UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM 10-Q
______________
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2007
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___to ___
0-25732
(Commission File Number)
Atlas Air Worldwide Holdings, Inc.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation)
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13-4146982
(IRS Employer Identification No.)
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2000 Westchester Avenue, Purchase, New York
(Address of principal executive offices)
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10577
(Zip Code)
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(914) 701-8000
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
______________
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
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer, per Rule 12b-2 of the Exchange Act.
Large accelerated filer
o
Accelerated filer
þ
Non-accelerated filer
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes
o
No
þ
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. Yes
þ
No
o
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of June 30, 2007, there were 21,333,202 shares of the
registrants Common Stock outstanding.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
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Item 1.
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Condensed Consolidated Financial Statements
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Condensed Consolidated Balance Sheets at June 30, 2007
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1
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and December 31, 2006 (unaudited)
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Condensed Consolidated Statements of Operations for the Three and Six Months
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2
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Ended June 30, 2007, and 2006 (unaudited)
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Condensed Consolidated Statements of Cash Flows for the Six Months Ended
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3
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June 30, 2007, and 2006 (unaudited)
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Notes to the Unaudited Condensed Consolidated Financial Statements
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4
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Item 2.
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Managements Discussion and Analysis of Financial Condition
and Results of Operations
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12
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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24
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Item 4.
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Controls and Procedures
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24
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PART II. OTHER INFORMATION
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Item 1.
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Legal Proceedings
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25
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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25
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Item 4
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Submission of Matters to a Vote of Security Holders
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25
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Item 6.
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Exhibits
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26
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Signatures
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27
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Exhibit Index
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28
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PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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June 30,
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December 31,
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2007
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2006
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Assets
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Current Assets
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Cash and cash equivalents
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$
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312,478
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$
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231,807
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Accounts receivable, net of allowance of $2,763
and $1,811, respectively
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126,381
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134,520
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Prepaid maintenance
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50,870
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64,678
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Deferred taxes
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34,764
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8,540
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Prepaid expenses and other current assets
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30,344
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24,334
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Total current assets
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554,837
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463,879
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Other Assets
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Property and equipment, net
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588,543
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583,271
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Deposits and other assets
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38,972
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32,832
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Lease contracts and intangible assets, net
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38,879
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39,798
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Total Assets
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$
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1,221,231
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$
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1,119,780
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Liabilities and Stockholders Equity
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Current Liabilities
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Accounts payable
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$
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20,761
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$
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36,052
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Accrued liabilities
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129,043
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153,063
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Current portion of long-term debt and capital leases
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23,815
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19,756
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Total current liabilities
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173,619
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208,871
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Other Liabilities
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Long-term debt and capital leases
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379,503
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398,885
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Deferred gain
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151,356
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Deferred tax liability
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4,313
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4,322
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Other liabilities
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63,125
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33,858
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Total other liabilities
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598,297
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437,065
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Commitments and contingencies (Note 6)
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Minority interest
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12,178
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Stockholders Equity
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Preferred stock, $1 par value; 10,000,000 shares authorized;
no shares issued
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Common stock, $0.01 par value; 50,000,000 shares authorized;
21,465,311 and 20,730,719 shares issued,
21,331,352 and 20,609,317 shares outstanding (net of
treasury stock) at June 30, 2007 and December 31, 2006,
respectively
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215
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207
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Receivable from issuance of subsidiary stock
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(97,917
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)
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Additional paid-in-capital
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327,508
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312,690
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Common stock to be issued to creditors
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2,695
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7,800
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Treasury stock, at cost; 133,959 and 121,402 shares,
respectively
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(5,197
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)
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(4,524
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)
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Accumulated other comprehensive income
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3,482
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1,319
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Retained earnings
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206,351
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156,352
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Total stockholders equity
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437,137
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473,844
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Total Liabilities and Stockholders Equity
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$
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1,221,231
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$
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1,119,780
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See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
1
Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
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For the Three Months Ended
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For the Six Months Ended
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June 30, 2007
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June 30, 2006
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June 30, 2007
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June 30, 2006
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Operating Revenues
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$
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370,414
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$
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366,420
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$
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723,993
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$
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698,570
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Operating Expenses
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Aircraft fuel
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122,123
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115,311
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234,434
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216,487
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Salaries, wages and benefits
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61,438
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59,099
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123,188
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119,170
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Maintenance, materials and repairs
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37,937
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43,495
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83,219
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83,879
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Aircraft rent
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38,702
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38,166
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77,123
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75,955
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Ground handling and airport fees
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18,385
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19,025
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35,706
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34,910
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Landing fees and other rent
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18,288
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17,561
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36,018
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|
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33,877
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Depreciation and amortization
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|
10,062
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|
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|
6,520
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|
|
|
19,637
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|
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20,045
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Gain on disposal of aircraft
|
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|
(37
|
)
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(2,779
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)
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|
|
(1,005
|
)
|
|
|
(2,779
|
)
|
Travel
|
|
|
12,610
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|
|
|
12,589
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|
|
|
24,604
|
|
|
|
25,838
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|
Post-emergence costs and
related professional fees
|
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|
18
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|
|
|
179
|
|
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|
62
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|
|
|
277
|
|
Other
|
|
|
19,652
|
|
|
|
26,684
|
|
|
|
42,281
|
|
|
|
53,236
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total operating expenses
|
|
|
339,178
|
|
|
|
335,850
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|
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|
675,267
|
|
|
|
660,895
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
31,236
|
|
|
|
30,570
|
|
|
|
48,726
|
|
|
|
37,675
|
|
|
|
|
|
|
|
|
|
|
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|
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Non-operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(3,838
|
)
|
|
|
(3,627
|
)
|
|
|
(7,259
|
)
|
|
|
(7,242
|
)
|
Interest expense
|
|
|
11,274
|
|
|
|
17,188
|
|
|
|
22,522
|
|
|
|
34,488
|
|
Capitalized interest
|
|
|
(1,121
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)
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|
|
(158
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)
|
|
|
(1,963
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)
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|
(278
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)
|
Other (income) expense, net
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|
(271
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)
|
|
|
(323
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)
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|
92
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(633
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)
|
|
|
|
|
|
|
|
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|
|
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Total non-operating expenses
|
|
|
6,044
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|
|
|
13,080
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|
|
|
13,392
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|
|
|
26,335
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
25,192
|
|
|
|
17,490
|
|
|
|
35,334
|
|
|
|
11,340
|
|
Income tax (benefit) expense
|
|
|
(17,993
|
)
|
|
|
6,795
|
|
|
|
(14,048
|
)
|
|
|
4,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
43,185
|
|
|
$
|
10,695
|
|
|
$
|
49,382
|
|
|
$
|
6,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
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|
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|
|
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Income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Basic
|
|
$
|
2.04
|
|
|
$
|
0.52
|
|
|
$
|
2.34
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
2.01
|
|
|
$
|
0.51
|
|
|
$
|
2.30
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
2
Atlas Air Worldwide Holdings, Inc.
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
49,382
|
|
|
$
|
6,997
|
|
Adjustments to reconcile net income to net cash provided
by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
19,637
|
|
|
|
20,045
|
|
Accretion of debt discount
|
|
|
3,519
|
|
|
|
6,953
|
|
Amortization of operating lease discount
|
|
|
918
|
|
|
|
919
|
|
Provision for (release of) allowance for doubtful accounts
|
|
|
555
|
|
|
|
(193
|
)
|
Gain on disposal of aircraft
|
|
|
(1,005
|
)
|
|
|
(2,779
|
)
|
Amortization of debt issuance cost
|
|
|
|
|
|
|
168
|
|
Stock-based compensation expense
|
|
|
4,108
|
|
|
|
3,530
|
|
Deferred taxes
|
|
|
(25,607
|
)
|
|
|
2,284
|
|
Other, net
|
|
|
496
|
|
|
|
2,363
|
|
Changes in certain operating assets and liabilities
|
|
|
(8,030
|
)
|
|
|
1,588
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
43,973
|
|
|
|
41,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(30,400
|
)
|
|
|
(14,110
|
)
|
Decrease in restricted funds held in trust
|
|
|
|
|
|
|
909
|
|
Proceeds from sale of aircraft
|
|
|
6,000
|
|
|
|
8,380
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(24,400
|
)
|
|
|
(4,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercises
|
|
|
4,050
|
|
|
|
3,107
|
|
Purchase of treasury stock
|
|
|
(673
|
)
|
|
|
(137
|
)
|
Excess tax benefits from share-based compensation expense
|
|
|
1,563
|
|
|
|
1,312
|
|
Proceeds from issuance of subsidiary stock
|
|
|
75,000
|
|
|
|
|
|
Payments on debt
|
|
|
(18,842
|
)
|
|
|
(35,603
|
)
|
|
|
|
|
|
|
|
Net cash provided by (used) in financing activities
|
|
|
61,098
|
|
|
|
(31,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
80,671
|
|
|
|
5,733
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
231,807
|
|
|
|
305,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
$
|
312,478
|
|
|
$
|
311,623
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited Condensed Consolidated Financial Statements.
3
Atlas Air Worldwide Holdings, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
June 30, 2007
1. Basis of Presentation
The accompanying interim Condensed Consolidated Financial Statements (the Financial
Statements) are unaudited and have been prepared in accordance with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. As permitted by the rules and regulations of the Securities and
Exchange Commission (the SEC), the Financial Statements exclude certain footnote disclosures
normally included in audited consolidated financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP). In the opinion of management, the Financial
Statements contain all adjustments, consisting of normal recurring items, necessary to fairly
present the financial position of Atlas Air Worldwide Holdings, Inc. (Holdings or AAWW) and its
consolidated subsidiaries as of June 30, 2007, the results of operations for the three and six
months ended June 30, 2007 and 2006 and cash flows for the six months ended June 30, 2007 and 2006.
The Financial Statements include the accounts of Holdings and its consolidated subsidiaries. All
inter-company accounts and transactions have been eliminated. The Financial Statements should be
read in conjunction with the audited consolidated financial statements and the notes thereto for
the fiscal year ended December 31, 2006 included in the Annual Report on Form 10-K of Holdings that
was filed with the SEC on March 15, 2007 (the 2006 10-K).
Holdings is the parent company of two principal operating subsidiaries, Atlas Air, Inc.
(Atlas), which is wholly owned, and Polar Air Cargo Worldwide, Inc. (Polar), of which Holdings
has a 51% economic interest and 75% voting interest as of June 28, 2007. On June 28, 2007, Polar
issued shares representing a 49% economic interest and a 25% voting interest to DHL Network
Operations (USA), Inc. (DHL), a subsidiary of Deutsche Post AG (DP), (see Note 10 for
additional discussion of the transaction). Prior to that date, Polar was wholly owned by Holdings
and was the parent company of Polar Air Cargo, Inc. (Polar LLC). Holdings, Atlas, Polar and Polar
LLC are referred to collectively as the Company. The Company provides air cargo and related
services throughout the world, serving Asia, Australia, the Middle East, Africa, Europe, South
America and the United States through: (i) contractual lease arrangements in which the Company
provides the aircraft, crew, maintenance and insurance (ACMI); (ii) airport-to-airport scheduled
air cargo service (Scheduled Service); (iii) military charter (AMC Charter); and (iv) seasonal,
commercial and ad-hoc charter services (Commercial Charter). The Company operates only Boeing 747
freighter aircraft.
The Companys quarterly results have in the past been subject to seasonal and other
fluctuations and the operating results for any quarter are therefore not necessarily indicative of
results that may be otherwise expected for the entire year.
Except for per share data, all dollar amounts are in thousands unless otherwise noted.
2. Summary of Significant Accounting Policies
Investments
The Company holds a minority interest (49%) in a private company, which is accounted for
under the equity method. The June 30, 2007 and December 31, 2006 aggregate carrying value of
the investment is $4.9 million and $4.5 million, respectively, and is included within Deposits
and other assets on the Condensed Consolidated Balance Sheets.
Atlas has dry leased three owned aircraft to this company. The leases mature on July 31,
2008. The carrying value of these leased aircraft as of June 30, 2007 and December 31, 2006 was
$170.6 million and $171.9 million, respectively. The related accumulated depreciation as of June
30, 2007 and December 31, 2006 was $14.1 million and $12.8 million, respectively. The leases
provide for payment of rent and a provision for maintenance costs associated with the aircraft.
Total rental income for the three aircraft was $11.4 million and $11.2 million for the three
months ended June 30, 2007 and 2006, respectively and $22.8 million and $22.5 million for the
six months ended June 30, 2007 and 2006, respectively.
Issuance
of stock by subsidiaries
We
record gains or losses on issuances of shares by subsidiaries as
other income in the consolidated statement of operations.
Property and equipment, net
At June 30, 2007 and December 31, 2006, the Company has pre-delivery aircraft deposits of
$56.1 million and $41.7 million, respectively, which includes capitalized interest of $2.8 million
and $0.7 million, respectively. These amounts are included in Property and equipment, net in the
Condensed Consolidated Balance Sheets.
4
In March 2007, the Company sold aircraft tail number N536MC, a Boeing 747-200, for $6.0
million and recorded a gain of approximately $1.0 million.
Concentration of Credit Risk and Significant Customers
United States Military Airlift Mobility Command (AMC) charters accounted for 25.2% and 19.6%
of the Companys total revenues for the three months ended June 30, 2007 and 2006, respectively,
and 28.7% and 20.8% of the Companys total revenues for the six months ended June 30, 2007 and
2006, respectively. Accounts receivable from the AMC were $32.2 million and $23.6 million at June
30, 2007 and December 31, 2006, respectively. The International Airline of United Arab Emirates
(Emirates) accounted for 11.7% and 12.3% of the Companys total revenues for the three months
ended June 30, 2007 and 2006, respectively, and 11.5% and 12.1% of the Companys total revenues for
the six months ended June 30, 2007 and 2006, respectively. Accounts receivable from Emirates were
$12.7 million and $13.3 million at June 30, 2007 and December 31, 2006, respectively. No other
customer accounted for 10% or more of the Companys total operating revenues during these periods.
Debt Discount
At June 30, 2007, and December 31, 2006, the Company had $79.4 million and $82.9 million,
respectively, of unamortized discount related to fair market value adjustments recorded against
debt upon application of fresh-start accounting.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 157
Fair Value Measurements
(SFAS 157). SFAS 157 provides
guidance for using fair value to measure assets and liabilities and is intended to respond to
investors requests for expanded information about the extent to which companies measure assets
and liabilities at fair value, the information used to measure fair value and the effect of fair
value measurements on income. SFAS 157 applies whenever other standards require (or permit) assets
or liabilities to be measured at fair value but does not expand the use of fair value in any new
circumstances. SFAS 157 also requires expanded disclosure of the effect on income for items
measured using unobservable data, establishes a fair value hierarchy that prioritizes the
information used to develop those assumptions and requires separate disclosure by level within the
fair value hierarchy. The provisions of SFAS 157 are effective on January 1, 2008. The Company has
not yet determined the impact of SFAS 157 on its consolidated financial statements.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159,
The
Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB
Statement No. 115
, (SFAS 159). This statement permits, but does not require, entities to measure
certain financial instruments and other assets and liabilities at fair value on an
instrument-by-instrument basis. Unrealized gains and losses on items for which the fair value
option has been elected should be recognized in earnings at each subsequent reporting date. The
provisions of SFAS 159 are effective on January 1, 2008 and early adoption is permitted provided
SFAS 157 is adopted concurrently. The Company has not yet determined the impact of SFAS 159 on its
consolidated financial statements.
Reclassifications
Certain reclassifications have been made in the prior years Condensed Consolidated Financial
Statement amounts and related note disclosures to conform to the current years presentation,
primarily related to the classification of Accumulated other comprehensive income.
3. Related Party Transactions
James S. Gilmore III, a non-employee director of the Company, is a partner at the law firm of
Kelley Drye & Warren LLP. The Company paid no legal fees to the firm of Kelley Drye & Warren LLP
for the three months ended June 30, 2007 and less than $0.1 million for the six months ended June
30, 2007 and $0.1 million and $0.5 million for the three and six months ended June 30, 2006,
respectively.
4. Segment Reporting
The Company has four reportable segments: ACMI, Scheduled Service, AMC Charter and Commercial
Charter. All reportable segments are engaged in the business of transporting air cargo but have
different operating and economic characteristics which are separately reviewed by the Companys
management. The Company evaluates performance and
5
allocates resources to its segments based upon income (loss) before income taxes, excluding
post-emergence costs and related professional fees, gains on the sale of aircraft, dry leasing and
other items (Fully Allocated Contribution or FAC). Management views FAC as the best measure to
analyze profitability and contribution to net income or loss of the Companys individual segments.
Management allocates the cost of operating aircraft among the various segments on an average cost
per type of aircraft. For ACMI, management only allocates costs of operating aircraft based on the
number of aircraft dedicated to ACMI customers. Under-utilized aircraft costs are allocated to
segments based on Block Hours flown for Scheduled Service, AMC Charter and Commercial Charter.
The ACMI segment provides aircraft, crew, maintenance and insurance services, whereby
customers receive the use of an insured and maintained aircraft and crew in exchange for, in most
cases, a guaranteed monthly level of operation at a predetermined rate for defined periods of time.
The customer bears the commercial revenue risk and the obligation for other direct operating costs,
including fuel.
The Scheduled Service segment provides airport-to-airport scheduled air freight and available
on-forwarding services primarily to freight forwarding customers. By transporting cargo in this
way, the Company carries all of the commercial revenue risk (yields and cargo loads) and bears all
of the direct costs of operation, including fuel. Distribution costs include direct sales costs
through the Companys own sales force and through commissions paid to general sales agents.
Commission rates typically range between 2.5% and 5% of commissionable revenue sold. Scheduled
Service is highly seasonal, with peak demand coinciding with the retail holiday season, which
traditionally begins in September and lasts through mid-December.
The AMC Charter segment provides full-planeload charter flights to the U.S. Military through
the AMC. The AMC Charter business is similar to the Commercial Charter business in that the Company
is responsible for the direct operating costs of the aircraft other than the cost of fuel, which is
fixed by the AMC, eliminating the risk of fuel price fluctuations. The contracted charter rates
(per mile) and fuel prices (per gallon) are established and fixed by the AMC for twelve-month
periods running from October to September of the next year. The Company receives reimbursement from
the AMC each month if the price of fuel paid by the Company to vendors for AMC missions exceeds the
fixed price; if the price of fuel paid by the Company is less than the fixed price, then the
Company pays the difference to the AMC.
The Commercial Charter segment provides full-planeload airfreight capacity on one or multiple
flights to freight forwarders, airlines and other air cargo customers. Charters are typically paid
in advance and as with Scheduled Service, the Company bears the direct operating costs (except as
otherwise defined in the charter contracts).
All other revenue includes dry lease income and other incidental revenue not allocated to any
of the four segments described above.
The following table sets forth revenues and FAC for the Companys four reportable business
segments reconciled to operating income (loss) and income (loss) before income taxes as required by
SFAS No. 131,
Disclosure about Segments of an Enterprise and Related Information,
for the three and
six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
91,252
|
|
|
$
|
102,368
|
|
|
$
|
175,539
|
|
|
$
|
200,552
|
|
Scheduled Service
|
|
|
144,245
|
|
|
|
152,579
|
|
|
|
270,118
|
|
|
|
281,259
|
|
AMC Charter
|
|
|
93,258
|
|
|
|
71,951
|
|
|
|
207,994
|
|
|
|
145,077
|
|
Commercial Charter
|
|
|
28,634
|
|
|
|
27,799
|
|
|
|
44,329
|
|
|
|
48,283
|
|
All Other
|
|
|
13,025
|
|
|
|
11,723
|
|
|
|
26,013
|
|
|
|
23,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
370,414
|
|
|
$
|
366,420
|
|
|
$
|
723,993
|
|
|
$
|
698,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
9,899
|
|
|
$
|
12,567
|
|
|
$
|
10,370
|
|
|
$
|
16,047
|
|
Scheduled Service
|
|
|
(7,313
|
)
|
|
|
(2,539
|
)
|
|
|
(13,798
|
)
|
|
|
(10,551
|
)
|
AMC Charter
|
|
|
16,462
|
|
|
|
(406
|
)
|
|
|
28,262
|
|
|
|
(2,052
|
)
|
Commercial Charter
|
|
|
1,722
|
|
|
|
(1,503
|
)
|
|
|
586
|
|
|
|
(4,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FAC
|
|
|
20,770
|
|
|
|
8,119
|
|
|
|
25,420
|
|
|
|
(1,152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back (subtract):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated other
|
|
|
4,403
|
|
|
|
6,771
|
|
|
|
8,971
|
|
|
|
9,990
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
Gain on disposal of aircraft
|
|
|
37
|
|
|
|
2,779
|
|
|
|
1,005
|
|
|
|
2,779
|
|
Post-emergence costs and related
professional fees
|
|
|
(18
|
)
|
|
|
(179
|
)
|
|
|
(62
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
25,192
|
|
|
|
17,490
|
|
|
|
35,334
|
|
|
|
11,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Add back) subtract:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
(3,838
|
)
|
|
|
(3,627
|
)
|
|
|
(7,259
|
)
|
|
|
(7,242
|
)
|
Interest expense
|
|
|
11,274
|
|
|
|
17,188
|
|
|
|
22,522
|
|
|
|
34,488
|
|
Capitalized interest
|
|
|
(1,121
|
)
|
|
|
(158
|
)
|
|
|
(1,963
|
)
|
|
|
(278
|
)
|
Other, net
|
|
|
(271
|
)
|
|
|
(323
|
)
|
|
|
92
|
|
|
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
31,236
|
|
|
$
|
30,570
|
|
|
$
|
48,726
|
|
|
$
|
37,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Commitments and Contingencies
On September 8, 2006, Atlas and The Boeing Company (Boeing) entered into a purchase
agreement (the Boeing Agreement) providing for the purchase by Atlas of 12 Boeing 747-8F
freighter aircraft. The Boeing Agreement provides for deliveries of the aircraft to begin in 2010,
with all 12 aircraft expected to be in service by the end of 2011. In addition, the Boeing
Agreement provides Atlas with rights to purchase up to an additional 14 Boeing aircraft, of which
one is being held under option. Committed expenditures under the Boeing Agreement, including
agreements for spare engines and related flight equipment, including estimated amounts for
contractual price escalations, pre-delivery deposits and required option payments, will be $19.8
million for the remainder of 2007, $246.7 million in 2008, $184.1 million in 2009, $987.2 million
in 2010 and $696.7 million in 2011.
Guarantees and Indemnifications
Restricted Deposits and Letters of Credit
At June 30, 2007 and December 31, 2006, the Company had $8.1 million and $4.6 million,
respectively, of restricted deposits either pledged under standby letters of credit related to
collateral or for certain deposits required in the normal course of business for items, including,
but not limited to, foreign exchange trades, airfield privileges, judicial and credit card deposits
and insurance. These amounts are included in Deposits and other assets in the Condensed
Consolidated Balance Sheets.
Legal Proceedings
Except for the updated items below, information with respect to legal proceedings appears in
Note 12 of the 2006 10-K.
