted average grant-date fair value (in dollars per share)	$ 7.52	$ 5.73
Converted, Weighted average grant-date fair value (in dollars per share)	$ 11.17	$ 4.80
Expired, Weighted average grant-date fair value (in dollars per share)	$ 0.00	$ 0.00
Forfeited, Weighted average grant-date fair value (in dollars per share)	$ 5.79	$ 5.99
Outstanding at end of period, Weighted average grant-date fair value (in dollars per share)	$ 6.06	$ 6.08
Vested (in dollars per share)	$ 5.27	$ 4.91
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Share-based compensation expense	$ 0.6	$ 0.6
Unrecognized share-based compensation expense	$ 5.5
Unrecognized share-based compensation, weighted average recognition period	1 year 9 months
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Granted, Weighted average grant-date fair value (in dollars per share)	$ 7.44
Stock Units [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	3 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Historical volatility period	3 years
Risk-free interest rate	0.80%
Expected volatility rate	48.90%
Market Condition Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Granted, Weighted average grant-date fair value (in dollars per share)	$ 7.83
Performance Condition Award [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Granted, Weighted average grant-date fair value (in dollars per share)	$ 7.44
Time-Based Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Roll Forward]
Granted, Weighted average grant-date fair value (in dollars per share)	$ 7.44
Time-Based Awards [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Number of additional outstanding shares issued (in shares)	2,213,679
Director [Member] | Time-Based Awards [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	6 months
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Vested (in shares)	517,379
Director [Member] | Time-based Awards Second [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Requisite service period	12 months

XML

Debt Obligations (Narrative) (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	May 06, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Long term obligations	$ 374,591,000		$ 384,515,000
Unsubordinated term loan and Revolving credit facility [Member]
Debt Instrument [Line Items]
Collateral coverage percentage	150.00%
Debt Instrument, Collateral, Coverage Percentage Total Revolver	175.00%
Debt Instrument, Collateral, Coverage Percentage Minimum	50.00%
Unsubordinated term loan [Member]
Debt Instrument [Line Items]
Long term obligations	127,500,000		131,250,000
Variable interest rate	2.54%
Revolving credit facility [Member]
Debt Instrument [Line Items]
Long term obligations	188,000,000		190,500,000
Accordion feature amount		50,000,000
Increased borrowing capacity	275,000,000
Variable interest rate	2.54%
Credit facility, revolving credit loan, remaining borrowing capacity	76,800,000
Letters of credit outstanding	10,200,000
Aircraft loans [Member]
Debt Instrument [Line Items]
Long term obligations	52,891,000		55,015,000
Collateralized property (in aircrafts)	6
Balloon payment percentage	20.00%
Variable interest rate, minimum	6.74%
Variable interest rate, maximum	7.36%
Promissory note due to DHL, unsecured [Member]
Debt Instrument [Line Items]
Long term obligations	6,200,000		7,750,000
Promissory note interest rate	5.00%
Prepayment of note per dollar of dividend distributed (in dollars per dividend)	0.20
Maximum [Member] | Unsubordinated term loan and Revolving credit facility [Member]
Debt Instrument [Line Items]
Maximum amount of common stock authorized for repurchase	$ 50,000,000

XML

Goodwill and Other Intangibles (Schedule Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 ReportingUnits
Finite and Indefinite-lived Intangible Assets by Major Class [Line Items]
Number of business units reporting goodwill (in reporting units)	1
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Carrying value at beginning of period	$ 4,896
Carrying value at end of period	4,826
ACMI Services [Member]
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Carrying value at beginning of period	4,896
Amortization expense	(70)
Carrying value at end of period	4,826
ACMI Services [Member] | Customer Relationships [Member]
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Carrying value at beginning of period	1,896
Amortization expense	(70)
Carrying value at end of period	1,826
Intangibles useful life	7 years
ACMI Services [Member] | Airline Certificates [Member]
Finite and Indefinite-lived Intangible Assets [Roll Forward]
Carrying value at beginning of period	3,000
Amortization expense	0
Carrying value at end of period	$ 3,000

XML

Segment Information (Segment Reconciliation) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Segment Reporting Information [Line Items]
Customer revenues	$ 143,593	$ 143,279
Depreciation and amortization expense	24,979	20,920
Net unallocated interest expense	(3,823)	(3,132)
Net gain on derivative instruments	299	290
Pre-tax earnings from continuing operations	10,331	13,592
Assets	1,028,045		1,033,139
Customer Revenues [Member]
Segment Reporting Information [Line Items]
Customer revenues	143,593	143,279
CAM [Member]
Segment Reporting Information [Line Items]
Customer revenues	40,635	38,969
Depreciation and amortization expense	18,345	14,516
Segment earnings (loss)	14,440	16,873
Net unallocated interest expense	(3,300)	(2,600)
Assets	792,220		808,987
CAM [Member] | Customer Revenues [Member]
Segment Reporting Information [Line Items]
Customer revenues	18,413	18,336
ACMI Services [Member]
Segment Reporting Information [Line Items]
Customer revenues	108,596	113,051
Depreciation and amortization expense	6,835	6,138
Segment earnings (loss)	(7,046)	(5,404)
Net unallocated interest expense	(100)	(200)
Assets	146,065		141,664
ACMI Services [Member] | Customer Revenues [Member]
Segment Reporting Information [Line Items]
Customer revenues	108,596	111,315
All other [Member]
Segment Reporting Information [Line Items]
Customer revenues	26,808	26,254
Depreciation and amortization expense	(201)	266
Segment earnings (loss)	3,017	2,181
Assets	89,137		82,194
All other [Member] | Customer Revenues [Member]
Segment Reporting Information [Line Items]
Customer revenues	16,584	13,628
Discontinued operations [Member]
Segment Reporting Information [Line Items]
Assets	623		294
Significant Reconciling Items [Member]
Segment Reporting Information [Line Items]
Net unallocated interest expense	(379)	(348)
Eliminate inter-segment revenues [Member]
Segment Reporting Information [Line Items]
Customer revenues	$ (32,446)	$ (34,995)

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Income Taxes (Narrative) (Details)	3 Months Ended
	Mar. 31, 2014
Income Tax Disclosure [Abstract]
Effective income tax rate	(36.90%)

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Goodwill and Other Intangibles

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangibles

GOODWILL AND OTHER INTANGIBLES

The Company has one reporting unit that has goodwill, CAM. The carrying amounts of goodwill are as follows (in thousands):

	CAM		Total
Carrying value as of December 31, 2013	$	34,395	$	34,395
Carrying value as of March 31, 2014	$	34,395	$	34,395

The Company's intangible assets relate to the ACMI Services segment and are as follows (in thousands):

	Customer			Airline
	Relationships			Certificates		Total
Carrying value as of December 31, 2013	$	1,896		$	3,000	$	4,896
Amortization	(70		)	—		(70		)
Carrying value as of March 31, 2014	$	1,826		$	3,000	$	4,826

The customer relationship intangible amortizes over seven more years. The airline certificates have an indefinite life and therefore are not amortized.

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Commitments and Contingencies (Operating Lease Payments) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 sqft
Operating Leased Assets [Line Items]
Aircraft hanger square feet	100,000
Cost of aircraft hanger	$ 15.7
Boeing 767 Aircraft [Member]
Operating Leased Assets [Line Items]
Number of leased aircrafts	6

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Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Interest Rate Derivatives

The table below provides information about the Company’s interest rate swaps (in thousands):

			March 31, 2014			December 31, 2013
Expiration Date	Stated Interest Rate		Notional Amount	Market Value (Liability)		Notional Amount	Market Value (Liability)
May 9, 2016	2.020	%	63,750	(1,765	)	65,625	(1,988	)
June 30, 2017	1.183	%	63,750	(452	)	65,625	(527	)

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Pension and Other Post-Retirement Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Schedule of Net Benefit Costs

The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):

	Three Months Ended March 31,
	Pension Plans						Post-Retirement Healthcare Plan
	2014			2013			2014			2013
Service cost	$	—		$	—		$	60		$	69
Interest cost	9,879			8,989			71			66
Expected return on plan assets	(11,528		)	(11,498		)	—			—
Amortization of prior service cost	—			—			(872		)	(1,414		)
Amortization of net (gain) loss	(1		)	3,074			80			105
Net periodic benefit cost	$	(1,650	)	$	565		$	(661	)	$	(1,174	)

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Commitments and Contingencies (Litigation) (Details) (Brussels Instituut voor Milieubeheer [Member]) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 USD ($)	Mar. 31, 2014 EUR (€)
Loss Contingencies [Line Items]
Administrative penalty amount	$ 0.5	€ 0.4

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2014

Other Comprehensive Income [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ended March 31, 2014 and 2013 (in thousands):

	Defined Benefit Pension		Defined Benefit Post-Retirement		Gains and Losses on Derivative		Total
Balance as of December 31, 2012	(121,602	)	4,277		38		(117,287	)
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)	3,074		104		—		3,178
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(1,413	)	—		(1,413	)
Hedging gain (reclassified to interest expense)	—		—		(13	)	(13	)
Income Tax (Expense) or Benefit	(1,116	)	475		5		(636	)
Other comprehensive income (loss), net of tax	1,958		(834	)	(8	)	1,116
Balance as of March 31, 2013	(119,644	)	3,443		30		(116,171	)
Balance as of December 31, 2013	(31,072	)	1,245		9		(29,818	)
Amounts reclassified from accumulated other comprehensive income
Actuarial costs (reclassified to salaries, wages and benefits)	(1	)	80		—		79
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(872	)	—		(872	)
Hedging gain (reclassified to interest expense)	—		—		(11	)	(11	)
Income Tax (Expense) or Benefit	—		288		4		292
Other comprehensive income (loss), net of tax	(1	)	(504	)	(7	)	(512	)
Balance as of March 31, 2014	(31,073	)	741		2		(30,330	)

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Equity Instruments Other Than Options, Activity

The table below summarizes award activity.

