ATSG: Embracing fleet diversity, reinforcing its future in air cargo

The company is evolving its structure, leadership, and strategy, and focusing on its partnership with Amazon , fleet diversification and global expansion. These challenges and opportunities raise the question whether the company is charting the right course for success in an increasingly competitive market. Diversified company structure At its core, Air Transport Services Group (ATSG) is a holding company with a portfolio of subsidiaries, each playing a crucial role in the air cargo ecosystem. ABX Air and Air Transport International : These cargo airlines form the backbone of ATSG's flight operations, providing contract and charter services to a diverse clientele. Cargo Aircraft Management (CAM): As the leasing arm, CAM is instrumental in ATSG's fleet strategy and revenue generation. Airborne Global Solutions: This subsidiary offers comprehensive logistics services, enhancing ATSG's value proposition. LGSTX Services: Specializing in ground handling and maintenance, LGSTX ensures smooth operations on the ground. PEMCO Conversions: A leader in passenger-to-freighter aircraft conversions, PEMCO strengthens ATSG's capabilities in fleet modification and maintenance. Omni Air International: Provides passenger ACMI and charter services, diversifying ATSG's operations beyond cargo. ATSG's diversified structure positions it as a multifaceted player in the aviation industry, covering cargo operations, aircraft leasing, maintenance and passenger services. While this integration can enhance efficiency and responsiveness, it also poses challenges in resource allocation and focus. However, with strong leadership and strategic management, this diversity can provide a competitive advantage, allowing ATSG to adapt to market conditions and capitalize on revenue streams. Leadership changes: steering through turbulence The past few years have seen significant changes in ATSG's leadership, reflecting the company's efforts to navigate through challenges. 2020-2023: Chief Executive Rich Corrado saw the company through the pandemic and its aftermath. November 2023: Joe Hete returned as CEO, replacing Corrado, signaling a need for experienced guidance during a critical period. June 2024: Mike Berger 's was named CEO , the latest chapter in ATSG's leadership saga. Mike Berger's appointment as CEO shows a shift toward long-term planning and stability. Berger, who has been with ATSG since 2018 and previously served as president and chief commercial officer, brings extensive industry experience and a deep understanding of company operations. His primary challenges will be stabilizing the company after recent restructuring, optimizing the expanded fleet that now includes Airbus freighters and leveraging the strengthened Amazon partnership. Berger's success will depend on his ability to balance growth and operational efficiency, bring down costs in an increasingly competitive market and capitalize on his track record and the board's confidence in him. Amazon and ATSG: an expanding partnership ATSG's relationship with Amazon has been a cornerstone of its growth strategy: Management of the fleet: ABX Air and ATI, subsidiaries of ATSG, are responsible for a large portion of Amazon’s 767 fleet. This includes thirty-three 767s managed by ATI and additional units transitioning from Atlas. Fleet transition and continuation of leases: As Atlas Air discontinues Amazon CMI operations in 2024, Amazon is reallocating at least ten 767-300 freighters to ATSG's ABX Air. Despite this shift, Atlas’ leasing arm, Titan Aviation Leasing , will still provide Amazon with 767s under extended dry leases. Enduring partnership: Amazon’s contractual relationship with ATSG through ABX Air expires in May 2029, following the reassignment of aircraft from Atlas to ABX Air, marking a significant long-term commitment. The dashboard below illustrates ATSG's fleet under CAM, with Amazon as its largest partner, alongside DHL . The bottom two charts in the dashboard focus on active aircraft, providing a view of ATSG's operational capabilities. The table above those charts includes stored aircraft and those undergoing conversion. ATSG (CAM) Fleet Dashboard