Australian Competition and Consumer Commission Inquiry
By letter dated June 28, 2007, the Australian Competition and Consumer Commission (the ACCC)
notified Polar LLC that it would be required to furnish information and to produce documents to the
ACCC in connection with matters that may constitute violations of certain provisions of the
Australian Trade Practices Act. Specifically, the request for information and production of
documents centers around the period of January 1, 2000 through December 31, 2005 with respect to
(1) the use of fuel and security surcharges to allegedly fix, control or otherwise maintain pricing
in the international air cargo markets and (2) arrangements or understandings in respect of general
freight rates that allegedly fix, control or otherwise maintain the pricing of international air
cargo services. Polar LLC is in the process of completing the submission of information and
documentation to the ACCC as required by the request.
Department of Justice Investigation and Related Litigation
As
previously disclosed, the Company and Polar LLC are defendants in a
number of class actions in the United States that relate to the
Department of Justices investigation into the pricing practices of a
number of air cargo carriers and that have now been consolidated for pre-trial purposes. The consolidated complaint universally
alleges, among other things, that the defendants, including the Company and Polar LLC, manipulated
the market price for air cargo services sold domestically and abroad
through the use of surcharges.
In response to this litigation, on May 30, 2007, the Company and Polar LLC commenced against each
of the plaintiffs (the Plaintiffs) in the antitrust class
action litigation an adversary proceeding (the Injunction
Action) in the Bankruptcy Court seeking to enjoin the Plaintiffs from prosecuting against the
Company and Polar LLC claims asserted in such litigation that arose
prior to July 27, 2004, the date
on which the Company and Polar LLC emerged from bankruptcy.
Concurrently with the commencing the Injunction Action, the Company
and Polar LLC moved for a preliminary injunction (the Injunction
Motion) enjoining the defendants from proceeding with such
pre-emergence claims. In the Injunction Action and the Injunction
Motion, Polar LLC and the Company contend that such claims were discharged in the Companys bankruptcy Plan of
Reorganization and that the prosecution of these claims by the Plaintiffs violates such Plan
7
and the related Confirmation Order.
On
August 6, 2007, the Plaintiffs responded to the Injunction
Action and the Injunction Motion and consented to the injunctive
relief requested therein. Thus, the Plaintiffs will be enjoined in
the antitrust class action litigations from prosecuting against Polar
LLC and the Company claims arising prior to July 27, 2004. The
remaining legal issue in the Injunction Action is which forum will
determine the scope of the enjoined claims (
i.e.,
when claims
arise for purposes of enforcing the injunction). Polar LLC and the
Company contend that the Bankruptcy Court should determine when
enjoined claims arise, and the Plaintiffs assert that this question
should be determined in the context of the pending class actions. A
hearing to resolve this issue is presently scheduled for September 7, 2007.
For additional information regarding the above matters, see Legal Proceedings Department
of Justice Investigation and Related Litigation, as set forth in Note 12 to the Companys audited
consolidated financial statements for the year ended December 31, 2006 included in the 2006 10-K.
Stockholder Derivative Actions
In late 2002, stockholders of the Company filed two separate derivative actions on behalf of
the Company against former officers and former members of the Companys Board of Directors. Both
actions charged that such members of the Board violated their fiduciary duties of loyalty and good
faith, among other things. The Company filed a motion to dismiss these actions on May 22, 2007.
The motion was unopposed and the court entered an order dated June 5, 2007 granting the relief
requested and dismissing the derivative actions. For additional information regarding these
matters, see Legal Proceedings Stockholder Derivative
Actions, as set forth in Note 12 to the
Companys audited consolidated financial statements for the year ended December 31, 2006 included
in the 2006 10-K.
Securities Class Action Complaints
In connection with the securities class action complaints that have been filed against the
Company and certain of its former directors and officers and that allege such parties violated
certain provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of
1934, as amended, the United States District Court of the Southern District of New York has entered
an order approving the settlement of these actions on a preliminary basis and setting a final
approval hearing for November 9, 2007. For additional information regarding these matters, see
Legal Proceedings Securities Class Action Complaints, as set forth in Note 12 to the Companys
audited consolidated financial statements for the year December 31, 2006 included in the 2006 10-K.
Genesis Insurance Litigation
The Company has finalized a settlement of its pending action against its former director and
officer insurer, Genesis Insurance Company (Genesis). The
settlement is conditioned on the
final approval of the Bankruptcy Court, the dismissal of the stockholder derivative actions
described above and the final approval of the related settlement of the securities class action
against certain former directors and officers of the Company pending
in the New York federal court that is referenced above.
Under the Genesis settlement, Genesis will pay the Company approximately $1.5 million once all of
the conditions to the settlement are satisfied. As noted above, the stockholder derivative actions
have been dismissed and the Bankruptcy Court has approved the Genesis settlement. The last
remaining condition is the final approval of the securities class action settlement. The Company
is unable to predict with certainty whether the class action settlement will be approved or, if
approved, when that approval will be granted. For additional information regarding these matters,
see Legal Proceedings Adversary Action Against Genesis
Insurance Company, as set forth in Note 12 to the Companys
audited consolidated financial statements for the year ended December 31, 2006 included in the 2006
10-K.
Trademark Matters
In connection with a trademark dispute between the Company and Atlas Transport, on June 26,
2007, the EU Trademark Division, after considering the positions of the parties, declared the Atlas
Transport trademark registration partially invalid. On June 29, 2007, Atlas Transport appealed
that decision. No further actions with respect to the Companys registration application will take
place until the Atlas Transport appeal has been decided. For additional information regarding this
matter, see Legal Proceedings Trademark Matters, as set forth in Note 12 to the Companys
audited consolidated financial statements for the year ended December 31, 2006 included in the 2006
10-K.
Labor
The Air Line Pilots Association (ALPA) represents all of the Companys
U.S. crewmembers at both Atlas and Polar. Collectively, these employees
represent approximately 51% of the Companys workforce as of December 31, 2006.
Polars collective bargaining agreement with ALPA became amendable in April
2007 and the Atlas collective bargaining agreement became amendable in February
2006. The Company is subject to risks of work interruption or stoppage and may
incur additional administrative expenses associated with union representation
of its employees.
In November 2004, in order to increase efficiency and assist in
controlling certain costs, the Company initiated steps to combine the U.S. crewmember
bargaining units of Atlas and Polar. These actions are pursuant to the terms
and conditions of Atlas and Polars collective bargaining agreements, which
provide for a seniority integration process and the negotiation of a single
collective bargaining agreement. ALPA has set a policy initiation date
triggering the provisions of its merger policy. The Atlas and Polar crewmember
seniority lists were integrated by ALPA in November 2006. However, the
integrated lists cannot be implemented until a Single Collective Bargaining
Agreement (SCBA) covering the merged crew force has been reached. ALPA and
the Company have been in negotiations regarding a Merger Protocol Letter of
Agreement addressing the manner in which the negotiations for the SCBA will be
conducted. On July
11, 2007, the Company filed a grievance to compel the commencement of
SCBA
negotiations due to ALPAs unwillingness to date to begin these
negotiations. There is no guarantee that an arbitrator will uphold the
Companys position. Assuming the parties ultimately do enter into negotiations
for the required SCBA, if those negotiations do not result in a comprehensive
final agreement after nine months of direct bargaining, all unresolved issues
are to be submitted to final and binding arbitration.
Atlas General Unsecured Claims
As of June 30, 2007, the Company has made pro rata distributions of 16,988,122 of the
17,202,666 shares of common stock allocated to holders of allowed general unsecured claims against
Holdings, Atlas, Airline Acquisition Corp. I and Atlas Worldwide Aviation Logistics, Inc., based on
the allowed claims through December 31, 2006. One remaining
8
distribution of 214,544 shares of common stock is expected to be made later this year or in early 2008 to general unsecured claims
holders following the settlement of any remaining claims.
6. Income Per Share and Number of Common Shares Outstanding
Basic income per share represents the income divided by the weighted average number of common
shares outstanding during the measurement period. Diluted income per share represents the income
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. Anti-dilutive options for the three and six months ended June 30, 2007 and 2006 were
de minimis.
The calculation of basic and diluted income per share is as follows for the three and six
months ended June 30 (dollars and shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
43,185
|
|
|
$
|
10,695
|
|
|
$
|
49,382
|
|
|
$
|
6,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share
|
|
|
21,175
|
|
|
|
20,591
|
|
|
|
21,110
|
|
|
|
20,554
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
189
|
|
|
|
310
|
|
|
|
191
|
|
|
|
314
|
|
Restricted stock
|
|
|
156
|
|
|
|
193
|
|
|
|
141
|
|
|
|
195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for diluted earnings per share
|
|
|
21,520
|
|
|
|
21,094
|
|
|
|
21,442
|
|
|
|
21,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income per share
|
|
$
|
2.04
|
|
|
$
|
0.52
|
|
|
$
|
2.34
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income per share
|
|
$
|
2.01
|
|
|
$
|
0.51
|
|
|
$
|
2.30
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7. Taxes
During the second quarter of 2007, DHL acquired a 49% equity interest in Polar (see Note 10).
Due to this transaction, the Company recorded a deferred tax asset of $37.0 million, partially
offset by a tax reserve liability of $9.3 million, relating to the shares of stock in Polar. The
deferred tax asset was recorded under the principles of Statement of Financial Accounting Standards
No. 109
Accounting for Income Taxes
, since management determined that the asset would reverse in
the foreseeable future.
As a result of the recognition of this tax asset and associated reserve, income tax expense
decreased by $27.7 million during the quarter. The Companys effective tax rate results in a
benefit of 71.4% and 39.8% for the three and six months ended June 30, 2007, respectively, which
differs from the statutory rate primarily due to the income tax impact of this transaction. The
Companys effective tax rate of 38.9% and 38.3% for the three and six months ended June 30, 2006,
respectively, differ from the statutory rate primarily due to state income tax expense and the
non-deductibility of certain items for income tax purposes.
Effective as of January 1, 2007, the Company adopted FASB Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes
, (FIN 48). As a result of the adoption of FIN 48, the Company
performed a comprehensive review of its uncertain tax positions. These positions relate primarily
to income tax benefits claimed on previously filed income tax returns for open tax years.
During the second quarter of 2007, management determined that the potential reversal of a
portion of the deferred tax asset relating to the shares of stock in Polar resulted from an
uncertain tax position. The Company recorded a $9.3 million liability relating to this position
under the principles of FIN 48. As a result of this additional liability, the Companys uncertain
tax positions totaled $59.8 million at June 30, 2007. The Company maintains an income tax reserve
liability of $59.8 million in its financial statements to offset the tax benefits claimed, or to be
claimed, on its tax returns. The Company will maintain this reserve until these uncertain positions
are reviewed and resolved or until the expiration of the applicable statute of limitations, if
earlier. Approximately $11.0 million of tax benefits relating to uncertain tax positions, if
recognized, would impact the effective rate.
The Company maintains a liability of $0.6 million for interest expense on its tax reserve
liability. The Company computed this interest expense based on applicable statutory rates for
income tax underpayments. The Company has not
9
recorded any liability for penalties. The Companys policy is to record interest expense and penalties, if applicable, as a component of income tax
expense.
As a result of the adoption of FIN 48, the Company recorded $0.9 million of additional tax
benefits related to uncertain tax positions. The company also recorded $0.3 million of interest
expense related to uncertain tax positions, resulting in the recognition of a net asset of $0.6
million. The Company recorded the asset through retained earnings in accordance with the standards
for the adoption of FIN 48.
The Companys management does not anticipate that its unrecognized income tax benefits will
increase or decrease by a material amount during the twelve-month period following June 30, 2007.
The Company may begin to pay U.S. cash income taxes in 2008 and anticipates that it will pay
U.S. cash income taxes starting in 2009. The Company is evaluating certain opportunities to reduce
its potential U.S. income tax liability, such as accelerated tax depreciation on future aircraft
acquisitions and other tax planning strategies which may allow the Company to recover U.S. cash
income taxes paid in future years.
Due to an ongoing examination, the Company expects to pay foreign income taxes in Hong Kong
starting in 2007 or 2008. These taxes could be offset in the United States by a foreign tax
credit. The Company expects to pay no significant foreign income taxes in jurisdictions other than
Hong Kong. Two of the Companys foreign branch operations are subject to income tax in Hong Kong.
In Hong Kong, the years 2001 through 2005 are subject to and under examination for Atlas, and the
years 2003 through 2005 are subject to and under examination for Polar LLC.
For federal income tax purposes, the years 2002, 2003, 2005 and 2006 remain subject to
examination. A loss claimed on an amended income tax return for 2001 is also subject to
examination. During the second quarter of 2007, as previously disclosed in the 2006 10-K, the
Company and the Internal Revenue Service (IRS) resolved an income tax examination for the year
2004. The IRS accepted the Companys 2004 income tax return as filed. The IRS has not commenced an
income tax examination for any open years, and no federal income tax examinations are in process.
In addition, for state income tax purposes, no state income tax examinations are in process.
Certain tax attributes, reflected on the Companys federal income tax returns as filed
including Net Operating Losses, differ significantly from those reflected in the Financial
Statements. Such attributes are subject to future audit in the event the IRS determines to examine
any open tax years.
8. Financial Derivative Instruments
Airfreight operators are inherently dependent upon fuel to operate and, therefore, are
impacted by changes in jet fuel prices. The Company endeavors to purchase jet fuel at the lowest
possible cost. In addition to physical purchases, the Company from time to time has utilized
financial derivative instruments as hedges to decrease its exposure to jet fuel price volatility.
The Company does not purchase or hold any derivative financial instruments for trading purposes.
The Company began using hedge accounting in the fourth quarter of 2006. The Company accounts
for its fuel hedge derivative instruments as cash flow hedges, as defined in SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities
, as amended by SFAS No. 138,
Accounting for Certain Derivative Instruments and Certain Hedging Activities
and SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities
(SFAS 133). Under
SFAS 133, all derivatives are recorded at fair value on the balance sheet. Those derivatives
designated as hedges that meet certain requirements are granted special hedge accounting treatment.
Generally, utilizing the special hedge accounting, all periodic changes in fair value of the
derivatives designated as hedges that are considered to be effective, as defined, are recorded in
Accumulated other comprehensive income until the underlying jet fuel is consumed. The Company is
exposed to the risk that periodic changes will not be effective, as defined, or that the
derivatives will no longer qualify for special hedge accounting. Ineffectiveness results when the
change in the total fair value of the derivative instrument exceeds the change in the value of the
Companys expected future cash outlay to purchase jet fuel. To the extent that the periodic changes
in the fair value of the derivatives are not effective, that ineffectiveness is recorded in
Aircraft fuel expense in the condensed consolidated statement of operations. Likewise, if a hedge
ceases to qualify for hedge accounting, those periodic changes in the fair value of derivative
instruments are recorded to Aircraft fuel expense in the condensed consolidated statement of
operations in the period of the change.
Ineffectiveness is inherent in hedging jet fuel with derivative transactions based on other
refined petroleum products due to the differences in commodities. For example, using heating oil
futures to hedge jet fuel will likely lead to some ineffectiveness. Ineffectiveness may also occur
due to a slight difference in timing between the derivative delivery period and the Companys
irregular uplift of jet fuel. Due to the volatility in markets for crude oil and related product
and
10
the daily uplift amounts, the Company is unable to predict precisely the amount of
ineffectiveness each period. The Company will follow the SFAS 133 requirements and report any
expected ineffectiveness. This may result in increased volatility in the Companys results.
At June 30, 2007, all of the Companys outstanding derivative contracts were designated as
cash flow hedges for accounting purposes. While outstanding, these contracts are recorded at fair
value on the balance sheet with the effective portion of the change in their fair value being
reflected in accumulated other comprehensive income (see Note 9). The Company has remaining
purchase commitments for approximately 11.9 million gallons of jet fuel in 2007 at an average cost
of $2.04 per gallon for a total commitment of $24.3 million. The contracts are for monthly uplift
at various stations and all expire by December 2007. At June 30, 2007, the derivative asset value
was $2.7 million and is included in Prepaid expenses and other current assets in the Condensed
Consolidated Balance Sheets. At December 31, 2006, the derivative liability value was $0.1
million.
9. Comprehensive Income
Comprehensive income included changes in the fair value of certain financial derivative
instruments, which qualify for hedge accounting, and unrealized gains and losses on certain
investments. The differences between net income and comprehensive income for the three and six
months ended June 30 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
June 30, 2007
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
43,185
|
|
|
$
|
10,695
|
|
|
$
|
49,382
|
|
|
$
|
6,997
|
|
Unrealized gain (loss) on derivative
instruments,
net of taxes of $324 and $1,672
|
|
|
(551
|
)
|
|
|
|
|
|
|
1,744
|
|
|
|
|
|
Other, net of taxes of $5 and $9
|
|
|
163
|
|
|
|
270
|
|
|
|
419
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income (loss)
|
|
|
(388
|
)
|
|
|
270
|
|
|
|
2,163
|
|
|
|
(97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
42,797
|
|
|
$
|
10,965
|
|
|
$
|
51,545
|
|
|
$
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A roll-forward of the amounts included in Accumulated other comprehensive income, net of
taxes, is shown below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other
|
|
|
|
Fuel Hedge
|
|
|
|
|
|
|
Comprehensive
|
|
|
|
Derivatives
|
|
|
Other
|
|
|
Income
|
|
Balance at December 31, 2006
|
|
$
|
(32
|
)
|
|
$
|
1,351
|
|
|
$
|
1,319
|
|
Change in value during period,
|
|
|
2,295
|
|
|
|
256
|
|
|
|
2,551
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007
|
|
|
2,263
|
|
|
|
1,607
|
|
|
|
3,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in value during period,
|
|
|
(551
|
)
|
|
|
163
|
|
|
|
(388
|
)
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2007
|
|
$
|
1,712
|
|
|
$
|
1,770
|
|
|
$
|
3,482
|
|
|
|
|
|
|
|
|
|
|
|
Other is primarily composed of unrealized gains and losses on foreign currency translation.
10. DHL Investment
On June 28, 2007, DHL acquired from Polar a 49 % equity interest, representing a 25% voting
interest, in Polar in exchange for $150.0 million in cash, of which $75.0 million was paid at
closing. In addition, AAWW will receive approximately $22.9 million in working capital, subject to
adjustment, from DHL as additional proceeds in the second half of 2007. The remaining $75.0 million
is scheduled to be paid in two equal installments (plus interest) on January 15, 2008 and November
17, 2008, subject to potential acceleration. AAWW continues to own the remaining 51% of Polar stock
(75% voting). On July 27, 2007, Polar received a $30.0 million non-interest bearing refundable
deposit from DHL, to be repaid by Polar within 90 days
subsequent to the Commencement Date. (see below).
Concurrently with the investment, DHL and Polar entered into a 20-year blocked space agreement
(the BSA), Polar will provide air cargo capacity to DHL in Polars scheduled service network for
DHL Express services (the DHL Express Network). On or before October 31, 2008, ( the
Commencement Date), Polar will commence flying DHL Express Trans-Pacific express network. As part of the transaction to issue shares in Polar
to DHL, Polar LLCs ground
11
employees, crew, ground equipment, airline operating certificate and
flight authorities, among other things, were transferred to Polar and Polars interest in Polar LLC
was transferred to AAWW as a direct subsidiary.
As a result of this transaction the Company recorded a deferred gain of $151.4 million to be
recognized as income upon Commencement Date. In addition, upon Commencement Date, DHL is obligated
to provide Polar with working capital liquidity support as needed. The remaining proceeds to be
paid by DHL of $97.9 million at June 30, 2007 are recorded as Receivable from issuance of
subsidiary stock as a contra equity account in the Condensed Consolidated Balance Sheets. The
Company also recorded a minority interest for DHL of $12.2 million.
Based on the various agreements entered into as a result of the issuance of the investment to
DHL, the Company reviewed the structure and determined that a variable interest entity had been
created. Based upon an application of the FASBs revised Interpretation No. 46,
Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51
, the Company determined that it was
the primary beneficiary of the variable interest entity and would continue to consolidate Polar.
The Companys Scheduled Service business, which historically bore all direct costs of
operation regardless of customer utilization, will transfer the risk
associated with such costs to DHL upon Commencement
Date. Also, until Commencement Date of the DHL Express Network, AAWW will provide
financial support and assume all risk and rewards of the operations of Polar, with DHL maintaining
support and assuming risk of operating losses thereafter.
Polar will continue to provide Scheduled Service to its freight forwarder and other shipping
customers both prior to and after the commencement of our express network service.
The express network service will provide contracted airport-to-airport wide-body aircraft
solutions to DHL and other freight customers and shippers. The BSA and related agreements will
provide the Company with a guaranteed revenue stream from the six Boeing 747-400 aircraft that have
been dedicated to this venture. Over the term of the BSA, DHL will be subject to a monthly minimum
block hour guarantee that is expected to provide the Company with a target level of profitability.
Polar will provide DHL with guaranteed access to air cargo capacity, and the aircraft will be
operated on a basis similar to Atlas ACMI arrangements with other customers, by employing a
long-term contract that allocate capacity and mitigate yield and
demand risks.
Polar will operate six Boeing 747-400 freighter aircraft, which are being subleased from Atlas
and Polar LLC from closing until ten years from the commencement of the DHL Express Network flying.
In addition, Polar is operating a Boeing 747-200 freighter aircraft, also subleased from Atlas, and
may continue to do so to support the DHL Express Network. Polar and Atlas have entered into a
flight services agreement under which Atlas will provide Polar with maintenance and insurance for
the -seven freighters, with flight crewing also to be furnished once the merger of the Polar and
Atlas crew forces has been completed. Polar will have access to additional capacity through wet
leasing of available Atlas aircraft. Under other separate agreements, Atlas and Polar will supply
administrative, sales and ground support services to one another.
The BSA establishes DHL capacity purchase commitments on Polar flights. Under the flight
services agreement, Atlas is compensated by Polar on a per block hour basis, subject to a monthly
minimum block hour guarantee, at a predetermined rate that escalates annually. DHL has the right to
terminate the 20-year BSA at the fifth, tenth and fifteenth anniversaries of commencement of DHL
Express Network flying and either party may terminate for cause. However, upon such termination at
the fifth anniversary, DHL or Polar will be required to assume all six 747-400 freighter head
leases for the entire remaining term of each such aircraft lease, each as guaranteed by DP or its
creditworthy subsidiary. DHL may also terminate the BSA for cause,
including an inability to meet certain departure and arrival criteria
for an extended period of time, and upon certain
change-of-control events, in which case DHL may be entitled to liquidated damages from Polar. Under
such circumstances, DHL is further entitled to have an affiliate assume any or all of the six
747-400 freighters subleases for the remainder of the ten-year term under each such sublease, with
Polar liable up to an agreed amount of such lease obligations. In the event of any termination
during the ten-year sublease term, DHL is required to pay the lease obligations for the remainder
of the head lease and guarantee Polars performance under the leases.
In other agreements, DP guaranteed DHLs (and Polars) obligations under the various
transaction documents. AAWW has agreed to indemnify DHL for and against various obligations of
Polar and its affiliates.