	Three Month Ended
	March 31, 2014				March 31, 2013
	Number of Awards		Weighted average grant-date fair value		Number of Awards		Weighted average grant-date fair value
Outstanding at beginning of period	1,477,762		$	5.83	1,463,272		$	5.97
Granted	467,567		7.52		627,488		5.73
Converted	(68,950	)	11.17		(296,400	)	4.80
Expired	—		—		—		—
Forfeited	(2,600	)	5.79		(2,200	)	5.99
Outstanding at end of period	1,873,779		$	6.06	1,792,160		$	6.08
Vested	517,379		$	5.27	533,560		$	4.91

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Significant Customers

3 Months Ended

Mar. 31, 2014

Significant Customers [Abstract]

Significant Customers

SIGNIFICANT CUSTOMERS

DHL

The Company's largest customer is DHL Network Operations (USA), Inc. and its affiliates ("DHL"). The Company has had long term contracts with DHL since August 2003. Revenues from continuing operations performed for DHL were approximately 56% and 53% of the Company's consolidated revenues from continuing operations for the three month periods ended March 31, 2014 and 2013, respectively. The Company’s balance sheets include accounts receivable with DHL of $25.7 million and $24.1 million as of March 31, 2014 and December 31, 2013, respectively.

The Company leases Boeing 767 aircraft to DHL under both long-term and short-term lease agreements. Under a separate crew, maintenance and insurance (“CMI”) agreement, the Company operates Boeing 767 aircraft that DHL leases from the Company and Boeing 767 aircraft that DHL owns. Pricing for services provided through the CMI agreement is based on pre-defined fees, scaled for the number of aircraft operated and the number of flight crews provided to DHL for its U.S. network. The Company provides DHL with scheduled maintenance services for aircraft that DHL leases or owns. The Company also provides Boeing 767 and Boeing 757 air cargo transportation services for DHL through additional ACMI agreements in which the Company provides the aircraft, crews, maintenance and insurance under a single contract. Revenues generated from the ACMI agreements are typically based on hours flown. The Company also provides ground equipment, such as power units, air starts and related maintenance services to DHL under separate agreements.

U.S. Military

A substantial portion of the Company's revenues are also derived from the U.S. Military. The U.S. Military awards flights to U.S. certificated airlines through annual contracts and through temporary "expansion" routes. Revenues from services performed for the U.S. Military were approximately 16% and 18% of the Company's total revenues from continuing operations for the three month periods ended March 31, 2014 and 2013, respectively. The Company's balance sheets included accounts receivable with the U.S. Military of $4.8 million and $4.8 million as of March 31, 2014 and December 31, 2013, respectively.

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The calculation of basic and diluted earnings per common share follows (in thousands, except per share amounts):

	Three Months Ending March 31,
	2014		2013
Earnings (loss) from continuing operations	$	6,522	$	8,501
Weighted-average shares outstanding for basic earnings per share	64,148		63,810
Common equivalent shares:
Effect of stock-based compensation awards	993		714
Weighted-average shares outstanding assuming dilution	65,141		64,524
Basic earnings (loss) per share from continuing operations	$	0.10	$	0.13
Diluted earnings (loss) per share from continuing operations	$	0.10	$	0.13

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Property and Equipment (Narrative) (Details) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Property, Plant and Equipment [Line Items]
Aircraft and engines held for sale	$ 2,487,000	$ 2,995,000
CAM [Member] | Aircraft and flight equipment [Member]
Property, Plant and Equipment [Line Items]
Leased aircraft, carrying value	256,600,000	250,900,000
Boeing 727 and DC-8 aircraft and flight equipment [Member] | Aircraft and flight equipment [Member]
Property, Plant and Equipment [Line Items]
Aircraft and engines held for sale	$ 2,500,000	$ 3,000,000

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Segment Information (Narrative) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 segments	Mar. 31, 2013
Segment Reporting Information [Line Items]
Number of reportable segments (in segments)	2
Interest expense	$ 3,823	$ 3,132
ACMI Services [Member]
Segment Reporting Information [Line Items]
Interest expense	100	200
CAM [Member]
Segment Reporting Information [Line Items]
Interest expense	$ 3,300	$ 2,600

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
CURRENT ASSETS:
Cash and cash equivalents	$ 27,102	$ 31,699
Accounts receivable, net of allowance of $698 in 2014 and $717 in 2013	50,827	52,247
Inventory	10,608	9,050
Prepaid supplies and other	12,754	9,730
Deferred income taxes	13,957	13,957
Aircraft and engines held for sale	2,487	2,995
TOTAL CURRENT ASSETS	117,735	119,678
Property and equipment, net	817,441	838,172
Other assets	36,761	21,143
Pension assets, net of obligations	16,887	14,855
Intangibles	4,826	4,896
Goodwill	34,395	34,395
TOTAL ASSETS	1,028,045	1,033,139
CURRENT LIABILITIES:
Accounts payable	30,361	34,818
Accrued salaries, wages and benefits	23,400	23,163
Accrued expenses	9,497	9,695
Current portion of debt obligations	23,873	23,721
Unearned revenue	8,887	8,733
TOTAL CURRENT LIABILITIES	96,018	100,130
Long term debt	350,718	360,794
Post-retirement obligations	30,207	30,638
Other liabilities	62,243	62,740
Deferred income taxes	113,273	109,869
TOTAL LIABILITIES	652,459	664,171
Commitments and contingencies (Note G)
STOCKHOLDERS’ EQUITY:
Preferred stock, 20,000,000 shares authorized, including 75,000 Series A Junior Participating Preferred Stock	0	0
Common stock, par value $0.01 per share; 75,000,000 shares authorized; 64,850,537 and 64,618,305 shares issued and outstanding in 2014 and 2013, respectively	649	646
Additional paid-in capital	525,347	524,953
Accumulated deficit	(120,080)	(126,813)
Accumulated other comprehensive loss	(30,330)	(29,818)
TOTAL STOCKHOLDERS’ EQUITY	375,586	368,968
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 1,028,045	$ 1,033,139

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Commitments and Contingencies (Labor Unions) (Details) (Workforce Subject to Collective Bargaining Arrangements [Member], Labor Unions [Member])	3 Months Ended
	Mar. 31, 2014
ABX [Member]
Concentration Risk [Line Items]
Percentage of the Company's Employees	14.60%
ATI [Member]
Concentration Risk [Line Items]
Percentage of the Company's Employees	6.90%

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
OPERATING ACTIVITIES:
Net earnings from continuing operations	$ 6,522	$ 8,501
Net loss from discontinued operations	211	(1)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization	24,979	20,920
Pension and post-retirement	(793)	1,765
Deferred income taxes	3,696	5,005
Amortization of stock-based compensation	570	626
Amortization of DHL promissory note	(1,550)	(1,550)
Net gain on derivative instruments	(299)	(290)
Changes in assets and liabilities:
Accounts receivable	1,650	4,720
Inventory and prepaid supplies	(5,045)	1,263
Accounts payable	(3,627)	(1,866)
Unearned revenue	(1,371)	(1,261)
Accrued expenses, salaries, wages, benefits and other liabilities	209	(494)
Pension and post-retirement assets	(2,463)	(5,610)
Other	(887)	(1,078)
NET CASH PROVIDED BY OPERATING ACTIVITIES	21,802	30,650
INVESTING ACTIVITIES:
Capital expenditures	(4,362)	(59,369)
Proceeds from property and equipment	190	158
Reimbursement of Hanger Construction Costs	(1,147)	(1,119)
Investment in non-controlling affiliate	(15,000)	0
NET CASH (USED IN) INVESTING ACTIVITIES	(19,172)	(59,211)
FINANCING ACTIVITIES:
Principal payments on long term obligations	(23,374)	(12,858)
Proceeds from borrowings	15,000	60,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(7,227)	48,261
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(4,597)	19,700
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	31,699	15,442
CASH AND CASH EQUIVALENTS AT END OF PERIOD	27,102	35,142
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid, net of amount capitalized	3,616	2,739
Federal alternative minimum and state income taxes paid	55	100
SUPPLEMENTAL NON-CASH INFORMATION:
Debt extinguished	1,550	1,550
Accrued capital expenditures	$ 225	$ 5,867

