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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).Yes ☒ No ☐

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

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, ~~2020,~~2021, there were ~~26,126,559~~29,008,815 shares of the registrant’s Common Stock outstanding.


	March 31, 2020			December 31, 2019			March 31, 2021			December 31, 2020
Assets
Current Assets
Cash and cash equivalents	$	225,160		$	103,029		$	703,777		$	845,589
Short-term investments		-			879
Restricted cash		10,459			10,401			10,247			10,692
Accounts receivable, net of allowance of $1,182 and $1,822, respectively		274,202			290,119
Accounts receivable, net of allowance of $1,010 and $1,233, respectively								289,337			265,521
Prepaid expenses, assets held for sale and other current assets		187,739			228,103			102,665			95,919
Total current assets		697,560			632,531			1,106,026			1,217,721
Property and Equipment
Flight equipment		4,911,265			4,880,424			5,115,540			5,061,387
Ground equipment		85,163			83,584			93,690			86,670
Less: accumulated depreciation		(1,026,946	)		(977,883	)		(1,192,724	)		(1,147,613	)
Flight equipment modifications in progress		62,953			67,101
Flight equipment purchase deposits and modifications in progress								209,730			110,150
Property and equipment, net		4,032,435			4,053,226			4,226,236			4,110,594
Other Assets
Operating lease right-of-use assets		215,099			231,133			238,155			255,805
Deferred costs and other assets		385,170			391,895			355,681			374,242
Intangible assets, net and goodwill		75,348			76,856			69,319			70,826
Total Assets	$	5,405,612		$	5,385,641		$	5,995,417		$	6,029,188

Liabilities and Equity
Current Liabilities
Accounts payable	$	91,092		$	79,683		$	110,685		$	107,604
Accrued liabilities		447,379			481,725			501,317			583,160
Current portion of long-term debt and finance leases		283,066			395,781			306,462			298,690
Current portion of long-term operating leases		142,668			141,973			156,119			157,732
Total current liabilities		964,205			1,099,162			1,074,583			1,147,186
Other Liabilities
Long-term debt and finance leases		2,148,200			1,984,902			1,990,870			2,020,451
Long-term operating leases		357,533			392,832			276,676			318,850
Deferred taxes		80,933			74,040			230,720			203,586
Financial instruments and other liabilities		21,991			42,526			39,372			77,576
Total other liabilities		2,608,657			2,494,300			2,537,638			2,620,463
Commitments and contingencies
Equity
Stockholders’ Equity
Preferred stock, $1 par value; 10,000,000 shares authorized; 0 shares issued		-			-			0			0
Common stock, $0.01 par value; 100,000,000 shares authorized; 31,483,409 and 31,048,842 shares issued, 26,126,232 and 25,870,876 shares outstanding (net of treasury stock), as of March 31, 2020 and December 31, 2019, respectively		315			310
Additional paid-in-capital		782,517			761,715
Treasury stock, at cost; 5,357,177 and 5,177,966 shares, respectively		(217,705	)		(213,871	)
Common stock, $0.01 par value; 100,000,000 shares authorized; 34,495,738 and 32,877,533 shares issued, 29,006,635 and 27,517,297 shares outstanding (net of treasury stock), as of March 31, 2021 and December 31, 2020, respectively								345			329
Additional paid-in capital								912,728			873,874
Treasury stock, at cost; 5,489,103 and 5,360,236 shares, respectively								(225,239	)		(217,889	)
Accumulated other comprehensive loss		(2,573	)		(2,818	)		(1,700	)		(1,904	)
Retained earnings		1,270,196			1,246,843			1,697,062			1,607,129
Total stockholders’ equity		1,832,750			1,792,179			2,383,196			2,261,539
Total Liabilities and Equity	$	5,405,612		$	5,385,641		$	5,995,417		$	6,029,188

	For the Three Months Ended						For the Three Months Ended
	March 31, 2020			March 31, 2019			March 31, 2021			March 31, 2020

Operating Revenue	$	643,502		$	679,683		$	861,300		$	643,502

Operating Expenses
Salaries, wages and benefits		147,744			145,474			202,614			147,744
Aircraft fuel		108,318			106,321			163,551			108,318
Maintenance, materials and repairs		94,152			103,620			121,133			94,152
Depreciation and amortization		57,584			64,481			67,789			57,584
Navigation fees, landing fees and other rent								44,887			31,401
Passenger and ground handling services								40,065			31,959
Travel		42,391			45,029			37,672			42,391
Passenger and ground handling services		31,959			32,160
Navigation fees, landing fees and other rent		31,401			40,216
Aircraft rent		23,967			41,888			20,756			23,967
Gain on disposal of aircraft		(6,717	)		-
Loss (gain) on disposal of aircraft								16			(6,717	)
Transaction-related expenses		521			2,527			201			521
Other		51,112			51,093			58,412			51,112
Total Operating Expenses		582,432			632,809			757,096			582,432

Operating Income		61,070			46,874			104,204			61,070

Non-operating Expenses (Income)
Interest income		(480	)		(2,044	)		(211	)		(480	)
Interest expense		29,275			30,353			27,180			29,275
Capitalized interest		(193	)		(463	)		(1,271	)		(193	)
Loss on early extinguishment of debt		-			245
Unrealized (gain) loss on financial instruments		(924	)		46,575
Unrealized loss (gain) on financial instruments								113			(924	)
Other (income) expense, net		1,206			(2,975	)		(39,456	)		1,206
Total Non-operating Expenses (Income)		28,884			71,691			(13,645	)		28,884

Income (loss) before income taxes		32,186			(24,817	)
Income before income taxes								117,849			32,186
Income tax expense		8,833			4,893			27,916			8,833
Net Income (Loss)	$	23,353		$	(29,710	)

Earnings (loss) per share:
Net Income							$	89,933		$	23,353
Earnings per share:
Basic	$	0.90		$	(1.15	)	$	3.16		$	0.90
Diluted	$	0.90		$	(1.15	)	$	3.05		$	0.90
Weighted average shares:
Basic		25,966			25,735			28,491			25,966
Diluted		25,966			25,735			29,478			25,966

	For the Three Months Ended						For the Three Months Ended
	March 31, 2020			March 31, 2019			March 31, 2021			March 31, 2020
Net Income (Loss)	$	23,353		$	(29,710	)
Net Income							$	89,933		$	23,353
Other comprehensive income:
Reclassification to interest expense		308			344			268			308
Income tax benefit		(63	)		(81	)		(64	)		(63	)
Other comprehensive income		245			263			204			245
Comprehensive Income (Loss)	$	23,598		$	(29,447	)
Comprehensive Income							$	90,137		$	23,598

	For the Three Months Ended						For the Three Months Ended
	March 31, 2020			March 31, 2019			March 31, 2021			March 31, 2020

Operating Activities:
Net Income (Loss)	$	23,353		$	(29,710	)
Net Income							$	89,933		$	23,353

Adjustments to reconcile Net Income (Loss) to net cash provided by operating activities:
Adjustments to reconcile Net Income to net cash provided by operating activities:
Depreciation and amortization		74,352			78,988			86,172			74,352
Accretion of debt securities discount		(2	)		(127	)		0			(2	)
Provision for expected credit losses		(73	)		34
Loss on early extinguishment of debt		-			245
Reversal of expected credit losses								(397	)		(73	)
Unrealized loss (gain) on financial instruments		(924	)		46,575			113			(924	)
Gain on disposal of aircraft		(6,717	)		-
Loss (gain) on disposal of aircraft								16			(6,717	)
Deferred taxes		7,352			4,751			27,839			7,352
Stock-based compensation		3,860			5,621			4,060			3,860
Changes in:
Accounts receivable		16,515			9,686			(22,745	)		16,515
Prepaid expenses, current assets and other assets		(5,476	)		(42,309	)		(7,500	)		(5,476	)
Accounts payable and accrued liabilities		(40,393	)		(19,985	)
Accounts payable, accrued liabilities and other liabilities								(89,366	)		(40,393	)
Net cash provided by operating activities		71,847			53,769			88,125			71,847
Investing Activities:
Capital expenditures		(8,291	)		(30,584	)		(26,662	)		(8,291	)
Payments for flight equipment and modifications		(26,000	)		(57,332	)
Proceeds from insurance		-			38,133
Purchase deposits and payments for flight equipment and modifications								(126,807	)		(26,000	)
Investment in joint ventures								(1,608	)		0
Proceeds from investments		881			4,961			0			881
Proceeds from disposal of aircraft		44,110			-			1,850			44,110
Net cash provided by (used for) investing activities		10,700			(44,822	)		(153,227	)		10,700
Financing Activities:
Proceeds from debt issuance		164,000			19,723			16,161			164,000
Payment of debt issuance costs		(2,386	)		(955	)		(900	)		(2,386	)
Payments of debt and finance lease obligations		(193,644	)		(90,907	)		(77,953	)		(193,644	)
Proceeds from revolving credit facility		75,000			-			0			75,000
Customer maintenance reserves and deposits received		2,586			4,144			5,152			2,586
Customer maintenance reserves paid		(2,080	)		-			(12,265	)		(2,080	)
Purchase of treasury stock		(3,834	)		(9,189	)
Treasury shares withheld for payment of taxes								(7,350	)		(3,834	)
Net cash provided by (used for) financing activities		39,642			(77,184	)		(77,155	)		39,642
Net increase (decrease) in cash, cash equivalents and restricted cash		122,189			(68,237	)		(142,257	)		122,189
Cash, cash equivalents and restricted cash at the beginning of period		113,430			232,741			856,281			113,430
Cash, cash equivalents and restricted cash at the end of period	$	235,619		$	164,504		$	714,024		$	235,619

Noncash Investing and Financing Activities:

Acquisition of flight equipment included in Accounts payable and accrued liabilities	$	16,368		$	7,752
Acquisition of property and equipment included in Accounts payable and accrued liabilities							$	24,938		$	16,368
Acquisition of property and equipment acquired under operating leases	$	670		$	-		$	4,015		$	670
Acquisition of flight equipment under finance lease							$	20,171		$	0
Customer maintenance reserves settled with sale of aircraft	$	6,497		$	-		$	0		$	6,497
Issuance of shares related to settlement of warrant liability							$	31,582		$	0

As of and for the Three Months Ended March 31, 2020

Additional

Total

Common

Treasury

Paid-In

Accumulated Other

Retained

Stockholders'

Stock

Stock

Capital

Comprehensive Loss

Earnings

Equity

Balance at December 31, 2019

$
310

$
(213,871
)

$
761,715

$
(2,818
)

$
1,246,843

$
1,792,179

Net Income (Loss)

-

-

-

-

23,353

23,353

Other comprehensive income

-

-

-

245

-

245

Stock-based compensation

-

-

3,860

-

-

3,860

Customer warrant

-

-

2,394

-

-

2,394

Cumulative effect of change in accounting principle

-

-

14,553

-

-

14,553

Purchase of 179,211 shares of treasury stock

-

(3,834
)

-

-

-

(3,834
)
Issuance of 434,567 shares of restricted stock

5

-

(5
)

-

-

-

Balance at March 31, 2020

$
315

$
(217,705
)

$
782,517

$
(2,573
)

$
1,270,196

$
1,832,750

	As of and for the Three Months Ended March 31, 2021
						Additional								Total
	Common		Treasury			Paid-In			Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital			Comprehensive Loss			Earnings		Equity
Balance at December 31, 2020	$	329	$	(217,889	)	$	873,874		$	(1,904	)	$	1,607,129	$	2,261,539
Net Income		0		0			0			0			89,933		89,933
Other comprehensive income		0		0			0			204			0		204
Stock-based compensation		0		0			4,060			0			0		4,060
Issuance of warrants		0		0			3,228			0			0		3,228
Treasury shares of 128,867 withheld for payment of taxes		0		(7,350	)		0			0			0		(7,350	)
Issuance of 1,280,450 shares related to settlement of warrants		13		0			31,569			0			0		31,582
Issuance of 337,755 shares of restricted stock		3		0			(3	)		0			0		0
Balance at March 31, 2021	$	345	$	(225,239	)	$	912,728		$	(1,700	)	$	1,697,062	$	2,383,196

As of and for the Three Months Ended March 31, 2019

Additional

Total

Common

Treasury

Paid-In

Accumulated Other

Retained

Stockholders'

Stock

Stock

Capital

Comprehensive Loss

Earnings

Equity

Balance at December 31, 2018

$
306

$
(204,501
)

$
736,035

$
(3,832
)

$
1,539,956

$
2,067,964

Net Income (Loss)

-

-

-

-

(29,710
)

(29,710
)
Other comprehensive income

-

-

-

263

-

263

Stock-based compensation

-

-

5,621

-

-

5,621

Purchase of 179,339 shares of treasury stock

-

(9,189
)

-

-

-

(9,189
)
Issuance of 439,544 shares of restricted stock

4

-

(4
)

-

-

-

Balance at March 31, 2019

$
310

$
(213,690
)

$
741,652

$
(3,569
)

$
1,510,246

$
2,034,949

	As of and for the Three Months Ended March 31, 2020
						Additional								Total
	Common		Treasury			Paid-In			Accumulated Other			Retained		Stockholders'
	Stock		Stock			Capital			Comprehensive Loss			Earnings		Equity
Balance at December 31, 2019	$	310	$	(213,871	)	$	761,715		$	(2,818	)	$	1,246,843	$	1,792,179
Net Income		0		0			0			0			23,353		23,353
Other comprehensive income		0		0			0			245			0		245
Cumulative effect of change in accounting principle		0		0			14,553			0			0		14,553
Stock-based compensation		0		0			3,860			0			0		3,860
Issuance of warrant		0		0			2,394			0			0		2,394
Treasury shares of 179,211 withheld for payment of taxes		0		(3,834	)		0			0			0		(3,834	)
Issuance of 434,567 shares of restricted stock		5		0			(5	)		0			0		0
Balance at March 31, 2020	$	315	$	(217,705	)	$	782,517		$	(2,573	)	$	1,270,196	$	1,832,750

Our consolidated financial statements include the accounts of the holding company, Atlas Air Worldwide Holdings, Inc. (“AAWW”), and its consolidated subsidiaries. AAWW is the parent company of Atlas Air, Inc. (“Atlas”) and Southern Air Holdings, Inc. (“Southern Air”). AAWW is also the parent company of several subsidiaries related to our dry leasing services (collectively referred to as “Titan”). AAWW has a 51% equity interest and 75% voting interest in Polar Air Cargo Worldwide, Inc. (“Polar”). We record our share of Polar’s results under the equity method of accounting.