12
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with our unaudited
Financial Statements and notes thereto appearing in this report and our audited consolidated
financial statements and notes thereto for the fiscal year ended December 31, 2006 included in our
2006 10-K.
In this report, references to we, our and us are references to AAWW and its
subsidiaries, as applicable.
Background
Certain Terms Glossary
The following terms represent industry-related items and statistics specific to the airline
and cargo industry sectors. They are used by management for statistical analysis purposes to better
evaluate and measure operating levels, results, productivity and efficiency.
|
|
|
ATM
|
|
Available Ton Miles, which represent the maximum available
tons (capacity) per actual miles flown. It is calculated by
multiplying the available capacity (tonnage) of the aircraft
by the miles flown by the aircraft.
|
|
|
|
Block Hours
|
|
The time interval between when an aircraft departs the
terminal until it arrives at the destination terminal.
|
|
|
|
RATM
|
|
Revenue per ATM, which represents the average revenue received
per available ton mile flown. It is calculated by dividing
operating revenues by ATMs.
|
|
|
|
Revenue Per
Block Hour
|
|
Calculated by dividing operating revenues by Block Hours.
|
|
|
|
RTM
|
|
Revenue Ton Mile, which is calculated by multiplying actual
revenue tons carried by miles flown.
|
|
|
|
Load Factor
|
|
The average amount of weight flown per the maximum available
capacity. It is calculated by dividing RTMs by ATMs.
|
|
|
|
Yield
|
|
The average amount a customer pays to fly one ton of cargo one
mile. It is calculated by dividing operating revenues by RTMs.
|
|
|
|
A/B Checks
|
|
Low level maintenance checks performed on aircraft at an
interval of approximately 400 to 1,100 flight hours.
|
|
|
|
C Checks
|
|
High level or heavy airframe maintenance checks, which are
more intensive in scope than an A/B Check and are generally
performed on an 18 to 24 month interval.
|
|
|
|
D Checks
|
|
High level or heavy airframe maintenance checks, which are
the most extensive in scope and are generally performed on an
interval of 6 to 10 years or 25,000 to 28,000 flight hours,
whichever comes first.
|
|
|
|
FAC
|
|
Also know as Fully Allocated Contribution, income (loss)
before taxes, excluding post-emergence costs and related
professional fees, gains on the sale of aircraft, dry leasing
and other items. We evaluate performance and allocate
resources to our segments based upon this measure.
|
Business Strategy
We are the leading, high quality provider of outsourced aircraft services to the global air
freight market. Our principal customers are airlines, freight forwarders, the AMC and charter
brokers. We provide our customers with integrated solutions, primarily freighter aircraft, and
related services, to meet their time-sensitive, global supply chain needs. We provide a unique
service solution to our customers by combining our large fleet of reliable and efficient wide-body
freighter aircraft, with cost-effective operations and services, including crew, maintenance,
flight operations and
13
logistics support. We provide our services through operations in Asia, Europe, South America,
the Middle East, Australia, Africa and the U.S.
With our fleet of 37 wide-body, dedicated freighter aircraft, we are well positioned to
benefit from the forecasted growth in the global airfreight market and the increasing demand for
wide-body freighter airplanes. We believe that demand for high-efficiency wide-body freighter
aircraft and related outsourcing services will increase due to growing international trade,
including growth in developing markets in Asia and South America. As demand continues to increase,
we believe that the supply of suitable aircraft will not keep pace with that increase in demand as
a result of limited production and passenger to cargo conversion capacity. We believe our market
position is further enhanced by our recent order of 12 new Boeing 747-8 freighter aircraft,
scheduled to be delivered in 2010 and 2011, allowing us to be the only provider of these aircraft
to the outsourced freighter market. In addition to these 12 aircraft, we hold rights to purchase up
to an additional 14 Boeing 747-8 freighter aircraft, which will allow us flexibility to expand our
fleet in response to market conditions.
Our primary services are:
|
|
|
ACMI, where we provide our customers with a total air freight operations solution,
including one or more dedicated aircraft, and crew, maintenance and insurance services;
|
|
|
|
|
Express network service, where we will provide contracted airport-to-airport
wide-body cargo aircraft solutions to DHL and our freight forwarder and other shipping
customers, commencing on or before October 31, 2008. We will continue to provide
Scheduled Service to our freight forwarders and other shipping customers;
|
|
|
|
|
Charter services, which encompass two primary customer segments, the AMC, where we
provide air cargo services to the U.S. Military, and Commercial Charter, where we
provide all-inclusive cargo aircraft charters to commercial customers; and
|
|
|
|
|
Dry leasing, where we lease our aircraft to other commercial cargo airlines who
operate those leased aircraft with their own services.
|
Our strategy includes the following:
|
|
|
Provide differentiated, high quality outsourced aircraft operations and related services;
|
|
|
|
|
Deploy a fleet of cost-effective leading-edge aircraft;
|
|
|
|
|
Focus on long-term contracts;
|
|
|
|
|
Expand our service offerings to meet customer demand, and
|
|
|
|
|
Achieve significant ongoing efficiencies and productivity improvements.
|
See Business Overview and Business Strategy and Outlook in the 2006 10-K for additional
information.
Results of Operations
Three Months Ended June 30, 2007 and 2006
The following discussion should be read in conjunction with our Financial Statements and
notes thereto and other financial information appearing and referred to elsewhere in this
report.
Operating Statistics
The table below sets forth selected operating data for the three months ended June 30:
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Block Hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
|
15,283
|
|
|
|
17,292
|
|
|
|
(2,009
|
)
|
|
|
(11.6
|
%)
|
Scheduled Service
|
|
|
10,164
|
|
|
|
10,090
|
|
|
|
74
|
|
|
|
0.7
|
%
|
AMC Charter
|
|
|
5,459
|
|
|
|
4,565
|
|
|
|
894
|
|
|
|
19.6
|
%
|
Commercial Charter
|
|
|
1,837
|
|
|
|
1,822
|
|
|
|
15
|
|
|
|
0.8
|
%
|
All Other
|
|
|
151
|
|
|
|
215
|
|
|
|
(64
|
)
|
|
|
(29.8
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Block Hours
|
|
|
32,894
|
|
|
|
33,984
|
|
|
|
(1,090
|
)
|
|
|
(3.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
5,971
|
|
|
$
|
5,920
|
|
|
$
|
51
|
|
|
|
0.9
|
%
|
AMC Charter
|
|
$
|
17,083
|
|
|
$
|
15,761
|
|
|
$
|
1,322
|
|
|
|
8.4
|
%
|
Commercial Charter
|
|
$
|
15,587
|
|
|
$
|
15,257
|
|
|
$
|
330
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Service Traffic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RTMs (000s)
|
|
|
376,275
|
|
|
|
376,986
|
|
|
|
(711
|
)
|
|
|
(0.2
|
%)
|
ATMs (000s)
|
|
|
593,816
|
|
|
|
597,889
|
|
|
|
(4,073
|
)
|
|
|
(0.7
|
%)
|
Load Factor
|
|
|
63.4
|
%
|
|
|
63.1
|
%
|
|
3 bps
|
|
|
0.5
|
%
|
RATM
|
|
$
|
0.243
|
|
|
$
|
0.255
|
|
|
$
|
(0.012
|
)
|
|
|
(4.8
|
%)
|
Yield
|
|
$
|
0.383
|
|
|
$
|
0.405
|
|
|
$
|
(0.022
|
)
|
|
|
(5.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Service and Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.12
|
|
|
$
|
2.06
|
|
|
$
|
0.06
|
|
|
|
2.9
|
%
|
Fuel gallons consumed (000s)
|
|
|
38,880
|
|
|
|
40,063
|
|
|
|
(1,183
|
)
|
|
|
(3.0
|
%)
|
AMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.25
|
|
|
$
|
2.20
|
|
|
$
|
0.05
|
|
|
|
2.3
|
%
|
Fuel gallons consumed (000s)
|
|
|
17,710
|
|
|
|
14,831
|
|
|
|
2,879
|
|
|
|
19.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
(average during the period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Aircraft count*
|
|
|
32.0
|
|
|
|
38.1
|
|
|
|
(6.1
|
)
|
|
|
(16.0
|
%)
|
Dry Leased **
|
|
|
5.0
|
|
|
|
3.0
|
|
|
|
2.0
|
|
|
|
66.7
|
%
|
|
|
|
*
|
|
The operating aircraft count includes the three aircraft held for sale and the two
aircraft available for lease at June 30, 2006 as these aircraft were operated during the quarter;
all of such aircraft were subsequently sold or dry leased.
|
|
**
|
|
Third party dry leased and out of service aircraft are not included in the operating
fleet aircraft count average.
|
Operating Revenues
The following table compares our operating revenues for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
91,252
|
|
|
$
|
102,368
|
|
|
$
|
(11,116
|
)
|
|
|
(10.9
|
%)
|
Scheduled Service
|
|
|
144,245
|
|
|
|
152,579
|
|
|
|
(8,334
|
)
|
|
|
(5.5
|
%)
|
AMC Charter
|
|
|
93,258
|
|
|
|
71,951
|
|
|
|
21,307
|
|
|
|
29.6
|
%
|
Commercial Charter
|
|
|
28,634
|
|
|
|
27,799
|
|
|
|
835
|
|
|
|
3.0
|
%
|
Other revenue
|
|
|
13,025
|
|
|
|
11,723
|
|
|
|
1,302
|
|
|
|
11.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
370,414
|
|
|
$
|
366,420
|
|
|
$
|
3,994
|
|
|
|
1.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI revenue
decreased as a result of our sale and dry lease of aircraft previously operated
in the Boeing 747-200 ACMI market, however the Revenue per Block Hour increased slightly. ACMI
Block Hours were 15,283 for the second quarter of 2007, compared with 17,292 for the second quarter
of 2006, a decrease of 2,009 Block Hours, or 11.6%. Revenue per Block Hour was $5,971 for the
second quarter of 2007, compared with $5,920 for the second quarter of 2006, an increase of $51 per
Block Hour, or 0.9%. The increase in rate per Block Hour reflects a slightly higher proportional
Boeing 747-400 usage in this segment as demand for our Boeing 747-400 capacity remains strong and
all capacity is contracted throughout 2007
.
We also deployed one Boeing 747-200 from the ACMI
segment into our Charter operations in order to capitalize on increasing customer demand. Total
aircraft supporting ACMI, excluding dry leased aircraft as of June 30, 2007, were one Boeing
747-200 aircraft and 10 Boeing 747-400 aircraft, compared with two Boeing 747-200 aircraft and 10
Boeing 747-400 aircraft supporting ACMI at June 30, 2006.
Scheduled Service revenue
reflected a challenging Yield environment on certain routes in the
trans-Pacific market
15
and a proactive redeployment of capacity to the South American and Trans-Atlantic
markets. The decrease in Yield during 2007 is driven by increased capacity in key Asian markets.
In addition, increased capacity in the South American markets generated lower average Yields
commensurate with the substantially shorter length of haul. We reduced capacity on other routes to
help mitigate the reduction in Yield. RTMs in the Scheduled Service segment were 376.3 million on
a total capacity of 593.8 million ATMs in the second quarter of 2007, compared with RTMs in the
Scheduled Service segment were 377.0 million on a total capacity of 597.9 million ATMs in the
second quarter of 2006. Block Hours were 10,164 in the second quarter of 2007, compared with 10,090
for the second quarter of 2006, an increase of 74, or 0.7%. Load Factor was 63.4% with a Yield of
$0.383 in the second quarter of 2007, compared with a Load Factor of 63.1% with a Yield of $0.405
in the second quarter of 2006, representing an increase of 0.5% and a decrease of 5.4%,
respectively. RATM in our Scheduled Service segment was $0.243 in the second quarter of 2007,
compared with $0.255 in the second quarter of 2006, representing a decrease of 4.8%.
AMC Charter revenue
benefited from increased demand for expansion business from the AMC and
our ability to flexibly deploy additional assets to respond to the opportunity. AMC Charter Block
Hours were 5,459 for the second quarter of 2007, compared with 4,565 for the second quarter of
2006, an increase of 894 Block Hours, or 19.6%. Revenue per Block Hour was $17,083 for the second
quarter of 2007, compared with $15,761 for the second quarter of 2006, an increase of $1,322 per
Block Hour, or 8.4 %. The increase in rate was primarily due to an increase in the AMCs charter
rate per ton mile flown, which reflects both fuel and cost increases. As we reduced capacity in the
Boeing 747-200 ACMI business, we were able to shift capacity to our more profitable AMC Charter to
maximize utilization.
Commercial Charter revenue
increased primarily due to an increased sales focus on
opportunities in the oil and gas, heavy industry and high-tech segments, among others. Such focus
resulted in a slightly higher volume of Commercial Charter flights and an increase in Revenue per
Block Hour. Commercial Charter Block Hours were 1,837 for the second quarter of 2007, compared with
1,822 for the second quarter of 2006, an increase of 15, or 0.8%. Revenue per Block Hour was
$15,587 for the second quarter of 2007, compared with $15,257 for the second quarter of 2006, an
increase of $330 per Block Hour, or 2.2%.
Total Operating Revenue
increased 1.1% in the second quarter of 2007 compared with the
second quarter of 2006, despite a 6.1, or 16.0%, reduction in our average operating fleet during
the 2007 period. The increased revenue was primarily the result of an increase in AMC and
Commercial Charter Block Hours and Revenue per Block Hour partially offset by weaker Scheduled
Service market conditions in Asia and a reduction in ACMI Block Hours. We were able to increase
revenue by active management of capacity between our service lines.
Operating Expenses
The following table compares our operating expenses for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Percent Change
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
$
|
122,123
|
|
|
$
|
115,311
|
|
|
$
|
6,812
|
|
|
|
5.9
|
%
|
Salaries, wages and benefits
|
|
|
61,438
|
|
|
|
59,099
|
|
|
|
2,339
|
|
|
|
4.0
|
%
|
Maintenance, materials and repairs
|
|
|
37,937
|
|
|
|
43,495
|
|
|
|
(5,558
|
)
|
|
|
(12.8
|
%)
|
Aircraft rent
|
|
|
38,702
|
|
|
|
38,166
|
|
|
|
536
|
|
|
|
1.4
|
%
|
Ground handling and airport fees
|
|
|
18,385
|
|
|
|
19,025
|
|
|
|
(640
|
)
|
|
|
(3.4
|
%)
|
Landing fees and other rent
|
|
|
18,288
|
|
|
|
17,561
|
|
|
|
727
|
|
|
|
4.1
|
%
|
Depreciation and amortization
|
|
|
10,062
|
|
|
|
6,520
|
|
|
|
3,542
|
|
|
|
54.3
|
%
|
Gain on disposal of aircraft
|
|
|
(37
|
)
|
|
|
(2,779
|
)
|
|
|
2,742
|
|
|
|
98.7
|
%
|
Travel
|
|
|
12,610
|
|
|
|
12,589
|
|
|
|
21
|
|
|
|
0.2
|
%
|
Post-emergence costs and related
professional fees
|
|
|
18
|
|
|
|
179
|
|
|
|
(161
|
)
|
|
|
(89.9
|
%)
|
Other
|
|
|
19,652
|
|
|
|
26,684
|
|
|
|
(7,032
|
)
|
|
|
(26.4
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
$
|
339,178
|
|
|
$
|
335,850
|
|
|
$
|
3,328
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel expense
increased as a result of the increase in fuel prices offset in part by a
decrease in fuel consumption. The average fuel price per gallon for the Scheduled Service and
Commercial Charter businesses was approximately 212 cents for the second quarter of 2007, compared
with approximately 206 cents for the second quarter of 2006, an increase of 6 cents, or 2.9%. Fuel
consumption for the Scheduled Service and Commercial Charter businesses decreased 1.2 million
gallons or 3.0% to 38.9 million gallons for the second quarter of 2007 from 40.1 million gallons
16
during the second quarter of 2006. We have been able to mitigate some of the fuel price
increase by hedging approximately 18.5% of our fuel utilization for the Scheduled Service business
through fuel hedging implemented in the beginning of 2007. Our hedging activities represent a
savings of $1.1 million for the second quarter of 2007 compared with the price paid for non-hedged
fuel. The improvement in fuel burn per Block Hour is the result of our Fuelwise conservation
program implemented in July 2006. The average fuel price per gallon for the AMC business was
approximately 225 cents for the second quarter of 2007, compared with approximately 220 cents for
the second quarter of 2006, an increase of 5 cents, or 2.3%. The AMC reimburse us for fuel price
increases to the extent that fuel prices exceed the agreed upon price with the AMC. AMC Fuel
consumption increased by 2.9 million gallons, or 19.4%, to 17.7 million gallons from 14.8 million
gallons during the second quarter of 2006. The increase in our AMC fuel consumption corresponds to
the increase of 894 Block Hours. We do not incur fuel expense in our ACMI service as the cost of
fuel is borne by the customer.
Salaries, wages and benefits
increased primarily as a result of an increase in profit sharing
and incentive compensation accruals related to increased profitability compared to the second
quarter of 2006.
Maintenance materials and repair
decreased primarily as a result of fewer D Checks, engine
overhauls and recoveries of insurance claims from previous engine
events. There were three C Checks on
Boeing 747-200 aircraft in the second quarter of 2007, as compared with one C Check and one D Check
on a Boeing 747-200 aircraft during the second quarter of 2006. There were 11 engine overhauls in
the second quarter of 2007 compared with 13 during the second quarter of 2006.
Aircraft rent
increased slightly due to the increase in re-accommodated air transportation on
other freight carriers.
Ground handling and airport fees
decreased mainly as a result of improvements in the
efficiency of ground handling services in the Scheduled Service business, the primary user of such
services.
Landing fees and other rent
increased primarily due to an increase in AMC and Scheduled
Service Block Hours offset by a decrease in Commercial Charter activity.
Depreciation and amortization
increased primarily due to a $4.7 million increase of scrapping
of spare rotable parts compared to the prior year.
Gain on disposal of aircraft
was the result of the sale of aircraft tail number N921FT, a
Boeing 747-200, in 2006.
Travel
was essentially unchanged for the comparable periods.
Post-emergence costs and related professional fees
decreased due the winding down of the
claims reconciliation process related to the bankruptcy proceedings.
Other operating expenses
decreased due to a decrease in professional fees of $1.6 million
associated with the redesign of internal controls that occurred in 2006, a $4.9 million decrease
in legal and professional fees and a $2.2 million decrease in other miscellaneous expenses
offset by an increase of $0.6 million in bad debt expense. In addition 2006 was impacted by a
$1.1 million benefit caused by a reduction in accrued interest and penalties from the settlement
with the IRS in the second quarter of 2006.
Total operating expense
increased 1% in the second quarter of 2007 compared with the second
quarter of 2006 primarily as a result of increased fuel costs and depreciation and amortization
partially offset by a decrease in maintenance expense and other operating expenses.
Non-operating Expenses
The following table compares our non-operating expenses for the three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Percent Change
|
Non-operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(3,838
|
)
|
|
$
|
(3,627
|
)
|
|
$
|
211
|
|
|
|
5.8
|
%
|
Interest expense
|
|
|
11,274
|
|
|
|
17,188
|
|
|
|
(5,914
|
)
|
|
|
(34.4
|
%)
|
Capitalized interest
|
|
|
(1,121
|
)
|
|
|
(158
|
)
|
|
|
963
|
|
|
|
609.5
|
%
|
Other (income) expense, net
|
|
|
(271
|
)
|
|
|
(323
|
)
|
|
|
(52
|
)
|
|
|
(16.1
|
%)
|
17
Interest income
increased primarily due to an increase in our average available cash balances
during the period, augmented by a general increase in interest rates.
Interest expense
decreased primarily as a result of repayment of debt, including the
prepayment of $140.8 million of floating rate debt on July 31, 2006 (see Note 6 to our 2006 10-K
for further discussion).
Capitalized interest
increased primarily due to the pre-delivery deposit on the Boeing
747-8F aircraft order we placed in September 2006 (See Note 5 to our Financial Statements for
further discussion).
Other (income) expense, net
decreased slightly due to realized and unrealized losses on the
revaluation of foreign denominated receivables into U.S. dollars. The U.S. dollar had strengthened
against most foreign currencies during the period compared with the prior year when the U.S. dollar
had weakened against most foreign currencies.
Income taxes.
The effective tax rate for the second quarter of 2007 results in a benefit of
71.4% compared with an effective tax expense rate of 38.9% for the second quarter of 2006. Our
rates for the second quarter of 2007 reflect the recognition of a deferred tax asset of $37.0
million offset by a tax reserve of $9.3 million related to the transaction with DHL ( see Note 7).
Our rates for the second quarter of 2006 differ from the statutory rate primarily due to the
non-deductibility of certain items for tax purposes and the relationship of these items to our
projected operating results for the year.
Segments
Management allocates the cost of operating aircraft among the various segments on an average
cost per aircraft type. ACMI is only allocated costs of operating aircraft based on the number of
aircraft dedicated to ACMI customers. Under-utilized aircraft costs are allocated to segments
based on Block Hours flown for Scheduled Service, AMC and Commercial Charter as these aircraft are
used interchangeably among these segments. Current and prior period segment FAC comparisons were
significantly affected by the existence of excess Boeing 747-200 capacity in the second quarter of
2006. This excess capacity in 2006 resulted in additional fixed costs allocated to the segments
that utilize Boeing 747-200 aircraft, primarily AMC and Commercial Charter. The elimination of excess
capacity through sale or dry lease of Boeing 747-200 aircraft in the second half of 2006 resulted
in additional fixed costs allocated to the 747-400 fleet in the second quarter of 2007 versus 2006.
The prepayment of $140.8 million in floating rate debt early in the third quarter of 2006 reduced
ownership costs of Boeing 747-200 aircraft which are principally deployed in the AMC and Commercial
Charter segments. The following table compares our FAC for segments (see Note 4 to our Financial
Statements for the reconciliation to operating income (loss) and our reasons for using FAC) for the
three months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
FAC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
9,899
|
|
|
$
|
12,567
|
|
|
$
|
(2,668
|
)
|
|
|
(21.2
|
%)
|
Scheduled Service
|
|
|
(7,313
|
)
|
|
|
(2,539
|
)
|
|
|
(4,774
|
)
|
|
|
(188.0
|
%)
|
AMC Charter
|
|
|
16,462
|
|
|
|
(406
|
)
|
|
|
16,868
|
|
|
|
4,154.7
|
%
|
Commercial Charter
|
|
|
1,722
|
|
|
|
(1,503
|
)
|
|
|
3,225
|
|
|
|
214.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FAC
|
|
$
|
20,770
|
|
|
$
|
8,119
|
|
|
$
|
12,651
|
|
|
|
155.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI Segment
At
June 30, 2007, one Boeing 747-200 aircraft and ten Boeing 747-400 aircraft
were dedicated to ACMI compared with two Boeing 747-200 aircraft and ten Boeing 747-400 aircraft
at June 30, 2006. One Boeing 747-200 aircraft was transferred to the AMC and
Commercial Charter business segment during the second quarter of 2007. The elimination of excess
Boeing 747-200 aircraft in the second half of 2006 resulted in additional fixed costs allocated to
Boeing 747-400 operations in the second quarter of 2007, which reduced FAC. In addition the ACMI
segment FAC decreased as a result of lower Block Hours during the second quarter of 2007, slightly
offset by an increase in average rate per Block Hour reflecting a higher proportion of higher
margin Boeing 747-400 Block Hours.