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Significant Customers (Details) (USD $) In Thousands, unless otherwise specified			3 Months Ended				3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2014 DHL [Member] Revenues from Leases and Contracted Services [Member] Customer Concentration Risk [Member]	Mar. 31, 2013 DHL [Member] Revenues from Leases and Contracted Services [Member] Customer Concentration Risk [Member]	Mar. 31, 2014 DHL [Member] Accounts Receivable [Member]	Dec. 31, 2013 DHL [Member] Accounts Receivable [Member]	Mar. 31, 2014 US Military [Member] Revenues from Services Performed [Member] Customer Concentration Risk [Member]	Mar. 31, 2013 US Military [Member] Revenues from Services Performed [Member] Customer Concentration Risk [Member]	Mar. 31, 2014 US Military [Member] Accounts Receivable [Member]	Dec. 31, 2013 US Military [Member] Accounts Receivable [Member]
Concentration Risk [Line Items]
Percentage of consolidated revenues			56.00%	53.00%			16.00%	18.00%
Accounts receivable	$ 50,827	$ 52,247			$ 25,700	$ 24,100			$ 4,800	$ 4,800

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Summary of Financial Statement Preparation and Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Property, Plant and Equipment

Depreciable lives are summarized as follows:

Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

Property and equipment, to be held and used, is summarized as follows (in thousands):

	March 31, 2014			December 31, 2013
Aircraft and flight equipment	$	1,238,297		$	1,236,225
Support equipment	51,319			51,179
Vehicles and other equipment	1,787			1,771
Leasehold improvements	1,134			1,154
	1,292,537			1,290,329
Accumulated depreciation	(475,096		)	(452,157		)
Property and equipment, net	$	817,441		$	838,172

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Goodwill and Other Intangibles (Schedule of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Goodwill [Roll Forward]
Carrying value, beginning balance	$ 34,395	$ 34,395
Carrying value, ending balance	34,395	34,395
CAM [Member]
Goodwill [Roll Forward]
Carrying value, beginning balance	34,395	34,395
Carrying value, ending balance	$ 34,395	$ 34,395

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):

As of March 31, 2014	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	2,304		$	—	$	2,324
Total Assets	$	20	$	2,304		$	—	$	2,324
Liabilities
Interest rate swap	$	—	$	(2,217	)	$	—	$	(2,217	)
Total Liabilities	$	—	$	(2,217	)	$	—	$	(2,217	)

As of December 31, 2013	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	301		$	—	$	321
Total Assets	$	20	$	301		$	—	$	321
Liabilities
Interest rate swap	$	—	$	(2,515	)	$	—	$	(2,515	)
Total Liabilities	$	—	$	(2,515	)	$	—	$	(2,515	)

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Summary of Financial Statement Preparation and Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Summary of Financial Statement Preparation and Significant Accounting Policies

SUMMARY OF FINANCIAL STATEMENT PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Air Transport Services Group, Inc. is a holding company whose principal subsidiaries include an aircraft leasing company and two independently certificated airlines. The Company provides airline operations, aircraft leases, aircraft maintenance and other support services primarily to the cargo transportation and package delivery industries. Through the Company's subsidiaries, it offers a range of complementary services to delivery companies, freight forwarders, airlines and government customers.

The airlines, ABX Air, Inc. (“ABX”) and Air Transport International, Inc. (“ATI”), each have the authority, through their separate U.S. Department of Transportation ("DOT") and Federal Aviation Administration ("FAA") certificates, to transport cargo worldwide. The Company's leasing subsidiary, Cargo Aircraft Management, Inc. (“CAM”), leases aircraft to each of the Company's airlines as well as to non-affiliated airlines and other lessees.

The Company provides aircraft and airline operations to its customers, typically under contracts providing for a combination of aircraft, crews, maintenance and insurance ("ACMI") services. The Company serves a base of concentrated customers who have a diverse line of international cargo traffic. DHL Network Operations (USA), Inc. and its affiliates, “DHL,” is the Company's largest customer. ATI provides passenger transportation, primarily to the U.S. Military, using "combi" aircraft, which are certified to carry passengers as well as cargo on the main deck.

In addition to its airline operations and aircraft leasing services, the Company sells aircraft parts, provides aircraft and equipment maintenance services, and operates mail sorting facilities for the U.S. Postal Service (“USPS”).

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions have been eliminated. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Estimates and assumptions are used to record allowances for uncollectible amounts, self-insurance reserves, spare parts inventory, depreciation and impairments of property, equipment, goodwill and intangibles, post-retirement obligations, income taxes, contingencies and litigation. Changes in estimates and assumptions may have a material impact on the consolidated financial statements.

Investment in Nonconsolidated Affiliate

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of approximately 40 aircraft and is Europe’s largest regional cargo aircraft operator. West operates its aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 737 aircraft. In addition, Atlantic Airlines Ltd. is currently adding the Boeing 767 aircraft to its operating capability.

The Company does not exercise control over West. Accordingly, the investment in West is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the West’s income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. The Company’s carrying value of West is reflected in “Other Assets” in the Company’s consolidated balance sheets.

Cash and Cash Equivalents

The Company classifies short-term, highly liquid investments with maturities of three months or less at the time of purchase as cash and cash equivalents. These investments, consisting of money market funds, are recorded at cost, which approximates fair value. Substantially all deposits of the Company’s cash are held in accounts that exceed federally insured limits. The Company deposits cash in common financial institutions which management believes are financially sound.

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note B), other airlines, the USPS and freight forwarders. The Company performs a quarterly evaluation of the accounts receivable and the allowance for uncollectible accounts by reviewing specific customers' recent payment history, growth prospects, financial condition and other factors that may impact a customer's ability to pay. The Company establishes an allowance for uncollectible accounts for probable losses due to a customer's potential inability or unwillingness to make contractual payments. Account balances are written off against the allowance when the Company ceases collection efforts.

Inventory

The Company’s inventory is comprised primarily of expendable aircraft parts and supplies used for aircraft maintenance. Inventory is generally charged to expense when issued for use on a Company aircraft. The Company values its inventory of aircraft parts and supplies at weighted-average cost and maintains a related obsolescence reserve. The Company records an obsolescence reserve on a base stock of inventory for each fleet type. The amortization of base stock for the obsolescence reserve corresponds to the expected life of each fleet type. Additionally, the Company monitors the usage rates of inventory parts and segregates parts that are technologically outdated or no longer used in its fleet types. Slow moving and segregated items are actively marketed and written down to their estimated net realizable values based on market conditions.

Management analyzes the inventory reserve for reasonableness at the end of each quarter. That analysis includes consideration of the expected fleet life, amounts expected to be on hand at the end of a fleet life, and recent events and conditions that may impact the usability or value of inventory. Events or conditions that may impact the expected life, usability or net realizable value of inventory include additional aircraft maintenance directives from the FAA, changes in DOT regulations, new environmental laws and technological advances.

Goodwill and Intangible Assets

The Company assesses, during the fourth quarter of each year, the carrying value of goodwill. Finite-lived intangible assets are amortized over their estimated useful economic lives. The Company also conducts impairment assessments of goodwill, indefinite-lived intangible assets and finite-lived intangible assets whenever events or changes in circumstance indicate an impairment may have occurred.

Property and Equipment

Property and equipment held for use is stated at cost, net of any impairment recorded. The cost and accumulated depreciation of disposed property and equipment are removed from the accounts with any related gain or loss reflected in earnings from operations.

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s useful life or lease term. Depreciable lives are summarized as follows:

Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

The Company periodically evaluates the useful lives, salvage values and fair values of property and equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result from changes in the estimated useful lives of assets due to a number of reasons, such as excess aircraft capacity or changes in regulations governing the use of aircraft.

Aircraft and other long-lived assets are tested for impairment when circumstances indicate the carrying value of the assets may not be recoverable. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable. For assets held for sale, impairment is recognized when the fair value less the cost to sell the asset is less than the carrying value.