The terms “we,” “us,” “our,” and the “Company” mean AAWW and all entities included in its consolidated financial statements.

We provide outsourced aircraft and aviation operating services throughout the world, serving Africa, Asia, Australia, Europe, the Middle East, North America and South America through: (i) ~~contractual~~aircraft operating service ~~arrangements,~~agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), ~~as well as those through which we provide~~ crew, maintenance and insurance, but not the aircraft (“CMI”)~~; (ii)~~ and cargo and passenger charter services (“Charter”); and ~~(iii)~~(ii) dry leasing aircraft and engines (“Dry Leasing” or “Dry Lease”).

The accompanying unaudited consolidated financial statements and related notes (the “Financial Statements”) have been prepared in accordance with the U.S. Securities and Exchange Commission (the “SEC”) requirements for quarterly reports on Form 10-Q, and consequently exclude certain disclosures normally included in audited consolidated financial statements prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Intercompany accounts and transactions have been eliminated. The Financial Statements should be read in conjunction with the audited consolidated financial statements and the notes included in the AAWW Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, which includes additional disclosures and a summary of our significant accounting policies. The December 31, ~~2019~~2020 balance sheet data was derived from that Annual Report. In our opinion, ~~the~~these Financial Statements ~~contain~~include all adjustments, consisting of normal recurring items, considered necessary by management to fairly state the ~~financial position of AAWW and its consolidated subsidiaries as of March 31, 2020, the~~Company’s results of operations, ~~for the three months ended March 31, 2020~~financial position, and ~~2019, comprehensive income (loss) for the three months ended March 31, 2020 and 2019,~~ cash ~~flows for the three months ended March 31, 2020 and 2019, and stockholders’ equity as of and for the three months ended March 31, 2020 and 2019.~~flows.

Our quarterly results are subject to seasonal and other fluctuations, including fluctuations resulting from the global COVID-19 pandemic (see Note 23 for further discussion), and the operating results for any quarter are therefore not necessarily indicative of results that may be otherwise expected for the entire year.

Certain reclassifications have been made to prior periods’ notes to the Financial Statements to conform to the current year’s presentation of segments (see Note 11 for further discussion). Except for per share data, all dollar amounts are in thousands unless otherwise noted.

Common stock warrants that are classified as a liability are marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss on financial instruments. We utilize a Monte Carlo simulation approach to estimate the fair value of the warrant liability, which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility and risk-free interest rate, among others. Our earnings are affected by changes in our common stock price due to the impact those changes have on the fair value of our warrant liability (see Note 4 for further discussion).

Except ~~for engines used on our 747-8F aircraft,~~as described in the paragraph below, we account for heavy maintenance costs for airframes and engines ~~used in our ACMI and Charter segments~~ using the direct expense method. Under this method, heavy maintenance costs are charged to expense upon induction, based on our best estimate of the costs.

We account for heavy maintenance costs for airframes and engines used in our Dry Leasing segment and engines used on our 747-8F aircraft using the deferral method. Under this method, we defer the expense recognition of scheduled heavy maintenance events, which are amortized over the estimated period until the next scheduled heavy maintenance event is required. Amortization of deferred maintenance expense included in Depreciation and amortization was ~~$7.9~~$12.0 million and ~~$4.4~~$7.9 million for the three months ended March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Deferred maintenance included within Deferred costs and other assets is as follows:

Balance as of December 31, 2019	$	184,279
Balance as of December 31, 2020				$	191,303
Deferred maintenance costs		13,710			803
Amortization of deferred maintenance		(7,939	)		(11,988	)
Balance as of March 31, 2020	$	190,050
Balance as of March 31, 2021				$	180,118

Committed expenditures to acquire aircraft and spare engines are expected to be $179.1 million for the remainder of 2021 and $458.3 million in 2022. These expenditures include our January 2021 agreement to purchase 4 747-8F aircraft from The Boeing Company (“Boeing”) that are expected to be delivered from May 2022 through October 2022, spare engines, and 747-400 passenger aircraft (to be used for both replacement of older passenger aircraft in service as well as spare engines and parts).

In August 2020, the Financial Accounting Standards Board amended its accounting guidance for certain financial instruments with characteristics of liabilities and equity, including convertible debt instruments. For convertible debt with a cash conversion feature, the amended guidance removes the current accounting model to separately account for the liability and equity components, which currently results in the amortization of a debt discount to interest expense. Under this amended guidance, such convertible debt will be accounted for as a single debt instrument with no amortization of a debt discount to interest expense, unless certain other conditions are met. The amended guidance also requires the use of the if-converted method when calculating the dilutive impact of convertible debt on earnings per share. The amended guidance is effective as of the beginning of 2022. The two permitted transition methods under the guidance are the full retrospective approach, under which the guidance is applied to all periods presented, or the modified retrospective approach, under which the guidance is applied only to the most current period presented. We will adopt this amended guidance on its required effective date of January 1, 2022. While we are still assessing the impact the amended guidance will have on our financial statements, we expect the amount previously allocated to the equity component will be reclassified to debt. In addition, the amended guidance is expected to result in a material increase in net income and reduction in interest expense and diluted earnings per share.

In December 2019, COVID-19 was first reported in China and has since spread to most other regions of the world. In March 2020, COVID-19 was determined to be a global pandemic by the World Health Organization. ~~During the first quarter of 2020,~~Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in ~~flight cancellations~~a reduction in flights by some of our ~~ACMI~~ customers and lower U.S. Military Air Mobility Command (“AMC”) passenger flying as the military ~~took~~has taken precautionary measures to limit the movement of personnel. A reduction of available cargo capacity in the market and increased demand for transporting goods due to the COVID-19 pandemic also resulted in increased commercial charter cargo ~~charter~~ yields, net of ~~fuel, during the quarter.~~fuel. We have incurred and expect to incur significant additional costs, including premium ~~pay;~~pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates ~~resulting from~~we provided to our ~~recent interim agreement with the pilots.~~pilots in May 2020. In addition, the availability of hotels and ~~restaurants;~~restaurants, evolving COVID-19-related travel restrictions and health ~~screenings;~~screenings, and ~~cancellations of~~a reduction in passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position ~~crewmembers for operating~~employees to operate our aircraft. In March 2020, as a precautionary measure due to uncertainty arising from the COVID-19 pandemic, we drew $75.0 million under our revolving credit facility and had $19.8 million of unused availability as of March 31, 2020.

~~Our ability to continue to service our debt and meet our lease and other obligations as they come due is dependent on our continued ability to generate earnings and cash flows.~~ To mitigate the impact of any ~~continuation or worsening of the~~ COVID-19 pandemic disruptions, we have:

As of May 29, 2020 (the “PSP Closing Date”), Atlas and Southern Air (the “PSP Recipients”) entered into a PSP Agreement with the U.S. Treasury. As of the PSP Closing Date, AAWW also entered into a Warrant Agreement (the “Warrant Agreement”) with the U.S. Treasury, and AAWW issued a $199.8 million senior unsecured promissory note to the U.S. Treasury (the “Promissory Note”), with Atlas and Southern Air as guarantors.

In connection with the payroll support funding received in 2020 under the PSP Agreement, we issued warrants to the U.S. Treasury to acquire up to 625,452 shares of our common stock. As of March 31, 2021, 0 portion of the warrants have ~~significantly reduced nonessential employee travel, reduced~~been exercised.

We initially recognized deferred grant income within Accrued liabilities for the ~~use of contractors, limited ground staff hiring, implemented a number of other cost reduction initiatives~~difference between the payroll support funding received in 2020 under the PSP Agreement and ~~taken other actions, such as~~ the ~~sale of certain nonessential assets. If we are unable to implement these or additional initiatives, it could have a material adverse effect on our financial position, results~~amounts recorded for the Promissory Note and the Warrant Agreement. Grant income has been subsequently recognized within Other (income) expense, net in the consolidated statement of operations ~~and cash flows. We believe the Company will generate sufficient liquidity to satisfy its obligations~~on a pro-rata basis over the ~~next twelve months.~~

~~In November 2019,~~periods that the ~~Financial Accounting Standards Board (“FASB”) amended its accounting guidance for share-based payment awards issued to a customer.~~qualifying employee wages, salaries and benefits are paid. The ~~amended guidance requires share-based payment awards issued to a customer to be recorded as a reduction~~remaining $40.9 million of ~~the transaction price in revenue based on the fair value at~~deferred grant date and to be classified on the balance sheet using accounting guidance for stock-based compensation. The amended guidance was effective for fiscal years beginning after December 15, 2019. Effective January 1, 2020, we adopted the amended guidance and applied the modified retrospective approach to the most current period presented. As a result, $14.6 million, or approximately 60% of our customer warrant liability of $24.3 million related to revenue contracts, which was included in Financial instruments and other liabilitiesincome as of December 31, ~~2019,~~2020 was ~~reclassified~~recognized as ~~Additional paid-in-capital~~grant income within ~~Total stockholders’ equity on January 1, 2020. As a result, these customer warrants are no longer marked-to-market at~~Other (income) expense, net in the ~~end~~consolidated statement of ~~each reporting period with changes in fair value recorded as an unrealized (gain) loss on financial instruments. The amended guidance did not impact~~operations during the accounting for the remaining portion of our customer warrant liability related to Dry Lease contracts, which was approximately $9.7 million or approximately 40% of the total customer warrant liability as of Decemberthree months ended March 31, ~~2019. The new guidance did not impact how we account for the amortization of the customer incentive asset (see Note 4 for further discussion).~~2021.

In June 2016, the FASB amended its accounting guidance for the measurement of credit losses on financial instruments. The guidance requires entities to utilize an expected credit loss model for certain financial instruments, including most trade receivables, which replaces the incurred credit loss model previously used. Under this new model, we are required to recognize estimated credit losses expected to occur over time using a broad range of information including historical information, current conditions and reasonable and supportable forecasts. Receivables related to lease contracts are not within the scope of this amended guidance. Effective January 1, 2020, we adopted the amended guidance under the modified retrospective approach and it did not have a material impact on our consolidated financial statements and related disclosures (see Note 5).

AAWW has a 51% equity interest and 75% voting interest in Polar. DHL Network Operations (USA), Inc. (“DHL”), a subsidiary of Deutsche Post AG, holds a 49% equity interest and a 25% voting interest in Polar. Polar is a variable interest entity that

we do not consolidate because we are not the primary beneficiary as the risks associated with the direct costs of operation are with DHL. Under a 20-year blocked space agreement, which began in 2008, Polar provides air cargo capacity to DHL. Atlas has several agreements with Polar to provide ACMI, CMI, Dry Leasing, administrative, sales and ground support services to one another. We do not have any financial exposure to fund debt obligations or operating losses of Polar, except for any liquidated damages that we could incur under these agreements.

	For the Three Months Ended				For the Three Months Ended
Revenue and Expenses:	March 31, 2020		March 31, 2019		March 31, 2021		March 31, 2020
Revenue from Polar	$	76,234	$	98,467	$	77,256	$	76,234
Ground handling and airport fees to Polar		526		518		882		526

Accounts receivable/payable as of:	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Receivables from Polar	$	21,416	$	10,855	$	22,780	$	31,079
Payables to Polar		3,233		2,161		4,153		3,477

Aggregate Carrying Value of Polar Investment as of:	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Aggregate Carrying Value of Polar Investment	$	4,870	$	4,870	$	4,870	$	4,870

In addition to the amounts in the table above, Atlas recognized revenue of ~~$27.5~~$54.1 million and ~~$23.0~~$27.5 million for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively, from flying on behalf of Polar.

We hold a 10% interest in a joint venture with an unrelated third party, which we entered into in December 2019, to develop a diversified freighter aircraft dry leasing portfolio. Through Titan, we provide aircraft and lease management services to the joint venture for fees based upon aircraft assets under management, among other things. Our investment in the joint venture is accounted for under the equity method of accounting. Under the joint venture, we have a commitment to provide up to $40.0 million of capital contributions before December ~~2022. Our investment in the joint venture was $0.5~~2022, of which $5.3 million ~~and $1.5 million~~has been contributed as of March 31, ~~2020 and December 31, 2019, respectively, and our~~2021. Our maximum exposure to losses from the entity is limited to our investment. The joint venture ~~does not currently have any~~has third-party debt obligations ~~and 0 capital contributions have been made as~~ of ~~March 31, 2020. We had Accounts receivable from the~~$49.4 million that are not guaranteed by us.

The following table summarizes our transactions with our dry leasing joint venture of $1.3 million as of March 31, 2020 related to the reimbursement of certain expenses by the joint venture. We have recognized 0 service fee income for the three months ended March 31, 2020.venture:

We hold a 50% interest in a joint venture with an unrelated third party to purchase rotable parts and provide repair services for those parts, primarily for 747-8F aircraft. The joint venture is a variable interest entity and we have not consolidated the joint venture because we are not the primary beneficiary as we do not exercise financial control. Our investment in the joint venture is accounted for under the equity method of ~~accounting. As~~accounting and was $21.2 million as of March 31, ~~2020~~2021 and $21.0 million as of December 31, 2020. Our maximum exposure to losses from the entity is limited to our investment, which is composed primarily of rotable inventory parts. The joint venture does not have any third-party debt obligations. We had Accounts receivable from the joint venture of $0.2 million as of March 31, 2021 and December 31, ~~2019, our investment in the joint venture was $19.3 million and $20.0 million, respectively.~~2020. We had Accounts payable to the joint venture of $1.0 million as of March 31, ~~2020~~2021 and ~~$0.5~~$0.9 million as of December 31, ~~2019.~~2020.