Scheduled Service Segment
Scheduled Service segment FAC decreased as a result of reduced revenue performance and an
increase in the allocation of fixed costs to Boeing 747-400 aircraft. The decrease in revenues is
primarily the result of a reduction in Yield during 2007 driven by an overall increase in capacity
in key Asian markets. In addition, increased volumes in the South American markets generated lower
average Yields commensurate with the substantially shorter length of haul.
AMC Charter Segment
FAC relating to the AMC Charter segment increased significantly as a result of increased Block
Hours, an increase in the rate per Block Hour and an improvement in unit operating cost driven in
part by the elimination of excess Boeing 747-200 capacity in the second half of 2006. AMC Charter
revenue benefited from increased demand for expansion business from the AMC and our ability to
flexibly deploy additional assets to respond to the opportunity. The combination of increased
demand from the AMC combined with a lower unit operating cost on the aircraft allocated to AMC
Charter has resulted in a strong FAC for the second quarter of 2007 compared with the same period
in 2006.
Commercial Charter Segment
FAC for the Commercial Charter segment increased primarily as a result of the reduction in our
unit operating cost driven in part by the elimination of excess Boeing 747-200 capacity in the
second half of 2006, an increase in revenue and an increase in Block Hours. The Commercial Charter
segment has increased revenue as a result of an increased sales focus on opportunities in the oil
and gas, heavy industry and high-tech segments, among others.
18
Six Months Ended June 30, 2007 and 2006
Operating Statistics
The table below sets forth selected operating data for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Percent Change
|
Block Hours
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
|
29,440
|
|
|
|
34,066
|
|
|
|
(4,626
|
)
|
|
|
(13.6
|
%)
|
Scheduled Service
|
|
|
19,165
|
|
|
|
18,651
|
|
|
|
514
|
|
|
|
2.8
|
%
|
AMC Charter
|
|
|
12,310
|
|
|
|
9,076
|
|
|
|
3,234
|
|
|
|
35.6
|
%
|
Commercial Charter
|
|
|
3,037
|
|
|
|
3,264
|
|
|
|
(227
|
)
|
|
|
(7.0
|
%)
|
All Other
|
|
|
354
|
|
|
|
377
|
|
|
|
(23
|
)
|
|
|
(6.1
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Block Hours
|
|
|
64,306
|
|
|
|
65,434
|
|
|
|
(1,128
|
)
|
|
|
(1.7
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Per Block Hour
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
5,963
|
|
|
$
|
5,887
|
|
|
$
|
76
|
|
|
|
1.3
|
%
|
AMC Charter
|
|
$
|
16,896
|
|
|
$
|
15,985
|
|
|
$
|
911
|
|
|
|
5.7
|
%
|
Commercial Charter
|
|
$
|
14,596
|
|
|
$
|
14,793
|
|
|
$
|
(197
|
)
|
|
|
(1.3
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Service Traffic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RTMs (000s)
|
|
|
711,359
|
|
|
|
694,017
|
|
|
|
17,342
|
|
|
|
2.5
|
%
|
ATMs (000s)
|
|
|
1,116,934
|
|
|
|
1,098,496
|
|
|
|
18,438
|
|
|
|
1.7
|
%
|
Load Factor
|
|
|
63.7
|
%
|
|
|
63.2
|
%
|
|
5 bps
|
|
|
0.8
|
%
|
RATM
|
|
$
|
0.242
|
|
|
$
|
0.256
|
|
|
$
|
(0.014
|
)
|
|
|
(5.5
|
%)
|
Yield
|
|
$
|
0.380
|
|
|
$
|
0.405
|
|
|
$
|
(0.025
|
)
|
|
|
(6.2
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fuel
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scheduled Service and Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.03
|
|
|
$
|
2.06
|
|
|
$
|
(0.03
|
)
|
|
|
(1.5
|
%)
|
Fuel gallons consumed (000s)
|
|
|
71,695
|
|
|
|
73,473
|
|
|
|
(1,778
|
)
|
|
|
(2.4
|
%)
|
AMC
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average fuel cost per gallon
|
|
$
|
2.25
|
|
|
$
|
2.20
|
|
|
$
|
0.05
|
|
|
|
2.3
|
%
|
Fuel gallons consumed (000s)
|
|
|
39,588
|
|
|
|
29,750
|
|
|
|
9,838
|
|
|
|
33.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fleet
(average during the period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Aircraft count*
|
|
|
32.3
|
|
|
|
38.5
|
|
|
|
(6.2
|
)
|
|
|
(16.1
|
%)
|
Dry Leased **
|
|
|
5.0
|
|
|
|
3.0
|
|
|
|
2.0
|
|
|
|
66.7
|
%
|
*
|
|
Includes tail number N921FT which did no commercial flying in the first half of 2006 and
was sold in April of 2006. The operating aircraft count also includes the three aircraft held for
sale and the two aircraft available for lease at June 30, 2006, all of which were subsequently sold
or dry leased.
|
|
**
|
|
Third party dry leased and out of service aircraft are not included in the operating
fleet aircraft count average.
|
19
Operating Revenues
The following table compares our operating revenues for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
175,539
|
|
|
$
|
200,552
|
|
|
$
|
(25,013
|
)
|
|
|
(12.5
|
%)
|
Scheduled Service
|
|
|
270,118
|
|
|
|
281,259
|
|
|
|
(11,141
|
)
|
|
|
(4.0
|
%)
|
AMC Charter
|
|
|
207,994
|
|
|
|
145,077
|
|
|
|
62,917
|
|
|
|
43.4
|
%
|
Commercial Charter
|
|
|
44,329
|
|
|
|
48,283
|
|
|
|
(3,954
|
)
|
|
|
(8.2
|
%)
|
Other revenue
|
|
|
26,013
|
|
|
|
23,399
|
|
|
|
2,614
|
|
|
|
11.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating revenues
|
|
$
|
723,993
|
|
|
$
|
698,570
|
|
|
$
|
25,423
|
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI revenue
decreased as a result of our sale and dry lease of aircraft previously operated
in the Boeing 747-200 ACMI market, however the Revenue per Block Hour increased slightly. ACMI
Block Hours were 29,440 for the first half of 2007, compared with 34,066 for the first half of
2006, a decrease of 4,626 Block Hours, or 13.6%. Revenue per Block Hour was $5,963 for the first
half of 2007, compared with $5,887 for the first half of 2006, an increase of $76 per Block Hour,
or 1.3%. The reduction in Block Hours overall is primarily the result of our sale or dry lease of
aircraft previously operated in the Boeing 747-200 ACMI market. The increase in rate per Block Hour
reflects a slightly higher proportional Boeing 747-400 usage in this segment as demand for our
Boeing 747-400 capacity remains strong and all capacity is contracted throughout 2007
.
We also
deployed one Boeing 747-200 from the ACMI segment into our Charter operations in order to
capitalize on increasing customer demand. Total aircraft supporting ACMI, excluding dry leased
aircraft as of June 30, 2007, were one Boeing 747-200 aircraft and 10 Boeing 747-400 aircraft,
compared with two Boeing 747-200 aircraft and 10 Boeing 747-400 aircraft supporting ACMI at June
30, 2006.
Scheduled Service revenue
reflected a challenging Yield environment on certain routes in the
trans-Pacific market and a proactive redeployment of capacity to the South American and
Trans-Atlantic markets. The decrease in Yield during 2007 is driven by increased capacity in key
Asian markets. In addition, increased capacity in the South American markets generated lower
average Yields commensurate with the substantially shorter length of haul. We also reduced
capacity on other routes to help mitigate the reduction in Yield. RTMs in the Scheduled Service
segment were 711.4 million on a total capacity of 1,116.9 million ATMs in the first half of 2007,
compared with RTMs of 694.0 million on a total capacity of 1,098.5 million ATMs in the first half
of 2006. Block Hours were 19,165 in the first half of 2007, compared with 18,651 for the first
half of 2006, an increase of 514, or 2.8%. Load Factor was 63.7% with a Yield of $0.380 in the
first half of 2007, compared with a Load Factor of 63.2% and a Yield of $0.405 in the first half of
2006. RATM in our Scheduled Service segment was $0.242 in the first half of 2007, compared with
$0.256 in the first half of 2006, representing a decrease of 5.5%.
AMC Charter revenue
benefited from increased demand for expansion business from the AMC and
our ability to flexibly deploy additional assets to respond to the opportunity. AMC Charter Block
Hours were 12,310 for the first half of 2007, compared with 9,076 for the first half of 2006, an
increase of 3,234 Block Hours, or 35.6%. Revenue per Block Hour was $16,896 for the first half of
2007, compared with $15,985 for the first half of 2006, an increase of $911 per Block Hour, or
5.7%. The increase in rate was primarily due to an increase in the AMCs charter rate per ton mile
flown, which reflects both fuel and cost increases. As we reduced capacity in the ACMI and
Commercial Charter business during the first quarter of 2007 and shifted capacity to AMC Charter to
maximize utilization.
Commercial Charter revenue
decreased primarily as a result of a decrease in Revenue per Block
Hour and lower Block Hours. Commercial Charter Block Hours were 3,037 for the first half of 2007,
compared with 3,264 for the first half of 2006, a decrease of 227, or 7.0%. Revenue per Block Hour
was $14,596 for the first half of 2007, compared with $14,793 for the first half of 2006, a
decrease of $197 per Block Hour, or 1.3%. The decrease in Block Hours for Commercial Charter in the
first half of 2007 compared with 2006 is the result of the transfer of capacity to AMC to
accommodate increased demand for military charters.
Total Operating Revenue
increased 3.6% in the first half of 2007 compared with the first
half of 2006, despite a 6.2, or 16.1%, reduction in our average operating fleet during the 2007
period. The increased revenue was primarily the result of an increase in AMC Block Hours
partially offset by a reduction in ACMI and Commercial Charter Block Hours and weaker Scheduled
Service market conditions in Asia. We were able to increase revenue by active management of
capacity between our service lines.
20
Operating Expenses
The following table compares our operating expenses for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel
|
|
$
|
234,434
|
|
|
$
|
216,487
|
|
|
$
|
17,947
|
|
|
|
8.3
|
%
|
Salaries, wages and benefits
|
|
|
123,188
|
|
|
|
119,170
|
|
|
|
4,018
|
|
|
|
3.4
|
%
|
Maintenance, materials and repairs
|
|
|
83,219
|
|
|
|
83,879
|
|
|
|
(660
|
)
|
|
|
(0.8
|
%)
|
Aircraft rent
|
|
|
77,123
|
|
|
|
75,955
|
|
|
|
1,168
|
|
|
|
1.5
|
%
|
Ground handling and airport fees
|
|
|
35,706
|
|
|
|
34,910
|
|
|
|
796
|
|
|
|
2.3
|
%
|
Landing fees and other rent
|
|
|
36,018
|
|
|
|
33,877
|
|
|
|
2,141
|
|
|
|
6.3
|
%
|
Depreciation and amortization
|
|
|
19,637
|
|
|
|
20,045
|
|
|
|
(408
|
)
|
|
|
(2.0
|
%)
|
Gain on disposal of aircraft
|
|
|
(1,005
|
)
|
|
|
(2,779
|
)
|
|
|
1,774
|
|
|
|
63.8
|
%
|
Travel
|
|
|
24,604
|
|
|
|
25,838
|
|
|
|
(1,234
|
)
|
|
|
(4.8
|
%)
|
Post-emergence costs and related
professional fees
|
|
|
62
|
|
|
|
277
|
|
|
|
(215
|
)
|
|
|
(77.6
|
%)
|
Other
|
|
|
42,281
|
|
|
|
53,236
|
|
|
|
(10,955
|
)
|
|
|
(20.6
|
%)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
$
|
675,267
|
|
|
$
|
660,895
|
|
|
$
|
14,372
|
|
|
|
2.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft fuel expense
increased primarily as a result of an increase in AMC fuel consumption
driven by higher AMC Block Hours and higher fuel prices. The average fuel price per gallon for the
Scheduled Service and Commercial Charter businesses was approximately 203 cents for the first half
of 2007, compared with approximately 206 cents for the first half of 2006, a decrease of 3 cents,
or 1.3% and a 1.8 million gallon, or 2.4%, decrease in fuel consumption to 71.7 million gallons for
the first half of 2007 from 73.5 million gallons during the first half of 2006. We have been able
to mitigate some of the fuel price increase by hedging approximately 16.4% of our fuel utilization
for the Scheduled Service businesses through fuel hedging implemented in the beginning of 2007. Our
hedging activities represent a savings of $1.1 million for the first half of 2007 compared with the
price paid for non-hedged fuel. The improvement in fuel burn per Block Hour is the result of our
Fuelwise conservation program implemented in July 2006. The average fuel price per gallon for the
AMC business was approximately 225 cents for the first half of 2007, compared with approximately
220 cents for the first half of 2006, an increase of 5 cents, or 2.3%. The AMC reimburse us for
fuel price increases to the extent that fuel prices exceed the agreed upon price with the AMC. AMC
fuel consumption increased by 9.8 million gallons or 33.1% for the first half of 2007 to 39.6
million gallons from 29.8 million gallons during the first half of 2006. The increase in our AMC
fuel consumption corresponds to the increase of 3,234 Block Hours. We do not incur fuel expense in
our ACMI service as the cost of fuel is borne by the customer.
Salaries, wages and benefits
increased primarily as a result of an increase in profit sharing
and incentive compensation accruals related to increased profitability for the first half of 2007
compared to the first half of 2006.
Maintenance materials and repair
decreased primarily as a result of recoveries of insurance
claims from previous engine events partially offset by increased maintenance events. There were
eight C Checks on Boeing 747-200 aircraft in the first half of 2007, as compared with three C
Checks on Boeing 747-200 aircraft during the first half of 2006. There were no D Checks on Boeing
747-200 aircraft in the first half of 2007 compared with three D Checks on Boeing 747-200 aircraft.
There were 26 engine overhauls in the first half of 2007 compared with 23 during the first half of
2006.
Aircraft rent
increased slightly due to the increase in re-accommodated air transportation on
other freight carriers.
Ground handling and airport fees
increased primarily due to an increase in Scheduled Service
Block Hours and ground handling volume and trucking for the Scheduled Service business, the primary
user of such services.
Landing fees and other rent
increased primarily due to an increase in AMC and Scheduled
Service Block Hours offset by a decrease in Commercial Charter activity.
Depreciation and amortization
decreased primarily due to a $3.1 million decrease in
depreciation on aircraft and engines as a result of the sale of aircraft, disposals and ground
equipment offset by a $2.7 million increase of spare rotable parts.
21
Gain on disposal of aircraft
was the result of the sale of aircraft tail number N536MC in 2007
compared with the gain on the sale of aircraft tail number N921FT in 2006.
Travel
decreased primarily due to improved efficiency in crew scheduling and rate reductions.
Post-emergence costs and related professional fees
decreased due the winding down of the
claims reconciliation process related to the bankruptcy proceedings.
Other operating expenses
decreased due to a decrease in professional fees of $3.5 million
associated with the redesign of internal controls that occurred in 2006, a $7.2 million decrease
in legal fees and professional fees, a $1.4 million reduction in insurance and a $3.0 million
decrease in other miscellaneous expenses offset by an increase of $2.5 million in AMC
commissions and a $0.7 million in bad debt expense. In addition 2006 was impacted by a $1.1
million benefit caused by a reduction in accrued interest and penalties from the settlement with
the IRS in the second quarter of 2006.
Total operating expense
increased 2.2% in the first half of 2007 compared with the first
half of 2006, primarily as a result of increased aircraft fuel expense and salaries wages and
benefits partially offset by reductions in other operating expenses.
Non-operating Expenses
The following table compares our non-operating expenses for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
|
|
2007
|
|
2006
|
|
(Decrease)
|
|
Percent Change
|
Non-operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
(7,259
|
)
|
|
$
|
(7,242
|
)
|
|
$
|
17
|
|
|
|
0.2
|
%
|
Interest expense
|
|
|
22,522
|
|
|
|
34,488
|
|
|
|
(11,966
|
)
|
|
|
(34.7
|
%)
|
Capitalized interest
|
|
|
(1,963
|
)
|
|
|
(278
|
)
|
|
|
1,685
|
|
|
|
606.1
|
%
|
Other (income) expense, net
|
|
|
92
|
|
|
|
(633
|
)
|
|
|
(725
|
)
|
|
|
(114.5
|
%)
|
Interest income
increased slightly due to an increase in our average available cash balances
during the period, augmented by a general increase in interest rates.
Interest expense
decreased primarily as a result of repayment of debt, including the
prepayment of $140.8 million of floating rate debt on July 31, 2006 (see Note 6 to our 2006 10-K
for further discussion).
Capitalized interest
increased primarily due to the pre-delivery deposit on the Boeing
747-8F aircraft order we placed in September 2006 (See Note 5 to our Financial Statements for
further discussion).
Other (income) expense, net
decreased primarily due to unrealized gains on the revaluation of
foreign denominated receivables into U.S. dollars. The U.S. dollar had strengthened against most
foreign currencies during the period compared with the prior year when the U.S. dollar had weakened
against most foreign currencies.
Income taxes.
The effective tax rate for the first half of 2007 results in a benefit of 71.4%
compared with an effective tax rate of 38.3% for the first half of 2006. Our rates for the first
half of 2007 reflect the recognition of a deferred tax asset of $37.0 million offset by a tax
reserve of $9.3 million related to the transaction with DHL (see Note 7). Our rates for the first
half of 2006 differ from the statutory rate primarily due to the non-deductibility of certain items
for tax purposes and the relationship of these items to our projected operating results for the
year.
22
Segments
Management allocates the cost of operating aircraft among the various segments on an average
cost per aircraft type. ACMI is only allocated costs of operating aircraft based on the number of
aircraft dedicated to ACMI customers. Under-utilized aircraft costs are allocated to segments
based on Block Hours flown for Scheduled Service, AMC and Commercial Charter as these aircraft are
used interchangeably among these segments. Current and prior period segment FAC comparisons were
significantly affected by the existence of excess Boeing 747-200 capacity in the first half of
2006. This excess capacity in 2006 resulted in additional fixed costs allocated to the segments
that utilize Boeing 747-200 aircraft, primarily AMC and Commercial Charter. The elimination of excess
capacity through sale or dry lease of Boeing 747-200 aircraft in the second half of 2006 resulted
in additional fixed costs allocated to the 747-400 fleet in the first half of 2007 versus 2006.
The prepayment of $140.8 million in floating rate debt early in the third quarter of 2006 reduced
ownership costs of the Boeing 747-200 aircraft which are principally deployed in the AMC and
Commercial Charter segments. The following table compares our FAC for segments (see Note 4 to our
Financial Statements for the reconciliation to operating income (loss) and our reasons for using
FAC) for the six months ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase /
|
|
|
Percent
|
|
|
|
2007
|
|
|
2006
|
|
|
(Decrease)
|
|
|
Change
|
|
FAC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI
|
|
$
|
10,370
|
|
|
$
|
16,047
|
|
|
$
|
(5,677
|
)
|
|
|
(35.4
|
%)
|
Scheduled Service
|
|
|
(13,798
|
)
|
|
|
(10,551
|
)
|
|
|
(3,247
|
)
|
|
|
(30.8
|
%)
|
AMC Charter
|
|
|
28,262
|
|
|
|
(2,052
|
)
|
|
|
30,314
|
|
|
|
1,477.3
|
%
|
Commercial Charter
|
|
|
586
|
|
|
|
(4,596
|
)
|
|
|
5,182
|
|
|
|
112.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FAC
|
|
$
|
25,420
|
|
|
$
|
(1,152
|
)
|
|
$
|
26,572
|
|
|
|
2,306.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACMI Segment
At
June 30, 2007, one Boeing 747-200 aircraft and ten Boeing 747-400 aircraft were
dedicated to ACMI compared with two Boeing 747-200 aircraft and ten
Boeing 747-400 aircraft at June 30, 2006. The elimination of excess Boeing 747-200 aircraft in the second half
of 2006 resulted in additional fixed costs allocated to Boeing 747-400 operations in the first half
of 2007, which reduced FAC. In addition the ACMI segment FAC decreased as a result of lower Block
Hours during the second quarter of 2007, slightly offset by an increase in average rate per Block
Hour reflecting a higher proportion of higher margin Boeing 747-400 Block Hours.
Scheduled Service Segment
Scheduled Service segment FAC decreased as a result of reduced revenue performance and an
increase in the allocation of fixed costs to Boeing 747-400 aircraft. The decrease in revenues is
primarily the result of a reduction in Yield during 2007 driven by an overall increase in capacity
in key Asian markets. In addition, increased volumes in the South American markets generated lower
average Yields commensurate with the substantially shorter length of haul.
AMC Charter Segment
FAC relating to the AMC Charter segment increased significantly as a result of increased Block
Hours, an increase in the rate per Block Hour and an improvement in unit operating cost driven in
part by the elimination of excess Boeing 747-200 capacity in the second half of 2006. AMC Charter revenue benefited from
increased demand for expansion business from the AMC and our ability to deploy additional assets to
respond to the opportunity. The combination of increased demand from the AMC combined with a lower
unit operating cost on the aircraft allocated to AMC Charter has resulted in a strong FAC for the
first half of 2007 compared with the same period in 2006.
Commercial Charter Segment
FAC for the Commercial Charter segment increased primarily as a result of the reduction in our
unit operating cost driven in part by the elimination of excess Boeing 747-200 capacity in the
second half of 2006, offset in part by a decrease in revenue and a decrease in Block Hours. The
decrease in Block Hours for Commercial Charter is the result of the transfer of capacity to AMC to
accommodate increased demand for military charters.
Liquidity and Capital Resources
At June 30, 2007, we had cash and cash equivalents of $312.5 million, compared with $231.8
million at December 31, 2006, an increase of $80.7 million, or 34.8%. We consider cash on hand
and cash generated from operations to be sufficient to meet our debt and lease obligations and
to fund expected capital expenditures (including Boeing 747-8F aircraft pre-delivery deposits)
of approximately $54.7 million for the remainder of 2007.
Operating Activities.
Net cash provided by operating activities for the first half of 2007
was $43.9 million, compared with net cash provided by operating activities of $41.9 million for
the first half of 2006. The increase in cash from operating activities is the result of improved
operating results offset by an increase in deferred taxes.
Investing Activities.
Net cash used by investing activities was $24.4 million for the first
half of 2007, which reflects capital expenditures of $30.4 million (including Boeing 747-8F
aircraft pre-delivery deposits of $12.4 million) offset by $6.0 million in proceeds from the
sale of a Boeing 747-200 aircraft. Net cash used by investing activities was $4.8 million for
the first half of 2006 consisting primarily of capital expenditures of $14.1 million offset by
proceeds from sale of aircraft of $8.4 million and a decrease in restricted funds held in trust
of $0.9 million.