The Company’s accounting policy for major airframe and engine maintenance varies by subsidiary and aircraft type. The costs for ABX's Boeing 767-200 airframe maintenance, which is the majority of the Company's aircraft fleet, are expensed as they are incurred. The costs of major airframe maintenance for the Company's other aircraft are capitalized and amortized over the useful life of the overhaul. The Company's General Electric CF6 engines that power the Boeing 767-200 aircraft are maintained under “power by the hour” agreements with an engine maintenance provider. Under the power by the hour agreements, the engines are maintained by the service provider for a fixed fee per flight hour; accordingly, the cost of engine maintenance is generally expensed as flight hours occur. Maintenance for the airlines’ other aircraft engines, including those on the Boeing 767-300 and Boeing 757 aircraft, are typically contracted to service providers on a time and material basis and the costs of those engine overhauls are capitalized and amortized over the useful life of the overhaul.

Under certain leases, the Company is required to make periodic payments to the lessor for future maintenance events such as engine overhauls and major airframe maintenance. These payments are recorded as deposits until drawn for qualifying maintenance costs. The maintenance costs are expensed or capitalized in accordance with the airline's accounting policy for major airframe and engine maintenance. The Company evaluates at the balance sheet date, whether it is probable that an amount on deposit will be returned by the lessor to reimburse the costs of the maintenance activities. When an amount on deposit is less than probable of being returned, it is recognized as additional maintenance expense. 

Capitalized Interest

Interest costs incurred while aircraft are being modified are capitalized as an additional cost of the aircraft until the date the asset is placed in service. Capitalized interest was $0.1 million and $0.7 million for the three month periods ending March 31, 2014 and 2013, respectively.

Self-Insurance

The Company is self-insured for certain workers’ compensation, employee healthcare, automobile, aircraft, and general liability claims. The Company maintains excess claim coverage with common insurance carriers to mitigate its exposure to large claim losses. The Company records a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Other liabilities included $27.9 million and $28.3 million at March 31, 2014 and December 31, 2013, respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims being materially different than the costs accrued.

Pension and Post-Retirement Benefits

The costs of benefits provided by defined benefits pension and post-retirement health care plans are recorded in the period the employees provide service. Costs adjustments for plan amendments are amortized over the expected working life or the life expectancy of plan participants. The funded status of the Company's plans is measured as the difference between the fair value of plan assets and the accumulated benefit obligations to plan participants. The overfunded or underfunded status of a plan is recorded as an asset or liability. The funded status is ordinarily measured annually at year end.

Income Taxes

Income taxes have been computed using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

The Company recognizes the benefit of a tax position taken on a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. An uncertain income tax benefit is not recognized if it has a less than a 50% likelihood of being sustained. The Company recognizes interest and penalties accrued related to uncertain tax positions in operating expense.

Comprehensive Income

Comprehensive income includes net earnings and other comprehensive income or loss. Other comprehensive income or loss results from certain changes in the Company’s liabilities for pension and other post-retirement benefits and gains and losses associated with interest rate hedging instruments.

Fair Value Information

Assets or liabilities that are required to be measured at fair value are reported using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820-10 Fair Value Measurements and Disclosures establishes three levels of input that may be used to measure fair value:

• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation.

Revenue Recognition

Revenues generated from airline service agreements are typically recognized based on hours flown or the amount of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Revenues from the sale of aircraft parts and engines are recognized when the parts are delivered. Revenues earned and expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period in which the services are completed and delivered to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which the services are performed.

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The objective of the update is to change the requirements for reporting discontinued operations in Subtopic 205-20. It is effective in the first quarter of 2015, and the impact to the consolidated financial statements is not expected to be material.

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets, Current [Abstract]
Allowance for doubtful accounts	$ 698	$ 717
Stockholders' Equity Attributable to Parent [Abstract]
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	75,000,000	75,000,000
Common stock, shares issued (in shares)	64,850,537	64,618,305
Common stock, shares outstanding (in shares)	64,850,537	64,618,305
Preferred Stock [Member]
Stockholders' Equity Attributable to Parent [Abstract]
Preferred stock, shares authorized (in shares)	20,000,000	20,000,000
Series A Junior Participating Preferred Stock [Member]
Stockholders' Equity Attributable to Parent [Abstract]
Preferred stock, shares authorized (in shares)	75,000	75,000

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2014

Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) includes the following items by components for the three month periods ended March 31, 2014 and 2013 (in thousands):

	Defined Benefit Pension		Defined Benefit Post-Retirement		Gains and Losses on Derivative		Total
Balance as of December 31, 2012	(121,602	)	4,277		38		(117,287	)
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)	3,074		104		—		3,178
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(1,413	)	—		(1,413	)
Hedging gain (reclassified to interest expense)	—		—		(13	)	(13	)
Income Tax (Expense) or Benefit	(1,116	)	475		5		(636	)
Other comprehensive income (loss), net of tax	1,958		(834	)	(8	)	1,116
Balance as of March 31, 2013	(119,644	)	3,443		30		(116,171	)
Balance as of December 31, 2013	(31,072	)	1,245		9		(29,818	)
Amounts reclassified from accumulated other comprehensive income
Actuarial costs (reclassified to salaries, wages and benefits)	(1	)	80		—		79
Negative prior service cost (reclassified to salaries, wages and benefits)	—		(872	)	—		(872	)
Hedging gain (reclassified to interest expense)	—		—		(11	)	(11	)
Income Tax (Expense) or Benefit	—		288		4		292
Other comprehensive income (loss), net of tax	(1	)	(504	)	(7	)	(512	)
Balance as of March 31, 2014	(31,073	)	741		2		(30,330	)

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Document and Entity Information (USD $)	3 Months Ended
	Mar. 31, 2014	May 12, 2014	Jun. 30, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	Air Transport Services Group, Inc.
Entity Central Index Key	0000894081
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		64,947,495
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 344,217,832

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

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

	Three Month Ended
	March 31, 2014				March 31, 2013
	Number of Awards		Weighted average grant-date fair value		Number of Awards		Weighted average grant-date fair value
Outstanding at beginning of period	1,477,762		$	5.83	1,463,272		$	5.97
Granted	467,567		7.52		627,488		5.73
Converted	(68,950	)	11.17		(296,400	)	4.80
Expired	—		—		—		—
Forfeited	(2,600	)	5.79		(2,200	)	5.99
Outstanding at end of period	1,873,779		$	6.06	1,792,160		$	6.08
Vested	517,379		$	5.27	533,560		$	4.91

The average grant-date fair value of each performance condition award, non-vested restricted stock award and time-based award granted by the Company in 2014 was $7.44, the fair value of the Company’s stock on the date of grant. The average grant-date fair value of each market condition award granted in 2014 was $7.83. The market condition awards were valued using a Monte Carlo simulation technique, a risk-free interest rate of 0.8% and a volatility of 48.9% based on volatility over three years using daily stock prices.

For the years ended March 31, 2014 and 2013, the Company recorded expense of $0.6 million and $0.6 million, respectively, for stock incentive awards. At March 31, 2014, there was $5.5 million of unrecognized expense related to the stock incentive awards that is expected to be recognized over a weighted-average period of 1.8 years. As of March 31, 2014, none of the awards were convertible, 517,379 units of the Board members time-based awards had vested and none of the outstanding shares of the restricted stock had vested. These awards could result in a maximum number of 2,213,679 additional outstanding shares of the Company’s common stock depending on service, performance and market results through December 31, 2016.

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Consolidated Statements of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
REVENUES	$ 143,593	$ 143,279
OPERATING EXPENSES
Salaries, wages and benefits	43,065	43,309
Fuel	12,260	14,361
Maintenance, materials and repairs	24,879	22,134
Depreciation and amortization	24,979	20,920
Travel	4,573	4,727
Rent	7,310	6,779
Landing and ramp	2,738	4,065
Insurance	1,205	1,511
Other operating expenses	8,748	9,060
Operating Expenses	129,757	126,866
OPERATING INCOME	13,836	16,413
OTHER INCOME (EXPENSE)
Interest income	19	21
Interest expense	(3,823)	(3,132)
Net gain on derivative instruments	299	290
Other Nonoperating Income (Expense)	(3,505)	(2,821)
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES	10,331	13,592
INCOME TAX EXPENSE	(3,809)	(5,091)
EARNINGS FROM CONTINUING OPERATIONS	6,522	8,501
EARNINGS (LOSS) FROM DISCONTINUED OPERATIONS, NET OF TAXES	211	(1)
NET EARNINGS	$ 6,733	$ 8,500
BASIC EARNINGS PER SHARE
Continuing operations (in dollars per share)	$ 0.10	$ 0.13
Discontinued operations (in dollars per share)	$ 0.00	$ 0.00
TOTAL BASIC EARNINGS PER SHARE (in dollars per share)	$ 0.10	$ 0.13
DILUTED EARNINGS PER SHARE
Continuing operations (in dollars per share)	$ 0.10	$ 0.13
Discontinued operations (in dollars per share)	$ 0.00	$ 0.00
TOTAL DILUTED NET EARNINGS PER SHARE (in dollars per share)	$ 0.10	$ 0.13
WEIGHTED AVERAGE SHARES
Basic (in shares)	64,148	63,810
Diluted (in shares)	65,141	64,524

