SHAREHOLDERS A N N U A L M E E T I N G JOE HETE, CEO RICH - - PowerPoint PPT Presentation

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VIRTUAL MAY 07, 2020

SHAREHOLDERS

A N N U A L M E E T I N G

JOE HETE, CEO RICH CORRADO, PRESIDENT QUINT TURNER, CFO JOE PAYNE, CLO MIKE BERGER, CCO

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Except for historical information contained herein, the matters discussed in this presentation contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that are inherently difficult to predict. 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 presentation and address activities, events or developments that we expect, believe or anticipate will or may occur in the future. Although we believe our estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. We caution all readers that the forward-looking statements contained in this presentation are not guarantees of future performance, and we cannot assure any reader that those statements will be realized, or the forward-looking events and circumstances will occur. There are a number of important factors that could cause Air Transport Services Group's ("ATSG's") actual results to differ materially from those indicated by such forward-looking statements. These factors include, but are not limited to, changes in market demand for our assets and services, including potential reduced flight

• perations arising from the outbreak of COVID-19; our operating airlines' ability to maintain on-time service and control costs; the cost and timing with respect to

which we are able to purchase and modify aircraft to a cargo configuration; fluctuations in ATSG's traded share price and in interest rates, which may result in mark- to-market change in values of certain financial instruments; the number and timing of our aircraft deployments for customers, and the scheduled routes for aircraft we operate for our customers; our ability to remain in compliance with our agreements with key customers and lenders; changes in general economic and/or industry-specific conditions; and other factors (including those listed under the heading “Risk Factors”) that are contained from time to time in ATSG's filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. Readers should carefully review this presentation and should not place undue reliance on ATSG's forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this presentation. ATSG undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

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01

STEP STEP STEP STEP STEP

02

J o e H e t e C E O

Joe has been with the company since September

• 1980. He was named CEO

and President of ATSG in 2007.

R i c h C o r r a d o P r e s i d e n t J o e P a y n e C L O & S e c r e t a r y Q u i n t T u r n e r C F O M i k e B e r g e r C C O

Rich held executive roles at Airborne Express and DHL prior to joining ATSG in 2010. He was named Chief Operating Officer in 2017 and President in 2019. Joe has been with the company since April 1995. He was named General Counsel in 2004 and Chief Legal Officer in 2016. Quint has been with the company since 1988. He has held the role of Chief Financial Officer since 2004. Mike held top sales leadership roles with TNT in Europe and DHL in the US before joining ATSG in his current role in 2018.

STEP

E d K o h a r i k C O O

Ed is a graduate of the USAF Academy and served 23 years in the US Military prior to joining ATSG in his current role in 2019.

• The Leadership Team has delivered growth by pioneering the Lease + CMI model employed today
• Their combined nearly 150 years of experience as part of the ATSG business has provided a stable influence and necessary leadership to navigate periods
• f growth and change
• Leadership focuses extensively on the mid-size converted freighter market which has successfully differentiated the Company from other leasing

companies

• Experience in airline and air cargo operations provide the leadership team a unique insight and ability to meet customer demand

LEADERSHIP

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M A R K E T

✓ World’s largest lessor of freighter aircraft ✓ Largest provider of passenger charter service to the DoD and other governmental agencies ✓ Differentiated package of value-added aviation services, building long-term customer partnerships ✓ Decades of experience with express network airline operations providing best-in-class reliable service to customers such as Amazon, DHL, and UPS

ATSG’S DIFFERENTIATED BUSINESS MODEL

✓ Solid balance sheet and conservative financial policy ✓ Long-term leases and operating contracts with blue-chip customer base ✓ Strong sustainable cash flows through varying economic cycles ✓ Business model not subject to trade disruptions or cyclical GDP ✓ No payload or fuel risk