Financing Activities.
Net cash provided by financing activities was $61.1 million for the
first half of 2007,
23
which reflects proceeds from the DHL investment of $75.0 million and $4.0
million in proceeds from stock option exercises
and $1.6 million in tax benefits on restricted stock and stock options, offset by $18.8
million of payments on long-term debt and capital lease obligations and a $0.7 million purchase
of treasury stock. Net cash used by financing activities was $31.3 million for the first half
of 2006, which consisted primarily of $35.6 million of payments on long-term debt and capital
lease obligations and a $0.1 million purchase of treasury stock offset by $3.1 million in
proceeds from the exercise of stock options and a $1.3 million tax benefit on restricted stock
and stock options.
Debt Agreements
See Note 6 to the audited consolidated financial statements included in the 2006 10-K for a
description of the Companys material debt obligations and amendments thereto during the
bankruptcy proceedings.
Off-Balance Sheet Arrangements
There were no material changes in our off-balance sheet arrangements during the six months
ended June 30, 2007.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from
the information provided in Part II, Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations, included in our 2006 10-K.
Recent Accounting Pronouncements
See Note 2 to our Financial Statements for a discussion of new accounting pronouncements.
Forward Looking Statements
Our disclosure and analysis in this report, including but not limited to the information
discussed in the Business Strategy section above, contain forward-looking information about our
financial results, estimates and business prospects that involve substantial risks and
uncertainties. From time to time, we also may provide oral or written forward-looking statements in
other materials we release to the public. Forward-looking statements give our current expectations
or forecasts of future events. You can identify these statements by the fact that they do not
relate strictly to historic or current facts. They use words such as anticipate, estimate,
expect, project, intend, plan, believe, will, target and other words and terms of
similar meaning in connection with a discussion of future operating or financial performance. In
particular, these include statements relating to future actions, future performance, sales efforts,
expenses, interest rates, foreign exchange rates, the outcome of contingencies such as legal
proceedings and financial results.
We cannot guarantee that any forward-looking statement will be realized, although we believe
we have been prudent in our plans and assumptions. Achievement of future results is subject to
risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results could vary
materially from past results and those anticipated, estimated or projected. Investors should bear
this in mind as they consider forward-looking statements.
We undertake no obligation to publicly update forward-looking statements, whether as a result
of new information, future events or otherwise. You are advised, however, to consult any further
disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports filed with the SEC.
Our 2006 10-K listed various important factors that could cause actual results to differ materially
from expected and historic results. We note these factors for investors as permitted by the Private
Securities Litigation Reform Act of 1995. You should understand that it is not possible to predict
or identify all such factors. Consequently, you should not consider any such list to be a complete
set of all potential risks or uncertainties.
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in market risks from the information provided in Item 7A
Quantitative and Qualitative Disclosures About Market Risk included in our 2006 10-K, except as
follows:
Aviation fuel
. Our results of operations in our Scheduled Service and Commercial Charter
segments are affected by changes in the price and availability of aviation fuel. Market risk is
estimated at a hypothetical 10% increase or decrease in the average cost per gallon of fuel for
the second quarter of 2007. Based on actual fuel consumption during the second quarter of 2007
for the Scheduled Service and Commercial Charter business segments, such an increase or decrease
would result in a change to aviation fuel expense of approximately $8.2 million for the second
quarter of 2007. Fuel prices for AMC are set each September by the military and are fixed for
the year and adjusted to actual costs incurred. ACMI does not present an aviation fuel market
risk, as the cost of fuel is borne by the customer.
As of June 30, 2007, we have remaining purchase commitments of approximately 11.9 million
gallons of jet fuel in 2007 at an average cost of $2.04 per gallon for a total commitment of
$24.3 million. The contracts are for monthly uplift at various stations through December 2007.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
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) under the
Exchange Act) as of June 30, 2007. Based on that evaluation, our management, including 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 SECs rules
and forms, and is accumulated and communicated to our management, including our CEO and CFO, to
allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting (as defined in Rule
13a-15(f) under the Exchange Act) during the three months ended June 30, 2007 that has materially
affected, or is reasonably likely to materially affect, our internal control over financial
reporting.
25
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the fiscal quarter ended June 30, 2007, the information required in response
to this Item is set forth in Note 5 to our Financial Statements contained in this report, and such
information is hereby incorporated herein by reference. Such description contains all of the
information required with respect hereto.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We made the following repurchases of shares of our common stock during the fiscal quarter
ended June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number (or
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
Approximate Dollar
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
Value) of Shares
|
|
|
Total Number of
|
|
|
|
|
|
Part of Publicly
|
|
that May Yet Be
|
|
|
Shares Purchased
|
|
Average Price Paid
|
|
Announced Plans or
|
|
Purchased Under the
|
Period
|
|
(a)
|
|
per Share
|
|
Programs (b)
|
|
Plans or Programs
|
April 1, 2007
through April 30,
2007
|
|
|
10,349
|
|
|
$
|
53.49
|
|
|
|
|
|
|
|
|
|
May 1, 2007 through
May 31, 2007
|
|
|
1,207
|
|
|
|
58.62
|
|
|
|
|
|
|
|
|
|
June 1, 2007
through June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,556
|
|
|
$
|
54.03
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
This column reflects the repurchase of 11,556 shares of common stock to satisfy
individual tax liabilities of our employees relating to the vesting of time based restricted
shares.
|
|
(b)
|
|
We do not have any share repurchase programs.
|
ITEM 4
.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our annual meeting of stockholders held in New York, New York on May 23, 2007, our
stockholders re-elected our Board of Directors, and the shares present at the meeting were voted
for or withheld from each nominee as follows:
|
|
|
|
|
|
|
|
|
Name
|
|
Number of Shares Voted For
|
|
Number of Shares Withheld
|
Robert F. Agnew
|
|
|
19,118,616
|
|
|
|
170,873
|
|
Timothy J. Bernlohr
|
|
|
18,709,228
|
|
|
|
580,261
|
|
Keith E. Butler
|
|
|
19,193,102
|
|
|
|
96,387
|
|
Eugene I. Davis
|
|
|
18,618,963
|
|
|
|
670,526
|
|
Jeffrey H. Erickson
|
|
|
19,249,214
|
|
|
|
40,275
|
|
William J. Flynn
|
|
|
19,261,253
|
|
|
|
28,236
|
|
James S. Gilmore
|
|
|
16,402,542
|
|
|
|
2,886,947
|
|
Carol B Hallett
|
|
|
19,200,547
|
|
|
|
88,942
|
|
Frederick McCorkle
|
|
|
19,200,547
|
|
|
|
88,942
|
|
At the meeting, our stockholders also approved the Atlas Air Worldwide Holdings, Inc. 2007
Incentive Plan (the 2007 Plan). The shares present at the meeting were voted on the proposal as
follows: 9,728,936 shares voted for
26
approval, 198,218 shares voted against the proposal, with 1,003 shares abstaining. There were
9,361,332 broker non-votes in respect of this proposal.
The following is a summary of the principal features of the 2007 Plan. This summary is subject
to, and qualified in its entirety by, the provisions of the 2007 Plan, which was filed as Exhibit
10 to a Form 8-K filed on May 24, 2007.
The 2007 Plan is administered by the Compensation Committee of the Board. The purpose of the
2007 Plan is to advance the interests of the Company by providing for the grant to eligible
participants of stock-based and other incentive awards. The 2007 Plan is intended to accomplish
these goals by enabling the Committee to grant awards in the form of options, stock appreciation
rights, restricted stock, unrestricted stock, performance awards (in cash or stock), cash awards
and stock units, including restricted stock units or combinations thereof, and may waive terms and
conditions of any award.
The 2007 Plan replaces the 2004 Long Term Incentive Plan (the Prior Plan), and no new awards
will be granted under the Prior Plan. Awards outstanding under the Prior Plan will continue to be
governed by the terms of that plan and agreements under which they were granted. The Plan limits
the terms of awards to ten years and prohibits the granting of awards more than ten years after the
effective date of the Plan. An aggregate of 628,331 shares of common stock are reserved for
issuance to participants under the Plan.
ITEM 6. EXHIBITS
a. Exhibits
See accompanying Exhibit Index included after the signature page of this report for a list
of exhibits filed or furnished with this report.
27
SIGNATURES
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.
|
|
|
|
|
|
Atlas Air Worldwide Holdings, Inc.
|
|
Dated: August 8, 2007
|
/S/ William J. Flynn
|
|
|
William J. Flynn
|
|
|
President and Chief Executive Officer
|
|
|
|
|
|
Dated: August 8, 2007
|
/S/ Michael L. Barna
|
|
|
Michael L. Barna
|
|
|
Senior Vice President and Chief Financial
Officer
|
|
28
EXHIBIT INDEX
|
|
|
Exhibit Number
|
|
Description
|
|
|
|
10.1
|
|
Blocked Space Agreement between Polar Air Cargo Worldwide, Inc. and DHL Network
Operations (USA), Inc. dated June 28, 2007 (portions of this document have been
redacted and filed separately with the Securities and Exchange Commission).
|
|
|
|
10.2
|
|
Amendment No. 1 to Blocked Space Agreement dated as of July 30, 2007, between
Polar Air Cargo Worldwide, Inc. and DHL Network Operations (USA), Inc.
|
|
|
|
10.3
|
|
Flight Services Agreement between Atlas Air, Inc. and Polar Air Cargo Worldwide,
Inc. dated June 28, 2007 (portions of this document have been redacted and filed
separately with the Securities and Exchange Commission).
|
|
|
|
10.4
|
|
Indemnity Agreement, dated as of June 28, 2007, among Atlas Air Worldwide
Holdings, Inc., Polar Air Cargo Worldwide, Inc. and DAL Network Operations (USA), Inc.
|
|
|
|
10.5
|
|
Contribution Agreement, dated as of June 28, 2007, between Atlas Air Worldwide
Holdings, Inc. and Polar Air Cargo Worldwide, Inc. (portions of this document have
been redacted and filed separately with the Securities and Exchange Commission).
|
|
|
|
10.6
|
|
Description of Certain Compensatory Arrangements for Non-Employee Directors of
the Company.
|
|
|
|
31.1
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Executive Officer, furnished herewith.
|
|
|
|
31.2
|
|
Rule 13a-14(a)/15d-14(a) Certification of the Chief Financial Officer, furnished herewith.
|
|
|
|
32.1
|
|
Section 1350 Certifications, furnished herewith.
|
29
Exhibit 10.1
EXECUTION COPY
BLOCKED SPACE AGREEMENT
Between
Polar Air Cargo Worldwide, Inc.
and
DHL Network Operations (USA), Inc.
DATED JUNE 28, 2007
[*] = Portions of this exhibit have been omitted pursuant to a Confidential Treatment Request.
An unredacted version of this exhibit has been filed separately with the
Commission.
TABLE OF CONTENTS
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Page
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1. Definitions and Rules of Construction
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1
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1.1 Definitions
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1
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1.2 Rules of Construction
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1
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2. Service Parameters and Blocked Space Commitments
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2
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2.1 Core Network
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2
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2.2 Schedule, Core Service
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2
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2.3 Blocked Space
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2
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2.4 Blocked Space Rates and Blocked Space Fee
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3
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2.5 Air Transportation Services and Alternative Air Transportation Services
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3
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2.6 Priority
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3
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2.7 Flexibility
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4
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2.8 Performance Standards
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5
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2.9 Operations
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9
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2.10 Compliance
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10
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2.11 Independent Services
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11
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2.12 Cooperation with other DHL Entities
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11
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2.13 Exercise of the Rights of Company
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11
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3. Remuneration
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12
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3.1 Blocked Space Fee
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12
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3.2 Variable Fee
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12
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3.3 The Over Pivot Charge
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12
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3.4 Additional DHL Material Charges
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12
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3.5 Other Fees, Charges and Offsets
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12
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Page
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4. Payment
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12
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5. Term and Termination
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13
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5.1 Term
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13
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5.2 Termination for Event of Default, Liquidated Damages
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14
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5.3 Termination for the Occurrence of Change of Control
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5.4 Remedies
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18
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6. Obligations of DHL
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21
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7. Management and Management Escalation Procedure
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23
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7.1 Responsible Managers
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23
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7.2 Operations Council
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23
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7.3 Senior Managers
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24
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7.4 Arbitration
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24
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8. General Indemnification
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25
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8.1 Indemnities by Company
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25
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8.2 Indemnities by DHL
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26
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8.3 Limitations on Indemnification
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26
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8.4 Survival of Indemnities
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26
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8.5 Notification of Claim
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26
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10. Representations and Warranties
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28
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11. Assignment
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30
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12. Notices
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30
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13. Force Majeure
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31
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14. Governing Law
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31
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15. Miscellaneous
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31
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ii
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Page
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15.1 Relationship Between the Parties
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31
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15.2 Entire Agreement; Amendments; Waivers
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32
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15.3 Construction; Severability; Third Party Beneficiary
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32
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15.4 Execution in Counterparts
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33
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15.5 Expenses
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33
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15.6 Further Assurances
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33
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15.7 Taxes
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33
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15.8 Confidentiality and Publicity
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33
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15.9 Waiver; Drafting and Review; Headings; Authority
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34
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ATTACHMENTS
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iii
BLOCKED SPACE AGREEMENT
This Blocked Space Agreement (the Agreement) dated as of June 28, 2007, is between Polar Air
Cargo Worldwide, Inc., a Delaware corporation (Company) and DHL Network Operations (USA), Inc.,
an Ohio corporation (DHL) (each a Party and together, the Parties).
WHEREAS, Company is a U.S.-certificated airline operating scheduled air cargo transportation
services, including services between points of origin and points of destination of interest to DHL
in the U.S. and Asia; and
WHEREAS, DHL is a licensed freight forwarder and express delivery services provider and
desires to obtain space for its shipments on services operated by Company, in particular on those
Company services between points of origin and points of destination of interest to DHL in the U.S.
and Asia;
WHEREAS, Company is willing to supply air cargo space to DHL on Companys U.S.-Asia and other
scheduled services in accordance with the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the promises, mutual covenants and agreements set forth
herein, and other good and valuable consideration, the legal sufficiency of which is hereby
acknowledged, the Parties hereby agree as follows:
1.
Definitions and Rules of Construction
1.1 Definitions
As used in this Agreement, the terms set forth in Attachment 1.1 shall have the meanings
ascribed to them therein. In addition to the terms defined in Attachment 1.1, certain other terms
are defined elsewhere in this Agreement and, whenever such terms are used in this Agreement, they
have their respective defined meanings.
Technical and trade terms not otherwise defined herein shall have the meanings assigned to
them as generally accepted in the United States air cargo industry. All monetary amounts contained
in this Agreement refer to United States dollars.
1.2 Rules of Construction
The following rules of construction apply to this Agreement:
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(a)
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the singular includes the plural and the plural includes the singular;
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(b)
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or is not exclusive and include and including are not limiting;
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(c)
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hereby, herein, hereof, hereunder, the Agreement, this Agreement,
or any like words refer to this Agreement;
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(d)
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a reference to Applicable Law includes any amendment or modification to such
Applicable Law after the date hereof, and any rules or regulations issued thereunder or
any Applicable Law enacted in substitution or replacement therefore;
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(e)
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a reference to a Person includes its permitted successors and assigns;
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(f)
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a reference to a Section, Exhibit, Attachment, Appendix or Schedule without
further reference is to the relevant Section, Exhibit, Attachment, Appendix or Schedule
of this Agreement;
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(g)
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any right may be exercised at any time and from time to time unless specified
otherwise herein;
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(h)
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all obligations are continuing obligations unless specified otherwise herein;
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(i)
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all Attachments to this Agreement shall have the same force and effect as if
set out in full herein;
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(j)
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the captions, headings, and arrangements of the Sections, and portions thereof
are for convenience only and shall not affect, limit or amplify the provisions of this
Agreement; and
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(k)
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unless the context dictates otherwise, throughout this Agreement references to
DHL Material shall include Additional DHL Material.
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2.
Service Parameters and Blocked Space Commitments
As of the BSA Commencement Date, Company shall operate, or arrange to operate, a series of
scheduled air cargo flights between and among the points specified in
Attachment 2.1 (the Core
Network).
2.2
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Schedule, Core Service
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Company agrees to operate flights within the Core Network over routings on specified days of
the week (the Flights) in accordance with the timetable set forth in Attachment 2.1 (the
Schedule). The Schedule shall be adjusted periodically by mutual agreement in order to take into
account seasonal weather and wind variability. Each of the Schedules origin-destination services
on which capacity is to be blocked pursuant to Section 2.3 below shall be deemed a core service
(Core Service).
2.3 Blocked Space
DHL shall reserve and Company shall allocate to DHL, air cargo capacity on each of the Core
Services comprising the Core Network by day of week, ULD type and ULD position in accordance with
Attachment 2.3 (the DHL Blocked Space).
2
2.4
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Blocked Space Rates and Blocked Space Fee
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The rates to be paid by DHL for the DHL Blocked Space (the Blocked Space Rates) shall be
agreed upon not less than thirty (30) days prior to the BSA Commencement Date and set forth in
Attachment 2.4(a). The Blocked Space Rates shall be adjusted periodically as agreed by the Parties
after taking into consideration inflation and other fees, charges or levies not in force or
anticipated by the Parties as of the date hereof; [*].
The Blocked Space Fee, as provided for in Section 3.1, shall be calculated by utilizing the
applicable Blocked Space Rate in the formula set forth in Section 3 of this Agreement. The Blocked
Space Fee also shall include any surcharges (including security surcharges and fuel surcharges,
calculated as set forth in Attachment 2.4(b)) and other fees applicable at the time.
2.5
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Air Transportation Services and Alternative Air Transportation Services
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Subject to Applicable Law and the terms of this Agreement, until such time as DHL relinquishes
DHL Blocked Space pursuant to Section 2.7.1 of this Agreement, Company shall reserve the DHL
Blocked Space for DHL Material exclusively. So long as tendered DHL Material falls within the
capacity parameters of the DHL Blocked Space, Company shall transport all such DHL Material on the
intended Core Services of the Core Network (collectively, the Air Transportation Services).
Without limiting any of DHLs rights herein, in the event that any DHL Material is tendered for
transportation and is not transported by Company on its originally intended Flight, Company shall
transport, or arrange for the transport of, such DHL Material to its original intended destination
within twenty-four (24) hours of the originally scheduled arrival time without additional charge to
DHL (the Alternative Air Transportation Services). It is understood by the Parties that, at its
sole discretion, DHL may recover any DHL Material (including Additional DHL Material) tendered for
transportation by the Company and arrange for the transport of such DHL Material. To the extent
that DHL recovers any such DHL Material (including Additional DHL Material) and the Flight on which
such material was intended to be transported nevertheless operates as scheduled, DHL shall pay any
Blocked Space Fees for such DHL Material as if it had in fact been transported.
As
described more fully in Attachment 2.9.2 of this Agreement, Company shall have developed
and shall maintain a contingency plan (Contingency Plan), approved by DHL, for each point of
origin and point of destination comprising the Core Network, one purpose of which is to provide for
the availability of Alternative Air Transportation Services.
DHL Material tendered to Company for transportation on the Core Services comprising the Core
Network and within the limits of the DHL Blocked Space shall have the highest priority of all
material tendered to Company for transportation on such Core Services, and shall not be displaced
by any other material tendered for transportation by other Company customers under any
circumstances without the written consent of DHL.
All DHL Material shall have the same level of priority as against other DHL Material unless
Company is otherwise instructed in writing by DHL.
3
2.7 Flexibility
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2.7.1
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DHL shall have the right to adjust the DHL Blocked Space as provided
below and without financial charge or penalty,
provided
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however
,
that the DHL Blocked Space shall not fall below the Annual Minimum Volume Guarantee
as set forth in Section 2.7.4 of this Agreement.
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2.7.1.1
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Seasonal Adjustments
. DHL shall have the right to adjust the DHL
Blocked Space on a seasonal basis, as defined by the International Air
Transport Association (IATA) summer and winter season periods, [*] before
the IATA seasonal schedule change,
provided
,
however
, that
such adjustment shall not exceed [*] of the then current DHL Blocked Space for
a particular Core Service.
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2.7.1.2
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Adjustments within an IATA Season
. DHL shall have the right to
make the following adjustments to the DHL Blocked Space within an IATA season:
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(a)
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Monthly Adjustments
. DHL shall
have the right to adjust the DHL Blocked Space upwards or downwards
by up to [*] of the then current DHL Blocked Space for a particular
Core Service on or before the [*] day of the preceding month.
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(b)
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Daily Adjustments Not Less Than [*]
Before the Scheduled Time of Departure
. DHL shall have the
right to adjust upwards or downwards the DHL Blocked Space by [*] on
a daily basis not less than [*] before the intended departure.
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(c)
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Daily Adjustments Between [*] and
[*] Before the Scheduled Time of Departure
. DHL shall have the
right to adjust upwards or downwards the DHL Blocked Space by up to
[*] on a daily basis between [*] and [*] before the intended
departure.
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2.7.1.3
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In the event of an adjustment to the DHL Blocked Space as described above,
Company shall confirm the adjustment of the DHL Blocked Space and shall take
reasonably necessary actions to ensure that, in the case of a DHL Blocked
Space increase, other Company customers are vacated from that space or
accommodated within other non-DHL Blocked Space, or in the case of a DHL
Blocked Space decrease, Company will use its commercially reasonable efforts
to attract customers to fill the vacated DHL Blocked Space.
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2.7.1.4
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Holiday Period Reduction
. Twice per year, not less than [*]
preceding the IATA seasonal schedule change, DHL shall notify Company in
writing of all holiday-related reductions and cancellations for the upcoming
IATA season. DHL may request up to [*] of its then current DHL Blocked Space
for holiday-related
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reductions or cancellations per IATA season and per Core Service without
penalty.
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2.7.2
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DHL shall have the right, subject to capacity availability, to tender
DHL Material for transportation on the Core Services in excess of the DHL Blocked
Space (Additional DHL Material). To the extent possible and at the discretion of
Company, Company shall provide Air Transportation Services, or Alternative
Transportation Services, for such Additional DHL Material. As set forth more fully
in Section 3 of this Agreement, DHL shall compensate Company for the transport of
Additional DHL Material at the Blocked Space Rates.
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2.7.3
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DHL may, from time to time, propose to Company additions,
modifications and subtractions of Core Services from the Core Network within the
full scope of the Companys regulatory and operating capabilities. In such event,
the Parties shall negotiate such changes, including additions or changes to the
Blocked Space Rates in connection therewith, in good faith, to reach agreement. To
the extent that the Parties agree to modifications, additions or subtractions to
the Core Services, the Annual Minimum Volume Guarantee shall be adjusted
accordingly.
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2.7.4
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Annual Minimum Volume Guarantee
. Notwithstanding any other
provision in this Agreement, the DHL Blocked Space shall not be reduced by more
than [*] of the DHL Blocked Space on a year-to-year basis on any Core Service (the
Annual Minimum Volume Guarantee).