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Debt Obligations

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Debt Obligations

DEBT OBLIGATIONS

Long term obligations consisted of the following (in thousands):

	March 31,			December 31,
	2014			2013
Unsubordinated term loan	$	127,500		$	131,250
Revolving credit facility	188,000			190,500
Aircraft loans	52,891			55,015
Promissory note due to DHL, unsecured	6,200			7,750
Total long term obligations	374,591			384,515
Less: current portion	(23,873		)	(23,721		)
Total long term obligations, net	$	350,718		$	360,794

The Company executed a syndicated credit agreement ("Senior Credit Agreement") in May 2011 which includes an unsubordinated term loan and a revolving credit facility. On May 6, 2014, the Company executed an amendment to the Senior Credit Agreement (the "Third Credit Amendment"). The Third Credit Amendment extends the maturity of the term loan and revolving credit facility to May 6, 2019, provides for annual, one year extension options, provides for an accordion feature whereby the Company can draw up to an additional $50.0 million subject to the lenders' consent, reduces the EBITDA-based pricing, eases requirements for stock dividends and stock buybacks and reduces the collateral requirements. The Senior Credit Agreement is collateralized by the Company's fleet of Boeing 767 and 757 aircraft that are not collateralized under the aircraft loans. Under the amended terms of the Senior Credit Agreement, the Company is required to maintain collateral coverage equal to 150% of the outstanding balances of the term loan and the revolving credit facility or 175% of the outstanding balance of the term loan and the total funded revolving credit facility, whichever is less. The minimum collateral coverage which must be maintained is 50% of the outstanding balance of the term loan plus the revolving credit facility commitment of $275.0 million. The Third Credit Amendment does not change the repayment terms of the Senior Credit Agreement. Beginning May 6, 2015, and each year thereafter through May 6, 2019, the Company may request a one year extension of the final maturity date, subject to the lenders' consent.

Under the terms of the Senior Credit Agreement, interest rates are adjusted quarterly based on the Company's earnings before interest, taxes, depreciation and amortization expenses ("EBITDA"), its outstanding debt level and prevailing LIBOR or prime rates. At the Company's current debt-to-EBITDA ratio, the LIBOR based financing for the unsubordinated term loan and revolving credit facility bear a variable interest rate of 2.535% and 2.535%, respectively. The Third Credit Amendment reduced the EBITDA-based pricing but did not affect the covenants of the Senior Credit Agreement other than the collateral covenant. The Senior Credit Agreement provides for the issuance of letters of credit on the Company's behalf. As of March 31, 2014, the unused revolving credit facility totaled $76.8 million, net of draws of $188.0 million and outstanding letters of credit of $10.2 million.

The aircraft loans are collateralized by six aircraft, and amortize monthly with a balloon payment of approximately 20% with maturities between 2016 and early 2018. Interest rates range from 6.74% to 7.36% per annum payable monthly.

The promissory note payable to DHL becomes due in August 2028 as a balloon payment, unless it is extinguished sooner under the terms of the CMI agreement. Beginning April 1, 2010 and extending through the term of the CMI agreement, the balance of the note is amortized ratably without cash payment in exchange for services provided and, thus, is expected to be completely amortized by April 2015. The promissory note bears interest at a rate of 5% per annum, and DHL reimburses ABX the interest expense from the note through the term of the CMI agreement.

The Senior Credit Agreement is collateralized by certain of the Company's Boeing 767 and 757 aircraft that are not collateralized under aircraft loans. The Senior Credit Agreement contains covenants including, among other things, limitations on certain additional indebtedness, guarantees of indebtedness, as well as a total debt to EBITDA ratio and a fixed charge coverage ratio. The Senior Credit Agreement stipulates events of default, including unspecified events that may have material adverse effects on the Company. If an event of default occurs, the Company may be forced to repay, renegotiate or replace the Senior Credit Agreement. The Senior Credit Agreement limits the amount of dividends the Company can pay and the amount of common stock it can repurchase to $50.0 million during any calendar year, provided the Company's total debt to EBITDA ratio is under 2.5 times, after giving effect to the dividend or repurchase. Under the provisions of its promissory note due to DHL, the Company is required to prepay the DHL note in the amount of $0.20 for each dollar of dividend distributed to its stockholders. The same prepayment stipulation applies to stock repurchases.

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Property and Equipment

3 Months Ended

Mar. 31, 2014

Property, Plant and Equipment [Abstract]

Property and Equipment

PROPERTY AND EQUIPMENT

The Company's property and equipment consists primarily of cargo aircraft, aircraft engines and flight equipment. Property and equipment, to be held and used, is summarized as follows (in thousands):

	March 31, 2014			December 31, 2013
Aircraft and flight equipment	$	1,238,297		$	1,236,225
Support equipment	51,319			51,179
Vehicles and other equipment	1,787			1,771
Leasehold improvements	1,134			1,154
	1,292,537			1,290,329
Accumulated depreciation	(475,096		)	(452,157		)
Property and equipment, net	$	817,441		$	838,172

CAM owned aircraft with a carrying value of $256.6 million and $250.9 million that were under leases to external customers as of March 31, 2014 and December 31, 2013, respectively.

The carrying value of Boeing 727 and DC-8 freighter aircraft and engines available for sale totaled $2.5 million and $3.0 million as of March 31, 2014 and December 31, 2013, respectively.

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Goodwill and Other Intangibles (Tables)

3 Months Ended

Mar. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The carrying amounts of goodwill are as follows (in thousands):

	CAM		Total
Carrying value as of December 31, 2013	$	34,395	$	34,395
Carrying value as of March 31, 2014	$	34,395	$	34,395

Schedule Intangible Assets by Major Class

The Company's intangible assets relate to the ACMI Services segment and are as follows (in thousands):

	Customer			Airline
	Relationships			Certificates		Total
Carrying value as of December 31, 2013	$	1,896		$	3,000	$	4,896
Amortization	(70		)	—		(70		)
Carrying value as of March 31, 2014	$	1,826		$	3,000	$	4,826

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Earnings Per Share

3 Months Ended

Mar. 31, 2014

Earnings Per Share [Abstract]

Earnings Per Share

EARNINGS PER SHARE

The calculation of basic and diluted earnings per common share follows (in thousands, except per share amounts):

	Three Months Ending March 31,
	2014		2013
Earnings (loss) from continuing operations	$	6,522	$	8,501
Weighted-average shares outstanding for basic earnings per share	64,148		63,810
Common equivalent shares:
Effect of stock-based compensation awards	993		714
Weighted-average shares outstanding assuming dilution	65,141		64,524
Basic earnings (loss) per share from continuing operations	$	0.10	$	0.13
Diluted earnings (loss) per share from continuing operations	$	0.10	$	0.13

The number of equivalent shares that were not included in weighted average shares outstanding assuming dilution, because their effect would have been anti-dilutive, was none and none at March 31, 2014 and 2013, respectively.

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Income Taxes

3 Months Ended

Mar. 31, 2014

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The provision for income taxes for interim periods is based on management's best estimate of the effective income tax rate expected to be applicable for the current year, plus any adjustments arising from changes in the estimated amount of taxable income related to prior periods. Income taxes recorded through March 31, 2014 have been estimated utilizing a 36.9% rate based upon year-to-date income and projected results for the full year. The final effective tax rate applied to 2014 will depend on the actual amount of pre-tax book income generated by the Company for the full year.

The Company has operating loss carryforwards for U.S. federal income tax purposes. Management expects to utilize the loss carryforwards to offset federal income tax liabilities in the future. Due to the Company's deferred tax assets, including its loss carryforwards, management does not expect to pay federal income taxes until 2016 or later. The Company may, however, be required to pay alternative minimum taxes and certain state and local income taxes before then.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases six Boeing 767 aircraft, airport facilities, office space, maintenance facilities and certain equipment under operating leases. In December 2012, the Company entered into agreements with the Clinton County Port Authority ("CCPA") to construct and lease an aircraft hangar in Wilmington, Ohio, adjacent to the existing aircraft maintenance facility currently leased by the Company. The Company acts as construction agent for the CCPA and began construction of a 100,000 square foot aircraft hangar in 2013. While the current facility houses aircraft as large as the Boeing 767, the new hangar will provide the capability of servicing aircraft as large as a Boeing 747 and a Boeing 777. The hangar is anticipated to cost approximately $15.7 million and is expected to be completed in the second quarter of 2014. The CCPA is financing the construction of the hangar primarily through a State of Ohio bond program and a State of Ohio loan on incremental taxes. The costs incurred to build the hangar are included in "Property and equipment" and the amounts that are reimbursed through the State of Ohio and the CCPA are included in "Other liabilities" on the Company's balance sheet. The Company began to make lease payments for the hangar directly to the trustee for the State of Ohio beginning in 2014.