F I N A N C I A L A S S E T

✓ Owned aircraft portfolio focused on mid-size freighters - the asset of choice for express and eCommerce-driven regional air networks ✓ 767 freighter is ideally suited to regional network flying due to high reliability, cubic capacity and durable performance ✓ 767 is the fastest growing freighter in regional air networks around the world ✓ Investment in next generation A321 conversion positions ATSG to capitalize

• n mid-range freighter demand

Through its subsidiaries ATSG offers mid-size air leasing solutions with unmatched set of complementary services for cargo and passenger

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2019 ACCOMPLISHMENTS

Revenues of $1.45 Billion

Highest in ATSG’s history including more than $500 million in revenues and greater than expected contribution from Omni Air International acquired in 2018

Boeing 767-300 Deployments

Eight more were deployed including six to Amazon plus one passenger to Omni Air International

Boeing 767-300 Leases

United Parcel Service became ATSG’s newest lease customer with two plus three more to be delivered in 2020. Six new leases plus CMI delivered to Amazon

Record Levels for EBITDA

Continued strong growth in earnings and cash flow

Record Levels for Adjusted Earnings Per Share Senior Secured Bank Credit Facilities

Amended in Jan 2020 to $500 million private offering increasing ATSG’s access to additional growth capital Continued strong growth in earnings and cash flow

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ATSG - AT A GLANCE

▪ In-service fleet of 96 at 3/31/20: 777s, 767s, 757s and 737s ▪ Key Business Segments: ▪ CAM Leasing: (Cargo Aircraft Management) Dry-leasing cargo aircraft, engine leasing and leasing

• f cargo/passenger aircraft for DoD

▪ ACMI Services: (Aircraft, Crew, Maintenance & Insurance) CMI and ACMI agreements ▪ Other: Businesses include MRO services, passenger- to-freighter conversion services, ground operations and material handling equipment services ▪ Acquired Omni Air International on November 9, 2018 ▪ Deliver integrated operational solutions to customers ▪ Markets include air cargo and air express (package) transport, and ACMI and charter passenger transport for commercial and government entities ▪ Founded in 1980 as a wholly owned subsidiary of Airborne Express, first public offering in August 2003 ▪ Headquarters located at the Wilmington Air Park which also serves as a regional air hub for Amazon ▪ 4,000+ employees worldwide 2019 Revenue By Segment(1) 2019 Revenue By Customer(1) Historical Financial Performance

DHL 14% AMAZON 23% DOD 34% OTHER 29% ACMI SERVICES 64% CAM LEASING 17% OTHER 19% $197 $212 $268 $312 $452

2015 2016 2017 2018 2019

Adjusted EBITDA (3)

($ in millions)

$38 $127 $289

2015 2016 2017 2018 2019

$1,452 $892 $619 $769 $1,068

Revenues (2)

Reported revenue from reimbursed expenses ($ in millions)

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IN-SERVICE

FLEET

MARCH 31, 2020

96 AIRCRAFT

Boeing 767-300 Freighter

Thirty-five dry-leased to UPS, DHL, Amazon, NAC, Amerijet, Cargojet, up to 10-year terms Two supplied by Amazon operated under CMI

Boeing 757-200 Combi

Four 757-200 combis under ACMI agreements with U.S. Military

Boeing 777-200 Passenger

Commercial, DoD, and U.S. and allied Governments

Boeing 767-200 Freighter

Twenty-six dry-leased to Amazon, DHL, Amerijet, Cargojet, SkyTaxi, Raya, West Atlantic, up to 7-year terms

Boeing 767-300 Passenger

Commercial, DoD, and U.S. and allied Governments

42 4 3 32 9

Boeing 767-200 Passenger

Commercial ACMI/Charter, DoD

3

Boeing 757-200 Freighter

Under ACMI agreements with DHL

3

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BUNDLED SERVICES FOR TURNKEY SOLUTIONS

Customer CAM ABX Air ATI Omni Airborne LGSTX Amazon DHL Amerijet Cargojet UPS Northern Aviation Services DoD

