WILMINGTON, OhioABX Air, Inc. (NASDAQ:ABXA) today reported revenues of $286.0 million and net earnings of $2.4 million, or $0.04 per share, for the third quarter of 2007, compared with revenues of $281.3 million and net earnings of $6.6 million, or $0.11 per share, for the third quarter of 2006.

    Revenues from ABX Airs principal customer, DHL, were down 3% for the quarter, but revenues from ABX Airs expanding independent air charter operations increased 154%, and revenues from other, non-DHL operations increased 74%.

    ABX Air added two more Boeing 767 freighter aircraft to serve charter customers during the third quarter, for a total of nine in service at the end of September 2007 compared with three at the end of September 2006. Revenues from ABX Airs other non-DHL operations reflected full-scale operations at all three sorting centers that the company manages for the U.S. Postal Service, and from increased aircraft maintenance work for third parties.

    Third-quarter pre-tax earnings from operations under the DHL agreements declined 12%, and earnings from operations outside those agreements also were down 16%. Results from DHL operations were negatively impacted by the transfer of management of the Allentown, Pennsylvania and Riverside, California hubs to DHL during 2007, and by the 2006 reduction in the number of ABX Air aircraft in DHLs U.S. network. Start-up costs associated with new charter customers, including ABX Airs services for All Nippon Airways in Asia, were the principal reasons for reduced margins in other operations.

    The third quarter of 2007 included $2.3 million in deferred (non-cash) income tax expense, compared with zero tax expense in the third quarter a year ago. Interest income, net of non-reimbursable interest expense, was $0.2 million in the third quarter this year, compared with $1.4 million in the third quarter of 2006. The principal factor was interest expense for newly acquired 767s that ABX Air has elected to finance.

    For the first nine months of 2007, revenues were $855.3 million and net earnings were $11.2 million, or $0.19 per share. For the first nine months of 2006, ABX Airs revenues were $954.1 million, and its net earnings were $21.1 million, or $0.36 per share. The year-to-date earnings for 2007 include $7.7 million of income tax expense, compared with zero income tax expense for the same period in 2006.

    Joe Hete, President and CEO of ABX Air, stated, Although strong growth in our ACMI charter operations, including our Asian Boeing 767 ACMI operations that began in May, helped us achieve positive earnings in our Charter segment for the third quarter, overall the third-quarter results were disappointing.

    Hete said that, in particular, pre-tax earnings from the Charter segment during the third quarter were lower than expected because deploying recently delivered aircraft for customers is taking longer than expected. Additionally, margins during the quarter were hurt by high aircraft crewing expenses in our Asia start-up operations and the first scheduled heavy maintenance for one of the newer 767s.

    Efforts to cooperatively find an alternative to a foreign domicile at the request of the pilots union have been unsuccessful. We initially implemented a temporary crew rotation plan for the Asian operations that was too costly to maintain, Hete said. We are now proceeding to establish flight crews permanently in Japan under the provisions of our current collective bargaining agreement. We expect to realize the lower costs necessary for ABX to be competitive in Asia as a result of the permanent base by the first quarter of 2008. In the meantime, the market demand for the Boeing 767s remains strong, and I am pleased to note that this month, we will deploy an aircraft for a new South American customer under an ACMI contract.

    Hete also said that ABX Air continues to deploy the Boeing 767 freighters it agreed to acquire in 2005. Nine of those aircraft were in service at the end of September 2007, and three more will arrive during the fourth quarter. Two more will enter service during 2008.

    Results Associated with the DHL Agreements

    ABX Air's revenues from its two commercial agreements with DHL declined 3% to $260.6 million, due primarily to the factors mentioned above and reduced DHL package volume in the United States. Pre-tax earnings from those agreements were $3.2 million during the third quarter of 2007, down from $3.6 million in the third quarter of 2006.

    ABX Air has two commercial agreements with DHL: an aircraft, crew, maintenance and insurance (ACMI) agreement, and a Hub Services agreement. Under each agreement, ABX Air earns a base mark-up of 1.75% on eligible costs, and has the opportunity to earn incremental mark-ups for meeting certain quarterly cost goals, as well as annual cost and service goals.

    Third quarter pre-tax earnings included $2.6 million from base mark-up. Incremental mark-up added $587,000, all of which was earned under the ACMI agreement. The latter represents approximately 100% of the maximum quarterly incremental mark-up possible under the ACMI agreement, and 51% of the total potential award under both contracts.

    In the third quarter of 2007, ABX Air recognized a $325,000 impairment charge associated with four DC-9 aircraft released in September from service for DHL. Three of the four aircraft will be sold to DHL, while ABX will retain the fourth.