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If the DHL Blocked Space falls below the Annual Minimum Volume Guarantee for any
Core Service during any Annual Reconciliation period, DHL shall nevertheless pay
for the DHL Blocked Space up to the level of the Annual Minimum Volume Guarantee at
the Blocked Space Rates (including applicable surcharges and fees at the time) set
forth herein as if it had utilized such DHL Blocked Space. Any amounts owed by DHL
to Company pursuant to this Section 2.7.4 shall be calculated and reconciled as
part of the Annual Reconciliation set forth in Section 4.5 of this Agreement.
2.8 Performance Standards
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2.8.1
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Company hereby acknowledges that the on-time performance of the Core
Services comprising the Core Network is critical to DHLs business as a freight
forwarder and as an express delivery services provider. Accordingly, Company shall
use its commercial best efforts to operate the Core Services according to the
strict timetables established in the Schedule and the performance standards set
forth below.
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2.8.2
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The actual time of departure (ATD) versus the scheduled time of
departure (STD) of each Core Service shall be recorded and measured against the
departure criteria as set forth below in Sections 2.8.3 and 2.8.4. The actual
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time of arrival (ATA) versus the scheduled time of arrival (STA) of each
Core Service shall be recorded and measured against the arrival criteria as set
forth below in Section 2.8.5. The period of measurement shall be each
consecutive four (4) week period beginning as of the BSA Commencement Date
(each a Measurement Period). Companys performance against the criteria set
forth in Sections 2.8.3, 2.8.4 and 2.8.5 shall be reported in a standard
reporting format the form of which will be agreed by the Parties and
similar to Attachment 2.8.2 (the Performance Report).
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2.8.3
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Departure Criteria for ACMI Services
. The Departure Criteria
for ACMI Services are the following standards against which Flight delays within
the control of Company (or its subcontractor) are measured. For each Core Service,
the ATD shall be within [*] of the STD in order to be reported as on-time. The
Departure Criteria for ACMI Services shall require that: (1) as of the BSA
Commencement Date, [*] of all Core Services in each
Measurement Period be reported as on-time; (2) as of the date six months
following the BSA Commencement Date, [*] of all Core Services in each Measurement
Period be reported as on-time; and (3) as of the date one year following the BSA
Commencement Date, [*] of all Core Services in each Measurement Period be reported
as on-time.
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All Flight delays within the control of Company (or its subcontractor) shall be
taken into account in measuring Companys performance against the Departure
Criteria for ACMI Services. For purposes of this calculation, Flights that have
been delayed because of factors not within the Control of Company (or its
subcontractor) shall be considered to be on-time. Flight delays deemed to be
within the control of Company (or its subcontractor) are set forth in Attachment
2.8.3.
The above target percentages for Departure Criteria for ACMI Services are to be
confirmed by Company for the initial Schedule and each Schedule change thereafter.
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2.8.4
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Departure Criteria for Network Services
. The Departure
Criteria for Network Services are the following standards against which all Flight
delays within the Core Network are measured. For each Core Service, the ATD shall
be within [*] of the STD in order to be reported as on-time. The Departure
Criteria for Network Services shall require that, for each Measurement Period on
and after the BSA Commencement Date, [*] of all Core Services must be reported as
on-time.
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All Flight delays, regardless of cause shall be taken into account in measuring
Company performance against the Departure Criteria for Network Services.
The above target percentage for Departure Criteria for Network Services is to be
confirmed by Company for the initial Schedule and each Schedule change thereafter.
6
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2.8.5
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Arrival Criteria for Network Services
. For each Core Service
and for each day of the week DHL shall specify the STA, a Level 1 Arrival Time
and a Level 2 Arrival Time to be set forth in a form to be agreed by the Parties
and similar to Attachment 2.8.5. Generally speaking and by way of explanation,
Flights that arrive prior to a Level 1 Arrival Time normally would allow the DHL
Material transported on such Flight to be processed and meet onward connection and
delivery commitments. Conversely, Flights that arrive after a Level 2 Arrival Time
normally would not allow the DHL Material transported on such Flight to be
processed and meet onward connection and delivery commitments.
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Level 1 and Level 2 Arrival Times may vary by day of week even within the same Core
Service reflecting the fact that time-sensitive DHL Core Material is not
transported every day of the week.
The ATA of each Core Service shall be measured and reported according to the
following definitions:
[*];
[*];
[*];
[*]; and
[*].
For each Measurement Period, [*] of all Core Services must be reported as achieving
On-time Level 1 Arrival or better, with said target percentage to be confirmed by
Company for the initial Schedule and each Schedule change thereafter.
For each Measurement Period, no more than [*] of all Core Services may be reported
as Full Service Failure and/or Cancelled, with said target percentage to be
confirmed by Company for the initial Schedule and each Schedule change thereafter.
All Flight delays, regardless of cause, shall be taken into account in measuring
Company performance against the Arrival Criteria for Network Services.
All of the above, collectively, are the Arrival Criteria for Network Services.
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2.8.6
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Ground Handling Responsibilities.
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Company shall be responsible for arranging for ground handling services at the
airports specified in the Schedule, including arranging for the following services:
(i) ramp positioning and repositioning of aircraft; (ii) aircraft pushback;
7
(iii) loading and unloading; (iv) ramp transport of staff and crew (v) presentation
of tendered DHL Material; (vi) fueling; (vii) cleaning; (viii) deicing; (ix)
aircraft weight and balance, and any other services that may be agreed between the
Company and DHL. Company may perform these services itself or procure the services
of a third party ground handler, including an Affiliate of DHL.
Ground handling performance criteria (the Ground Handling Criteria), including
performance windows for loading and unloading of aircraft but also including,
without limitation, positioning of aircraft, preparation of appropriate
documentation and handover to aircraft crew, etc., shall be as specified in each
MOP (as defined in Section 2.9.2), for each point of origin and point of
destination comprising the Core Network. Ground Handling delay codes are set forth
in Attachment 2.8.3. Companys ground handling performance shall be measured for
each Measurement Period and reported in each Performance Report in the aggregate
and by location.
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2.8.7
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Consequences of failure to meet Departure Criteria for ACMI
Services, Departure Criteria for Network Services or Arrival Criteria for Network
Services
.
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2.8.7.1
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If Company fails to meet either the Departure Criteria for ACMI Services,
Departure Criteria for Network Services, the Arrival Criteria for Network
Services or the Ground Handling Criteria for any single Measurement Period,
then such fact shall be reported to the Operations Council (as defined in
Section 7.2) for development of an Action Plan (as defined in Section 7.2),
and thereafter shall follow the management escalation procedure set forth in
Section 7 of this Agreement (the Management Escalation Procedure).
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2.8.7.2
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If Company fails to meet the Departure Criteria for ACMI Services for any
three (3) consecutive Measurement Periods, then such fact shall constitute an
Event of Default under this Agreement.
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2.8.7.3
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If Company fails to meet the Departure Criteria for ACMI Services, when
averaged over any thirteen (13) consecutive Measurement Periods, then such
fact shall constitute an Event of Default under this Agreement. This Section
2.8.7.3 shall not take effect until after the thirteenth (13
th
)
Measurement Period following the BSA Commencement Date.
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2.8.7.4
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Following an Event of Default by the Company pursuant to Section 2.8.7.2 or
Section 2.8.7.3 hereof, DHL shall have the right to terminate this Agreement
pursuant to Section 5.2 which right shall be effective for a period of one
hundred and eighty days (180) days following the end of the final Measurement
Period that led to such Event of Default. If no Event of Default is declared
by DHL during such period, then such Event of Default shall be deemed to be no
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8
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longer in effect and continuing;
provided, however
, that such
right of termination shall not be exercisable if (i) a Section 2.8.7.2
Dispute or Section 2.8.7.3 Dispute, as applicable, has been referred to
the Management Escalation Procedure and the outcome of such procedure,
including the arbitration procedures set forth in Section 7.4, is still
pending, or (ii) the terms of an Action Plan or an alternative Action
Plan in effect have not come to a final conclusion;
provided
,
further
, that in connection with clauses (i) and (ii) the
180-day period shall be suspended during such time, but such 180-day
period shall resume if the Management Escalation Procedure, including
arbitration thereunder, determines that an Event of Default did occur.
DHL shall have the right to terminate this Agreement until the later of
(a) the end of such resumed 180-day period and (b) the 90
th
day following the final determination of such Management Escalation
Procedure, including arbitration thereunder (if no Event of Default is
declared by DHL during such period, then such Event of Default shall be
deemed to be no longer in effect and continuing). If DHL elects to
terminate this Agreement pursuant to Section 5.2, it shall provide sixty
(60) days notice or other notice period as may be mutually agreed by the
Parties in writing prior to such termination.
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2.9 Operations
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2.9.1
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Operational Standards and Procedures
. DHL shall comply with
the Companys operational manuals, processes and procedures. DHL shall ensure that
the DHL Material tendered to the Company complies with all Applicable Laws as noted
in Section 7 hereof. Company shall take all commercially reasonable steps
necessary to ensure that its operational standards align with those of DHL in
relation to DHL Material. This shall include DHLs standards relating to the
matters specified in Sections 2.9.1.1 and 2.9.1.2. From and after the BSA
Commencement Date, Company will provide to DHL information reasonably satisfactory
to DHL with respect to the matters specified in Section 2.9.1.3:
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2.9.1.1
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Ground Handling
, i.e., conformity to the MOP, the tender of
material, dangerous goods handling, the handling of containers and other
equipment, and ramp personnel procedures and training.
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2.9.1.2
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Equipment
, i.e., container type, use, design, procurement,
numbering, reporting and track-and-trace.
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2.9.1.3
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Data Capture and Reporting
, i.e., aircraft and container movements,
loading, weight and balance, billing, airway bills, accounting, fuel burn,
messaging, coding, track-and-trace, performance and dangerous goods
documentation.
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9
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2.9.2
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Master Operating Plans
. Following the date hereof, but prior
to the BSA Commencement Date, Company shall establish a Master Operating Plan
(MOP) satisfactory to DHL for each point of origin and point of destination in
the Core Network. MOPs shall specify the roles and responsibilities of the Parties
at each such point, including, at minimum (i) procedures and timing for the tender
of DHL Material to Company, and the loading and unloading of DHL Material from
aircraft; (ii) communications protocols between the Parties, as well as between the
Parties and third parties; (iii) security procedures; (iv) Contingency Plans; (v)
contact names and numbers; and (vi) any other processes, procedures, protocols or
circumstances that may be relevant to Company and DHLs operations at a particular
point of origin or destination in the Core Network. An example form of MOP is
attached to this Agreement as Attachment 2.9.2.
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MOPs shall be reviewed and updated from time to time as mutually agreed by the
Parties in writing and shall be attached to this Agreement.
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2.9.3
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Use of Common Systems
. In order to facilitate Companys
performance of its obligations hereunder, DHL agrees to license to Company the
SABLE weight and balance software system of DHL at no charge pursuant to a separate
licensing agreement (the SABLE Licensing Agreement).
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Company shall be entitled to license and employ any other DHL proprietary network
management application software system in order to align the operational standards
and procedures of Company with those of DHL at no charge and subject to a separate
licensing agreement.
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2.9.4
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Additional Aircraft.
The Company, upon notice from its
suppliers that such suppliers can provide to the Company additional aircraft, shall
inform DHL within sixty (60) days of the availability of such additional aircraft
and will keep DHL reasonably informed of any material changes thereto. The Company
shall make timely offers to DHL in response to DHLs defined requirements for such
available aircraft and contract at the offering terms with DHL for such additional
aircraft, subject to the Companys or its suppliers prior commitments.
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2.9.5
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Transmittal of Data
. Company, where applicable, shall be
responsible for transmittal of all air automated manifest system data to U.S.
Customs and other similar requirements outside of the United States as required.
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2.10 Compliance
Each Party shall comply with all Applicable Laws, in all relevant jurisdictions, and shall
keep in current form and in good standing all regulatory authorities, licenses, permits,
exemptions, designations and other authorizations including, but not limited to: Companys Air
Operators Certificate; Companys Certificate of Public Convenience and Necessity; Companys
licenses and designations to the route authorities necessary to operate the Core Services,
10
including with respect to each Party, necessary authorizations and permits granted by foreign
governments; entitlements to takeoff and landing slots and parking bays necessary to operate the
Core Services.
Nothing contained in this Agreement shall be deemed to obligate Company to operate an Aircraft
in violation of the terms or conditions of any insurance policy relating to the Aircraft or its
operation in contravention of the time regulations applicable to the crew to be provided hereunder
or in violation of any other Applicable Law, rule or regulation controlling Companys operations
under this Agreement. In the event that DHL makes a request that would require the Company to
violate Applicable Law or the terms of its obligations as stated in the immediately preceding
sentence, but the Company, through exercising commercially reasonable efforts, could provide DHL
with the requested service in a manner that comports with Applicable Law and the terms of its
obligations as stated in the immediately preceding sentence, the Company shall take such steps. To
the extent that any changes to the Companys operations are required to provide for such request,
any associated costs shall be at the expense of DHL.
2.11 Independent Services
Additional air transportation services undertaken by Company that are not specified in the
Core Services shall be independent services (Independent Services). Independent Services may
include additional transportation services undertaken with the Aircraft, or other aircraft operated
by Company or a third party with other aircraft. Nothing in this Agreement shall limit Companys
ability to initiate and operate Independent Services,
provided
,
however
, that
Company shall use commercially reasonable efforts to ensure that such Independent Services do not
interfere with the timely performance of the Core Services comprising the Core Network. Company
acknowledges and agrees that Core Services shall take priority over Independent Services. All
revenues derived by and expenses incurred by Company from Independent Services shall be for
Companys own account.
2.12 Cooperation with other DHL Entities
To facilitate the transfer of DHL Materials to other carriers, Company shall cooperate with
other DHL entities, including DHL owned and DHL co-owned airlines as well as airlines with which
DHL has contractual relations, for the purpose of entering into interline, space sharing, code
sharing, capacity sharing or other similar agreements.
2.13 Exercise of the Rights of Company
Company shall exercise all rights and take all actions required under the Ancillary Agreements
that are reasonably necessary to enable Company to meet its obligations under the terms of this
Agreement, and shall not waive any rights against Atlas Air under any of the Ancillary Agreements
or agree to any amendments to the Ancillary Agreements which waiver or amendment would materially
adversely affect the ability of Company to perform its obligations under this Agreement.
The Company shall exercise commercially reasonable efforts in order to perform its obligations
under this Agreement and to satisfy the current and reasonably anticipated requirements of DHL,
including, without limitation, the employment of a highly motivated and
11
incentivized management team and sales force and the maximization of capacity utilization and
economic return.
3.
Remuneration
3.1 Blocked Space Fee
DHL shall pay to Company a fee (the Blocked Space Fee) calculated on a monthly basis
according to the following formula:
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3.1.1
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the DHL Blocked Space shall be multiplied by the Blocked Space Rates
(together with surcharges and fees applicable at the time) and by the number of
Core Services operated by Company during the relevant monthly billing period, and
added to,
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3.1.2
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the relevant monthly Over Pivot charge (together with surcharges and
fees applicable at the time), as defined in Section 3.3 below, and added to,
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3.1.3
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the relevant monthly Additional DHL Material Charge (together with
surcharges and fees applicable at the time), as defined in Section 3.4 below.
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3.2
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[*] Fee
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[*].
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3.3
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The Over Pivot Charge
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DHL
Material may be loaded to the maximum allowable weight of each ULD as
specified in Attachment 3.3. In the event that the load density of any particular ULD exceeds the agreed pivot
for that ULD type, the number of kilos above the agreed pivot weight for that particular ULD shall
be considered over pivot. The Over Pivot charge for each Core Service will be calculated by
deducting (a) the agreed pivot weights for all relevant ULDs contracted for or used on such Core
Service from (b) the total weight of the DHL Material loaded on that service, and will not be
calculated on an individual ULD basis.
3.4 Additional DHL Material Charges
Any Additional DHL Material transported by Company shall be charged to DHL at the applicable
Blocked Space Rates.
3.5 Other Fees, Charges and Offsets
In addition, DHL shall be responsible for any other accessorial charges, whether existing or
imposed in the future, by any Person.
4.
Payment
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4.1
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DHL shall pay to Company the agreed sum of the DHL Blocked Space multiplied by the Blocked
Space Rates in U.S. dollars, twice-monthly in advance, on the first (1
st
) day of
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12
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each month of the term for the first half of such month and on the sixteenth
(16
th
) day of each month for the remainder of such month on standing order (the
Twice-monthly Payment).
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4.2
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The Blocked Space Fee, the Variable Fee and any other fees, charges or credits shall be
calculated on a monthly basis (the Monthly Charges).
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4.3
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The Monthly Charges shall be reconciled against the sum total of the Twice-monthly Payments
for the corresponding period or other amounts previously paid. In the event that such
reconciliation reflects an overpayment on the part of DHL, then DHL shall be entitled to
deduct such overpayment from the next Twice-monthly Payment or other future Payments. In the
event that such reconciliation reflects an underpayment on the part of DHL, then DHL shall pay
the amount of the underpayment to Company promptly.
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4.4
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In the event that for two (2) consecutive months the reconciliation of the Monthly Charges
and the sum total of the Twice-monthly Payments reflects either, overpayments or
underpayments, respectively, of more than U.S. one million dollars (US$1,000,000), in the
aggregate, then the amount of the Twice-monthly Payment shall be adjusted upwards or downwards
accordingly.
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4.5
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There shall be a final reconciliation of all amounts due and paid under the Agreement for the
preceding year on a yearly basis (the Annual Reconciliation).
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4.6
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All payments shall be made by DHL to Company by wire transfer of immediately available,
unconditional funds to the following account:
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[*]
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4.7
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Payments made hereunder shall be made free of deductions or offsets. Notwithstanding the
foregoing, in the event of a bona fide Dispute hereunder, DHL may withhold payment for any net
amount in dispute;
provided
that, the Twice-monthly Payments, at a minimum, continue
to be made as and when due. Nothing herein shall be deemed to constitute a waiver of either
Partys rights or obligations hereunder. If a Dispute over payment has not been resolved
within ten (10) business days, then either Party may initiate a procedure to resolve the
Dispute under the Management Escalation Procedure as set forth in Section 7 of this Agreement.
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5.
Term and Termination
5.1 Term
This Agreement shall become effective on the date of its execution. Prior to July 31, 2007,
DHL shall provide notice to Company as to whether the BSA
Commencement Date shall be [*], or [*]
provided
,
however
, that DHL may provide reasonable advance notice
to Company that the BSA Commencement Date be on a date prior to October 31, 2008 other than [*].
The term of this Agreement shall be twenty (20) years following the BSA Commencement Date, unless
earlier terminated as provided herein (the Term);
provided
,
however
, that DHL
shall have the option to terminate this Agreement on the fifth-year, tenth-
13
year and fifteenth year anniversaries of the BSA Commencement Date by giving Company one
years advance written notice (Termination for Convenience) and,
provided
,
further
, DHLs right to a Termination for Convenience upon the fifth year anniversary of
the BSA Commencement Date shall be subject to DHL, in the event a COMPANY Call Right or an ATLAS
Put Right (as such terms are defined in that certain Put/Call Agreement dated as of the date hereof
(the Put/Call Agreement)) is exercised pursuant to the Put/Call Agreement, providing upon the
date of such Termination for Convenience a continuing guarantee, for the applicable head lease
terms and the indemnity agreement in favor of Atlas Air, from DP Guarantor, or another creditworthy
Affiliate of DHL reasonably acceptable to Atlas Air, as provided in Article 3 of the Put/Call
Agreement.
5.2 Termination for Event of Default, Liquidated Damages.
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5.2.1
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The occurrence and continuance of any of the following events or
conditions shall constitute an event of default (Event of Default) by Company
:
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5.2.1.1
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Companys failure to comply from and after the BSA Commencement Date with
the performance requirements to the extent set forth in Sections 2.8.7.2 and
2.8.7.3 of this Agreement;
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5.2.1.2
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the material breach of any representation or warranty of the Company
hereunder, where such breach is material to the Companys Business and occurs
after the BSA Commencement Date (or after the date hereof and continuing after
the BSA Commencement Date), unless such breach is capable of cure and Company
is diligently taking steps to effect such cure;
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5.2.1.3
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the dissolution, liquidation, cessation of business or immediate
termination of existence of Company;
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5.2.1.4
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the bankruptcy of Company or the appointment of a trustee or receiver for
Company or for a substantial part of its business, or the admission in writing
of Company of its inability to pay its debts as they mature, or a judicial
adjudication that Company is insolvent;
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5.2.1.5
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the institution by or against Company of bankruptcy, reorganization,
arrangement, insolvency or liquidation proceedings or any other proceedings
for relief under any bankruptcy or similar federal, state or local Applicable
Law for the relief of debtors,
provided
that, if such proceeding is
instituted against Company and is not consented to by Company, it is not
dismissed or stayed within sixty (60) days after such institution;
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5.2.1.6
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any other material breach or failure of Company to observe or perform after
the BSA Commencement Date (or after the date hereof and continuing after the
BSA Commencement Date) any term, condition, covenant or agreement required to
be observed or performed by it hereunder, where such breach is material to the
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14
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Companys Business, unless such breach is capable of cure and Company is
diligently taking steps to effect such cure,
provided
,
however
, that DHL shall have no right to exercise a right of
termination contained herein in relation to any failure of Company to
perform its obligations contained in Section 2.14 until and unless DHL
shall have exercised all rights and remedies in respect of such breach,
including compliance with the Management Escalation Procedure, and
furthermore, in determining whether or not Company is breach of Section
2.14, it shall be a defense for the Company to demonstrate that it has
taken sufficient remedial action and other steps identified as part of
the Management Escalation Procedure or otherwise requested by DHL;
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5.2.1.7
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the material violation of any material Regulation after the BSA
Commencement Date (or after the date hereof and continuing after the BSA
Commencement Date) or the suspension or revocation of any license, certificate
or permit necessary to conduct all or any portion of Companys obligations
hereunder with respect to the Core Services, which violation, suspension or
revocation prevents Company from performing in any material respects its
obligations hereunder with respect to the Core Services, unless such material
violation, suspension or revocation (i) is capable of cure and Company is
diligently taking steps to effect such cure or (ii) occurred as a result, in
whole or in part, of actions or omissions of DHL; and
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5.2.1.8
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any failure by Company to maintain at all times from and after the BSA
Commencement Date the insurances as required in Section 9.1 of this Agreement.