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INTEGRATED CUSTOMER RELATIONSHIP GROWTH

Aircraft Operated for Amazon

5 14 20 20 28 32 2015 2016 2017 2018 2019 2020E

CURRENT SERVICES

• Leases twenty-six Boeing 767 aircraft
• Provides CMI service to twenty-eight Boeing 767 aircraft
• Provides maintenance services
• Provides gateway services in Charlotte, Tampa, Wilmington
• Provides warehouse material handling solutions

CURRENT AGREEMENT

• Twelve 767-200 leases through 2023, three-year extension option
• Eight 767-300 Leases extended through 2026-27, three-year extension option
• Ten 767-300 ten-year leases, three-year extension option
• Up to seventeen additional freighters under mutually acceptable terms Jan 2019 to 2026
• Operating agreement for ten years through March 2026, three-year extension option

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LONG-TERM RELATIONSHIPS WITH KEY CUSTOMERS

• Leading CRAF provider of

passenger airlift services to the U.S. DoD

• Leader of CRAF Patriot team
• Charter passenger service to
• ther government agencies,

including Dept. of Homeland Security, Immigration & Customs Enforcement

• B757 Combi service to military

for 20+ years, contracted through December 2021

• CAM provided twenty-six aircraft

as of YE2019

• Amazon support began in Fall

2015; extended in December 2018 to at least 30 aircraft by end

• f 2020
• Amazon to hold warrants for

purchase of ~33.2% of ATSG shares

• Long-term contracts since August

2003; three-year extensions signed through April 30, 2022

• Eleven 767 freighter aircraft

leases extended to 2022 with three others leased into 2023/24

• ACMI and CMI agreements to
• perate 767 freighter aircraft

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FAVORABLE TAILWINDS FROM GLOBAL E-COMMERCE GROWTH

More than 90% of midsize freighters worldwide deployed in time-definite regional express networks

Source: eMarketer, Aug 2019

U.S. E-Commerce as a Percent of Total Retail Sales U.S. Retail E-Commerce Sales Worldwide

7.2% 8.2% 9.1% 9.9% 10.8% 12.0% 13.2% 14.5% 15.8% 2015 2016 2017 2018 2019 2020 2021 2022 2023

340 397 461 524 591 666 751 845 949 2015 2016 2017 2018 2019 2020 2021 2022 2023

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2019 FREIGHTER LESSOR MARKET RANKING

Source: Cargo Facts, June 2019

ATSG’s market share of the Boeing 767 freighter leasing market is 64% TOTAL NUMBER OF FREIGHTER AIRCRAFT

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HNL SMF SCK ONT RIV PHX SKF IAH DFW TPA MIA CLT BWI ABE BDL RFD MSP CVG DEN PDX SEA

New routes added to AFW, ANC, ATL, DAL, LAL, STL in 2019

Amazon Prime Air Network (as of 11/30/18) While uncertainty has crept into the broader cargo freight market due to global trade concerns, ATSG customers’ time definite / express network routes are unaffected

Intra-country, time definite network

LEASING BUSINESS UNEXPOSED TO TRADE CONCERNS

Sources: International Air Transport Association, Great Circle Mappers, Company press releases

20 40 60 80 100 17 19 21 23

ATSG In-Service Aircraft Industry Freight Ton Kilometers (billions per month, seasonally adjusted)

Seasonally-Adjusted FTKs ATSG In-Service Aircraft

Growth trajectory not interrupted by trade concerns, 2019 block hours up 40% pro forma YoY

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A321 FREIGHTER CONVERSION JOINT VENTURE

• CAM partnered with Precision Aircraft

Solutions in 2017 to form a new joint venture, 321 Precision Conversions

• Precision is the market leader in

converting 757 aircraft

• CAM is the world’s largest freighter

lessor

• 321 Precision began work on

the project in 2016

• Projecting STC approval by FAA

mid 2020

• Anticipate deployments into

CAM-leased ATSG fleet

• Opportunity to replace aging

fleet of Boeing 757’s with A321’s nearing ideal vintage window for conversion from passenger to freighter use