In May 2016, we entered into certain agreements with Amazon.com, Inc. and its subsidiary, Amazon Fulfillment Services, Inc., (collectively “Amazon”), which ~~involves,~~involve, among other things, CMI operation of up to 20 Boeing 767-300 freighter aircraft for Amazon by Atlas, as well as Dry Leasing by Titan. The Dry Leases have a term of ten years from the commencement of each agreement, while the CMI operations are for seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). ~~Between August 2016 and November 2018, we placed all 20~~As of March 31, 2021, 17 767-300 freighter aircraft ~~into~~were operating in CMI service ~~for Amazon. In February 2019, the number of~~and 19 767-300 freighters in ~~CMI and~~ Dry Lease service for Amazon was reduced to 19 with the loss of an aircraft. In September 2019, the number of 767-300 freighters in CMI service for Amazon was reduced to 17 with the early termination of CMI services for two aircraft, which remain under dry lease.Amazon.

In conjunction with the agreements entered into in May 2016, we granted Amazon a warrant providing the right to acquire up to 20% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, at an exercise price of ~~$37.50~~$37.34 per share, as adjusted (“Warrant A”). ~~As of December 31, 2018, this warrant to purchase~~All 7.5 million shares, ~~had~~as adjusted, have vested in ~~full. Warrant A is exercisable~~full and been exercised in ~~accordance with its terms through May 2021. As of March 31,~~2 transactions. In October 2020, ~~0 portion~~Amazon exercised 3,607,477 shares of Warrant A ~~has been exercised.~~through a cashless exercise resulting in the issuance of 1,375,421 shares of our common stock. In January 2021, Amazon exercised the remaining 3,924,569 shares of Warrant A through a cashless exercise resulting in the issuance of 1,210,741 shares of our common stock.

The agreements entered into in May 2016 also provided incentives for future growth of the relationship as Amazon may increase its business with us. In that regard, we granted Amazon a warrant to acquire up to an additional 10% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of ~~$37.50~~$37.34 per share,

(“ as adjusted (“Warrant B”). This warrant to purchase ~~3.75~~3.77 million shares, as adjusted, will vest in increments of ~~37,500~~37,660 shares, as adjusted, each time Amazon has paid $4.2 million of revenue to us, up to a total of $420.0 million, for incremental business beyond the original 20 767-300 freighters. As of March 31, ~~2020, 187,500~~2021, 564,900 shares, as adjusted, of Warrant B have vested. Upon vesting, Warrant B becomes exercisable in accordance with its terms through May 2023. ~~As of March 31, 2020, 0 portion~~In January 2021, Amazon exercised 225,960 shares of Warrant B ~~has been exercised.~~through a cashless exercise resulting in the issuance of 69,709 shares of our common stock.

In March 2019, we amended the agreements entered into in 2016 with Amazon, pursuant to which we began providing CMI services using Boeing 737-800 freighter aircraft provided by Amazon. The 737-800 CMI operations are for a term of seven years from the commencement of each agreement (with an option for Amazon to extend the term to ten years). As of March 31, ~~2020, five~~2021, eight 737-800 freighter aircraft ~~entered~~were operating in CMI service. Amazon may, in its sole discretion, place up to 1512 additional 737-800 freighter aircraft into service with us by May 31, 2021.

In connection with the amended agreements, we granted Amazon a warrant to acquire up to an additional 9.9% of our outstanding common shares, as of the date of the agreements, after giving effect to the issuance of shares pursuant to the warrants, for an exercise price of ~~$52.90~~$52.67 per share, as adjusted (“Warrant C”). When combined with Warrant A and Warrant B, this would allow Amazon to acquire up to a total of 39.9% (after the issuance) of our outstanding common shares and Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion. Amazon would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors. After Warrant B has vested in full, this warrant to purchase ~~6.6~~6.66 million shares, as adjusted, would vest in increments of ~~45,428~~45,623 shares, as adjusted, each time Amazon has paid $6.9 million of revenue to us, up to a total of $1.0 billion, for incremental business beyond Warrant A and Warrant B. As of March 31, ~~2020,~~2021, 0 portion of Warrant C has vested. Upon vesting, Warrant C would become exercisable in accordance with its terms through March 2026. While Amazon would be entitled to vote the shares it owns up to 14.9% of our outstanding common shares, in its discretion, it would be required to vote any shares it owns in excess of 14.9% of our outstanding common shares in accordance with the recommendation of our board of directors.

Upon the vesting of Warrant A in previous years, the fair value of the warrant was recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of revenue recognized over the terms of the Dry Leases and CMI agreements. Determining the amount of amortization related to the CMI agreements requires significant judgment to estimate the total number of Block Hours expected over the terms of those agreements. The fair value of Warrant A was also initially recorded as a warrant liability within Financial instruments and other liabilities (the “Amazon Warrant”). The Amazon Warrant liability is marked-to-market at the end of each reporting period with changes in fair value recorded in Unrealized (gain) loss on financial instruments.

As described in Note 2, we adopted the new accounting guidance for share-based payment awards issued to a customer as of January 1, 2020. Under the amended guidance, approximately 60% of the Amazon Warrant liability related to the CMI agreements as of January 1, 2020 was reclassified to Additional paid-in-capital and will no longer be marked-to-market at the end of each reporting period. The amended guidance does not impact the accounting for the remaining portion of the Amazon Warrant liability related to Dry Lease contracts. We recognized a net unrealized gain of $0.9 million and an unrealized loss of $46.6 million on the Amazon Warrant liability during the three months ended March 31, 2020 and 2019, respectively. The fair value of the Amazon Warrant liability was $8.9 million as of March 31, 2020 and $24.3 million as of December 31, 2019.

When it becomes probable that an increment of either Warrant B or C will vest and the related revenue begins to be recognized, the grant date fair value of such portion is recognized as a customer incentive asset within Deferred costs and other assets, net and is amortized as a reduction of Operating Revenue in proportion to the amount of related revenue recognized. The grant date fair value of such increment is also recorded as Additional paid-in-capital. At the time of vesting, any amounts recorded in Additional paid-in-capital related to Dry Lease contracts would be reclassified ~~to the Amazon Warrant liability.~~as a warrant liability within Financial instruments and other liabilities with changes in fair value recorded in Unrealized loss (gain) on financial instruments.

We amortized ~~$9.0~~$10.5 million and ~~$6.3~~$9.0 million of the customer incentive asset as a reduction of Operating Revenue for the three months ended March 31, ~~2020~~2021 and ~~2019,~~2020, respectively.

Customer incentive asset included within Deferred costs and other assets is as follows:

Balance at December 31, 2019	$	152,534
Balance at December 31, 2020				$	125,276
Initial value for estimate of vested or expected to vest warrants		2,394			3,228
Amortization of customer incentive asset		(9,022	)		(10,481	)
Balance at March 31, 2020	$	145,906
Balance at March 31, 2021				$	118,023

5.We recognized a net unrealized loss of $0.1 million and a net unrealized gain of $0.9 million on the Amazon warrant liability related to Warrant A during the three months ended March 31, 2021 and 2020, respectively. The fair value of the Amazon warrant liability was 0 as of March 31, 2021 and $31.5 million as of December 31, 2020. Due to the exercise of Warrant A discussed above, our earnings are no longer affected by changes in the fair value of our Amazon warrant liability.

Accounts receivable, net of allowance for expected credit losses related to customer contracts, excluding Dry Leasing contracts, was ~~$212.5~~$237.0 million as of March 31, ~~2020~~2021 and ~~$247.5~~$195.6 million as of December 31, ~~2019.~~2020.

Allowance for expected credit losses, included within Accounts receivable, is as follows:

	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Maintenance	$	122,253	$	136,315	$	134,918	$	142,374
Customer maintenance reserves		104,747		110,355		97,467		93,092
Salaries, wages and benefits		56,268		75,719		82,928		136,753
Deferred revenue						47,863		41,665
Aircraft fuel		24,077		28,821		33,507		24,578
Deferred revenue		30,582		26,357
Deferred grant income						0		40,944
Other		109,452		104,158		104,634		103,754
Accrued liabilities	$	447,379	$	481,725	$	501,317	$	583,160

Deferred revenue for customer contracts, excluding Dry Leasing contracts, represents amounts collected from, or invoiced to, customers in advance of revenue recognition. The balance of Deferred revenue will increase or decrease based on the timing of invoices and recognition of revenue.

~~Significant changes~~ Changes in ~~our~~ Deferred r~~Revenue contract liability balances~~evenue during the three months ended March 31, ~~2020~~2021 were as follows:


	Deferred Revenue
Balance as of December 31, 2019	$	19,234
Balance as of December 31, 2020				$	30,291
Revenue recognized		(39,521	)		(57,193	)
Amounts collected or invoiced		46,077			63,786
Balance as of March 31, 2020	$	25,790
Balance as of March 31, 2021				$	36,884

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets that sum to the total shown in the consolidated statements of cash flows:

	March 31, 2020		December 31, 2019		March 31, 2021		December 31, 2020
Cash and cash equivalents	$	225,160	$	103,029	$	703,777	$	845,589
Restricted cash		10,459		10,401		10,247		10,692
Total Cash, cash equivalents and restricted cash shown in Consolidated Statements of Cash Flows	$	235,619	$	113,430	$	714,024	$	856,281

As of December 31, ~~2019,~~2020, we had 2 737-400 passenger aircraft previously used for training purposes and certain spare CF6-80 engines ~~and 3 aircraft in our Dry Leasing portfolio~~ classified as held for sale. During the three months ended March 31, ~~2020,~~2021, we received net proceeds of ~~$44.1~~$1.9 million from the completion of the sales of some of the spare CF6-80 ~~engines and two aircraft in our Dry Leasing portfolio and recognized a net gain~~engines. We estimated the fair value of ~~$6.7 million.~~these assets, less costs to sell, based on bids received from independent third parties or recently completed sales. The carrying value of the assets held for sale as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 was ~~$111.6~~$12.3 million and ~~$155.9~~$14.1 million, respectively, which was included within Prepaid expense, assets held for sale and other current assets in the consolidated balance sheets. Sales of the remaining aircraft and engines ~~held for sale~~ are expected to be completed ~~in 2020.~~during 2021.

During the three months ended March 31, 2020, we recognized ~~a refund~~refunds of $1.4 million related to aircraft rent paid in previous years within Other (income) expense, net. ~~In April 2020, we received a refund of $31.5 million related to aircraft rent paid in previous years, which will be recognized during the second quarter of 2020 within Other (income) expense, net.~~

In ~~February 2020,~~March 2021, we ~~refinanced two secured term loans, that were originally due later in 2020, with 2 new term loans. One term loan is for 126 months in the amount of $82.0~~borrowed $16.2 million at a fixed interest rate of ~~3.27% with a final payment of $12.5 million~~0.93% under an unsecured five-year term loan due in ~~July 2030.~~January 2026 for GEnx engine performance upgrade kits and overhauls. The ~~other~~ term loan is for 130 months in the amount of $82.0 million at a fixed interest rate of 3.28% with a final payment of $12.5 million due in November 2030. The new term loans are each secured by a mortgage against a 777-200LRF aircraft and subject to ~~usual and~~ customary fees, covenants and events of default, with principal and interest payable quarterly.

~~In April 2020, we borrowed $14.6 million related to GEnx engine performance upgrade kits and overhauls under an unsecured~~ ~~five-year~~ ~~term loan at a fixed interest rate of 1.15%.~~

In May 2017, we issued $289.0 million aggregate principal amount of ~~1.875%~~1.88% convertible senior notes that mature on June 1, 2024 (the “2017 Convertible Notes”) in an underwritten public offering. In June 2015, we issued $224.5 million aggregate principal amount of 2.25% convertible senior notes that mature on June 1, 2022 (the “2015 Convertible Notes”) in an underwritten public offering. The 2017 Convertible Notes and the 2015 Convertible Notes (collectively, the “Convertible Notes”) are senior unsecured obligations and accrue interest payable semiannually on June 1 and December 1 of each year. The Convertible Notes are due on their respective maturity dates, unless earlier converted or repurchased pursuant to their respective terms.

	2017 Convertible Notes			2015 Convertible Notes			2015 Convertible Notes			2017 Convertible Notes
Remaining life in months		50			26			14			38
Liability component:
Gross proceeds	$	289,000		$	224,500		$	224,500		$	289,000
Less: debt discount, net of amortization		(45,194	)		(18,993	)		(10,555	)		(35,375	)
Less: debt issuance cost, net of amortization		(3,512	)		(1,766	)		(970	)		(2,723	)
Net carrying amount	$	240,294		$	203,741		$	212,975		$	250,902

Equity component ⁽¹⁾	$	70,140		$	52,903		$	52,903		$	70,140

The following table presents the amount of interest expense recognized related to the Convertible Notes:

	For the Three Months Ended				For the Three Months Ended
	March 31, 2020		March 31, 2019		March 31, 2021		March 31, 2020
Contractual interest coupon	$	2,618	$	2,618	$	2,618	$	2,618
Amortization of debt discount		4,388		4,121		4,671		4,388
Amortization of debt issuance costs		387		372		402		387
Total interest expense recognized	$	7,393	$	7,111	$	7,691	$	7,393

We have a $200.0 million secured revolving credit facility that matures in December 2022 (the “Revolver”). As of March 31, ~~2020,~~2021, there ~~was $175.0 million~~were 0 amounts outstanding and we had ~~$19.8~~$200.0 million of unused availability, ~~under the Revolver,~~ based on the collateral borrowing base.