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5.2.2
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The occurrence of any of the following events or conditions shall
constitute an Event of Default by DHL:
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5.2.2.1
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DHLs failure to pay within five (5) business days any amounts due
hereunder in accordance with the terms of this Agreement;
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5.2.2.2
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the material breach of any representation or warranty of DHL hereunder,
where such breach or failure prevents DHL from performing in any material
respects its obligations hereunder ;
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5.2.2.3
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the dissolution, liquidation, cessation of business or immediate
termination of the existence of DHL or DP Guarantor;
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5.2.2.4
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the bankruptcy of DHL or DP Guarantor or the appointment of a trustee or
receiver for DHL or DP Guarantor or for a substantial part of its business, or
the admission in writing of DHL or DP Guarantor of its inability to pay its
debts as they mature, or a judicial adjudication that DHL or DP Guarantor is
insolvent;
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15
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5.2.2.5
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the institution by or against DHL or DP Guarantor of bankruptcy,
reorganization, arrangement, insolvency or liquidation proceedings or any
other proceedings for relief under any bankruptcy or similar federal, state or
local Applicable Law for the relief of debtors,
provided
that, if such
proceeding is instituted against DHL or DP Guarantor and is not consented to
by DHL or DP Guarantor, it is not dismissed or stayed within sixty (60) days
after such institution;
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5.2.2.6
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any other material breach or failure of DHL to observe or perform after the
BSA Commencement Date (or after the date hereof and continuing after the BSA
Commencement Date) any term, condition, covenant or agreement required to be
observed or performed by it hereunder, where such breach or failure prevents
DHL from performing in any material respect its obligations hereunder, unless
such breach is capable of cure and DHL is diligently taking steps to effect
such cure;
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5.2.2.7
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the violation of any Regulation after the BSA Commencement Date (or after
the date hereof and continuing after the BSA Commencement Date) or the
suspension or revocation of any license, certificate or permit necessary to
conduct all or any portion of DHLs obligations hereunder that prevents DHL
from performing in any material respects its obligations hereunder, unless
such violation suspension or revocation (i) is capable of cure and DHL is
diligently taking steps to effect such cure or (ii) occurred as a result of
actions or omissions of Company;
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5.2.2.8
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any failure by DHL to maintain at all times after the BSA Commencement Date
the insurances as required in Section 9.2 of this Agreement; and
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5.2.2.9
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any failure by DP Guarantor to perform its obligations under the BSA
Guarantee for five (5) business days for amounts due thereunder and for thirty
(30) days after written notice of any other failure.
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5.2.3
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Upon the occurrence and during the continuance of any Event of Default
as specified in paragraphs 5.2.1.3, .4, .5 or .8, or paragraphs 5.2.2.1, .3, .4, .5
or .8 above, the non-defaulting Party may terminate this Agreement immediately and
in its entirety by giving written notice to the defaulting Party.
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5.2.4
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Upon the occurrence and during the continuance of any Event of Default
as specified in paragraphs 5.2.1.2, 5.2.1.6 or 5.2.1.7 or paragraphs 5.2.2.2,
5.2.2.6 or 5.2.2.7 above, the non-defaulting Party may serve written notice of such
default, and the Party receiving such notice shall have thirty (30) days from the
date of receipt of such notice to cure such default. If the Event of Default has
not been cured by the close of business on the thirtieth (30th)
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16
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day after receipt of such notice, then the non-defaulting Party may terminate
this Agreement immediately and in its entirety upon giving written notice to
the defaulting Party.
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5.2.5
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Subject to Section 2.8.7.4, upon the occurrence and during the
continuance of any Event of Default as specified in paragraph 5.2.1.1 above, DHL
may terminate this Agreement after giving notice of such Event of Default to
Company.
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5.2.6
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Except for a termination pursuant to Section 5.2.3, at any time during
which there is an issue or Dispute between the Parties about whether an Event of
Default has occurred (or is continuing) and such issue or Dispute has been referred
to the Management Escalation Procedure (including the arbitration provisions
thereof) by mutual agreement of the Parties, and the outcome of such proceeding is
still pending, neither Party shall have the right to terminate this Agreement on
account of such issue or Dispute.
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5.2.7
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A termination by DHL due to either an Event of Default under Section
5.2.1 or a Change of Control Event under Section 5.3 shall give rise to the rights
and obligations of the Parties under Sections 5.4.1.2, 5.4.1.3, 5.4.2, 5.4.3,
5.4.4, 5.4.5, 5.4.6, 5.4.7 and 5.4.8, which shall be valid and effective
notwithstanding such termination, and shall survive such termination, as rights and
obligations under this Agreement, without affecting the rights, remedies or
obligations of the Parties under Section 5.4.1.1, if any, by reason of the
Events(s) of Default under Section 5.2.1 pursuant to which DHL so terminated this
Agreement.
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5.3 Termination for the Occurrence of Change of Control
(a) In
the event that AAWW consummates a Change of Control with a
[*] or a [*], Company shall give
written notice of such event to DHL. Following receipt of such notice, DHL shall have the option
for thirty days (30) from the date thereof to terminate this Agreement upon written notice to the
Company (the COC Termination Period). This Agreement will then terminate thirty (30) days
following the Companys receipt of such notice without further action by either Party.
(b) For purposes of this Section 5.3, it is understood that the right of termination provided
for in Section 5.3(a) shall not apply to (x) any transactions contemplated by the Stock Purchase
Agreement, (y) any Change of Control that involves, or is solicited, initiated or encouraged, by
DHL, any of its Affiliates, or any licensed U.S. airline in which DHL, DP Guarantor or any of its
Controlled Affiliates has a significant ownership interest or (z) any Change of Control approved by
DHL in its capacity as a stockholder of the Company or through any Board of Directors
representative or voting rights DHL may have either directly or through any DP Guarantor or any of
its Controlled Affiliates.
17
5.4 Remedies
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5.4.1
|
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In the event that this Agreement is properly terminated by DHL for an
Event of Default under Section 5.2.1 or a Change of Control event under Section
5.3, then DHL shall be entitled to the following:
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5.4.1.1
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a payment of [*] in the nature of liquidated damages (Liquidated Damages)
to compensate it for the costs of obtaining replacement arrangements for the
services to be provided by Company hereunder and for any other costs
attributable to service interruptions and loss of business (the Liquidated
Damages Payment). At each yearly anniversary of the BSA Commencement Date,
the Liquidated Damages Payment shall be [*], to a minimum of [*] on the [*]
anniversary of the BSA Commencement Date, where it shall remain for the
duration of this Agreement. The Parties shall settle all accounts and amounts
due and payable for services previously provided under the Agreement up to the
date of such termination and prior to the application of the Liquidated
Damages Payment. It is understood by the Parties that a Termination for
Convenience shall in no case give rise to a right to Liquidated Damages
pursuant to this Section 5.4;
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5.4.1.2
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At any time on or after the date on which this Agreement is terminated by
DHL in accordance with this Agreement due to an Event of Default under Section
5.2.1 or a Change of Control event under Section 5.3 and ending on the date
six months after such termination becomes effective (such date, the
Assumption Expiration Date), PACW shall, upon DHLs written request, cause
the applicable Aircraft Lessor under each Aircraft Lease to (a) terminate any
Aircraft Lease to which Company is a party (each, an Existing Sublease) and
(b) enter into a new sublease for the Aircraft subject to a terminated
Existing Lease (each, a New Sublease) with DP Guarantor or another
creditworthy DHL Affiliate acceptable to the Aircraft Lessor (such Person, the
DHL Lessee) on terms that are identical in all material respects to the
terms of the Existing Lease, except that the term of any New Sublease will be
the unexpired portion of the terminated Existing Lease and will contain an
indemnity in favor of the Aircraft Lessor with respect to any liabilty of the
Aircraft Lessor under the applicable Tax Indemnity Agreement which would not
have arisen but for DHL Lessees operation of the Aircraft pursuant to the New
Sublease in any manner different from the operation of the Aircraft pursuant
to the Existing Sublease. The parties acknowledge that any New Sublease shall
meet the requirements of the applicable head lease as in effect on the date
hereof or as otherwise amended with DHLs approval to which the Aircraft
Lessor is a party At any time on or after the date on which the termination
of this Agreement becomes effective and prior to the
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18
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Assumption Expiration Date, DHL shall provide notice to Company
specifying the Aircraft it wishes to sublease Each New Sublease shall
satisfy and discharge the Additional Obligations of DHL under Section
5.4.5 for and with respect to the terminated Existing Lease .
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5.4.1.3
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On or after the date on which this Agreement is terminated by DHL in
accordance with this Agreement due to an Event of Default under Section 5.2 or
a Change of Control event under Section 5.3. Company shall pay to DHL, an
amount equal to the Additional Obligations which DHL shall have paid pursuant
to Section 5.4.5 after giving effect to any DHL Assumption by DHL Lessee
pursuant to Section 5.4.1.2 or by Atlas Lessee (defined in Section 5.4.6)
pursuant to Section 5.4.6, and the release of Company with respect to its
obligations under any Existing Sublease, as provided for therein
(collectively, the Gap Period Damages);
provided
,
however
,
that the aggregate amount of Gap Period Damages shall not exceed (a) in the
aggregate, the lesser of either (i) [*] or (ii) [*] under the Aircraft Leases,
and (b) in respect of any one Aircraft Lease and the related Aircraft, [*].
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5.4.2
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Termination by DHL and Companys payment of the Liquidated Damages
Payment under Section 5.4.1 and the Gap Period Damages under Section 5.4.1.3 shall
be DHLs exclusive remedies for an Event or Events of Default under Section 5.2.1
or a Change of Control event under Section 5.3 and shall be in lieu of any other
remedy DHL may have at Applicable Law or in equity.
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5.4.3
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Termination of this Agreement by Company in accordance with this
Agreement due to an Event or Events of Default under Section 5.2.2 shall be without
prejudice to Companys rights and liabilities hereunder at Applicable Law and in
equity, and damages in respect of such Event or Events of Default shall be
calculated without regard to DHLs right of Termination for Convenience under
Section 5.1;
provided
,
however
, that Company shall not be entitled
to claim or recover from DHL any consequential or special damages.
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5.4.4
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From and after the date DHL terminates this Agreement due to an Event
of Default under Section 5.2.1 or a Change of Control event under Section 5.3, each
of Company, Atlas Air and DHL will use its commercially reasonable good faith
efforts, in cooperation with one another, subject to Contractual Obligations
(including any applicable obligations under any applicable collective bargaining
agreement) or Applicable Law, to redeploy and place each Aircraft subject to an
Aircraft Lease that has not been subleased by the DHL Lessee pursuant to Section
5.4.1.2 or an Atlas Lessee pursuant to Section 5.4.6 for the remainder of the term
of such Aircraft Lease on a first come-first served basis (it being understood
that any sublease of an Aircraft subject to an Aircraft Lease shall be in
accordance with the terms of the
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19
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applicable Aircraft Lease and any assignment of an Aircraft Lease shall be
subject to approval of the Aircraft Lessor).
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5.4.5
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Notwithstanding that either DHL or Company shall have terminated this
Agreement due to an Event of Default under Section 5.2 or a Change of Control event
under Section 5.3, but subject to the provisions of Section 5.4.1.2 and of Section
5.4.6, DHL shall, in accordance with the terms and conditions of the Aircraft
Leases, (a) make payments to Company from time to time after such termination in an
amount equal to the periodic rental payment obligations of the Company under each
Aircraft Lease when such payments are due under each such Aircraft Lease and (b)
guarantee the performance of the Companys obligations under each such Aircraft
Lease, including aircraft maintenance, operation, insurance, casualty, and return
covenants, and its general tax and general indemnities, in the case of both clause
(a) and (b) arising after such termination and in respect of the unexpired portion
of the term of each Aircraft Lease up to the tenth anniversary of the BSA
Commencement Date at the time of such termination (collectively, the Additional
Obligations).
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5.4.6
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During the first 12 months after termination of this Agreement by DHL
or Company, nothing herein shall preclude Atlas Air from utilizing Aircraft subject
to an Aircraft Lease that has not been subleased by the DHL Lessee on commercial
terms and conditions which shall be subject to Companys consent, which consent
shall not be unreasonably withheld, conditioned or delayed. Atlas Air (the Atlas
Lessee) shall have the right, exercisable after the Assumption Expiration Date, to
sublease (an Atlas Assumption), with the approval of the relevant Aircraft
Lessor, any Aircraft Lease and its Related Lease Documents with respect to which
DHL shall not have delivered an Assumption Notice on or prior to the Assumption
Expiration Date for the remaining term of such Aircraft Lease, and to succeed to
all of the rights and obligations of the Lessee or Sublessee (as applicable)
thereunder (including tax indemnity and other obligations under any Aircraft Lease
and Related Lease Documents that may arise or become due as a result of such Atlas
Assumption), such that none of Company, DHL, nor any Affiliate of DHL shall have
any further obligations with respect to or under any Aircraft Lease and its Related
Lease Documents as a result of or with respect to the period from and after the
effective date of such Atlas Assumption. Upon the consummation of any such
assumption by the Atlas Lessee, DHL shall have no further Additional Obligations
under Section 5.4.5 with respect to the relevant Aircraft Lease for the period from
and after such assumption.
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5.4.7
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Company shall continue to have the ability to amend, waive and
exercise all rights under the Aircraft Leases without DHLs consent,
provided
, that DHLs obligations under Section 5.4.1.2 and Section 5.4.5
shall only be governed by terms and conditions under the Aircraft Leases (and
related documents), copies of which have been provided by the Company to DHL,
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in effect on the date of this Agreement and amendments or modifications thereto
approved in accordance with the Stockholders Agreement.
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5.4.8
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The Parties agree that the Parties respective rights and obligations
with respect to the Aircraft Lease(s) set forth in Section 5.4.1.2 through Section
5.4.7 are subject to (A) the prior written consent of the Aircraft Lessor which
shall include a grant of quiet enjoyment rights to the Company so long as DHL is
performing its obligations under Section 5.4.5 and to DHL so long as DHL is
performing its obligations under 5.4.1.2, under documents reasonably satisfactory
to DHL. The parties hereby agree to use commercially reasonable efforts to
cooperate (and cause its Affiliates to cooperate) with one another and with the
Aircraft Lessor to facilitate the assumption of the Aircraft Leases by the DHL
Lessee or Atlas Air pursuant to Section 5.4.1.2 and 5.4.6.
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5.5 Expiration of the BSA Guarantee.
If, by not later than the ninth (9
th
) anniversary of the BSA Commencement Date, DHL
has not notified the Company of its election to exercise a Termination for Convenience and DP
Guarantor has not extended or replaced the BSA Guarantee with a substantially similar guarantee by
DP Guarantor, or another creditworthy Affiliate of DHL or DP Guarantor reasonably acceptable to the
Company, within one hundred and eighty (180) days after such anniversary (a Replacement
Guarantee), the Company shall have the right to terminate this Agreement effective upon the tenth
(10th) anniversary of the BSA Commencement Date. Termination of this Agreement by Company under
this Section 5.5 shall be Companys exclusive remedy if a Replacement Guarantee is not provided and
shall be in lieu of any other remedy Company may have at Applicable Law or in equity.
6.
Obligations of DHL
6.1
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DHL shall, at its own cost and expense, make available and assume responsibility for suitable
ULDs, containers, pallets, nets, and tensioning equipment meeting relevant FAA and Joint
Aviation Authorities/European Agency for Safety of the Air regulations and standards at all
appropriate airports provided for under this Agreement.
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6.2
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DHL shall, in accordance with FAA, IATA and/or ICAO standards, properly prepare and pack the
cargo to be carried, together with all documentation applicable thereto.
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6.3
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DHL shall be responsible for the issuance, completion, and delivery of air waybills in
accordance with DHL standards, as well as any additional documentation necessary for the
carriage of DHL Material. In the event a special cargo shipment must be accompanied by an
attendant, the ticketing and any special documentation related thereto shall be issued by DHL
at DHLs sole cost and expense.
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6.4
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DHL shall inform Company at least twenty-four (24) hours prior to the scheduled departure
time of a Flight of any special DHL Material expected for such Flight, such as livestock,
hazardous material, oversized pieces, and/or other special cargo and such
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notice shall be provided to Company to the departments indicated by the Company prior to any
such shipment as from time to time advised to DHL.
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6.5
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The carriage of cargo attendants on a Flight hereunder shall comply with the appropriate
provisions of the Federal Aviation Regulations (FARs).
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6.6
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Any and all claims that are filed by shippers and/or consignees using DHL airwaybill
documents shall be administered and adjudicated by DHL. All other issues of liability under
this Agreement shall be handled in accordance with the terms and conditions set forth herein
in Article 8.
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6.7
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(a) DHL shall be required at its expense to adhere to Company security procedures, including
but not limited to security procedures relating to the cargo. Companys security procedures
shall be provided to DHL upon request. DHL also shall be responsible for compliance with all
Transportation Security Administration regulations and requirements, including but not limited
to, screening of cargo destined for or outbound from the United States, screening of service
personnel requiring access to the flight deck on Flights destined for or departing from the
United States, secure transportation for Company crews when required, and compliance with host
country security requirements. Company shall have the right to approve DHLs security vendors
and contractors for the operations contemplated by this Agreement. Company shall have the
right to inspect and audit DHLS security program (including services provided by any approved
vendor or contractor), and DHL agrees to cooperate in any such inspection or audit, provided
such inspection or audit shall be conducted at reasonable times and shall not cause a material
disruption to DHLs operation.
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(b) Company shall not be obligated to operate to any country or airport requested by DHL if
such operations would be contrary to Company security operating procedures or directives, or
to regulations or directives of any Governmental Entity, including but not limited to, the
U.S. Departments of State and Treasury, DOT and the FAA. Company will use commercially
reasonable efforts to keep DHL advised in advance of country-related and airport-related
operating restrictions of the above types. Subject to the other provisions of this
Agreement governing use, availability and assignment of Aircraft, Company will not
unreasonably withhold approval of DHL requests to operate to countries and airports not
covered by the above types of restrictions. Company will provide information with respect
to countries, cities and/or airports with restricted overflight, landing and other special
requirements on specific request by DHL.
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(c) DHL acknowledges that U.S. government agencies, including the U.S. Treasury Departments
Office of Foreign Assets Control (OFAC) and the U.S. Commerce Departments Bureau of
Industry and Security, place limitations on certain types of exports to, and other
transactions with, named non-U.S. governments, entities and individuals. DHL warrants that
it will conduct its business pursuant to this Agreement in a manner that does not cause
Company to violate any such requirements. In particular, without limiting the applicability
of the above, DHL represents that it will not knowingly cause goods to be exported on
Company services to, cause goods to be imported on Companys services from, or in using
Companys services otherwise engage in financial
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transactions with, Persons whom OFAC has identified as specifically designated terrorists.
In any event, DHL agrees to indemnify and hold harmless from all costs, expenses (including
reasonable attorneys fees), losses, liabilities, damages, fines, and judgments incurred by
Company as a result of any violation of the abovementioned requirements.
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7.
Management and Management Escalation Procedure
Each Party shall appoint one or more managers as responsible for the day-to-day implementation
of this Agreement (the Responsible Managers). The Responsible Managers shall consult and confer
with each other as often as they believe desirable. Responsible Managers may discuss any issue
arising under this Agreement, and shall use their best efforts to resolve any such issues or
Disputes that may arise under this Agreement from time to time.
Each Party shall appoint one or more managers to an operations council (the Operations
Council). The Operations Council shall meet or confer monthly in order to review the Performance
Report for the previous month and any failures to meet the Departure Criteria for ACMI Services,
Departure Criteria for Network Services, Arrival Criteria for Network Services and the Ground
Handling Criteria during that month. In the event of any such failure, the Operations Council
shall agree a detailed action plan (the Action Plan) the purpose of which is to identify and
remedy the underlying cause(s) of such failure. If within twenty-one (21) days (or such longer
period as may be agreed) the Operations Council fails to agree an Action Plan, or the Operations
Council agrees an Action Plan but such plan fails to improve the operating Criteria within two (2)
months of the date the Action Plan was developed, then the same shall be referred to the Senior
Managers.
Notwithstanding the foregoing, if the Departure Criteria for Network Services or the Arrival
Criteria for Network Services for any Core Service is not met for a period of two (2) consecutive
Measurement Periods, DHL may, in its sole discretion (upon reasonable notice to the Company),
redirect the affected DHL Material to alternative transportation services, at its own expense, and
reduce the DHL Blocked Space and the Annual Minimum Volume Guarantee commitment (but not the
Variable Fee) accordingly. Such redirect may continue until such time as the Departure Criteria
for Network Services or Arrival Criteria for Network Services for the affected Core Service is once
again met, at which time DHL shall have the obligation to place DHL Material back into the Core
Network.
Furthermore, in the event of a failure of the Company to meet the Departure Criteria for
Network Services or the Arrival Criteria for Network Services due to an issue with the performance
of the Ground Handling Criteria, then DHL may, at its sole discretion (upon reasonable notice to
the Company), undertake certain of such ground handling responsibilities at the point of service
giving rise to such issue. Upon the exercise of such right by DHL, the Blocked Space Rates shall
be adjusted accordingly, it being understood, however, that such
23
adjustment shall in no way affect DHLs obligations to pay the Variable Fee under Section 3.2
of this Agreement.
In addition to the above, the Operations Council shall review any Dispute that cannot be
resolved by the Responsible Managers and shall promptly meet (telephonically or in person) in order
to resolve such Dispute. If within ten (10) business days (or such longer period as may be agreed)
following initial consideration in such meeting by the Operations Council and the Operations
Council fails to resolve the Dispute, then the same shall be referred to the Senior Managers.
7.3 Senior Managers
The Senior Managers shall comprise the CEO of Atlas Air Worldwide Holdings, Inc. and the DHL
Managing Director for Aviation, or such other designees as may be agreed by the Parties.
In the event that an Action Plan fails to improve the Departure Criteria for ACMI Services,
the Departure Criteria for Network Services or the Arrival Criteria for Network Services and the
same is referred to the Senior Managers by the Operations Council, then the Senior Managers shall
develop an alternative Action Plan. If such alternative Action Plan does not improve the underlying
issue(s) within a further thirty (30) days, the Senior Managers shall meet to jointly determine the
next course of action.
In addition to the above, in the event that a Dispute is referred to the Senior Managers by
the Operations Council, then the Senior Managers shall promptly meet (telephonically or in person)
in order to resolve such Dispute. If any such Dispute cannot be resolved within a period of fifteen
(15) business days, or as otherwise agreed by the parties, following initial consideration in such
meeting by the Senior Managers, then either Party may refer such Dispute to the arbitration
provisions in Section 7.4 of this Agreement.
7.4 Arbitration
If the Parties cannot resolve a Dispute through the Management Escalation Procedures as set
forth above in this Section 7, then the Parties shall submit the Dispute to binding arbitration as
set forth in this Section 7.4.
All Disputes referred to arbitration shall be finally settled under the Rules of Arbitration
of the International Chamber of Commerce (the Rules).
The place of arbitration shall be New York, New York, and the governing Applicable Law shall
be the substantive Applicable Law of the State of New York.
The language of the arbitral proceedings shall be English.
There shall be three (3) arbitrators nominated in accordance with the Rules, all having
substantial commercial experience in the air transport or air express industry and in the English
language.
24
The Parties agree that within sixty (60) days after selection, the arbitrators shall submit a
written report of their determination of the Dispute, which report shall be binding on the Parties.
If such report is not unanimous, then the determination of two (2) of the arbitrators shall
nevertheless be binding upon the Parties.
The losing Party shall pay all the costs of arbitration, provided that if neither Party is
clearly the losing Party (as determined by the arbitrators), then the arbitrators shall allocate
the costs between the Parties in an equitable manner as the arbitrators may determine in their sole
discretion.