110 75 30 23 70

• Largest new generation narrow-body freighter with

economics like the smaller Boeing 737-800

• 31% increase in containerized volume compared to

the 737 plus a 14.5% increase in payload weight

• 19% fuel burn savings compared to the Boeing 757

while still offering 95% of the cube space

• More than 1,600 A321 passenger aircraft in service

BACKGROUND TIMELINE OPPORTUNITY

Other

Average Age: 27.3 years

Boeing 757-200 Freighters by Operator

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2019 FINANCIAL RESULTS

• Adj. EPS(1)

(Cont. Oper.)

• Adj. EBITDA(1)

(Cont. Oper.)

$MM $MM

• Adj. Pretax

Earnings(1)

(Cont. Oper.)

Revenues

$MM (1) Non-GAAP metrics. See reconciliations included in the earnings 8-K filed 3/24/20.

• Customer revenues up 44% to $403.4 million, and

up 63% to $1.45 billion for the year

• Adjusted EBITDA from Continuing Operations (non-

GAAP) increased 29%, or $28.1 million, to $124.3 million

• Annual Adjusted EBITDA rose 45%, or $140.0

million, to $452.1 million

• Continued strong growth in earnings and cash flow,

as both Adjusted Earnings Per Share and Adjusted EBITDA reached record levels

$105 $128 2018 2019 $892 $1,452 2018 2019 $1.16 $1.51 2018 2019 $312 $452 2018 2019

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2020 FIRST QUARTER FINANCIAL RESULTS

• Adj. EPS(1)

(Cont. Oper.)

• Adj. EBITDA(1)

(Cont. Oper.)

$MM $MM

• Adj. Pretax

Earnings(1)

(Cont. Oper.)

Revenues

$MM (1) Non-GAAP metrics. See reconciliations included in the earnings 8-K filed 5/05/20.

• Customer revenues up 12% to $389.3 million
• Adjusted EBITDA from Continuing Operations (non-

GAAP) increased 9% to $124 million

• GAAP Earnings from Continuing Operations were

$133.7 million or $2.27 per share basic versus $22.6 million or $0.38 per share the prior year, including warrant-related effects in each period

• Adjusted Earnings from Continuing Operations

(non-GAAP) rose 13% to $29.3 million

• Results reflect the flexibility and resilience of the

ATSG business model with the company responding to rapidly changing business conditions

$34 $38 2019 2020 $348 $389 2019 2020 $0.37 $0.43 2019 2020 $114 $124 2019 2020

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HISTORICAL FINANCIAL PERFORMANCE

• Growth in revenue and adjusted items due primarily

to Omni assets acquired in Nov. 2018, plus CAM leasing gains

• Pretax earnings for the quarter were $4.4 million

versus a year-earlier loss of $0.3 million

• CAM leased three 767-300 freighters to Amazon

during the third quarter, including two newly converted aircraft and one previously leased to ATI. Six additional 767 freighters are scheduled for deployment during the fourth quarter

• Total block hours increased 56 percent for the

quarter and 37 percent through the first nine months of 2019, principally due to the contribution from Omni Air's ACMI and charter operations and growth in flight operations for Amazon 1.6x 2.2x 2.1x 3.4x 3.0x

2015 2016 2017 2018 2019

55 60 70 90 98

Aircraft in Service

• f end of period shown and are calculated under formulas included in bank covenants.