The effective income tax rates were ~~27.4%~~23.7% and ~~19.7%~~27.4% for the three months ended March 31, 2021 and 2020, respectively. The rate for the three months ended March 31, 2021 differed from the U.S. statutory rate primarily due to state income taxes and ~~2019, respectively.~~certain expenses that are not deductible for tax purposes. The rate for the three months ended March 31, 2020 differed from the U.S. statutory rate primarily due to tax expense from the vesting of share-based compensation. The rate for the three months ended March 31, 2019 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of the customer warrant liability (see Note 4 for further discussion). For interim accounting purposes, we recognize income taxes using an estimated annual effective tax rate.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). Inputs used to measure fair value are classified in the following hierarchy:

The carrying value of Cash and cash equivalents, ~~Short-term investments~~ and Restricted cash is based on cost, which approximates fair value.

Term loans and notes consist of term loans, notes guaranteed by the Export-Import Bank of the United States, ~~(“Ex-Im Bank”)~~a promissory note issued to the U.S. Treasury and equipment enhanced trust certificates. The fair values of these debt instruments and the Revolver are based on a discounted cash flow analysis using current borrowing rates for instruments with similar terms.

The fair value of our Convertible Notes is based on unadjusted quoted market prices for these securities.

The fair value of a customer warrant liability and certain long-term performance-based restricted shares are based on a Monte Carlo simulation which requires inputs such as our common stock price, the warrant strike price, estimated common stock price volatility, and risk-free interest rate, among others.

The following table summarizes the carrying value, estimated fair value and classification of our financial instruments as of:

	March 31, 2020										March 31, 2021
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	225,160	$	225,160	$	225,160	$	-	$	-	$	703,777	$	703,777	$	703,777	$	0	$	0
Restricted cash		10,459		10,459		10,459		-		-		10,247		10,247		10,247		0		0
	$	235,619	$	235,619	$	235,619	$	-	$	-	$	714,024	$	714,024	$	714,024	$	0	$	0

Liabilities
Term loans and notes	$	1,772,178	$	1,749,135	$	-	$	-	$	1,749,135	$	1,756,278	$	1,832,407	$	0	$	0	$	1,832,407
Revolver		175,000		160,993		-		-		160,993
Convertible notes (1)		444,035		414,978		414,978		-				463,877		589,456		589,456		0		0
Customer warrant		8,869		8,869		-		8,869
	$	2,400,082	$	2,333,975	$	414,978	$	8,869	$	1,910,128	$	2,220,155	$	2,421,863	$	589,456	$	0	$	1,832,407

	December 31, 2019										December 31, 2020
	Carrying Value		Fair Value		Level 1		Level 2		Level 3		Carrying Value		Fair Value		Level 1		Level 2		Level 3
Assets
Cash and cash equivalents	$	103,029	$	103,029	$	103,029	$	-	$	-	$	845,589	$	845,589	$	845,589	$	0	$	0
Short-term investments		879		879		-		-		879
Restricted cash		10,401		10,401		10,401		-		-		10,692		10,692		10,692		0		0
	$	114,309	$	114,309	$	113,430	$	-	$	879	$	856,281	$	856,281	$	856,281	$	0	$	0

Liabilities
Term loans and notes	$	1,800,911	$	1,885,750	$	-	$	-	$	1,885,750	$	1,809,656	$	1,909,942	$	0	$	0	$	1,909,942
Revolver		100,000		103,575		-		-		103,575
Convertible notes (1)		439,261		450,668		450,668		-		-		458,803		560,975		560,975		0		0
Customer warrant		24,345		24,345		-		24,345		-		31,470		31,470		0		31,470		0
	$	2,364,517	$	2,464,338	$	450,668	$	24,345	$	1,989,325	$	2,299,929	$	2,502,387	$	560,975	$	31,470	$	1,909,942

(1) Carrying value is net of debt discounts and debt issuance costs (see Note 7)8).

~~Our business is organized into 3~~During the first quarter of 2021, we changed our operating and reportable segments, ~~based on~~reflecting changes in our ~~service offerings:~~business. We currently have the following 2 operating and reportable segments: Airline Operations and Dry Leasing. Previously, our operating and reportable segments were ACMI, Charter and Dry Leasing. ~~All segments~~As ACMI and Charter services have become more similar, our chief operating decision maker began assessing operating results and making resource allocation decisions for Airline Operations.

Our Airline Operations segment provides outsourced aircraft operating services to customers including, express delivery providers, e-commerce retailers, the U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services on an ACMI, CMI and Charter basis. Most agreements provide us with guaranteed minimum revenues at predetermined rates, levels of operation and defined periods of time. We also provide certain services on a short-term basis.

Our Dry Leasing segment provides for the leasing of cargo and passenger aircraft and engines to customers, and aircraft- and lease-management services. In our Dry Leasing segment, the customer operates, and is responsible for insuring and maintaining, the flight equipment.

Other represents revenue for services that are ~~directly or indirectly engaged in the business of air transportation~~not allocated to any segment, including administrative and management support services ~~but have different commercial~~ and ~~economic characteristics.~~ flight simulator training.

Each operating segment is separately reviewed by our chief operating decision maker to assess operating results and make resource allocation decisions. We do not aggregate our operating segments and, therefore, our operating segments are our reportable segments.

We use an economic performance metric called Direct Contribution, which shows the profitability of each ~~segment after allocation of direct operating and ownership costs.~~segment. Direct Contribution includes Income ~~(loss) from continuing operations~~ before income taxes and excludes the following: Special charges, Transaction-related expenses, nonrecurring items, ~~Gains~~Gain (losses) on the disposal of aircraft, Losses on early extinguishment of debt, Unrealized losses (gains) on financial instruments ~~Gains on investments~~ and Unallocated income and expenses, net. Direct operating and ownership costs include crew costs, maintenance, fuel, ground operations, sales costs, aircraft rent, interest expense on the portion of debt used for financing aircraft, interest income on debt securities and aircraft depreciation. Unallocated income and expenses, net include corporate overhead, nonaircraft depreciation, noncash expenses and income, interest expense on the portion of debt used for general corporate purposes, interest income on nondebt securities, capitalized interest, foreign exchange gains and losses, other revenue, ~~and~~ other non-operating ~~costs.~~costs and CARES Act grant income.

The following table sets forth Operating Revenue and Direct Contribution for our reportable segments reconciled to Operating Income and Income ~~(loss)~~ before income taxes:

	For the Three Months Ended						For the Three Months Ended
	March 31, 2020			March 31, 2019			March 31, 2021			March 31, 2020
Operating Revenue:
ACMI	$	278,744		$	306,567
Charter		327,629			305,114
Airline Operations							$	826,240		$	606,373
Dry Leasing		41,926			69,946			40,364			41,926
Customer incentive asset amortization		(9,022	)		(6,286	)		(10,481	)		(9,022	)
Other		4,225			4,342			5,177			4,225
Total Operating Revenue	$	643,502		$	679,683		$	861,300		$	643,502

Direct Contribution:
Airline Operations							$	169,150		$	103,087
Dry Leasing								10,564			10,698
Total Direct Contribution for Reportable Segments								179,714			113,785

Unallocated expenses and (income), net								(61,535	)		(88,719	)
Unrealized gain (loss) on financial instruments								(113	)		924
Transaction-related expenses								(201	)		(521	)
Gain (loss) on disposal of aircraft								(16	)		6,717
Income before income taxes								117,849			32,186
Add back (subtract):
Interest income								(211	)		(480	)
Interest expense								27,180			29,275
Capitalized interest								(1,271	)		(193	)
Unrealized (gain) loss on financial instruments								113			(924	)
Other (income) expense, net								(39,456	)		1,206
Operating Income							$	104,204		$	61,070

Direct Contribution:

ACMI

$
52,306

$
40,006

Charter

50,781

29,133

Dry Leasing

10,698

35,527

Total Direct Contribution for Reportable Segments

113,785

104,666

Unallocated expenses and (income), net

(88,719
)

(80,136
)
Loss on early extinguishment of debt

-

(245
)
Unrealized gain (loss) on financial instruments

924

(46,575
)
Transaction-related expenses

(521
)

(2,527
)
Gain on disposal of aircraft

6,717

-

Income (loss) before income taxes

32,186

(24,817
)

Add back (subtract):

Interest income

(480
)

(2,044
)
Interest expense

29,275

30,353

Capitalized interest

(193
)

(463
)
Loss on early extinguishment of debt

-

245

Unrealized (gain) loss on financial instruments

(924
)

46,575

Other (income) expense, net

1,206

(2,975
)
Operating Income

$
61,070

$
46,874

The following table disaggregates our ~~Charter~~Airline Operations segment revenue by customer and service type:

	For the Three Months Ended													For the Three Months Ended
	March 31, 2020							March 31, 2019						March 31, 2021							March 31, 2020
		Cargo		Passenger		Total		Cargo		Passenger		Total			Cargo		Passenger		Total		Cargo		Passenger		Total
Commercial customers		$	174,489	$	3,105	$	177,594	$	148,904	$	7,607	$	156,511		$	713,211	$	2,879	$	716,090	$	452,712	$	3,626	$	456,338
AMC			62,475		87,560		150,035		57,446		91,157		148,603			45,312		64,838		110,150		62,475		87,560		150,035
Total Charter Revenue		$	236,964	$	90,665	$	327,629	$	206,350	$	98,764	$	305,114

Total Airline Operations Revenue															$	758,523	$	67,717	$	826,240	$	515,187	$	91,186	$	606,373

Given the nature of our business and international flying, geographic information for revenue, long-lived assets and total assets is not presented because it is impracticable to do so.

We are exposed to a concentration of revenue from the AMC, Polar and DHL (see above for the AMC and Note 34 to our Financial Statements for further discussion regarding Polar). No other customer accounted for more than 10.0% of our Total Operating Revenue. Revenue from DHL was $158.7 million for the three months ended March 31, 2021 and $98.4 million for the three months ended March 31, ~~2020 and $89.7 million for the three months ended March 31, 2019.~~2020. We have not experienced any credit issues with these customers.

Pilots of Atlas and Southern Air, and flight dispatchers of Atlas and Polar are represented by the International Brotherhood of Teamsters (the “IBT”). We have a five-year collective bargaining agreement (“CBA”) with our Atlas pilots, which became amendable in September 2016, and a four-year CBA with the Southern Air pilots, which became amendable in November 2016. We also have a five-year CBA with our Atlas and Polar dispatchers, which was extended in April 2017 for an additional four years, making the CBA amendable in November 2021.

After we completed the acquisition of Southern Air in April 2016, we informed the IBT of our intention to pursue (and we have been pursuing) a complete operational merger of Atlas and Southern Air. The Atlas and Southern Air CBAs both have a defined and streamlined process for negotiating a joint CBA (“JCBA”) when a merger occurs, as in the case with the Atlas and Southern Air merger. Pursuant to the merger provisions in both CBAs, joint negotiations for a single CBA for Atlas and Southern Air should commence promptly. Further, once an integrated seniority list (“ISL”) of Atlas and Southern Air pilots is presented to the Company by the union, it triggers a nine month agreed-upon timeframe to negotiate a new JCBA with any unresolved issues promptly submitted to binding arbitration.

The IBT ~~has~~ refused to follow the merger provisions in the Atlas and Southern Air ~~CBAs. This has~~CBAs, which resulted in significant litigation, arbitrations and delay. ~~As more fully stated below, the~~The Company ~~has~~ prevailed in all of the ~~merger~~prior merger-related proceedings, including all federal court litigation and related ~~proceedings.~~

~~After the merger process began, the~~appeals. The IBT ~~also filed an application for mediation~~was ordered by two arbitrators and two federal district courts to comply with the National Mediation Board (“NMB”) on behalf of the Atlas pilots, and subsequently the IBT filed a similar application on behalf of Southern Air pilots. We have opposed both mediation applications as they are not in accordance with the merger provisions in the parties’ existing CBAs. The NMB conducted a premediation investigation on the IBT’s Atlas application in June 2016, which has remained pending (along with the IBT’s Southern Air application) since 2016.

~~Due to the IBT’s refusal to adhere to~~ the merger provisions of the respective CBAs, in February 2017, the Company filed a lawsuit against the IBT to compel arbitration on the issue of whether the merger provisions in Atlas and Southern Air's CBAs apply to the bargaining process. On March 13, 2018, the U.S. District Court for the Southern District of New York (“NY District Court”) ruled in the Company’s favor and ordered arbitration of this issue. The IBT appealed the NY District Court’s decision, and on November 21, 2019, the U.S. Court of Appeals for the Second Circuit Court issued its decision in the Company’s favor affirming the NY District Court’s decision.

~~The Company and the IBT conducted the~~ Atlas and Southern Air arbitrations for this issue in October 2018. The Company prevailed in both the Atlas and Southern Air management grievance arbitrations against the IBT, with decisions rendered on June 12, 2019 and August 26, 2019, respectively. Both arbitrators ruled that the IBT violated the CBAs by refusing to follow merger provisions in the parties’ respective CBAs, which ~~require formulation of a JCBA covering the combined pilot group. The arbitrators each ordered the IBT to promptly comply with the CBAs by submitting an ISL to~~included providing the Company ~~within 45 days of each arbitration decision, respectively. The IBT failed to comply~~ with both deadlines for submitting the ISL, which passed on July 27, 2019 for Southern Air, and on October 10, 2019 for Atlas. As a result, on October 25, 2019, the Company filed an action in the U.S. District Court for the District of Columbia (“DC District Court”) to enforce the Atlas and Southern Air arbitration decisions. On March 31, 2020, the DC District Court ruled in the Company’s favor, enforcing the arbitration decisions and directing the IBT to produce the ISL by May 15, 2020.

