Segment Information

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Segment Information

SEGMENT AND REVENUE INFORMATION

The Company operates in two reportable segments. The CAM segment consists of the Company's aircraft leasing operations. The ACMI Services segment consists of the Company's airline operations, including CMI agreements as well as ACMI, charter service and passenger service agreements that the Company has with its customers. The Company's aircraft maintenance services, aircraft modification services, ground services and other services, are not large enough to constitute reportable segments and are combined in All other. Intersegment revenues are valued at arms-length market rates.

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

	Three Months Ending
	March 31,
	2021		2020
Total revenues:
CAM	$	83,277	$	74,163
ACMI Services	247,131		284,165
All other	93,698		80,036
Eliminate inter-segment revenues	(48,018)		(49,087)
Total	$	376,088	$	389,277
Customer revenues:
CAM	$	60,800	$	46,736
ACMI Services	247,126		284,161
All other	68,162		58,380
Total	$	376,088	$	389,277

ACMI Services revenues are generated from airline service agreements and are typically based on hours flown, the amount of aircraft operated and crew resources provided during a month. ACMI Services revenues are recognized over time using the invoice practical expedient as flight hours are performed for the customer. Certain agreements include provisions for incentive payments based upon on-time reliability. These incentives are measured on a monthly basis and recorded to revenue in the corresponding month earned. Under CMI agreements, the Company's airlines have an obligation to provide integrated services including flight crews, aircraft maintenance and insurance for the customer's cargo network. Under ACMI agreements, the Company's airlines are also obligated to provide aircraft. Under CMI and ACMI agreements, customers are generally responsible for aviation fuel, landing fees, navigation fees and certain other flight expenses. When functioning as the customers' agent for arranging such services, the Company records amounts reimbursable from the customer as revenues net of the related expenses as the costs are incurred. Under charter agreements, the Company's airline is obligated to provide full services for one or more flights having specific origins and destinations. Under charter agreements in which the Company's airline is responsible for fuel, airport fees and all flight services, the related costs are recorded in operating expenses. Any sales commissions paid for charter agreements are generally expensed when incurred because the amortization period is less than one year. ACMI Services are invoiced monthly or more frequently. (There are no customer rewards programs associated with services offered by the Company nor does the Company sell passenger tickets or issue freight bills.)

The Company's revenues for customer contracts for airframe maintenance and aircraft modification services that do not have an alternative use and for which the Company has an enforceable right to payment are generally recognized over time based on the percentage of costs completed. Services for airframe maintenance and aircraft modifications typically have project durations lasting a few weeks to a few months. Other revenues for aircraft part sales, component repairs and line service are recognized at a point in time typically when the parts are delivered to the customer and the services are completed. For airframe maintenance, aircraft modifications and aircraft component repairs, contracts include assurance warranties that are not sold separately.

The Company records revenues and estimated earnings over time for its airframe maintenance and aircraft modification contracts using the costs to costs input method. For such services, the Company estimates the earnings

on a contract as the difference between the expected revenue and estimated costs to complete a contract and recognizes revenues and earnings based on the proportion of costs incurred compared to the total estimated costs. Unexpected or abnormal costs that are not reflected in the price of a contract are excluded from calculations of progress toward contract obligations. The Company's estimates consider the timing and extent of the services, including the amount and rates of labor, materials and other resources required to perform the services. These production costs are specifically planned and monitored for regulatory compliance. The expenditure of these costs closely reflect the progress made toward completion of an airframe maintenance and aircraft modification project. The Company recognizes adjustments in estimated earnings on a contract under the cumulative catch-up method in which the impact of the adjustment on estimated earnings of a contract is recognized in the period the adjustment is identified.

The Company's ground services revenues include load transfer and sorting services, facility and equipment maintenance services. These revenues are recognized as the services are performed for the customer over time. Revenues from related facility and equipment maintenance services are recognized over time and at a point in time depending on the nature of the customer contracts.

The Company's external customer revenues from other activities for the three month periods ended March 31, 2021 and 2020 are presented below (in thousands):

	Three Months Ended
	March 31,
	2021		2020
Aircraft maintenance, modifications and part sales	$	34,048	$	33,835
Ground services	23,460		14,609
Other, including aviation fuel sales	10,654		9,936
Total customer revenues	$	68,162	$	58,380

CAM's aircraft lease revenues are recognized as operating lease revenues on a straight-line basis over the term of the applicable lease agreements. Customer payments for leased aircraft and equipment are typically paid monthly in advance. CAM's leases do not contain residual guarantees. Approximately 15% of CAM's leases to external customers contain purchase options at projected market values. As of March 31, 2021, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $192.3 million for the remainder of 2021, $212.8 million, $168.3 million, $117.6 million, $105.4 million, respectively, for each of the next 4 years ending December 31, 2025 and $275.3 million thereafter. As of December 31, 2020, minimum future payments from external customers for leased aircraft and equipment were scheduled to be $222.4 million, $195.5 million, $150.5 million, $99.8 million and $90.7 million, respectively, for each of the next 5 years ending December 31, 2025 and $202.2 million thereafter.

For customers that are not a governmental agency or department, the Company generally receives partial payment in advance of services, otherwise customer balances are typically paid within 30 to 60 days of service. During the three month periods ending March 31, 2021 and 2020, the Company recognized $2.7 million and $2.7 million of non lease revenue that was reported in deferred revenue at the beginning of the respective year. Deferred revenue was $1.3 million and $3.0 million at March 31, 2021 and December 31, 2020, respectively, for contracts with customers.

Segment earnings, as used by the Company's management, includes an allocation of interest expense based on a reportable segments' assets. The Company's other segment information from continuing operations is presented below (in thousands):

	Three Months Ending
	March 31,
	2021		2020
Depreciation and amortization expense:
CAM	$	46,995	$	43,047
ACMI Services	22,981		25,312
All other	1,075		983
Total	$	71,051	$	69,342
Interest expense
CAM	9,226		10,255
ACMI Services	4,523		5,301
Government grants recognized
ACMI Service	28,030		—
Segment earnings (loss):
CAM	$	21,462	$	15,820
ACMI Services	21,259		18,378
All other	389		53
Net unallocated interest expense	(754)		(655)
Net gain on financial instruments	9,472		107,044
Other non-service components of retiree benefit costs, net	4,457		2,898
Loss from non-consolidated affiliate	(1,183)		(2,764)
Pre-tax earnings from continuing operations	$	55,102	$	140,774

The Company's assets are presented below by segment (in thousands). Cash and cash equivalents are reflected in Assets - All other.

	March 31,		December 31
	2021		2020
Assets:
CAM	$	2,093,190	$	2,037,628
ACMI Services	807,822		811,516
All other	146,701		152,601
Total	$	3,047,713	$	3,001,745

During the first three months of 2021, the Company had capital expenditures for property and equipment of $22.4 million and $102.5 million for the ACMI Services and CAM, respectively.