Guarantees and Indemnifications

Certain leases and agreements of the Company contain guarantees and indemnification obligations to the lessor, or one or more other parties that are considered reasonable and customary (e.g. use, tax and environmental indemnifications), the terms of which range in duration and are often limited. Such indemnification obligations may continue after expiration of the respective lease or agreement.

Brussels Noise Ordinance

The Brussels Instituut voor Milieubeheer ("BIM"), a governmental authority in the Brussels-Capital Region of Belgium that oversees the enforcement of environmental matters, imposed four separate administrative penalties on ABX in the approximate aggregate amount of €0.4 million ($0.5 million) for numerous alleged violations of an ordinance limiting the noise caused by aircraft overflying the Brussels-Capital Region (which is located near the Brussels Airport) during the period from May 2009 through December 2010. ABX has exhausted its appeals with respect to three of the administrative penalties.

The ordinance in question is controversial for the reason that it was adopted by the Brussels-Capital Region and is more restrictive than the noise limitations in effect in the Flemish Region, which is where the Brussels Airport is located. The ordinance is the subject of several court cases currently pending in the Belgian courts and numerous airlines have been levied fines thereunder.

Other

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

Employees Under Collective Bargaining Agreements

As of March 31, 2014, the flight crewmember employees of ABX and ATI were represented by the labor unions listed below:

Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	14.6%
ATI	Air Line Pilots Association	6.9%

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Pension and Other Post-Retirement Benefit Plans

3 Months Ended

Mar. 31, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Post-Retirement Benefit Plans

PENSION AND OTHER POST-RETIREMENT BENEFIT PLANS

Defined Benefit and Post-retirement Healthcare Plans

ABX sponsors a qualified defined benefit pension plan for ABX crewmembers and a qualified defined benefit pension plan for a major portion of its other ABX employees that meet minimum eligibility requirements. ABX also sponsors non-qualified defined benefit pension plans for certain employees. These non-qualified plans are unfunded. Employees are no longer accruing benefits under any of the defined benefit pension plans. ABX also sponsors a post-retirement healthcare plan for its ABX employees, which is unfunded.

The accounting and valuation for these post-retirement obligations are determined by prescribed accounting and actuarial methods that consider a number of assumptions and estimates. The selection of appropriate assumptions and estimates is significant due to the long time period over which benefits will be accrued and paid. The long term nature of these benefit payouts increases the sensitivity of certain estimates of our post-retirement costs. The assumptions considered most sensitive in actuarially valuing ABX’s pension obligations and determining related expense amounts are discount rates and expected long term investment returns on plan assets. Additionally, other assumptions concerning retirement ages, mortality and employee turnover also affect the valuations. Actual results and future changes in these assumptions could result in future costs significantly higher than those recorded in our results of operations. The Company’s net periodic benefit costs for its defined benefit pension plans and post-retirement healthcare plans for both continuing and discontinued operations are as follows (in thousands):

	Three Months Ended March 31,
	Pension Plans						Post-Retirement Healthcare Plan
	2014			2013			2014			2013
Service cost	$	—		$	—		$	60		$	69
Interest cost	9,879			8,989			71			66
Expected return on plan assets	(11,528		)	(11,498		)	—			—
Amortization of prior service cost	—			—			(872		)	(1,414		)
Amortization of net (gain) loss	(1		)	3,074			80			105
Net periodic benefit cost	$	(1,650	)	$	565		$	(661	)	$	(1,174	)

During the three month period ended March 31, 2014, the Company contributed $0.7 million to the pension plans. The Company expects to contribute and additional $5.6 million during the remainder of 2014.

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Derivative Instruments

3 Months Ended

Mar. 31, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

DERIVATIVE INSTRUMENTS

The Company's Senior Credit Agreement requires the Company to maintain derivative instruments for protection from fluctuating interest rates, for at least fifty percent of the outstanding balance of term loan. As a result, the Company entered into an interest rate swap in July of 2011 having an initial notional value of $75.0 million and a forward start date of December 31, 2011. Under this swap, the Company pays a fixed rate of 2.02% and receives a floating rate that resets quarterly based on LIBOR. In addition to the interest rate swap above, the Company entered into an interest rate swap in June of 2013 having an initial notional value of $65.6 million and a forward start date of December 31, 2013. Under this swap, the Company will pay a fixed rate of 1.1825% and receive a floating rate that resets monthly based on LIBOR.

The outstanding interest rate swaps are not designated as hedges for accounting purposes. The effects of future fluctuations in LIBOR interest rates on derivatives held by the Company will result in the recording of unrealized gains and losses into the statement of operations. The Company recorded an unrealized gain on derivatives of $0.3 million and $0.3 million for the three month periods ending March 31, 2014 and 2013, respectively, to reflect the interest rate swaps at market value. The liability for outstanding derivatives is recorded in other liabilities and in accrued expenses. The table below provides information about the Company’s interest rate swaps (in thousands):

			March 31, 2014			December 31, 2013
Expiration Date	Stated Interest Rate		Notional Amount	Market Value (Liability)		Notional Amount	Market Value (Liability)
May 9, 2016	2.020	%	63,750	(1,765	)	65,625	(1,988	)
June 30, 2017	1.183	%	63,750	(452	)	65,625	(527	)

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Summary of Financial Statement Preparation and Significant Accounting Policies (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Capitalized interest	$ 0.1	$ 0.7
Other liabilities for self-insured reserves	$ 27.9		$ 28.3
Minimum [Member] | Support equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	5 years
Minimum [Member] | Vehicles and other equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	3 years
Maximum [Member] | Support equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	10 years
Maximum [Member] | Vehicles and other equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	8 years
Boeing 767 and 757 aircraft and flight equipment [Member] | Minimum [Member] | Aircraft and Flight Equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	10 years
Boeing 767 and 757 aircraft and flight equipment [Member] | Maximum [Member] | Aircraft and Flight Equipment [Member]
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Line Items]
Property, plant and equipment, useful life	20 years

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Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings Per Share Reconciliation [Abstract]
Earnings from continuing operations	$ 6,522	$ 8,501
Weighted-average shares outstanding for basic earnings per share (in shares)	64,148,000	63,810,000
Common equivalent shares:
Effect of stock-based compensation awards (in shares)	993,000	714,000
Weighted-average shares outstanding assuming dilution (in shares)	65,141,000	64,524,000
Basic earnings per share from continuing operations (in dollars per share)	$ 0.10	$ 0.13
Diluted earnings per share from continuing operations (in dollars per share)	$ 0.10	$ 0.13
Anti-dilutive securities excluded from computation of earnings per share (in shares)	0	0

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Summary of Financial Statement Preparation and Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Pension and Other Postretirement Plans, Policy [Policy Text Block]

Pension and Post-Retirement Benefits

The costs of benefits provided by defined benefits pension and post-retirement health care plans are recorded in the period the employees provide service. Costs adjustments for plan amendments are amortized over the expected working life or the life expectancy of plan participants. The funded status of the Company's plans is measured as the difference between the fair value of plan assets and the accumulated benefit obligations to plan participants. The overfunded or underfunded status of a plan is recorded as an asset or liability. The funded status is ordinarily measured annually at year end.

Basis of Presentation

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of Air Transport Services Group, Inc. and its wholly-owned subsidiaries. Inter-company balances and transactions have been eliminated. The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP").

Equity Method Investments, Policy [Policy Text Block]

Investment in Nonconsolidated Affiliate

In January 2014, the Company acquired a 25 percent equity interest in West Atlantic AB of Gothenburg, Sweden ("West"). West, through its two airlines, Atlantic Airlines Ltd. and West Air Sweden AB, operates a fleet of approximately 40 aircraft and is Europe’s largest regional cargo aircraft operator. West operates its aircraft on behalf of European regional mail carriers and express logistics providers. The airlines operate a combined fleet of British Aerospace ATPs, Bombardier CRJ-200-PFs, and Boeing 737 aircraft. In addition, Atlantic Airlines Ltd. is currently adding the Boeing 767 aircraft to its operating capability.