$197 $212 $268 $312 $452

2015 2016 2017 2018 2019

Adjusted EBITDA** Capital Expenditures*

($ in millions)

Debt Obligations/Adjusted EBITDA**

($ in millions)

$38 $127 $289

2015 2016 2018 2018 2019

$159 $265 $297 $293 $454

2015 2016 2017 2018 2019

$1,452 $892 $619 $769 $1,068

Revenues*

($ in millions) Reported revenue from reimbursed expenses

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Maturity

Secured: ◼ Term Loan $ 635.00 $ 631.00 Nov 2024 ◼Secured Revolver* 632.90 218.00 Nov 2024 Unsecured: ◼1.125% Convertible Notes 258.75 258.75 Oct 2024 ◼4.75% HY Bond

• 500.00 Feb 2028

Total Debt* $ 1,526.65 $ 1,606.75

$millions Principal Balance @ 12/31/2019 Principal Balance @ 3/31/2020 * Revolver capacity $600 million max capacity with leverage-based accordion feature, subject to lender consent

DEBT CAPITAL COMPONENTS

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THE COVID-19 EFFECT

53% 14% 47% 86%

WEEK ENDING 1/19/2020 WEEK ENDING 4/12/2020

GLOBAL CARGO CAPACITY

Passenger Wide Body Belly Freighter

GLOBAL AFTKs

• 43%

$1.24 B $.71 B

• 65%
• 95%
• 85%
• 65%

United States Europe Asia China

OUTBOUND PASSENGER DECLINE (SINCE JAN 1, 2020)

% Decline

Source: Boeing, Cargo Facts April 2020

CARGO DEMAND REMAINS STRONG

• Ecommerce demand remains strong
• Time definite deliveries continue
• Balanced customer approach
• Dedicated resources to a safe work environment
• Responded with increases in service
• Passenger flights down 90%
• Belly cargo transitioning to main

deck freighters

• 50% air cargo normally carried on

passenger aircraft

• Passenger aircraft decreases,

increases cargo on freighters

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CONCLUSION

INVESTMENT HIGHLIGHTS

Unmatched Mix of Services for Cargo and Passenger Markets Strong sustainable cash flows through economic cycles as approximately 90%

• f EBITDA is derived from:
• CAM long-term lease portfolios
• Government Revenues not subject to

trade disruption or cyclical GDP

• Multi-year Airline Operating Services

Contracts in customer-owned express and e-Commerce-driven regional air networks Solid Balance Sheet and Cash Flows Back Value-Accretive Capital Allocation Options Increased Revenue Diversification with Blue- Chip Customers Established Feedstock Supply and Diversity of Aircraft to Support Operations

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THANK YOU

F O R PA R T I C I PAT I N G I N T O D AY ’ S M E E T I N G

@atsginc @atsginc @air-transport-services-group-inc

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Adjusted Earnings from Continuing Operations and Adjusted Earnings Per Share from Continuing Operations are non-GAAP financial measures and should not be considered as alternatives to Earnings from Continuing Operations, Weighted Average Shares – diluted, Earnings Per Share from Continuing Operations or any other performance measure derived in accordance with GAAP. Adjusted Earnings and Adjusted Earnings Per Share from Continuing Operations should not be considered in isolation or as a substitute for analysis of the company's results as reported under GAAP.

EPS ADJUSTMENTS REFLECT WARRANT VALUATION

$ $/Share $ $/Share $ $/Share $ $/Share

Earnings from Continuing Operations - basic (GAAP)

133,733 $ 22,634 $ 59,983 $ 67,883 $

Gain from warrant revaluation, net tax

(76,361) $ (7,653) $ (6,219) $ (7,118) $

Earnings from Continuing Operations - diluted (GAAP)