The IBT subsequently requested additional time from the Company to complete the ISL and the parties agreed to a joint stipulation. As a result, on April 24, 2020, the U.S. District Court for the District of Columbia (“DC District ~~Court~~Court”) issued ~~an order modifying its March 31st~~a modified order, providing that the ~~nine month~~nine-month timeframe to bargain for a new JCBA ~~will be~~was triggered on May 15, 2020 and that the IBT must produce the ISL by March 31, 2021. Any remaining open issues ~~will then~~as of February 15, 2021 are to be determined by binding interest arbitration pursuant to the merger provisions in the CBAs. On

In April ~~28,~~ 2020, the ~~IBT and Local 2750 filed a Notice~~Company entered into Coronavirus Memorandum of ~~Appeal of the DC District Court’s March 31st order, which remains in place pending appeal.~~

In connection with its opposition to application of the merger provisions, the IBT commenced lawsuits in the DC District Court seeking to vacate both arbitration awards. On January 28, 2020, the DC District Court ruled in the Company’s favor, granting its motions to dismiss both of the IBT’s lawsuits. ~~On April 28, 2020, the IBT and Local 2750 filed a Notice of Appeal of the DC District Court’s January 28th orders, which remains in place pending appeal.~~

The Company and the IBT continue to meet virtually to move the process forward and bargain in good faith for a new JCBA. Substantive progress has been made with tentative agreements for more than half of the articles in a new JCBA. Despite repeated requests from the Company, the IBT has yet to provide the Company with a comprehensive economic proposal.

In late September 2019, the Atlas pilots represented by the IBT formed a new local union, IBT Local 2750 to represent them. The Southern Air pilots continue to be represented by IBT Local 1224. The Company continues to workUnderstandings (“MOU”) with both Local 2750 and Local 1224, ~~leadership groups.~~providing for premium pay and enhanced benefits for pilots flying into covered areas designated by the Centers for Disease Control and Prevention (“CDC”) as Red Level 3 Travel Health Notices on its website at the time, as well as providing for an increased per diem and other additional safety measures related to COVID-19. In August 2020, the CDC updated its Travel Health Notices, which affected covered areas eligible for premium pay and certain benefits under the MOU. In late November 2020, the CDC further updated its Travel Health Notices, which expanded the scope of covered areas under the MOU. This CDC change resulted in China, however, no longer being a covered area under the MOU. The Company voluntarily offered and the Union agreed to continue to provide premium pay and certain other benefits under the MOU for eligible areas through December 31, 2020. The MOU has continued in effect since December 31, 2020. Once a new JCBA is effective, the MOU will be terminated.

On May 7, 2020, the Company announced that Atlas and Southern Air reached an agreement with IBT Locals 2750 and 1224, which provides for ~~an interim~~a 10 percent pay increase for all pilots, effective as of May 1, 2020. This pay increase provides interim additional compensation to our pilots until a new JCBA is reached.

~~In late November 2017, the DC District Court granted the Company’s request to issue a preliminary injunction to stop an illegal work slowdown~~The Company and ~~require~~ the IBT continued to meet ~~its obligations under~~virtually from March 2020 through January 2021 to move the ~~Railway Labor Act. Specifically,~~process forward and bargain in good faith for a new JCBA. Substantive progress was made with tentative agreements reached for more than half of the ~~DC District Court ordered~~articles in a new JCBA. On February 15, 2021, the Company and IBT completed the contractually-mandated nine-month period for negotiations for a JCBA. All remaining open issues not resolved in negotiations are subject to binding interest arbitration between the Company and the IBT, ~~to stop “authorizing, encouraging, permitting, calling, engaging~~which occurred in ~~or continuing” any illegal pilot slowdown activities, which were intended to gain leverage in pilot contract negotiations~~the latter half of March 2021 and concluded on April 1, 2021. On March 30, 2021, the IBT provided the Company with the ~~Company. In addition,~~ISL.

On May 1, 2021, IBT Local 2750, which represents Atlas Air Pilots, also became the ~~Court ordered~~official IBT representative for all Southern Air pilots who had previously been represented by IBT Local 1224. While the ~~IBT to take affirmative action to prevent~~Atlas and ~~to refrain from continuing any form of interference with~~Southern pilots are represented by the ~~Company’s operations or any other concerted refusal to perform normal~~same local, they remain two distinct pilot ~~operations consistent with its status quo obligations~~groups under separate CBAs until there is a new JCBA.

Once the ~~Railway Labor Act. In December 2017,~~arbitration decision is issued, there will be a new JCBA. We expect the ~~IBT appealed the District Court’s~~ decision to be issued during the ~~U.S. Court~~second half of ~~Appeals for~~2021 and that labor costs arising from the ~~District of Columbia Circuit (“Court of Appeals”). On July 5, 2019,~~new JCBA will be materially greater than the ~~Court of Appeals, in a unanimous three judge panel, affirmed the DC District Court’s ruling~~costs under our current CBAs with Atlas pilots and ~~denied the IBT’s appeal. Therefore, the preliminary injunction remains in full force and effect.~~Southern Air pilots.

We are subject to risks of work interruption or stoppage as permitted by the Railway Labor Act and may incur additional administrative expenses associated with union representation of our employees.

In late November 2017, the DC District Court issued a preliminary injunction preventing the IBT from “authorizing, encouraging, permitting, calling, engaging in, or continuing” any illegal pilot slowdown activities that were intended to gain leverage in pilot contract negotiations with the Company and requiring the IBT to meet its obligations under the Railway Labor Act. The IBT appealed to the DC Court of Appeals, which, in a unanimous three-judge panel, affirmed the DC District Court’s ruling. On May 22, 2020, the IBT filed a motion to dismiss the Company’s action for a preliminary injunction, which has been fully briefed. The preliminary injunction remains in full force and effect pending the court’s decision. The preliminary injunction will expire once the parties’ new JCBA becomes effective.

In the Netherlands, Stichting Cartel Compensation, successor in interest to claims of various shippers, has filed suit in the district court in Amsterdam against British Airways, KLM, Martinair, Air France, Lufthansa and Singapore Airlines seeking recovery for damages purportedly arising from allegedly unlawful pricing practices of such defendants. In response, British Airways, KLM, Martinair, Air France and Lufthansa filed third-party indemnification lawsuits against Polar Air Cargo, LLC (“Old Polar”), a consolidated subsidiary of the Company, and Polar, seeking indemnification in the event the defendants are found to be liable in the main proceedings. Another defendant, Thai Airways, filed a similar indemnification claim. Activities in the case have focused on various procedural issues and rulings, some of which are awaiting court ~~determination.~~decisions on appeal. The ~~Netherlands proceedings are~~ ultimate outcome of the lawsuit is

likely to be affected by a decision readopted by the European Commission in March 2017, finding EU competition law violations by British Airways, KLM, Martinair, Air France and Lufthansa, among others, but not Old Polar or Polar. If the Company, Old Polar or Polar were to incur an unfavorable outcome, such outcome may have a material adverse impact on our business, financial condition, results of operations or cash flows. We are unable to reasonably estimate a range of possible loss for this matter at this time.

Old Polar was cited for two alleged customs violations in Sao Paulo, Brazil, relating to shipments of goods dating back to 1999 and 2000. Each claim asserts that goods listed on the flight manifest of two separate Old Polar scheduled service flights were not on board the aircraft upon arrival and therefore were improperly brought into Brazil. The two claims, which also seek unpaid customs duties, taxes and penalties from the date of the alleged infraction, are approximately ~~$4.0~~$3.6 million in aggregate based on March 31, ~~2020~~2021 exchange rates.

In both cases, we believe that the amounts claimed are substantially overstated due to a calculation error when considering the type and amount of goods allegedly missing, among other things. In the pending claim for one of the cases, we have received an administrative decision dismissing the claim in its entirety, which remains subject to a mandatory appeal by the Brazil customs authorities. In the other case, we received an administrative decision in favor of the Brazil customs authorities and we are in the process of appealing this decision to the Brazil courts. As required to defend such claims, we have made deposits pending resolution of these matters. The balance was ~~$3.2~~$3.0 million as of March 31, ~~2020~~2021 and ~~$4.1~~$3.3 million as of December 31, ~~2019,~~2020, and is included in Deferred costs and other assets.

We are currently defending these and other Brazilian customs claims and the ultimate disposition of these claims, either individually or in the aggregate, is not expected to materially affect our financial condition, results of operations or cash flows.

In addition to the matters described in this note, we have certain other contingencies incident to the ordinary course of business. Unless disclosed otherwise, management does not expect that the ultimate disposition of such other contingencies or matters will materially affect our financial condition, results of operations or cash flows.

Basic earnings per share (“EPS”) represents income ~~(loss)~~ divided by the weighted average number of common shares outstanding during the measurement period. Diluted EPS represents income ~~(loss)~~ divided by the weighted average number of common shares outstanding during the measurement period while also giving effect to all potentially dilutive common shares that were outstanding during the period using the treasury stock method.

	For the Three Months Ended					For the Three Months Ended
Numerator:	March 31, 2020		March 31, 2019			March 31, 2021		March 31, 2020
Net Income (Loss)	$	23,353	$	(29,710	)
Net Income						$	89,933	$	23,353
Plus: Unrealized loss (gain) on financial instruments, net of tax							112		0
Diluted net income						$	90,045	$	23,353

Denominator:
Basic EPS weighted average shares outstanding		25,966		25,735			28,491		25,966
Effect of dilutive warrants							751		0
Effect of dilutive restricted stock							236		0
Diluted EPS weighted average shares outstanding		25,966		25,735			29,478		25,966

Earnings (loss) per share:
Earnings per share:
Basic	$	0.90	$	(1.15	)	$	3.16	$	0.90
Diluted	$	0.90	$	(1.15	)	$	3.05	$	0.90

Antidilutive shares related to warrants issued in connection with our Convertible Notes and warrants issued to a customer that were out of the money and excluded from the calculation of diluted EPS were 7.8 million for the three months ended March 31, 2021, and 15.5 million for the three months ended March 31, ~~2020 and 7.8 million for the three months ended March 31, 2019.~~2020. Diluted shares reflect the potential dilution that could occur from restricted shares using the treasury stock method. The calculation of EPS does not include restricted share units and customer warrants in which performance or market conditions were not satisfied of 10.1 million for the three months ended March 31, 2021 and 10.5 million for the three months ended March 31, ~~2020 and 10.6 million for the three months ended March 31, 2019.~~2020.

The following table summarizes the components of Accumulated other comprehensive income (loss):

	Interest Rate			Foreign Currency					Interest Rate			Foreign Currency
	Derivatives			Translation		Total
Balance as of December 31, 2018	$	(3,841	)	$	9	$	(3,832	)
Reclassification to interest expense		344			-		344
Tax effect		(81	)		-		(81	)
Balance as of March 31, 2019	$	(3,578	)	$	9	$	(3,569	)
									Derivatives			Translation		Total
Balance as of December 31, 2019	$	(2,827	)	$	9	$	(2,818	)	$	(2,827	)	$	9	$	(2,818	)
Reclassification to interest expense		308			-		308			308			0		308
Tax effect		(63	)		-		(63	)		(63	)		0		(63	)
Balance as of March 31, 2020	$	(2,582	)	$	9	$	(2,573	)	$	(2,582	)	$	9	$	(2,573	)

Balance as of December 31, 2020									$	(1,913	)	$	9	$	(1,904	)
Reclassification to interest expense										268			0		268
Tax effect										(64	)		0		(64	)
Balance as of March 31, 2021									$	(1,709	)	$	9	$	(1,700	)

As of March 31, ~~2020,~~2021, there was ~~$3.4~~$2.2 million of unamortized net realized loss before taxes remaining in Accumulated other comprehensive income (loss) related to terminated forward-starting interest rate swaps, which had been designated as cash flow hedges to effectively fix the interest rates on two 747-8F financings in 2011 and three 777-200LRF financings in 2014. The net loss is amortized and reclassified into Interest expense over the remaining life of the related debt. Net realized losses reclassified into earnings were $0.3 million for both the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020. Net realized losses expected to be reclassified into earnings within the next 12 months are ~~$1.1~~$1.0 million as of March 31, ~~2020.~~2021.

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

The following discussion and analysis should be read in conjunction with our Financial Statements appearing in this report and our audited consolidated financial statements and related notes included in our ~~2019~~2020 Annual Report on Form 10-K.

The following represents terms and statistics specific to our business and industry. They are used by management to evaluate and measure operations, results, productivity and efficiency.

We are a leading global provider of outsourced aircraft and aviation operating services. We operate the world’s largest fleet of 747 freighters and provide customers a broad array of 747, 777, 767 and 737 aircraft for domestic, regional and international cargo and passenger operations. We provide unique value to our customers by giving them access to highly reliable new production freighters that deliver the lowest unit cost in the marketplace combined with outsourced aircraft operating services that we believe lead the industry in terms of quality and global scale. ~~Our customers include express delivery providers, e-commerce retailers, airlines, freight forwarders, the U.S. military and charter brokers.~~ We provide global services with operations in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

During the first quarter of 2021, we changed our operating and reportable segments, reflecting changes in our business (see Note 11 to our Financial Statements). Our primary service offerings ~~include~~are provided through two operating segments:

Airline Operations. Our Airline Operations segment provides outsourced aircraft operating services to customers including express delivery providers, e-commerce retailers, the ~~following:~~U.S. military, charter brokers, freight forwarders, airlines, manufacturers, sports teams and fans, and private charter customers. We generally provide these services through aircraft operating service agreements, including those through which we provide aircraft to customers and value-added services, including crew, maintenance and insurance (“ACMI”), crew, maintenance and insurance, but not the aircraft (“CMI”) and cargo and passenger charter services (“Charter”).