The Company does not exercise control over West. Accordingly, the investment in West is accounted for using the equity method of accounting and is initially recognized at cost. The Company’s share of the West’s income or loss is recognized in the consolidated statement of earnings and cumulative post-acquisition changes in the investment are adjusted against the carrying amount of the investment. The Company’s carrying value of West is reflected in “Other Assets” in the Company’s consolidated balance sheets.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the consolidated financial statements. Estimates and assumptions are used to record allowances for uncollectible amounts, self-insurance reserves, spare parts inventory, depreciation and impairments of property, equipment, goodwill and intangibles, post-retirement obligations, income taxes, contingencies and litigation. Changes in estimates and assumptions may have a material impact on the consolidated financial statements.

Cash and Cash Equivalents

Cash and Cash Equivalents

The Company classifies short-term, highly liquid investments with maturities of three months or less at the time of purchase as cash and cash equivalents. These investments, consisting of money market funds, are recorded at cost, which approximates fair value. Substantially all deposits of the Company’s cash are held in accounts that exceed federally insured limits. The Company deposits cash in common financial institutions which management believes are financially sound.

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts Receivable and Allowance for Uncollectible Accounts

The Company's accounts receivable is primarily due from its significant customers (see Note B), other airlines, the USPS and freight forwarders. The Company performs a quarterly evaluation of the accounts receivable and the allowance for uncollectible accounts by reviewing specific customers' recent payment history, growth prospects, financial condition and other factors that may impact a customer's ability to pay. The Company establishes an allowance for uncollectible accounts for probable losses due to a customer's potential inability or unwillingness to make contractual payments. Account balances are written off against the allowance when the Company ceases collection efforts.

Inventory

Inventory

The Company’s inventory is comprised primarily of expendable aircraft parts and supplies used for aircraft maintenance. Inventory is generally charged to expense when issued for use on a Company aircraft. The Company values its inventory of aircraft parts and supplies at weighted-average cost and maintains a related obsolescence reserve. The Company records an obsolescence reserve on a base stock of inventory for each fleet type. The amortization of base stock for the obsolescence reserve corresponds to the expected life of each fleet type. Additionally, the Company monitors the usage rates of inventory parts and segregates parts that are technologically outdated or no longer used in its fleet types. Slow moving and segregated items are actively marketed and written down to their estimated net realizable values based on market conditions.

Management analyzes the inventory reserve for reasonableness at the end of each quarter. That analysis includes consideration of the expected fleet life, amounts expected to be on hand at the end of a fleet life, and recent events and conditions that may impact the usability or value of inventory. Events or conditions that may impact the expected life, usability or net realizable value of inventory include additional aircraft maintenance directives from the FAA, changes in DOT regulations, new environmental laws and technological advances.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The Company assesses, during the fourth quarter of each year, the carrying value of goodwill. Finite-lived intangible assets are amortized over their estimated useful economic lives. The Company also conducts impairment assessments of goodwill, indefinite-lived intangible assets and finite-lived intangible assets whenever events or changes in circumstance indicate an impairment may have occurred

Property and Equipment

Property and Equipment

Property and equipment held for use is stated at cost, net of any impairment recorded. The cost and accumulated depreciation of disposed property and equipment are removed from the accounts with any related gain or loss reflected in earnings from operations.

Depreciation of property and equipment is provided on a straight-line basis over the lesser of the asset’s useful life or lease term. Depreciable lives are summarized as follows:

Boeing 767 and 757 aircraft and flight equipment	10 to 20 years
Support equipment	5 to 10 years
Vehicles and other equipment	3 to 8 years

The Company periodically evaluates the useful lives, salvage values and fair values of property and equipment. Acceleration of depreciation expense or the recording of significant impairment losses could result from changes in the estimated useful lives of assets due to a number of reasons, such as excess aircraft capacity or changes in regulations governing the use of aircraft.

Aircraft and other long-lived assets are tested for impairment when circumstances indicate the carrying value of the assets may not be recoverable. To conduct impairment testing, the Company groups assets and liabilities at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. For assets that are to be held and used, impairment is recognized when the estimated undiscounted cash flows associated with the asset group is less than the carrying value. If impairment exists, an adjustment is made to write the assets down to fair value, and a loss is recorded as the difference between the carrying value and fair value. Fair values are determined considering quoted market values, discounted cash flows or internal and external appraisals, as applicable. For assets held for sale, impairment is recognized when the fair value less the cost to sell the asset is less than the carrying value.

The Company’s accounting policy for major airframe and engine maintenance varies by subsidiary and aircraft type. The costs for ABX's Boeing 767-200 airframe maintenance, which is the majority of the Company's aircraft fleet, are expensed as they are incurred. The costs of major airframe maintenance for the Company's other aircraft are capitalized and amortized over the useful life of the overhaul. The Company's General Electric CF6 engines that power the Boeing 767-200 aircraft are maintained under “power by the hour” agreements with an engine maintenance provider. Under the power by the hour agreements, the engines are maintained by the service provider for a fixed fee per flight hour; accordingly, the cost of engine maintenance is generally expensed as flight hours occur. Maintenance for the airlines’ other aircraft engines, including those on the Boeing 767-300 and Boeing 757 aircraft, are typically contracted to service providers on a time and material basis and the costs of those engine overhauls are capitalized and amortized over the useful life of the overhaul.

Under certain leases, the Company is required to make periodic payments to the lessor for future maintenance events such as engine overhauls and major airframe maintenance. These payments are recorded as deposits until drawn for qualifying maintenance costs. The maintenance costs are expensed or capitalized in accordance with the airline's accounting policy for major airframe and engine maintenance. The Company evaluates at the balance sheet date, whether it is probable that an amount on deposit will be returned by the lessor to reimburse the costs of the maintenance activities. When an amount on deposit is less than probable of being returned, it is recognized as additional maintenance expense.

Capitalized Interest

Capitalized Interest

Interest costs incurred while aircraft are being modified are capitalized as an additional cost of the aircraft until the date the asset is placed in service.

Self-Insurance

Self-Insurance

The Company is self-insured for certain workers’ compensation, employee healthcare, automobile, aircraft, and general liability claims. The Company maintains excess claim coverage with common insurance carriers to mitigate its exposure to large claim losses. The Company records a liability for reported claims and an estimate for incurred claims that have not yet been reported. Accruals for these claims are estimated utilizing historical paid claims data and recent claims trends. Other liabilities included $27.9 million and $28.3 million at March 31, 2014 and December 31, 2013, respectively, for self-insured reserves. Changes in claim severity and frequency could result in actual claims being materially different than the costs accrued.

Income Taxes

Income Taxes

Income taxes have been computed using the asset and liability method, under which deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred taxes are measured using provisions of currently enacted tax laws. A valuation allowance against net deferred tax assets is recorded when it is more likely than not that such assets will not be fully realized. Tax credits are accounted for as a reduction of income taxes in the year in which the credit originates.

The Company recognizes the benefit of a tax position taken on a tax return, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. An uncertain income tax benefit is not recognized if it has a less than a 50% likelihood of being sustained. The Company recognizes interest and penalties accrued related to uncertain tax positions in operating expense.

Comprehensive Income

Comprehensive Income

Comprehensive income includes net earnings and other comprehensive income or loss. Other comprehensive income or loss results from certain changes in the Company’s liabilities for pension and other post-retirement benefits and gains and losses associated with interest rate hedging instruments.

Fair Value Information

Fair Value Information

Assets or liabilities that are required to be measured at fair value are reported using the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FASB ASC Topic 820-10 Fair Value Measurements and Disclosures establishes three levels of input that may be used to measure fair value:

• Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

• Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include items where the determination of fair value requires significant management judgment or estimation.

Revenue Recognition

Revenue Recognition

Revenues generated from airline service agreements are typically recognized based on hours flown or the amount of aircraft and crew resources provided during a reporting period. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are typically measured on a monthly basis and recorded to revenue in the corresponding month earned. Revenues for operating expenses that are reimbursed through customer agreements, including consumption of aircraft fuel, are generally recognized as the costs are incurred. Revenues from charter service agreements are recognized on scheduled and non-scheduled flights when the specific flight has been completed. Aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Revenues from the sale of aircraft parts and engines are recognized when the parts are delivered. Revenues earned and expenses incurred in providing aircraft-related maintenance, repair or technical services are recognized in the period in which the services are completed and delivered to the customer. Revenues derived from sorting parcels are recognized in the reporting period in which the services are performed.

New Accounting Pronouncements

New Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The objective of the update is to change the requirements for reporting discontinued operations in Subtopic 205-20. It is effective in the first quarter of 2015, and the impact to the consolidated financial statements is not expected to be material.