    During the third quarter of 2007, DHL informed ABX Air that it intended to take over management of its South Bend, Indiana regional hub and its Columbus, Ohio, logistics center, currently managed by ABX Air. Management of the South Bend hub was transferred to DHL on November 3, 2007. The Columbus center transition will be completed on January 1, 2008. In total, these operations contributed approximately $18.9 million of revenues and $0.3 million of pre-tax earnings in 2007, through September 30.

    Results from Non-DHL Operations

    Hete noted that the rapid growth of air charter revenues in the third quarter reflects greater available capacity and strong demand for ABX Airs services. Block hours flown for Boeing 767 aircraft in non-DHL ACMI service increased 140% in the third quarter of 2007 compared to the same period in 2006. Margins declined principally because of start-up costs and unanticipated higher costs of operations in Asia, which the company is working to resolve.

    Pre-tax earnings from other third-party operations increased 53%, as orders for avionics upgrades and other maintenance work were completed.

    Outlook/Other Items

    Annual Mark-up Potential under the DHL Agreements

    The two commercial agreements with DHL allow ABX Air to earn additional cost-related and service mark-up revenues based on its performance against annual goals. Mark-up revenues for performance against annual goals are realized in the fourth quarter.

    Progress toward those annual goals through the first nine months of the year is not necessarily indicative of full year performance. But as of September 30, 2007, ABX Air was on pace to achieve nearly 100% of its ACMI maximum for full-year cost-related performance, but none of the annual incremental cost-related mark-up under its Hub Services agreement. The maximum amount of annual cost-related mark-up on eligible costs available in each agreement is approximately 0.81%.

    On the same projected basis, through the first nine months of 2007, ABX Air was on pace to achieve annual mark-up for performance against service goals approximately equal to 80% of the maximum available under the ACMI agreement, and approximately 90% of the maximum under the Hub Services agreement. The maximum annual service mark-up available in the ACMI agreement is 0.25%; the maximum service mark-up available in the Hub Services agreement is 0.75%.

    Default Under DHL Agreements

    As described in ABX Airs Form 8-K filed with the Securities and Exchange Commission on November 9, 2007, DHL is in default under terms of the ACMI and Hub Services agreements. The default resulted from an $8.8 million reduction in DHLs weekly pre-funding payment to ABX Air on November 5, 2007, for ABX Airs expenses related to the ACMI and Hub Services agreements. DHL cited as the reason for the reduction its contention that it was no longer responsible to reimburse ABX Air for certain overhead expenses. ABX Air notified DHL that it was in default under the commercial agreements because the agreements do not permit the withholding of amounts in dispute. DHL denied that it has defaulted and maintains that its actions were proper. ABX anticipates arbitrating the DHL claim as specified in the commercial agreements.

    Acquisition of Cargo Holdings International, Inc.

    On November 2, 2007, ABX Air announced that it has agreed to acquire all of the outstanding stock of Cargo Holdings International, Inc. ("CHI"), a privately held provider of outsourced air cargo services based in Orlando, Florida, in a transaction with an estimated enterprise value of $350 million. The $350 million enterprise value estimate assumes that CHI will, prior to closing the transaction, acquire and begin cargo modification of two 757-200 aircraft in addition to the one 757-200 it presently owns. At closing, it is anticipated that CHI will have eight aircraft in process of being converted to cargo configuration, including five 767-200s and three 757-200s. None of these aircraft will have contributed any revenue or earnings to CHI prior to being acquired by ABX.  CHI projects, on pre-acquisition basis, including results from its non-airline businesses, revenues of approximately $300 million with EBITDA (earnings before interest, taxes, depreciation and amortization) of approximately $73 million for the year ended December 31, 2007.

    The transaction will be financed with the issuance of four million shares of ABX common stock and cash from a new $345 million senior secured credit facility led by SunTrust Bank and Regions Bank, a portion of which will be used to refinance CHIs existing $100 million credit facility. The acquisition is subject to customary regulatory approvals and is expected to close before the end of 2007. The financing of the transaction is also subject to the lenders satisfaction that upon completion of the transaction, ABX Air would remain in compliance with its material agreements, including its ACMI agreement with DHL.

    "We recognize that extending our position as DHLs primary domestic airlift supplier is still our principal objective," Hete said, "But the broader base of business we will have from the CHI transaction and the deployment of our wide-body aircraft for new customers will transform ABX. We are eager to share the details about how and why we believe CHI is an excellent strategic fit with ABX Air as separate, wholly owned units of our new parent company, ABX Holdings, Inc. We are focused on getting the best results out of the businesses we have now, as well as accelerating the process by which we can work together with the people of CHI."

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