See “Business Overview” and “Business Strategy” in our ~~2019~~2020 Annual Report on Form 10-K for additional information.

In December 2019, COVID-19 was first reported in China and has since spread to many other regions of the world. In March 2020, ~~COVID-19~~it was determined to be a global pandemic by the World Health Organization. ~~During the first quarter of 2020,~~Since this public health crisis began, it has disrupted global manufacturing, supply chains, passenger travel and consumer spending, resulting in ~~flight cancellations~~a reduction in flights by some of our ACMI customers and lower AMC passenger flying as the military ~~took~~has taken precautionary measures to limit the movement of ~~personnel, as well as increased operating costs. A~~personnel.

Our Airline Operations results for the first quarter of 2021, compared with 2020, were significantly impacted by the reduction of available cargo capacity in the market provided by passenger airlines and ~~increased demand for transporting goods~~the disruption of global supply chains due to the COVID-19 pandemic, ~~also resulted~~resulting in ~~increased~~significantly higher commercial charter cargo ~~charter~~ Yields, net of fuel. Due to this strong demand in 2020, we reactivated four 747-400BCF aircraft that had been temporarily parked and began Charter operations using a 777-200 freighter aircraft that was previously in our Dry Leasing business. During 2020 and the first quarter of 2021, we entered into numerous long-term Charter programs with customers seeking to secure committed cargo capacity. These long-term Charter programs provide us with guaranteed revenue and include indexed fuel ~~and demand during the quarter.~~

~~Safety is~~price adjustments to mitigate our ~~top priority. We are closely monitoring the COVID-19 pandemic and taking numerous precautions~~exposure to ~~ensure the safety of our operations around the world, including:~~

In March 2020, the Department of Homeland Security stated that transportation is an essential critical infrastructure sector, which includes all aviation workers. As such, we play an important role in facilitating the movement of essential goods around the world during this challenging time, including the delivery of pharmaceuticals, medical equipment, education supplies, food and other daily necessities.fuel price volatility.

Given the dynamic nature of ~~these circumstances,~~this pandemic, the duration of business disruption, the extent of customer cancellations and the related financial impact cannot be reasonably estimated at this time. We have incurred and expect to incur significant additional costs, including premium ~~pay;~~pay for pilots operating in certain areas significantly impacted by COVID-19; other operational costs, including costs for continuing to provide a safe working environment for our employees; and higher crew costs related to increased pay rates ~~resulting from~~we provided to our ~~recent interim agreement with the pilots.~~pilots in May 2020. In addition, the availability of hotels and restaurants; evolving COVID-19-related travel restrictions and health screenings; and cancellations of passenger flights by other airlines globally or airport closures have impacted and could further impact our ability to position ~~crewmembers for operating~~employees to operate our aircraft. In response to these challenging times, we have significantly reduced nonessential employee travel, reduced the use of contractors, limited ground staff hiring, implemented a number of other cost reduction initiatives and taken actions to increase liquidity and strengthen our financial position. have:

The continuation or worsening of the aforementioned and other factors ~~including restrictions on travel and transportation,~~ could materially affect our ~~ACMI and Charter segment~~ results for the duration of the ~~crisis.~~COVID-19 pandemic.

~~In April 2020, we reactivated three 747-400BCF aircraft~~On February 15, 2021, the Company and IBT completed the contractually mandated nine-month period for negotiations for a joint CBA. All remaining open issues not resolved in negotiations are subject to binding interest arbitration, which occurred in late March 2021. We expect the decision to be issued during the second half of 2021 and that ~~had been temporarily parked~~labor costs arising from the new JCBA will be materially greater than the costs under our current CBAs with Atlas pilots and ~~began operating a 777-200 freighter aircraft that was previously in~~Southern Air pilots (see Note 12 to our ~~Dry Leasing segment to meet the increased cargo demand.~~ Financial Statements for further discussion).

We continually assess our aircraft requirements and will make adjustments to our capacity as necessary. Some of these actions may involve grounding or disposing of aircraft or engines, which could result in asset impairments or other charges in future periods.

~~Our ACMI~~Airline Operations results for the first quarter of ~~2020,~~2021, compared with ~~2019,~~2020, were also impacted by increased flying from the following:

The following discussion should be read in conjunction with our Financial Statements and other financial information appearing and referred to elsewhere in this report.

The following tables compare our Segment Operating Fleet (average aircraft equivalents during the period) ~~and total Block Hours operated~~ for the three months ended March 31:

Segment Operating Fleet	2020			2019			Inc/(Dec)			2021			2020			Inc/(Dec)
ACMI*
Airline Operations*
747-8F Cargo		9.0			9.0			-			10.0			10.0			-
747-400 Cargo		12.9			17.6			(4.7	)		33.6			31.2			2.4
747-400 Dreamlifter		3.6			3.6			-			1.2			3.6			(2.4	)
747-400 Passenger											4.9			5.0			(0.1	)
777-200 Cargo		8.0			6.0			2.0			9.0			8.0			1.0
767-300 Cargo		24.0			25.6			(1.6	)		24.0			24.0			-
767-300 Passenger											5.0			4.8			0.2
767-200 Cargo		9.0			9.0			-			5.6			9.0			(3.4	)
767-200 Passenger		1.0			1.0			-			0.6			1.0			(0.4	)
737-800 Cargo		5.0			-			5.0			8.0			5.0			3.0
737-400 Cargo		5.0			5.0			-			-			5.0			(5.0	)
Total		77.5			76.8			0.7

Charter
747-8F Cargo		1.0			1.0			-
747-400 Cargo		18.3			15.0			3.3
747-400 Passenger		5.0			4.0			1.0
767-300 Passenger		4.8			4.9			(0.1	)
Total		29.1			24.9			4.2			101.9			106.6			(4.7	)

Dry Leasing
777-200 Cargo		7.0			8.0			(1.0	)		7.0			7.0			-
767-300 Cargo		21.0			21.6			(0.6	)		21.0			21.0			-
757-200 Cargo		0.5			1.0			(0.5	)		-			0.5			(0.5	)
737-300 Cargo		1.0			1.0			-			1.0			1.0			-
737-800 Passenger		0.6			1.0			(0.4	)		-			0.6			(0.6	)
Total		30.1			32.6			(2.5	)		29.0			30.1			(1.1	)

Less: Aircraft Dry Leased to CMI customers		(21.0	)		(23.6	)		2.6			(21.0	)		(21.0	)		-
Total Operating Average Aircraft Equivalents		115.7			110.7			5.0			109.9			115.7			(5.8	)

Out-of-service**		5.4			-			5.4			-			5.4			(5.4	)

The following table compares our Operating Revenue for the three months ended March 31 (in thousands):

	2020			2019			Inc/(Dec)			% Change			2021			2020			Inc/(Dec)			% Change
Operating Revenue
ACMI	$	278,744		$	306,567		$	(27,823	)		(9.1	)%
Charter		327,629			305,114			22,515			7.4	%
Airline Operations													$	826,240		$	606,373		$	219,867			36.3	%
Dry Leasing		41,926			69,946			(28,020	)		(40.1	)%		40,364			41,926			(1,562	)		(3.7	)%
Customer incentive asset amortization		(9,022	)		(6,286	)		2,736			43.5	%		(10,481	)		(9,022	)		1,459			16.2	%
Other		4,225			4,342			(117	)		(2.7	)%		5,177			4,225			952			22.5	%
Total Operating Revenue	$	643,502		$	679,683								$	861,300		$	643,502

2020

2019

Inc/(Dec)

% Change

ACMI Block Hours

54,379

59,780

(5,401
)

(9.0
)%
ACMI Revenue Per Block Hour

$
5,126

$
5,128

$
(2
)

NM

	2021		2020		Inc/(Dec)			% Change
Block Hours
Cargo		83,110		67,838		15,272			22.5	%
Passenger		3,648		4,806		(1,158	)		(24.1	)%
Total Airline Operations		86,758		72,644		14,114			19.4	%

Revenue Per Block Hour
Airline Operations	$	9,524	$	8,347	$	1,177			14.1	%
Cargo	$	9,127	$	7,594	$	1,533			20.2	%
Passenger	$	18,563	$	18,973	$	(410	)		(2.2	)%

~~ACMI~~Airline Operations revenue ~~decreased $27.8~~increased $219.9 million, or ~~9.1%~~36.3%, primarily due to ~~decreased flying.~~increased flying and an increase in Revenue per Block Hour. The ~~decrease~~increase in Block Hours flown was primarily driven by the redeployment of 747-400 aircraft to Charter following their return from customers and flight cancellations by our ACMI customers caused by the COVID-19 pandemic, partially offset by an increase in CMI flying. Revenue per Block Hour was relatively unchanged.

2020

2019

Inc/(Dec)

% Change

Charter Block Hours:

Cargo

13,539

11,479

2,060

17.9
%
Passenger

4,726

5,181

(455
)

(8.8
)%
Total

18,265

16,660

1,605

9.6
%

Charter Revenue Per Block Hour:

Cargo

$
17,502

$
17,976

$
(474
)

(2.6
)%
Passenger

$
19,184

$
19,063

$
121

0.6
%
Charter

$
17,938

$
18,314

$
(376
)

(2.1
)%

~~Charter revenue~~ increased $22.5 million, or 7.4%, primarily due to increased flying, partially offset by a decrease in Revenue per Block Hour. The increase in Charter Block Hours flown was primarily driven by the redeployment of 747-400 aircraft from ACMI and the strong demand for our commercial cargo ~~driven by~~Charter and CMI services reflecting higher airfreight volumes and a reduction of available cargo capacity provided by passenger airlines in the market, ~~the increased demand for transporting goods and~~ the disruption of global supply chains due to the COVID-19 ~~pandemic.~~pandemic and our ability to increase aircraft utilization. Due to this strong demand, we reactivated four 747-400BCF aircraft throughout 2020 that had been temporarily parked and began using a 777-200 freighter aircraft that was previously in our Dry Leasing business. Partially offsetting these improvements was lower AMC passenger Charter flying as the U.S. military ~~took~~has taken precautionary measures to limit the movement of military personnel. Revenue per Block Hour ~~decreased~~rose primarily due to ~~a reduction in Charter capacity purchased from ACMI customers that had no associated Charter Block Hours and lower average fuel cost per gallon, partially offset by~~ an ~~increase in~~increased proportion of higher-yielding commercial cargo ~~Yields. The increase in commercial cargo Yields was primarily~~Charter flying driven by the factors impacting commercial cargo Charter demand noted ~~above.~~ above, partially offset by lower fuel costs and an increase in CMI flying.

Dry Leasing revenue decreased $28.0 million, or 40.1%, primarily due to $22.3 million of revenue in 2019 from maintenance payments related to the scheduled return of a 777-200 freighter aircraft and a reduction in revenue during the first quarter of 2020 related to certain nonessential Dry Leased aircraft sold or held for sale.was relatively unchanged.

The following table compares our Operating Expenses for the three months ended March 31 (in thousands):

	2020			2019		Inc/(Dec)			% Change			2021		2020			Inc/(Dec)			% Change
Operating Expenses
Salaries, wages and benefits	$	147,744		$	145,474	$	2,270			1.6	%	$	202,614	$	147,744		$	54,870			37.1	%
Aircraft fuel		108,318			106,321		1,997			1.9	%		163,551		108,318			55,233			51.0	%
Maintenance, materials and repairs		94,152			103,620		(9,468	)		(9.1	)%		121,133		94,152			26,981			28.7	%
Depreciation and amortization		57,584			64,481		(6,897	)		(10.7	)%		67,789		57,584			10,205			17.7	%
Navigation fees, landing fees and other rent													44,887		31,401			13,486			42.9	%
Passenger and ground handling services													40,065		31,959			8,106			25.4	%
Travel		42,391			45,029		(2,638	)		(5.9	)%		37,672		42,391			(4,719	)		(11.1	)%
Passenger and ground handling services		31,959			32,160		(201	)		(0.6	)%
Navigation fees, landing fees and other rent		31,401			40,216		(8,815	)		(21.9	)%
Aircraft rent		23,967			41,888		(17,921	)		(42.8	)%		20,756		23,967			(3,211	)		(13.4	)%
Gain on disposal of aircraft		(6,717	)		-		6,717		NM
Loss (gain) on disposal of aircraft													16		(6,717	)		(6,733	)	NM
Transaction-related expenses		521			2,527		(2,006	)	NM				201		521			(320	)		(61.4	)%
Other		51,112			51,093		19			0.0	%		58,412		51,112			7,300			14.3	%
Total Operating Expenses	$	582,432		$	632,809							$	757,096	$	582,432

Salaries, wages and benefits increased ~~$2.3~~$54.9 million, or ~~1.6%~~37.1%, primarily due to higher ~~crew~~pilot costs ~~including~~related to increased flying, premium pay for ~~crew~~pilots operating in certain areas significantly impacted by COVID-19 ~~partially offset by decreased flying.~~and increased pay rates we provided to our pilots in May 2020.