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Debt Obligations (Tables)

3 Months Ended

Mar. 31, 2014

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

Long term obligations consisted of the following (in thousands):

	March 31,			December 31,
	2014			2013
Unsubordinated term loan	$	127,500		$	131,250
Revolving credit facility	188,000			190,500
Aircraft loans	52,891			55,015
Promissory note due to DHL, unsecured	6,200			7,750
Total long term obligations	374,591			384,515
Less: current portion	(23,873		)	(23,721		)
Total long term obligations, net	$	350,718		$	360,794

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Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 Pension Plans [Member]	Mar. 31, 2013 Pension Plans [Member]	Mar. 31, 2014 Post-Retirement Plans [Member]	Mar. 31, 2013 Post-Retirement Plans [Member]	Mar. 31, 2014 Derivative [Member]	Dec. 31, 2013 Derivative [Member]	Mar. 31, 2013 Derivative [Member]	Dec. 31, 2012 Derivative [Member]
Schedule of Accumulated Other Comprehensive Income [Line Items]
Accumulated other comprehensive income (loss), beginning balance	$ (29,818)	$ (117,287)	$ (31,072)	$ (121,602)	$ 1,245	$ 4,277	$ 2	$ 9	$ 30	$ 38
Amounts reclassified from accumulated other comprehensive income:
Actuarial costs (reclassified to salaries, wages and benefits)	79	3,178	(1)	3,074	80	104
Negative prior service cost (reclassified to salaries, wages and benefits)	(872)	(1,413)			(872)	(1,413)
Hedging gain (reclassified to interest expense)	(11)	(13)
Income Tax (Expense) or Benefit			0	(1,116)	288	475
Income Tax (Expense) or Benefit	4	5
Income Tax (Expense) or Benefit	292	(636)
Other comprehensive income (loss), net of tax			(1)	1,958	(504)	(834)
Other comprehensive income (loss), net of tax	(7)	(8)
Other comprehensive income (loss), net of tax	(512)	1,116
Accumulated other comprehensive income (loss), ending balance	$ (30,330)	$ (116,171)	$ (31,073)	$ (119,644)	$ 741	$ 3,443	$ 2	$ 9	$ 30	$ 38

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Debt Obligations (Schedule of Long Term Obligations) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Debt Instrument [Line Items]
Total long term obligations	$ 374,591	$ 384,515
Less: current portion	(23,873)	(23,721)
Total long term obligations, net	350,718	360,794
Unsubordinated term loan [Member]
Debt Instrument [Line Items]
Total long term obligations	127,500	131,250
Revolving credit facility [Member]
Debt Instrument [Line Items]
Total long term obligations	188,000	190,500
Aircraft loans [Member]
Debt Instrument [Line Items]
Total long term obligations	52,891	55,015
Promissory note due to DHL, unsecured [Member]
Debt Instrument [Line Items]
Total long term obligations	$ 6,200	$ 7,750

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
NET EARNINGS	$ 6,733	$ 8,500
Other comprehensive income (loss), net of tax	(7)	(8)
TOTAL COMPREHENSIVE INCOME, net of tax	6,221	9,616
Pension Plans [Member]
Other comprehensive income (loss), net of tax	(1)	1,958
Post-Retirement Plans [Member]
Other comprehensive income (loss), net of tax	$ (504)	$ (834)

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Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

The Company’s money market funds and interest rate swaps are reported on the Company’s consolidated balance sheets at fair values based on market values from identical or comparable transactions. The fair value of the Company’s money market funds and interest rate swaps are based on observable inputs (Level 2) from comparable market transactions. The use of significant unobservable inputs (Level 3) was not necessary in determining the fair value of the Company’s financial assets and liabilities.

The following table reflects assets and liabilities that are measured at fair value on a recurring basis (in thousands):

As of March 31, 2014	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	2,304		$	—	$	2,324
Total Assets	$	20	$	2,304		$	—	$	2,324
Liabilities
Interest rate swap	$	—	$	(2,217	)	$	—	$	(2,217	)
Total Liabilities	$	—	$	(2,217	)	$	—	$	(2,217	)

As of December 31, 2013	Fair Value Measurement Using							Total
	Level 1		Level 2			Level 3
Assets
Cash equivalents—money market	$	20	$	301		$	—	$	321
Total Assets	$	20	$	301		$	—	$	321
Liabilities
Interest rate swap	$	—	$	(2,515	)	$	—	$	(2,515	)
Total Liabilities	$	—	$	(2,515	)	$	—	$	(2,515	)

As a result of lower market interest rates compared to the stated interest rates of the Company’s fixed and variable rate debt obligations, the fair value of the Company’s debt obligations, based on Level 2 observable inputs, was approximately $5.5 million more than the carrying value, which was $374.6 million at March 31, 2014. As of December 31, 2013, the fair value of the Company’s debt obligations was approximately $6.3 million more than the carrying value, which was $384.5 million. The non-financial assets, including goodwill, intangible assets and property and equipment are measured at fair value on a non-recurring basis.

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedules of Concentration of Risk, by Risk Factor

As of March 31, 2014, the flight crewmember employees of ABX and ATI were represented by the labor unions listed below:

Airline	Labor Agreement Unit	Percentage of the Company’s Employees
ABX	International Brotherhood of Teamsters	14.6%
ATI	Air Line Pilots Association	6.9%

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Fair Value Measurements (Details) (Fair Value, Measurements, Recurring [Member], USD $)	Mar. 31, 2014	Dec. 31, 2013
Level 1 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents - money market	$ 20,000	$ 20,000
Total Assets	20,000	20,000
Liabilities, Fair Value Disclosure [Abstract]
Interest rate swap	0	0
Total Liabilities	0	0
Level 2 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents - money market	2,304,000	301,000
Total Assets	2,304,000	301,000
Liabilities, Fair Value Disclosure [Abstract]
Interest rate swap	(2,217,000)	(2,515,000)
Total Liabilities	(2,217,000)	(2,515,000)
Difference between fair value and carrying value, debt	5,500,000	6,300,000
Level 3 [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents - money market	0	0
Total Assets	0	0
Liabilities, Fair Value Disclosure [Abstract]
Interest rate swap	0	0
Total Liabilities	0	0
Total [Member]
Assets, Fair Value Disclosure [Abstract]
Cash equivalents - money market	2,324,000	321,000
Total Assets	2,324,000	321,000
Liabilities, Fair Value Disclosure [Abstract]
Interest rate swap	(2,217,000)	(2,515,000)
Total Liabilities	(2,217,000)	(2,515,000)
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Liabilities, Fair Value Disclosure [Abstract]
Carrying value, debt	$ 374,600,000	$ 384,500,000

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Segment Information

3 Months Ended

Mar. 31, 2014

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations and its segment earnings includes an allocation of interest expense. The ACMI Services segment consists of the Company's airline operations, including the CMI agreement with DHL as well as ACMI and charter service agreements that the Company has with other customers. Due to the similarities among the Company's airline operations, the airline operations are aggregated into a single reportable segment, ACMI Services. The Company's other activities, which include contracts with the USPS, the sale of aircraft parts and maintenance services, facility and ground equipment maintenance services and management services for workers' compensation do not constitute reportable segments and are combined in “All other” with inter-segment profit eliminations. Inter-segment revenues are valued at arms-length, market rates. Cash, cash equivalents and deferred tax assets are reflected in Assets - All other below. The Company's segment information from continuing operations is presented below (in thousands):

	Three Months Ending March 31,
	2014			2013
Total revenues:
CAM	$	40,635		$	38,969
ACMI Services	108,596			113,051
All other	26,808			26,254
Eliminate inter-segment revenues	(32,446		)	(34,995		)
Total	$	143,593		$	143,279
Customer revenues:
CAM	$	18,413		$	18,336
ACMI Services	108,596			111,315
All other	16,584			13,628
Total	$	143,593		$	143,279
Depreciation and amortization expense:
CAM	$	18,345		$	14,516
ACMI Services	6,835			6,138
All other	(201		)	266
Total	$	24,979		$	20,920
Segment earnings (loss):
CAM	$	14,440		$	16,873
ACMI Services	(7,046		)	(5,404		)
All other	3,017			2,181
Net unallocated interest expense	(379		)	(348		)
Net gain (loss) on derivative instruments	299			290
Pre-tax earnings from continuing operations	$	10,331		$	13,592

The Company's assets are presented below by segment (in thousands):

	March 31,		December 31,
	2014		2013
Assets:
CAM	$	792,220	$	808,987
ACMI Services	146,065		141,664
Discontinued operations	623		294
All other	89,137		82,194
Total	$	1,028,045	$	1,033,139

Interest expense of $0.1 million and $0.2 million for the three month periods ending March 31, 2014 and 2013, respectively, was reimbursed through the commercial agreements with DHL and included in the ACMI Services segment earnings above. Interest expense allocated to CAM was $3.3 million and $2.6 million for the three month periods ending March 31, 2014 and 2013, respectively.