57,372 $ 0.84 $ 14,981 $ 0.25 $ 53,764 $ 0.78 $ 60,765 $ 0.89 $

Adjustments, net of tax Loss from warrant revaluation

• $
• $
• $
• $

6,594 $ 0.10 $

• $
• $

Customer incentive amortization

3,748 $ 0.06 $ 3,228 $ 0.05 $ 13,258 $ 0.19 $ 12,910 $ 0.19 $

Non-service component of retiree benefits

(2,237) $ (0.03) $ 1,795 $ 0.03 $ 7,258 $ 0.10 $ (6,248) $ (0.09) $

Loss from affiliates

2,133 $ 0.03 $ 2,914 $ 0.05 $ 16,176 $ 0.23 $ 7,993 $ 0.11 $

Omni acquisition fees

• $
• $

285 $

• $

285 $

• $

4,020 $ 0.06 $

Derivative revaluation

(31,697) $ (0.47) $ 2,748 $ (0.01) $ 7,687 $ 0.11 $ 6 $

• $

Adjusted Earnings from Continuing Operations (non-GAAP)

29,319 $ 0.43 $ 25,951 $ 0.37 $ 105,022 $ 1.51 $ 79,446 $ 1.16 $ SHARES SHARES SHARES SHARES

Weighted Average Shares - diluted

67,947 60,437 69,348 68,356

Additional weighted average shares

• 9,232
• Adjusted Shares (non-GAAP)

67,947 69,669 69,348 68,356 March 31, 2020 March 31, 2019 THREE MONTHS ENDED YEAR ENDED December 31, 2019 December 31, 2018

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NON-GAAP RECONCILIATION STATEMENT

Adjusted Pre-Tax Earnings from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus certain charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of transaction fees, financial instrument gains and losses, and of non-service components of retiree benefit costs. Adjusted EBITDA from Continuing Operations is defined as Earnings from Continuing Operations Before Income Taxes plus net interest expense, depreciation and amortization expense, charges from non-consolidating affiliates, and lease incentive amortization. It excludes the net effect of transaction fees, financial instrument gains and losses, and of non-service components of retiree benefit costs. Adjusted EBITDA from Continuing Operations and Adjusted Pre-Tax Earnings from Continuing Operations are non-GAAP financial measures and should not be considered alternatives to net income or any other performance measure derived in accordance with GAAP. Management uses Adjusted EBITDA from Continuing Operations and Adjusted Pre-Tax Earnings from Continuing Operations to assess the performance of its operating results among periods. These measures should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, or as an alternative measure of liquidity. The Company does not provide a reconciliation of projected Adjusted EBITDA because it is unable to predict with reasonable accuracy the value of certain adjustments. Certain adjustments can be significantly impacted by the period-end re-measurements of financial instruments including stock warrants issued to customers. The Company’s earnings on a GAAP basis and the non-GAAP adjustments for gain and losses resulting from the re-measurement of stock warrants, will depend on the future prices of ATSG stock, interest rates and other assumptions which are highly uncertain.

2015 2016 2017 2018 2019 1Q2020 1Q2019

62,563 $ 34,454 $ (6,536) $ 87,478 $ 71,572 $ 140,774 $ 27,567 $ Non-service components retiree benefit costs, net (1,040) 6,815 6,105 (8,180) 9,404 (2,898) 2,351 Non-consolidating affiliate losses

• 1,229

3,135 10,468 17,445 2,764 3,816 Customer Incentive Amortization

• 4,506

13,986 16,904 17,178 4,857 4,227 Transaction fees 5,264 373

• 373

Financial Instruments Loss (Gain) (920) 18,107 79,789 (7,296) 12,302 (107,044) (4,500) 60,603 65,111 96,479 104,638 128,274 38,453 33,834 Interest Income (85) (131) (116) (251) (370) (112) (96) Interest Expense 11,232 11,318 17,023 28,799 66,644 16,323 17,390 Depreciation and Amortization 125,443 135,496 154,556 178,895 257,532 69,342 62,637 197,193 $ 211,794 $ 267,942 $ 312,081 $ 452,080 $ 124,006 $ 113,765 $

Reconciliation Stmt. ($ in 000s)

GAAP Pre-Tax Earnings (Loss) from Cont. Oper. Adjusted EBITDA from Cont. Oper. Adjusted Pre-tax Earnings from Cont. Oper.