ABX Air, Inc. reported solid financial results compared with the second quarter of 2006, as pre-tax earnings from its rapidly growing, higher-margin air charter business more than offset reductions in pre-tax earnings from its commercial agreements with DHL.
For the second quarter, ABX Air’s results included:

• $4.5 million, or $0.08 per diluted share, in net earnings, which included $2.8 million in deferred (non-cash) income tax expense. That compares with $6.5 million, or $0.11 per diluted share, in net income for the same period last year, when no income tax expense was recorded. In 2006, income tax expense was offset by reductions in the tax valuation allowance.
• A 13% increase in pre-tax earnings to $7.3 million from $6.5 million, as pre-tax earnings more than doubled from ABX Air’s operations outside its commercial agreements with DHL.
• Revenues of $281.3 million, down 7.3% from a year ago, as revenues from operations related to the DHL agreements declined 12.2%. Prior-year second quarter revenues included a $17.5 million reimbursement from DHL for line-haul management services, which did not recur in 2007. Second quarter revenues from business unrelated to DHL reached $22.4 million, an increase of 156.8%.

“These results validate our strategy of expanding our diversified, technically oriented, and higher margin growth businesses,” President and CEO Joe Hete said. “While our two commercial agreements with DHL remain a key component of our business and generate significant earnings and cash flow, we are focused on accelerating the strong momentum we have achieved in other businesses, principally the global air charter services provided by our expanding fleet of reliable, fuel-efficient Boeing 767 freighters. At the same time, we have continued to provide extremely reliable air service in the DHL network, with aircraft mechanical dispatch reliability again exceeding 99%.”
ABX Air’s second quarter revenues from DHL declined compared with the prior year period. In addition to the $17.5 million reduction in line-haul management revenues, DHL’s mid-2006 consolidation of its air network has reduced the number of ABX Air aircraft and crews dedicated to DHL service.
At the same time, ABX Air’s revenues from sources outside its principal DHL agreements have expanded rapidly, offsetting a portion of the DHL decline. Revenues in the second quarter from those businesses were $22.4 million, generating pre-tax earnings of $3.3 million, a 15% margin. The principal driver of these results was the deployment of additional Boeing 767 freighter aircraft to service other global customers, including All Nippon Airways Co. (ANA). ABX Air’s unique, two-year agreement to dedicate two of its 767s in support of ANA’s Asian cargo network began in mid-May.
First-half pre-tax earnings were $14.2 million, compared with $14.6 million for the first half of 2006. In 2006, management of DHL’s line-haul operations added $1.3 million in first-half pre-tax earnings on revenues of $82.8 million, prior to the transfer of those operations to DHL in May 2006.
For the first six months of 2007, ABX Air’s net earnings were $8.8 million, or $0.15 per diluted share, on revenues of $569.4 million, compared with net earnings of $14.6 million, or $0.25 per diluted share, on revenues of $672.7 million, in the prior year period. Deferred (non-cash) income tax expense, which ABX Air began recognizing in the first quarter of 2007, represented $5.4 million, or 94% of the $5.7 million decline in first-half net earnings compared with the first half of 2006.
“ABX Air continues to deliver the highest quality air service to DHL,” said Hete. “We continue to adjust staffing levels to match package volumes. Our management of the majority of DHL’s U.S. package delivery network remains a top priority. We understand that cost control is extremely important to DHL, but it must be achieved without compromising DHL’s goal of being the premier package delivery provider in the United States.”

Results from Operations Other than DHL Commercial Agreements
Charter revenues grew during the second quarter of 2007 to $14.2 million, compared with $5.4 million in the second quarter of 2006. During the quarter, ABX Air operated seven Boeing 767 freighter aircraft dedicated to serving customers outside of the DHL agreements. Charter pre-tax earnings of $2.2 million for the second quarter of 2007 increased from $0.7 million during the second quarter of 2006 due to the increase in the number of aircraft in service. The additional aircraft increased the number of revenue-generating block hours by 157% from the second quarter a year ago. During the second quarter of 2006, ABX operated two Boeing 767 freighter aircraft outside of the DHL commercial agreements.
ABX Air’s revenues from non-DHL businesses other than charter grew 148.0% to $8.3 million in the second quarter of 2007, and earnings from those operations increased 52.3% to $1.1 million. This growth was driven by two additional US Postal sort centers that ABX Air began operating in September 2006 and an increase in contract maintenance services for other aircraft operators.
In July, ABX added two more 767 freighters to the seven it operated at the end of the second quarter of 2007. By year-end, twelve 767s will be in charter service for customers throughout the world, with two more scheduled for 2008.
Net interest income declined to $0.6 million from $1.4 million as ABX Air recognized interest expense from financing a portion of its 767 fleet additions.
“Growth in our non-DHL business continues to exceed our projections,” said Hete. “With pre-tax operating margins of 15% and year-over-year revenue growth of more than 150% for the quarter, we believe these businesses are poised to continue their rapid growth and deliver strong profitability for the foreseeable future. Our positive outlook stems from the Boeing 767-200 freighters we are adding to our fleet and strong customer demand. These aircraft are very fuel efficient as compared with comparable sized freighters and have advanced avionics, which enable them to fly in low visibility conditions. These factors, coupled with cargo load flexibility, demonstrate why demand for such aircraft and their lift capacity continues to be at a premium within the sector. There is a scarcity of such aircraft in the secondary market, and prices for them are much greater than the average cost of those already in ABX Air’s fleet. In May, we announced that two 767s have been allocated to All Nippon Airways for service in Asia. We expect to grow that relationship with ANA later this year, while increasing utilization of the remaining fleet as we serve several other customers and expand our other, non-charter businesses.”