Atlas Air Worldwide Reports Second-Quarter 2016 Results

• Income from Continuing Operations of $20.9 Million, $(0.26) per Share Reflecting Impact of Warrant Accounting
• Adjusted Income from Continuing Operations of $20.2 Million, $0.80 per Share
• 2Q16 Southern Air Acquisition, Amazon Agreements Continue Substantial Strategic Development
• Transformative 2Q16 Transactions Increase Alignment with Faster-Growing Express and E-Commerce Markets

Atlas Air Worldwide Holdings, Inc. (Nasdaq: AAWW) today announced income from continuing operations, net of taxes, of $20.9 million, or a loss of $0.26 per diluted share reflecting the impact of warrant accounting and transaction-related expenses, for the three months ended June 30, 2016, compared with income from continuing operations, net of taxes, of $28.4 million, or $1.13 per diluted share, for the three months ended June 30, 2015.

On an adjusted basis, income from continuing operations, net of taxes, in the second quarter of 2016 totaled $20.2 million, or $0.80 per diluted share, compared with $29.4 million, or $1.17 per diluted share, in the year-ago quarter.

"The second quarter was one of the most important in the company's history," said William J. Flynn, President and Chief Executive Officer. "We acquired Southern Air and added two new operating platforms. And we agreed with Amazon to lease and operate 20 B767-300s.

"We believe strongly in the future of airfreight, especially in the future of the express and e-commerce sectors. Our long-term strategy is to build Atlas to make the most of that future - through the quality and scale of our fleet, through the efficiency of our operations, and through the strength of our business relationships.

"The ongoing development of our strategic platform is expanding our business base, moving us more deeply into the faster-growing express and e-commerce markets, and driving long-term growth opportunities. In an otherwise challenging environment during the quarter, these historic transactions stand out.

"Our acquisition of Southern Air in early April and the addition of its express-focused 777 and 737 CMI services generated immediate earnings accretion in the second quarter. Our quarterly earnings also reflected an increase in military cargo and passenger demand but a slower pace in general commercial cargo. In addition, we incurred initial startup expenses in preparation for our new long-term 767 service for Amazon and its growing e-commerce business.

"We expect to place our first aircraft into service for Amazon soon in this quarter. We have secured all of the conversion slots and the vast majority of the feedstock aircraft required to support 20 B767-300s for Amazon by the end of 2018.

"The acquisition of Southern Air creates more options for us in all of our market segments, and our relationship with Amazon includes an opportunity for additional business beyond our initial service for them. We continue to expect both Amazon and Southern Air to be meaningfully accretive to our longer-term earnings and cash flows."

Mr. Flynn added: "Led by the strength of our brand and our global market leadership in outsourced aircraft and services, we are uniquely situated to continue to leverage our core competencies, diversify our business mix, and develop new organizational capabilities to drive business growth."

Second-Quarter Results

Higher ACMI revenues and block hours in the second quarter of 2016 were driven by our acquisition of Southern Air and an increase in 747-400 flying, partially offset by the temporary redeployment of 747-8F aircraft to our Charter segment. Lower revenue per block hour during the period reflected an increase in CMI flying following the acquisition of Southern Air as well as the temporary redeployment of 747-8F aircraft. Segment results were also affected by an increase in crew costs associated with Amazon and other fleet growth initiatives, as well as an increase in heavy maintenance expense.

Segment contribution in Charter was relatively unchanged on a year-over-year basis. The impact of the U.S. West Coast port disruption in 2015 and increases in crew costs associated with our fleet growth initiatives were partially offset by increased military cargo and passenger demand and the temporary deployment of 747-8F aircraft to Charter. Lower revenue per block hour during the period was primarily due to a reduction in fuel prices in 2016 and the impact of higher rates related to the U.S. West Coast port disruption in 2015.

In Dry Leasing, lower revenue and segment contribution resulted from a decrease in revenue from maintenance payments related to the scheduled return of a passenger aircraft, partially offset by revenue from the placements of 767 freighter aircraft in December 2015 and February 2016.

Reported earnings for the second quarter of 2016 included an effective income tax rate of 26.4%, which reflected our continued reinvestment of the net earnings of certain foreign subsidiaries outside of the U.S. as well as reduction in state taxes resulting from changes in our flying.

Impact of Warrant Accounting on EPS Calculation

During the second quarter of 2016, the company recorded a liability related to vested warrants granted to Amazon in connection with long-term commercial agreements for the leasing and operation of 767-300s. The liability will need to be remeasured at fair value each period until the warrants are exercised or expire in May 2021. Any mark-to-market adjustments will be shown as unrealized gains or losses in earnings.