Aircraft fuel increased ~~$2.0~~$55.2 million, or ~~1.9%~~51.0%, primarily due to ~~an increase in~~higher consumption related to increased ~~Charter~~ flying, partially offset by a decrease in the average fuel cost per gallon. We do not incur fuel expense in ~~our~~providing ACMI and CMI services or in our Dry Leasing ~~businesses~~business as the cost of fuel is borne by the customer. Average fuel cost per gallon and fuel consumption for the three months ended March 31 were:

	2020		2019		Inc/(Dec)			% Change			2021		2020		Inc/(Dec)			% Change
Average fuel cost per gallon	$	2.00	$	2.22	$	(0.22	)		(9.9	)%	$	1.71	$	2.00	$	(0.29	)		(14.5	)%
Fuel gallons consumed (000s)		54,279		47,872		6,407			13.4	%		95,586		54,279		41,307			76.1	%

Maintenance, materials and repairs ~~decreased $9.5~~increased $27.0 million, or ~~9.1%~~28.7%, primarily reflecting ~~$6.2~~$19.4 million of ~~decreased~~increased Line Maintenance expense ~~due to decreased flying, $1.7~~and $7.6 million of ~~decreased Non-heavy Maintenance expense and $1.6 million of decreased~~increased Heavy Maintenance expense. ~~The lower~~ Line Maintenance expense increased primarily ~~reflected decreases~~due to increased flying. Heavy Maintenance expense on 747-8F aircraft increased $6.9 million primarily due to an increase in the number of ~~$5.3 million for 747-400 aircraft and $2.7 million for 767 aircraft, partially offset by a $1.0 million increase for 747-8F aircraft.~~D Checks. Heavy Maintenance expense on 747-400 aircraft increased $1.2 million primarily due to an increase in the number of engine overhauls and an increase in the number of C Checks, partially offset by a decrease in the number of D Checks. Heavy Maintenance expense on 767 aircraft decreased ~~$1.9~~$1.5 million primarily due to a decrease in the number of ~~engine overhauls and~~ C ~~Checks, partially offset by an increase in the number of D~~ Checks. Heavy airframe maintenance checks and engine overhauls impacting Maintenance, materials and repairs for the three months ended March 31 were:

Heavy Maintenance Events	2020		2019		Inc/(Dec)			2021		2020		Inc/(Dec)
747-8F C Checks		-		2		(2	)
747-400 C Checks		4		5		(1	)		5		4		1
767 C Checks		3		1		2			2		3		(1	)
747-8F D Checks									2		-		2
747-400 D Checks		3		-		3			1		3		(2	)
CF6-80 engine overhauls		1		5		(4	)		1		1		-
PW4000 engine overhauls									1		-		1

Depreciation and amortization ~~decreased $6.9~~increased $10.2 million, or ~~10.7%~~17.7%, primarily due to a reduction in depreciation related to the 747-400 freighter asset group that was written down during the fourth quarter of 2019, and certain spare CF6-80 engines and aircraft that were classified as held for sale during the fourth quarter of 2019. Partially offsetting these decreases was an increase in the amortization of deferred maintenance costs related to 747-8F engine overhauls (see Note 2 to our Financial Statements).

~~Travel~~ ~~decreased $2.6 million, or 5.9%, primarily due to decreased flying~~ and an increase in the scrapping of rotable parts related to the ~~impact~~increase in the number of ~~the COVID-19 pandemic.~~engine overhauls.

Navigation fees, landing fees and other rent ~~decreased $8.8~~increased $13.5 million, or ~~21.9%~~42.9%, primarily due to increased flying.

Passenger and ground handling services increased $8.1 million, or 25.4%, primarily due to increased cargo flying, partially offset by a decrease in ~~purchased capacity, which is a component~~passenger flying.

Travel decreased $4.7 million, or 11.1%, primarily due to decreased rates related to the impact of ~~other rent.~~the COVID-19 pandemic, partially offset by an increase in flying.

Aircraft rent decreased ~~$17.9~~$3.2 million, or ~~42.8%~~13.4%, primarily due to ~~a reduction~~changes in the amortization of operating lease right-of-use assets related to the 747-400 freighter asset group that were written down during the fourth quarter of 2019 and lower usage-based rental costs from reduced flying.leases.

Gain on disposal of aircraft in 2020 represents a net gain of $6.7 million from the sale of certain nonessential ~~assets that were classified as held~~assets.

Other increased $7.3 million, or 14.3%, primarily due to costs for ~~sale during the fourth quarter of 2019~~continuing to provide a safe working environment for our employees and costs associated with negotiations and arbitration for a joint CBA (see Note 612 to our Financial Statements).

The following table compares our Non-operating Expenses (Income) for the three months ended March 31 (in thousands):

	2020			2019			Inc/(Dec)			% Change			2021			2020			Inc/(Dec)			% Change
Non-operating Expenses (Income)
Interest income	$	(480	)	$	(2,044	)	$	(1,564	)		(76.5	)%	$	(211	)	$	(480	)	$	(269	)		(56.0	)%
Interest expense		29,275			30,353			(1,078	)		(3.6	)%		27,180			29,275			(2,095	)		(7.2	)%
Capitalized interest		(193	)		(463	)		(270	)		(58.3	)%		(1,271	)		(193	)		1,078		NM
Loss on early extinguishment of debt		-			245			(245	)	NM
Unrealized (gain) loss on financial instruments		(924	)		46,575			(47,499	)		(102.0	)%
Unrealized loss (gain) on financial instruments														113			(924	)		(1,037	)		(112.2	)%
Other (income) expense, net		1,206			(2,975	)		(4,181	)		(140.5	)%		(39,456	)		1,206			(40,662	)	NM

~~Unrealized (gain) loss on financial instruments~~Interest expense ~~represents the change~~decreased $2.1 million, or 7.2%, primarily due to a reduction in ~~fair value~~our debt.

Other (income) expense, net increased primarily due to CARES Act grant income of ~~a customer warrant liability~~$40.9 million (see Note 43 to our Financial Statements) ~~primarily due to changes in our common stock price.~~.

Income taxes. The effective income tax rates were ~~27.4%~~23.7% and ~~19.7%~~27.4% for the three months ended March 31, 2021 and 2020, respectively. The rate for the three months ended March 31, 2021 differed from the U.S. statutory rate primarily due to state income taxes and ~~2019, respectively.~~certain expenses that are not deductible for tax purposes. The rate for the three months ended March 31, 2020 differed from the U.S. statutory rate primarily due to tax expense from the vesting of share-based compensation. The rate for the three months ended March 31, 2019 differed from the U.S. statutory rate primarily due to nondeductible changes in the fair value of a customer warrant liability (see Note 4 to our Financial Statements).

The following table compares the Direct Contribution for our reportable segments for the three months ended March 31 (see Note 1011 to our Financial Statements for the reconciliation to Operating income) (in thousands):

	2020		2019		Inc/(Dec)			% Change			2021		2020		Inc/(Dec)			% Change
Direct Contribution:
ACMI	$	52,306	$	40,006	$	12,300			30.7	%
Charter		50,781		29,133		21,648			74.3	%
Direct Contribution
Airline Operations											$	169,150	$	103,087	$	66,063			64.1	%
Dry Leasing		10,698		35,527		(24,829	)		(69.9	)%		10,564		10,698		(134	)		(1.3	)%
Total Direct Contribution	$	113,785	$	104,666	$	9,119			8.7	%	$	179,714	$	113,785	$	65,929			57.9	%

Unallocated expenses and (income), net	$	88,719	$	80,136	$	8,583			10.7	%	$	61,535	$	88,719	$	(27,184	)		(30.6	)%

~~ACMI~~Airline Operations Direct Contribution increased ~~$12.3~~$66.1 million, or ~~30.7%~~64.1%, primarily due to an increase in CMI flying and a reduction in aircraft rent and depreciation. Partially offsetting these improvements was a decrease in Direct Contribution related to the redeployment of 747-400 aircraft to Charter. In addition, Direct Contribution was negatively impacted by the COVID-19 pandemic resulting in flight cancellations by our ACMI customers and increased ~~operating costs, including premium pay for crew operating in certain areas significantly impacted by the virus.~~

~~Charter Direct Contribution increased $21.6 million, or 74.3%, primarily due to an increase in~~ commercial cargo Charter Yields, net of fuel, and an increase in demand for our commercial cargo Charter services reflecting higher airfreight volumes and a reduction of available capacity in the market, ~~the increased demand for transporting goods and~~ the disruption of global supply chains due to the COVID-19 ~~pandemic. In addition,~~pandemic and our ability to increase aircraft utilization. Direct Contribution also benefited from the operation of four 747-400 freighters reactivated throughout 2020 and a ~~reduction~~777-200 freighter aircraft that was previously in ~~aircraft rent and depreciation, and the redeployment of 747-400 aircraft from ACMI.~~our Dry Leasing business. Partially offsetting these improvements ~~was lower AMC passenger flying as the military took precautionary measures~~were higher pilot costs related to ~~limit the movement of personnel and increased COVID-19 pandemic related operating costs, including~~ premium pay for ~~crew~~pilots operating in certain areas significantly impacted by ~~the virus.~~COVID-19 and increased pay rates we provided to our pilots in May 2020, and higher heavy maintenance.

Dry Leasing Direct Contribution decreased $24.8 million, or 69.9%, primarily due to $22.3 million of revenue in 2019 from maintenance payments related to the scheduled return of a 777-200 freighter aircraft and a reduction in revenue during the first quarter of 2020 related to certain nonessential Dry Leased aircraft sold or held for sale.was relatively unchanged.

Unallocated expenses and (income), net ~~increased $8.6~~decreased $27.2 million, or ~~10.7%~~30.6%, primarily due to ~~an insurance recovery in 2019 and increased amortization of a customer incentive asset in 2020, partially offset by a refund in 2020 of aircraft rent that was paid in previous years.~~CARES Act grant income.

To supplement our Financial Statements presented in accordance with GAAP, we present certain non-GAAP financial measures to assist in the evaluation of our business performance. These non-GAAP financial measures include Adjusted Net Income, Adjusted Diluted EPS and Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which exclude certain noncash income and expenses, and items impacting year-over-year comparisons of our results. These non-GAAP financial measures may not be comparable to similarly titled measures used by other companies and should not be considered in isolation or as a substitute for Net Income ~~from continuing operations, net of taxes~~ and Diluted EPS from continuing operations, net of taxes which are the most directly comparable measures of performance prepared in accordance with GAAP. Effective during the three months ended September 30, 2019, we changed our method of calculating Adjusted EBITDA to include Other non-operating expenses (income) to enhance the usefulness for investors and analysts, and the comparability of the calculation to that of other companies. Prior period amounts have been adjusted for comparability.

We use these non-GAAP financial measures in assessing the performance of our ongoing operations and in planning and forecasting future periods. These adjusted measures provide a more comparable basis to analyze operating results and earnings and are measures commonly used by shareholders to measure our performance. In addition, management’s incentive compensation is determined, in part, by using Adjusted Net Income and Adjusted EBITDA. We believe that these adjusted measures, when considered together with the corresponding GAAP financial measures and the reconciliations to those measures, provide meaningful supplemental information to assist investors and analysts in understanding our business results and assessing our prospects for future performance.

The following is a reconciliation of Net Income ~~(Loss)~~ and Diluted EPS to the corresponding non-GAAP financial measures (see Note 13 to our Financial Statements for the calculation of Diluted EPS) (in thousands, except per share data):

For the Three Months Ended

March 31, 2020

March 31, 2019

Percent Change

Net Income (Loss)

$
23,353

$
(29,710
)

NM

Impact from:

Customer incentive asset amortization

9,022

6,286

Costs associated with transactions (a)

521

2,527

Leadership transition costs

601

-

Certain contract start-up costs (b)

-

369

Noncash expenses and income, net (c)

4,386

4,468

Unrealized (gain) loss on financial instruments

(924
)

46,575

Other, net (d)

(6,382
)

(3,163
)

Income tax effect of reconciling items

(697
)

(30
)

Adjusted Net Income

$
29,880

$
27,322

9.4
%

Weighted average diluted shares outstanding

25,966

25,735

Add: dilutive warrant (e)

-

1,943

dilutive restricted stock

-

242

Adjusted weighted average diluted shares outstanding

25,966

27,920

Adjusted Diluted EPS

$
1.15

$
0.98

17.3
%

	For the Three Months Ended
	March 31, 2021			March 31, 2020			Percent Change

Net Income	$	89,933		$	23,353			285.1	%
Impact from:
CARES Act grant income (a)		(40,944	)		-
Customer incentive asset amortization		10,481			9,022
Noncash expenses and income, net (b)		4,672			4,386
Unrealized loss (gain) on financial instruments		113			(924	)
Other, net (c)		329			(5,260	)
Income tax effect of reconciling items		7,631			(697	)
Adjusted Net Income	$	72,215		$	29,880			141.7	%

Weighted average diluted shares outstanding		29,478			25,966

Adjusted Diluted EPS	$	2.45		$	1.15			113.0	%

	For the Three Months Ended									For the Three Months Ended
	March 31, 2020			March 31, 2019			Percent Change			March 31, 2021			March 31, 2020			Percent Change

Net Income (Loss)	$	23,353		$	(29,710	)	NM
Net Income										$	89,933		$	23,353			285.1	%
Interest expense, net		24,218			27,846						25,698			28,602
Depreciation and amortization		57,584			64,481					��	67,789			57,584
Income tax expense		8,833			4,893						27,916			8,833
EBITDA		113,988			67,510						211,336			118,372

CARES Act grant income (a)											(40,944	)		-
Customer incentive asset amortization		9,022			6,286						10,481			9,022
Costs associated with transactions (a)		521			2,527
Leadership transition costs		601			-
Unrealized (gain) loss on financial instruments		(924	)		46,575
Other, net (d)		(6,382	)		(2,534	)
Unrealized loss (gain) on financial instruments											113			(924	)
Other, net (c)											329			(5,260	)
Adjusted EBITDA	$	116,826		$	120,364			(2.9	)%	$	181,315		$	121,210			49.6	%

The most significant liquidity ~~events~~event during the first quarter of ~~2020 were~~2021 was as follows:

In ~~February 2020,~~March 2021, we ~~refinanced two secured term loans, that were originally due later in 2020, with two new term loans. One term loan is for 126 months in the amount of $82.0~~borrowed $16.2 million at a fixed interest rate of ~~3.27% with a final payment of $12.5 million~~0.93% under an unsecured five-year term loan due in ~~July 2030.~~January 2026 for GEnx engine performance upgrade kits and overhauls. The ~~other~~ term loan is for 130 months in the amount of $82.0 million at a fixed interest rate of 3.28% with a final payment of $12.5 million due in November 2030. The new term loans are each secured by a mortgage against a 777-200LRF aircraft and containsubject to customary fees, covenants and events of default, with principal and interest payable quarterly (see Note 78 to our Financial Statements).