It is important to note that aircraft labeled “Charter/Unknown” are being used for charter services and/or multiple operations. The dashboard excludes passenger aircraft from ATSG’s Omni Air International subsidiary. Fleet development: embracing diversity ATSG's fleet strategy is evolving, moving from a Boeing -centric approach to a more diverse fleet composition and breaking into the narrowbody market: Historical focus : The company built its reputation on Boeing 767 freighters, which remain a significant part of its fleet as shown in the fleet dashboard above. Airbus integration : The rapid incorporation of Airbus A321 and A330 freighters represents a strategic shift, allowing ATSG to cater to different market segments and route structures. Projected growth : By yearend, ATSG aims to have five A330 freighters and at least seven A321-200 freighters in operation, significantly expanding its Airbus portfolio. Conversion pipeline : Two A321s were in cargo conversion as of Aug. 30, part of five A321-200PCFs that will be available for lease by yearend, according to ATSG’s fleet table. The latest update for A321 conversion orders shows CAM with two to be redelivered, both from 321 Precision, while EFW handles the bulk of AerCap and BBAM orders. Additionally, with the three recent 767-300 orders to IAI , CAM has seven 767 orders, with the potential four slots left for Boeing conversions. Figure 1 – Current A321 conversion orders

Lease structure and customer base: Building stability CAM has a diverse customer base. The most important is e-commerce giant Amazon. Long-standing relationships with global express carriers like DHL ensure steady demand for cargo aircraft. Omni Air International provides passenger ACMI and charter services, including to government clients, diversifying revenue streams beyond cargo operations. CAM has an increasing international presence with growing Central America, Europe, Central Asia and Middle East ACMI services. Typical lease agreements spanning five to ten years provide ATSG with stable, long-term revenue streams, essential for capital-intensive fleet investments. The diversity and long-term leases offer a buffer against market volatility and sector-specific downturns. Global footprint: expanding horizons While North America remains ATSG's primary market, its operations have a growing global reach as well. Central America expansion: Lorton, Va.-based ATSG has established offices in locations including Panama City; San Jose, N.M.; San Salvador, El Salvador; Tegucigalpa, Honduras; and Guatemala City, Guatemala. Asia-Pacific focus: ATSG is actively growing in the Asia-Pacific region. For example, its first A321-200PCF conversions are under LOI to Malaysia-based Raya Airways , which serves over ten locations across the region. Middle East and Central Asia opportunities : The increase in medium-widebody cargo operations in the Middle East and Central Asia has benefited CAM, the largest lessor of 767 freighters. The company sees strong potential growth in these markets for its fleet. The integration of Airbus freighters, particularly popular in international markets, will further expand ATSG's global footprint. This geographical diversification not only opens new revenue streams but also reduces dependency on any single market. CAM financial performance, outlook Recent financial results are mixed. The second quarter saw a 6.7% year-over-year decrease in leasing revenue due to scheduled returns of six 767-200BDSFs. Capital expenditure in Q2 decreased by $70 million, or 64%, indicating a more cautious approach to investments. However, ATSG projects improvements in Q4, driven by completion of Amazon's 767-300F additions as well as the anticipated benefits from the peak season. Figure 2 – ATSG yearly revenue 2019-2025

Revenue projections (Figure 2) suggest a cautiously optimistic outlook, with the company balancing near-term challenges against long-term positioning. The expansion of services for Amazon along with the Airbus additions should improve revenue going into the next year. Management is positioning the company for growth in 2025, building on expected momentum in core leasing operations. Key factors include: Continued high demand for ATSG's mid-size freighters, particularly 767s. New potential from the Airbus A321 and A330 in international markets; and Anticipated improvements in Q4 as new aircraft enter service and peak-season operations begin. However, challenges persist, including increased expenses due to fleet transitions and costs associated with preparing new aircraft for Amazon operations. Positioned for success ATSG’s diversification of its fleet with Airbus freighters, expansion of its Amazon partnership and global market reach, position it well for growth. While challenges persist, including recent financial headwinds and the need for careful management of customer concentration risk, ATSG's adaptive strategy and strong market position suggest it is on the right path. ATSG’s ability to balance fleet modernization, customer diversification and operational efficiency, coupled with its established presence in the e-commerce logistics sector, indicate it is well-equipped to capitalize on emerging opportunities in the evolving air cargo market. The company’s multifaceted approach and strategic initiatives situate it as a key player poised for long-term success in the global air transportation landscape.

ATSG: Embracing fleet diversity, reinforcing its future in air cargo

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