During the quarter, the company reported an unrealized gain of $26.5 million and recorded a tax expense of $8.7 million.

For purposes of calculating fully diluted EPS under U.S. GAAP, the warrants were treated as if they were exercised upon their issuance. Accordingly, the unrealized gain was disregarded in calculating EPS while the tax expense remained in the calculation. This generated a loss of $0.26 per diluted share on income from continuing operations of $20.9 million.

Half-Year Results

For the six months ended June 30, 2016, income from continuing operations totaled $21.4 million, or a loss of $0.24 per diluted share after the impact of warrant accounting and transaction-related expenses, compared with $57.6 million, or $2.29 per diluted share, for the six months ended June 30, 2015.

On an adjusted basis, first-half 2016 income from continuing operations totaled $27.9 million, or $1.11 per diluted share, compared with $55.2 million, or $2.20 per diluted share, in the first half of 2015.

Cash and Short-Term Investments

At June 30, 2016, our cash, cash equivalents, restricted cash and short-term investments totaled $170.3 million, compared with $444.0 million at December 31, 2015.

The change in position reflected cash used for investing and financing activities, partially offset by cash provided by operating activities.

Net cash used for investing activities during the first half of 2016 primarily related to our acquisition of Southern Air, capital expenditures, and purchase deposits and payments for flight equipment, including the acquisition of 767-300 aircraft to be converted to freighter configuration for our service for Amazon.

Net cash used for financing activities primarily reflected payments on debt obligations, partially offset by new debt financing.

Outlook

As we commence our new service for Amazon, we will incur an EPS impact for necessary startup expenses and the issuance of warrants. As a result, we currently expect that our adjusted EPS from continuing operations in 2016 will be lower than our adjusted EPS in 2015 by a high-single-digit percentage.

Our view also reflects anticipated demand for our services and aircraft, the benefits that we expect from our fleet initiatives and debt refinancings in 2015, and accretion from our acquisition of Southern Air. In addition, it reflects our decision to sell a subsidiary that we acquired in connection with our acquisition of Southern Air and whose results are presented as a discontinued operation.

Excluding the anticipated impact from Amazon startup expenses and from Southern Air's operations on EPS in 2016, as well as West Coast port congestion-related earnings in 2015, we anticipate that adjusted EPS in our base business will grow by a low- to mid-single-digit percentage in 2016.

Given the inherent seasonality of airfreight demand, we expect the majority of our earnings in 2016 to be generated in the second half. Unlike 2015, which benefited from increased first-half demand driven by U.S. West Coast port congestion, we anticipate that results in 2016 will be more reflective of historical patterns, with slightly more than three-quarters of our adjusted EPS occurring in the second half.

In addition, we expect adjusted earnings per share in the third quarter of 2016 to be approximately 20% to 25% of our full-year 2016 adjusted EPS.

Looking to the fourth quarter of 2016, we expect adjusted EPS to benefit from substantially lower maintenance expense compared with the fourth quarter of 2015; our acquisition of Southern Air in April 2016; the addition of our tenth 747-8F, which entered our fleet midway through the fourth quarter of 2015; and the addition of two converted 767 freighters to our Dry Leasing portfolio in December 2015 and February 2016, which we are also operating on a CMI basis.

For the full year, we continue to expect total block hours including Southern Air to increase approximately 20% compared with 2015, with about 75% of our 2016 hours in ACMI and the balance in Charter.

Including Southern Air, aircraft maintenance expense in 2016 should total approximately $200 million, and depreciation and amortization is expected to total approximately $145 million. In addition, we anticipate an effective book income tax rate of approximately 31%. Core capital expenditures, excluding aircraft and engine purchases, are expected to total approximately $62 to $67 million, mainly for spare parts for our fleet.

We provide guidance on an adjusted basis because we are unable to predict, with reasonable certainty, the effects of the warrants issued to Amazon or certain other significant items that could be material to our reported results.

Conference Call

Management will host a conference call to discuss Atlas Air Worldwide's second-quarter 2016 financial and operating results at 11:00 a.m. Eastern Time on Wednesday, August 3, 2016.

Interested parties are invited to listen to the call live over the Internet at www.atlasair.com (click on "Investor Information," click on "Presentations" and on the link to the second-quarter call) or at the following Web address:

http://edge.media-server.com/m/p/i94ohgj9

For those unable to listen to the live call, a replay will be archived on the above websites following the call. A replay will also be available through August 10 by dialing (855) 859-2056 (U.S. Toll Free) or (404) 537-3406 (from outside the U.S.) and using Access Code 48968441#.