In March 2020, as a precautionary measure due to uncertainty arising from the COVID-19 pandemic, we drew $75.0 million under our revolving credit facility and had $19.8 million of unused availability as of March 31, 2020.

Operating Activities. Net cash provided by operating activities was $88.1 million for the first quarter of 2021, which primarily reflected Net Income of $89.9 million, noncash adjustments of $86.2 million for Depreciation and amortization and $27.8 million for Deferred taxes, partially offset by a $89.4 million decrease in Accounts payable, accrued liabilities and other liabilities, a $22.7 million increase in Accounts receivable and a $7.5 million increase in Prepaid expenses, current assets and other assets. Net cash provided by operating activities was $71.8 million for the first quarter of 2020, which primarily reflected Net Income of $23.4 million, noncash adjustments of $74.4 million for Depreciation and amortization and $7.4 million for Deferred taxes and a $16.5 million decrease in Accounts receivable, partially offset by a $40.4 million decrease in Accounts payable, accrued liabilities and ~~accrued~~other liabilities, and a $5.5 million increase in Prepaid expenses, current assets and other assets.

Investing Activities.Net cash ~~provided by operating~~used for investing activities was ~~$53.8~~$153.2 million for the first quarter of ~~2019, which~~2021, consisting primarily ~~reflected a Net Loss~~ of ~~$29.7~~$126.8 million ~~noncash adjustments~~ of ~~$79.0~~purchase deposits and payments for flight equipment and modifications and $26.7 million of payments for ~~Depreciation~~core capital expenditures, excluding flight equipment. Purchase deposits and ~~amortization~~payments for flight equipment and ~~$46.6 million~~modifications during the first quarter of 2021 were primarily related to pre-delivery payments, spare engines and GEnx engine performance upgrade kits. All capital expenditures for ~~Unrealized loss on financial instruments,~~2021 were funded through working capital and a $9.7 million decrease in receivable. Partially offsetting these items was a $42.3 million increase in Prepaid expenses, current assets and other assets and a $20.0 million decrease in Accounts payable and accrued liabilities.

~~Investing Activities.~~the financing discussed above. Net cash provided by investing activities was $10.7 million for the first quarter of 2020, consisting primarily of $44.1 million of proceeds from disposal of aircraft, partially offset by $26.0 million of purchase deposits and payments for flight equipment and

~~$8.3~~ modifications and $8.3 million of payments for core capital expenditures, excluding flight equipment. Payments for flight equipment and modifications during the first quarter of 2020 were primarily related to spare engines and GEnx engine performance upgrade kits. ~~All capital expenditures for 2020 were funded through working capital.~~

Financing Activities. Net cash used for ~~investing~~financing activities was ~~$44.8~~$77.2 million for the first quarter of ~~2019, consisting~~2021, which primarily ~~of $57.3~~reflected $78.0 million of payments on debt, $12.3 million in payments of maintenance reserves and $7.4 million related to treasury shares withheld for ~~flight equipment and modifications and $30.6 million~~payment of ~~core capital expenditures, excluding flight equipment,~~taxes, partially offset by ~~$38.1~~$16.2 million of proceeds from ~~insurance. Payments for flight equipment~~debt issuance and ~~modifications during the first quarter~~$5.2 million of ~~2019 were primarily related to 767-300 passenger aircraft~~customer maintenance reserves and ~~related freighter conversion costs, spare engines and GEnx engine performance upgrade kits.~~

~~Financing Activities.~~deposits received. Net cash provided by financing activities was $39.6 million for the first quarter of 2020, which primarily reflected $164.0 million from debt issuance and $75.0 million of proceeds from our revolving credit facility, partially offset by $193.6 million of payments on debt and $3.8 million related to ~~the purchase~~treasury shares withheld for payment of treasury stock. Net cash used for financing activities was $77.2 million for the first quarter of 2019, which primarily reflected $90.9 million of payments on debt, including a $20.7 million repayment of two term loans, and $9.2 million related to the purchase of treasury stock, partially offset by $19.7 million of proceeds from debt issuance.taxes.

In response to the COVID-19 pandemic, we have significantly reduced nonessential employee travel, reduced the use of contractors, ~~limited ground staff hiring,~~ implemented a number of other cost reduction initiatives and taken actions to increase liquidity and strengthen our financial ~~position.~~position, including participation in the Payroll Support Program and deferral of the payment of the employer portion of social security taxes as provided for under the CARES Act. In connection with our participation in the Payroll Support Program, we agreed not to repurchase shares in the open market of, or make dividend payments with respect to, our common stock through September 30, 2021. We consider Cash and cash equivalents, ~~Restricted cash,~~ Net cash provided by operating activities and availability under our revolving credit facility ~~and the proceeds from the sale of nonessential assets~~ to be sufficient to meet our debt and lease obligations, and to fund committed and core capital expenditures for ~~2020.~~the remainder of 2021. Core capital expenditures for the remainder of ~~2020~~2021 are expected to range ~~between $75.0~~from $85.0 to ~~$85.0~~$95.0 million, which excludes flight equipment and capitalized interest. Committed capital expenditures for flight equipment for the remainder of 2021 are expected to be $179.1 million. These expenditures include pre-delivery payments for our January 2021 agreement to purchase four 747-8F aircraft from Boeing that are expected to be delivered from May 2022 through October 2022, spare engines, and 747-400 passenger aircraft (to be used for both replacement of older passenger aircraft in service, as well as spare engines and parts).

We may access external sources of capital from time to time depending on our cash requirements, assessments of current and anticipated market conditions, and the after-tax cost of capital. To that end, we filed a shelf registration statement with the SEC in April 2020 that enables us to sell debt and/or equity securities on a registered basis over the subsequent three years, depending on market conditions, our capital needs and other factors. Our access to capital markets can be adversely impacted by prevailing economic conditions and by financial, business and other factors, some of which are beyond our control. Additionally, our borrowing costs are affected by market conditions and may be adversely impacted by a tightening in credit markets.

We do not expect to pay any significant U.S. federal income tax in ~~this or~~ the ~~next decade.~~foreseeable future. Our business operations are subject to income tax in several foreign ~~jurisdictions.~~jurisdictions and in many states. We do not expect to pay any significant cash income taxes ~~in foreign jurisdictions~~ for at least several ~~years.~~years in these foreign jurisdictions and states. We may repatriate the unremitted earnings of our foreign subsidiaries to the extent taxes are insignificant.

See ~~Note 7~~Notes 3 and 8 to our Financial Statements for a description of our new debt. See our ~~2019~~2020 Annual Report on Form 10-K for a tabular disclosure of our contractual obligations as of December 31, ~~2019~~2020 and a description of our other debt obligations and amendments thereto.

There were no material changes in our off-balance sheet arrangements during the three months ended March 31, ~~2020.~~2021.

See Note 2 to our Financial Statements for a discussion of recent accounting pronouncements.

This Quarterly Report on Form 10-Q (this “Report”), as well as other reports, releases and written and oral communications issued or made from time to time by or on behalf of AAWW, contain statements that may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements are based on management’s beliefs, plans, expectations and assumptions, and on information currently available to management. Generally, the words “will,” “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “project,” “estimate” and similar expressions used in this Report that do not relate to historical facts are intended to identify forward-looking statements.

The forward-looking statements in this Report are not representations or guarantees of future performance and involve certain risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include, but are not limited to, those described in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020. Many of such factors are beyond AAWW’s control and are difficult to predict. As a result, AAWW’s future actions, financial position, results of operations and the market price for shares of AAWW’s common stock could differ materially from those expressed in any forward-looking statements. Readers are therefore

cautioned not to place undue reliance on forward-looking statements. Such forward-looking statements speak only as of the date of this report. AAWW does not intend to publicly update any forward-looking statements that may be made from time to time by, or on behalf of, AAWW, whether as a result of new information, future events or otherwise, except as required by law and expressly disclaims any obligation to revise or update publicly any forward-looking statement to reflect future events or circumstances.

In Part II, Item 7A “Quantitative and Qualitative Disclosures about Market Risk” included in our 2020 Annual Report on Form 10-K, we discuss our earnings exposure from changes in our common stock price due to the impact those changes have on the fair value of our liability for a warrant issued to a customer. Our earnings are no longer affected by changes in our common stock price due to the customer’s exercise of the warrant during the three months ended March 31, 2021 (see Note 5 to our Financial Statements for further discussion). There have been no other material changes to our market risk during the three months ended March 31, ~~2020.~~2021. For additional discussion of our exposure to market risk, refer to Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” included in our ~~2019~~2020 Annual Report on Form 10-K.

An evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d - 15(e) under the Exchange Act) as of March 31, ~~2020.~~2021. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and is accumulated and communicated to our management, including our CEO and CFO, to allow timely decisions regarding required disclosure.

T~~here~~There has been no change in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, ~~2020~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

With respect to the fiscal quarter ended March 31, ~~2020,~~2021, the information required in response to this Item is set forth in Note 1112 to our Financial Statements and such information is incorporated herein by reference. Such description contains all of the information required with respect hereto.

There have been no material changes in our risk factors from those disclosed in our ~~2019~~2020 Annual Report on Form 10-K.

See accompanying Exhibit Index included before the signature page of this report for a list of exhibits filed or furnished with this report.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Delaware		13-4146982
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2000 Westchester Avenue, Purchase, New York		10577
(Address of principal executive offices)		(Zip Code)

		Page

Part I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of March 31, ~~2020~~2021 and December 31, ~~2019~~2020 (unaudited)	3

	Consolidated Statements of Operations for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020 (unaudited)	4

	Consolidated Statements of Comprehensive Income ~~(Loss)~~ for the Three Months Ended March 31, ~~2020~~2021 and ~~2019~~2020 (unaudited)	5

	Consolidated Statements of Cash Flows for the Three Months ~~ended~~Ended March 31, ~~2020~~2021 and ~~2019~~2020 (unaudited)	6

	Consolidated Statements of Stockholders’ Equity as of and for the Three Months ~~ended~~Ended March 31, ~~2020~~2021 and ~~2019~~2020 (unaudited)	7

	Notes to Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1920

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 6.	Exhibits	29

	Exhibit Index	30

	Signatures	31

	For the Three Months Ended
Revenue and Expenses:	March 31, 2021		March 31, 2020
Revenue from dry leasing joint venture	$	1,324	$	0
Aircraft rent to dry leasing joint venture		2,250		0

Aggregate Carrying Value of Joint Venture as of:	March 31, 2021		December 31, 2020
Aggregate Carrying Value of Dry Leasing Joint Venture	$	4,937	$	4,438

Block Hour		The time interval between when an aircraft departs the terminal until it arrives at the destination terminal.

C Check		“Heavy” airframe maintenance checks, which are more intensive in scope than Line Maintenance and are generally performed between 18 and 24 months depending on aircraft type.

D Check		“Heavy” airframe maintenance checks, which are the most extensive in scope and are generally performed every six and eight years depending on aircraft type.

Heavy Maintenance		Scheduled maintenance activities that are extensive in scope and are primarily based on time or usage intervals, which include, but are not limited to, C Checks, D Checks and engine overhauls. In addition, unscheduled engine repairs involving the removal of the engine from the aircraft are considered to be Heavy Maintenance.

Line Maintenance		Maintenance events occurring during normal day-to-day operations.

Non-heavy Maintenance		Discrete maintenance activities for the overhaul and repair of specific aircraft components, including landing gear, auxiliary power units and engine thrust reversers.

Utilization		The average number of Block Hours operated per day per aircraft.

Yield		The average amount a customer pays to fly one tonne of cargo one mile.

Exhibit Number		Description


10.1		Atlas Air Worldwide Holdings, Inc. ~~2020 Long Term Cash Incentive Program.~~Strategic Bonus Plan for Senior Executives (EVP and above).

10.2		~~Form of Performance Share Unit Agreement.~~Atlas Air Worldwide Holdings, Inc. Long Term Cash Incentive Plan (OTP).

10.3		~~Form~~Atlas Air Worldwide Holdings, Inc. 2021 Long Term Cash Incentive Program.

10.4		Amendment to the Atlas Air Worldwide Holdings, Inc. Long Term Cash Incentive Programs for 2018 and 2019.

10.5		Purchase Agreement Number AH5-PA-05094, dated as of ~~Restricted Stock Unit Agreement.~~January 7, 2021, between The Boeing Company and Atlas Air Worldwide Holdings, Inc. (Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment, and the omitted portions have been filed with the Securities and Exchange Commission.).

31.1		Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer.

31.2		Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer.

32.1		Section 1350 Certifications.

101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *

101.SCH		Inline XBRL Taxonomy Extension Schema Document. *

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document. *

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document. *

101.LAB		Inline XBRL Taxonomy Extension Labels Linkbase Document. *

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document. *

104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (included in Exhibit 101).

Balance as of December 31, 2019	$	1,822
Bad debt expense		(73	)
Amounts written off, net of recoveries		(567	)
Balance as of March 31, 2020	$	1,182

Balance as of December 31, 2020	$	1,233
Bad debt recovery		(397	)
Amounts written off, net of other items		174
Balance as of March 31, 2021	$	1,010

		Atlas Air Worldwide Holdings, Inc.

Dated: May ~~7, 2020~~5, 2021		/s/ John W. Dietrich
		John W. Dietrich
		President and Chief Executive Officer

Dated: May ~~7, 2020~~5, 2021		/s/ Spencer Schwartz
		Spencer Schwartz
		Executive Vice President and Chief Financial Officer