8.
General Indemnification
8.1
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Indemnities by Company
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Except as provided in Section 8.3, Company shall bear all liability for, and shall indemnify,
defend and hold harmless DHL, together with its directors, officers, employees, assignees, agents,
subcontractors, shareholders and Affiliates (collectively, the DHL Indemnified Parties) from and
against any Claims or Damages (including, without limitation, any Claim in tort, whether or not
arising from the negligence of the DHL Indemnified Parties and without regard to whether or not
such negligence is sole, joint, concurrent, comparative, active, passive or imputed) which may be
asserted against, incurred or suffered by, be charged to or recoverable from the DHL Indemnified
Parties in connection with:
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(a)
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loss of or damage to aircraft utilized in the performance of this Agreement,
howsoever caused, during the term of this Agreement, except as expressly set forth in
Section 8.3, below;
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(b)
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death of or injury to the crew members provided by Company, any individual(s)
carried or employed on aircraft utilized in the performance of this Agreement, or other
personnel of Company or of any other Person (except DHL personnel in the performance of
duties under this Agreement) provided for or by Company while acting in connection with
the performance of this Agreement, and loss of or damage to their property except as
expressly set forth in Section 8.3, below; or
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(c)
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death of or injury to persons and loss of or damage to property caused by
aircraft utilized in the performance of this Agreement during the term of this
Agreement in connection with the management, possession, use, control, operation,
maintenance, service, repair, overhaul or testing thereof, or with the ground
inspection, operational ground check, ferry flights or flights related to the use or
operation of aircraft utilized in the performance of this Agreement, except as
expressly set forth in Section 8.3, below.
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The foregoing indemnity obligation shall apply whether or not such Claim is groundless, false
or fraudulent. Notwithstanding anything else in this Section 8.1, there shall be no obligation to
indemnify if the Claim or Damage is due to the willful misconduct or gross negligence of the DHL
Indemnified Parties. It is, however, the express intent of the Parties that the foregoing
indemnity obligation shall be without regard to the cause or causes thereof and whether or not such
cause or causes may be the result of the negligence of the DHL Indemnified
25
Parties, be it sole, joint, concurrent, comparative, active, passive or imputed. For the
avoidance of doubt, the foregoing indemnity obligation shall apply to aircraft of third parties
utilized in the performance of this Agreement.
8.2 Indemnities by DHL
Except as provided in Section 8.3 and except cargo claims in the event of a total Aircraft
loss, DHL shall bear all liability for, and shall indemnify, defend and hold harmless Company,
together with its directors, officers, employees, assignees, agents, subcontractors, shareholders
and Affiliates (other than the Company) (collectively, the Company Indemnified Parties) from and
against any Claims or Damages (including, without limitation, any Claim in tort, whether or not
arising from the negligence of the Company Indemnified Parties and without regard to whether or not
such negligence is sole, joint, concurrent, comparative, active, passive or imputed) which may be
asserted against, incurred or suffered by, be charged to or recoverable from the Company
Indemnified Parties in connection with the loss, delay in delivery, damage to, or any other claim
relating to, DHL Material (except as set forth in Section 8.3, below), other than with respect to
Taxes, which shall be governed exclusively by Section 15.8, or with the death of or injury to
personnel of DHL, its agents and /or subcontractors while acting in connection with the performance
of this Agreement.
The foregoing indemnity obligation shall apply whether or not such Claim be groundless, false
or fraudulent. Notwithstanding anything else in this Section 8.2, there shall be no obligation to
indemnify if the Claim or Damage is due to the willful misconduct or gross negligence of the
Company Indemnified Parties. It is, however, the express intent of the Parties that the foregoing
indemnity obligation shall be without regard to the cause or causes thereof and whether or not such
cause or causes may be the result of the negligence of the Company Indemnified Parties, be it sole,
joint, concurrent, comparative, active, passive or imputed.
8.3 Limitations on Indemnification
In no event shall either Party be held liable to the other, and each Party hereby expressly
waives any claim it may have against the other, for incidental, consequential, special or punitive
damages of any kind, including loss of market or future profits.
8.4 Survival of Indemnities
The indemnification obligations under this Section 8 shall survive the termination of this
Agreement and shall remain in effect for a period of one (1) year from the date of any such
termination.
8.5 Notification of Claim
The Indemnified Party shall promptly notify the Indemnifying Party of the existence of any
Claim to which the Indemnifying Partys indemnification obligations might apply; provided, however,
that the failure to give such notice (other than notice of the commencement of a legal proceeding)
shall not adversely affect any right of indemnification under the Agreement. The Indemnifying
Party shall be entitled to control the defense of any such legal proceedings, through legal counsel
reasonably satisfactory to the Indemnified Party, at the sole expense of the
26
Indemnifying Party, and the Indemnified Party shall cooperate and consult with the
Indemnifying Party in the defense of such Claim and shall have the right, but not the obligation,
to participate in the defense at its own expense. If the Indemnifying Party elects not to direct
such defense, the Indemnified Party will have the right, at its own discretion, to direct such
defense at the Indemnifying Partys sole expense. The Indemnifying Party shall have the right to
compromise or settle, with the Indemnified Partys prior written approval (such approval not to be
unreasonably withheld), any claim or litigation regarding which it is required to indemnify. If
the Indemnified Party refuses to approve any compromise or settlement recommended by the
Indemnifying Party which would have concluded such claim or litigation but for the Indemnified
Partys failure to give approval, the Indemnifying Partys liability to the Indemnified Party
hereunder with respect to any such claim or litigation shall not exceed the amount which the
Indemnifying Party would have paid pursuant to such proposed compromise or settlement.
9.
Insurance
. Each Party expressly covenants and agrees to procure, carry and maintain insurance
as specified below. Within seven (7) days of the date first above written, and on each and every
renewal of the insurances, during the term of this Agreement each Party shall furnish the other
with a certificate of insurance pertaining to each such insurance policy. Each shall ensure that
its insurance policies name the other Party as an additional insured. Each Party shall further
ensure that its policies provide that its insurance coverage shall continue unaltered for the
benefit of the additional insured for at least thirty (30) days after written notice by registered
mail or facsimile of any cancellation, material adverse change, or event of non-payment of premium,
except in the case of war risks coverage for which seven (7) days prior written notice will be
given. During the term of this Agreement, each Party shall at its sole cost and expense maintain
in full force and effect the following insurance with insurers and through such insurance brokers
as it shall deem appropriate and which the other Party finds reasonably acceptable (the Required
Insurance):
9.1
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Company insurance shall include:
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9.1.1
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Hull All Risks and Hull War and Allied Perils insurances covering
Companys aircraft against all risks of loss or damage. Such insurances shall
provide a waiver of insurers rights of subrogation against DHL, its officers,
agents, subcontractors, servants, employees, successors and assigns; and
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9.1.2
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Aircraft Third Party, passenger, baggage, cargo, mail and Aviation
General Third Party Legal Liability and War Liability and Allied Perils for a
Combined Single Limit (Bodily Injury/Property Damage) [*]. Such insurance shall
include coverage of risk of loss of cargo and mail carried on the Aircraft, which
shall be in an amount of [*] for any one occurrence and may be satisfied either as
a separate policy or as an element of coverage in the policy described in the first
sentence of this Section 9.1.2.
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9.2
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DHL insurance shall include:
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9.2.1
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Cargo and mail insurance in sufficient amount to cover all risk of
loss of DHL Material tendered under this Agreement, [*]; and
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9.2.2
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DHL shall be responsible for any additional war risks premium
surcharges or other additional charges applicable as a result of operations to,
through or over any geographical areas that are not covered under Companys
standard policies.
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9.3
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All insurance specified above shall:
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9.3.1
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Include the other Party and its directors, officers, agents, servants,
employees and subcontractors as additional assured (the Additional Assured) for
their respective rights and interests;
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9.3.2
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Provide that all provisions, except the limits of liability, shall
operate in the same manner as if there were a separate policy issued to each
assured;
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9.3.3
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Be primary and without right of contribution from any other insurance
which may be available to or maintained by the Additional Assured;
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9.3.4
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Provide that the cover afforded to the Additional Assured by the
policy shall not be invalidated by any act or omission (including misrepresentation
or non-disclosure) of any other Person or party which results in a breach of any
term, condition or warranty of the policy provided that the Additional Assured so
protected has not caused, contributed to or knowingly condoned the said act or
omission; and
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9.3.5
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Provide not less than thirty (30) days prior written notice of
cancellation or material alteration of the Required Insurance except that in the
case of war and allied perils such period of notice shall be seven (7) days or such
lesser period as may be available in accordance with policy conditions. Notice will
not however be given at normal expiry date or in the event of non-renewal.
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9.4
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Each Party shall bear primary responsibility for the handling and payment of claims with
respect to the matters covered by its Required Insurance.
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10.
Representations and Warranties
10.1
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Company hereby represents and warrants as follows:
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10.1.1
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Status
. Company has been properly formed as a company with limited
liability and has since been maintained in accordance with all Regulations
applicable to it and has the power to carry on its business as it is now being
conducted;
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10.1.2
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Non-conflict
. In entering into this Agreement and carrying out its
obligations hereunder Company does not contravene or breach any constitutional
document, Regulation, obligation, covenant or warranty applicable to it;
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10.1.3
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Power and authority
. Company has the power and has obtained the
authorizations necessary to enter into this Agreement and to carry out its
obligations hereunder;
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10.1.4
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Legal validity
. Companys obligations under this Agreement are legal,
valid, binding and enforceable against it;
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10.1.5
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No Event of Default
. No Event of Default has occurred and is continuing
or would occur as a result of Companys execution of this Agreement or the
performance of any of its obligations hereunder;
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10.1.6
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Airworthiness
. Each Aircraft shall at all times during the term of this
Agreement be covered by a currently valid Certificate of Airworthiness issued by
the FAA and Company shall operate, maintain, service and repair the Aircraft,
including spare engines and spare parts, in all material respects in accordance
with all Regulations, including the Maintenance Program, and the terms hereof. In
circumstances where aircraft or crews are provided by a third party (other than DHL
or an Affiliate of DHL) on behalf of Company, Company shall procure the equivalent
representations and warranties on the part of the third party to the extent
reasonably possible;
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10.1.7
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Operational Control
. Company shall (i) be solely responsible for the
operational control of the Company aircraft; (ii) operate such aircraft in all
material respects in a safe, skilled and competent manner and in accordance with
all applicable Regulations, including noise, environmental and emissions standards
and requirements; and (iii) provide qualified flight crews for each Flight in
accordance with such Regulations. In circumstances where aircraft or crews are
provided by a third party (other than DHL or an Affiliate of DHL) on behalf of
Company, Company shall procure the equivalent representations and warranties on the
part of the third party to the extent reasonably possible.
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10.2
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DHL hereby represents and warrants as follows:
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10.2.1
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Status
. DHL has been properly formed as a company with limited liability
and has since been maintained in accordance with all Regulations applicable to it
and has the power to carry on its business as it is now being conducted;
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10.2.2
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Non-conflict
. In entering into this Agreement and carrying out its
obligations hereunder DHL does not contravene or breach any constitutional
document, Regulation, obligation, covenant or warranty applicable to it;
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10.2.3
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Power and authority
. DHL has the power and has obtained the
authorizations necessary to enter into this Agreement and to carry out its
obligations hereunder;
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10.2.4
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Legal validity
. DHLs obligations under this Agreement are legal, valid,
binding and enforceable against it;
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10.2.5
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No Event of Default
. No Event of Default has occurred and is continuing
or would occur as a result of DHLs execution of this Agreement or the performance
of any of its obligations hereunder.
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10.2.6
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Financial Condition, etc
. DHL has, as of the date of this Agreement and
for the duration thereof, sufficient funds in an aggregate amount sufficient to
pay the amounts payable to the Company under this Agreement and all contemplated
fees and expenses related thereto when due.
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11.
Assignment
Neither Party shall assign this Agreement, or any rights or obligations arising hereunder, to
any third party without the prior written consent of the other Party; except that DHL shall be
entitled to assign its rights and obligations hereunder to another entity (or entities) that is a
wholly owned subsidiary of Deutsche Post AG able to perform the terms and conditions of DHL
hereunder,
provided
that performance by such transferee continues to be guaranteed under
the BSA Guarantee (or a Replacement Guarantee).
12.
Notices
All notices, requests, demands and other communications hereunder shall be in writing,
transmitted by facsimile or DHL Express to the addresses set forth below or to such other addresses
or facsimile numbers as either Party may have advised to the other Party in writing pursuant to
this Section 12, and shall be deemed effective two (2) business days after dispatch by confirmed
fax or tracking confirmation of receipt via DHL Express overnight delivery. In any event, a Party
receiving notice hereunder shall acknowledge receipt thereof as soon as practicable by facsimile,
DHL Express overnight delivery or mail; however, failure to so acknowledge will not vitiate or
otherwise render ineffective any notice duly given hereunder.
If to the Company, to:
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Polar Air Cargo Worldwide, LLC
c/o Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue
Purchase, NY 10577-2543
Facsimile number: 914-701-8333
Attention: Adam R. Kokas, Esq.
Senior Vice President, General
Counsel, and Secretary
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and with a copy to:
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Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Facsimile number: (617) 951-7050
Attention: Hemmie Chang, Esq.
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If to DHL, to:
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DHL Aviation Legal Department
c/o EAT, Building 3
Brussels National Airport
B-1930 Zaventern, Belgium
Facsimile number: +32 2 718 1520
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DHL Express
Karl-Legien-Strasse 186
53117 Bonn, Germany
Facsimile number: +49 228 182 30405
Attention: Charles Graham
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Each Party may specify a different address or facsimile number by giving notice in accordance
with this Section 13.1 to the other Party hereto.
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13.
Force Majeure
13.1
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Force Majeure Event
means acts or events not within the control of the Party bound
to perform and which, by exercise of due diligence, such Party is unable to overcome. A Force
Majeure Event includes acts of God, seizure, severe weather to the extent that it prevents
aircraft operations in the relevant region or airport, strikes, labor stoppage, lockouts, or
other industrial disturbances, acts of the public enemy, acts of terrorism, national
emergency, war (including a call up and required performance of any of the Aircraft by U.S.
authorities under the Civil Reserve Air Fleet (CRAF) or related government program, or for
Air Mobility Command or CRAF flights), shutdown of airspace, embargoes, blockades, riots,
epidemics, lightning, earthquakes, floods, tornadoes, explosions, failure of public utilities,
and any other causes not within the control of the Party claiming such event. For the
avoidance of doubt, a Force Majeure Event shall not include any mechanical breakdown of any
aircraft, unless such mechanical breakdown is caused by a Force Majeure.
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13.2
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Upon occurrence of a Force Majeure Event, the affected Party shall give prompt notice to the
other Party of such event. Upon giving such notice, and continuing during the period of a
Force Majeure Event, all obligations of the Parties hereunder affected by such Force Majeure
event shall be suspended until such event is no longer materially effecting the services to be
rendered hereunder. The payment for all services provided up to the occurrence of Force
Majeure Event shall not be effected by such event and shall be payable when due. If the
performance of this Agreement either as a whole or affecting one or more Aircraft shall be
materially prevented or delayed by reason of a Force Majeure Event for a period of more than
thirty (30) days, then either Party shall have the option to terminate this Agreement in its
entirety or with respect to the affected Aircraft, respectively, upon written notice to the
other Party;
provided
,
however
, that DHL and Company shall take all
commercially reasonable efforts to make alternative air transport capacity arrangements in
order to avoid terminating this Agreement both in its entirety and with respect to the
affected Aircraft, under this provision.
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14.
Governing Law
This Agreement and the interpretation and performance hereof shall be governed by the
Applicable Laws of the State of New York, USA, and each Party consents to New York as the exclusive
jurisdiction and venue for any legal proceedings, and of the federal and state courts located in
the State of New York, USA for enforcement action.
15.
Miscellaneous
15.1
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Relationship Between the Parties
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Each Party, in its performance under this Agreement, is and shall be engaged and acting as an
independent contractor in its own separate business. Each Party shall retain complete and
exclusive control over its personnel and operations and the conduct of its business. No Party, its
officers, employees or agents shall in any manner make any representation or take any actions which
may give rise to the existence of any employment, agency, partnership or other like
31
relationship between the Parties hereunder. The employees, agents and independent contractors
of each Party shall be and remain employees, agents and independent contractors of such Party for
all purposes, and shall not be deemed to be employees, agents or independent contractors of the
other Party. Neither Party shall have supervisory power or control over any employees, agents or
independent contractors employed or engaged by the other Party (except that Company shall have
supervisory control over all passengers or cargo attendants during any Company-operated flight,
including any employees, agents or contractors of the other Party who are on board any such
flight).
15.2
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Entire Agreement; Amendments; Waivers
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This Agreement sets forth the entire agreement and understanding between the Parties as to the
subject matter hereof, and as of the date of this Agreement merges and supersedes all prior
discussions, agreements and understandings concerning the subjects covered by this Agreement.
Unless expressly provided herein, this Agreement may not be changed or modified except by agreement
in writing signed by both Parties. The waiver by either Party of performance of any term,
covenant or condition of this Agreement in a particular instance shall not constitute a waiver of
any subsequent breach or preclude such Party from thereafter demanding performance thereof
according to the terms hereof.
15.3
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Construction; Severability; Third Party Beneficiary
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This Agreement shall not be construed against the Party preparing it, but shall be construed
as if both Parties jointly prepared it and any uncertainty or ambiguity shall not be interpreted
against either Party. In the event that any one or more of the provisions of this Agreement shall
be determined to be invalid, unenforceable, or illegal, such invalidity, unenforceability or
illegality shall not affect any other provision of this Agreement and the Agreement shall remain in
full force and effect and be construed as if such invalid, unenforceable or illegal provision had
never been contained herein. The Parties shall undertake good faith consultations in order to
replace any such invalid, unenforceable or illegal provision with a replacement provision intended
to accomplish, as near as possible, the purpose and intent of the original such provision.
This Agreement is for the benefit of Company and its stockholders, and AAWW may, upon a
material default hereunder for which AAWW has given Company prior written notice of any action or
remedy it requests Company take in accordance with this Agreement, and Company has not done so
within sixty (60) days following receipt of such notices, enforce the rights of Company on behalf
of Company under this Agreement. Subject to such enforcement right, the Parties hereto shall
continue to have the ability to amend, waive and exercise all rights under this Agreement, and
nothing herein shall affect the governance of Company under the direction of Companys Board of
Directors and management. Except as set forth in the prior sentence, (1) NO PERSON OR ENTITY,
OTHER THAN COMPANY OR DHL, SHALL HAVE ANY RIGHTS, CLAIMS, BENEFITS OR POWERS UNDER THIS AGREEMENT
AND THIS AGREEMENT SHALL NOT BE CONSTRUED OR INTERPRETED TO CONFER ANY RIGHTS, CLAIMS, BENEFITS OR
POWERS UPON ANY THIRD PARTY and (2) THERE ARE NO THIRD-PARTY BENEFICIARIES OF THIS AGREEMENT.
32
15.4
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Execution in Counterparts
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This Agreement may be executed in any number of counterparts (including by facsimile or
electronic transmission), each of which shall be deemed to be an original, but all of which
together shall constitute one binding agreement on the Parties, notwithstanding that not all
Parties are signatories on the same counterpart.
Each of the Parties shall pay the fees and expenses of their own counsel, accountants or other
experts, and all expenses incurred by such Party incident to the negotiations, preparation and
execution of this Agreement.
From time to time, as and when requested by any Party to this Agreement, each other Party
shall execute and deliver, or cause to be executed and delivered, all such documents and
instruments, and shall take, or cause to be taken, all such further or other actions, as such other
Party may reasonably deem necessary or desirable to carry out the intent of this Agreement.
Any and all payments due to the Company hereunder shall be free from, and DHL shall pay and
hold the Company free and harmless from, any and all liability for any and all sales and/or use
taxes, excise taxes and property taxes (including property taxes assessed based on frequency of
operations, time in jurisdiction, time on ground, landings or otherwise), duties, fees,
withholdings, value added taxes, or other similar assessments or charges, including any and all
amount(s) of interest and penalties which may be or become due in connection therewith, imposed or
withheld by any Governmental Entity, or other entity which may be or become due arising out of or
resulting from the terms and conditions of this Agreement and payments hereunder, except for taxes
levied on the income of the Company.
15.8
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Confidentiality and Publicity
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15.8.1
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Each of the Parties shall treat as strictly confidential and shall not reproduce
or use for its own purposes or divulge, or permit to be divulged, to others (i) all
information and data obtained by or from the other Party in connection with this
Agreement, or otherwise related to this Agreement, which is confidential or
proprietary to one of the Parties, including its customers, customer lists,
information and data relating to customers, operations, policies, procedures,
techniques, accounts, computer programs and networks, and personnel (Confidential
Information); and (ii) all information and data which are confidential or
proprietary to a third party and which are in the possession or control of one of
the Parties (Third Party Confidential Information). Each of the Parties shall
limit access to the Confidential Information and Third Party Confidential
Information to its employees having a need to know, and shall, upon reasonable
notice from the other Party or upon termination of this Agreement, return to the
other
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33
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Party all Confidential Information and Third Party Confidential Information in
its possession in whatever form and on whatever medium embodied.
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15.8.2
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The Parties shall not knowingly, directly or indirectly, divulge, communicate or
use to the detriment of the other Party, or for the benefit of any other Person(s),
or misuse in any way, the Confidential Information or Third Party Confidential
Information.
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15.8.3
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The Parties may disclose Confidential Information or Third Party Confidential
Information:
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15.8.3.1
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to professionals engaged by a Party who has a legitimate need to review
this Agreement, the Confidential Information or the Third Party Confidential
Information, and only after such party agrees to be bound by this Article 15;
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15.8.3.2
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as may be required pursuant to subpoena, court order, or request of a
Governmental Entity having jurisdiction over a Party;
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15.8.3.3
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with the consent of the other Party, which may be withheld in that Partys
discretion;
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15.8.3.4
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in an action or other proceeding to enforce or which otherwise concerns
this Agreement; or
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15.8.3.5
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otherwise required by Applicable Law.
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15.8.4
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If a Party receives a subpoena, court order or governmental request calling for
the disclosure of this Agreement, the Party shall notify the other Party to provide
that Party with an opportunity to object to the requested disclosure. However,
nothing herein shall require a Party to violate any subpoena, court order or
governmental request for disclosure.
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15.8.5
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All inquiries from the press concerning the activities of Company or DHL or any
of their Affiliate companies shall be referred to the Companys or DHLs
spokesperson, as appropriate.
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15.9
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Waiver; Drafting and Review; Headings; Authority
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A waiver of any default (including an Event of Default) hereunder shall not be deemed a waiver
of any other or subsequent default hereunder.
Each Party has had an opportunity to review this Agreement, with benefit of legal counsel of
its own choosing if desired, and no adverse rule of construction or interpretation shall be
applied against DHL or Company as the drafting Party of this Agreement.
34
Headings, as used herein, are added for the purpose of reference and convenience only, and
shall in no way be referred to in construing the provisions of this Agreement.
Each signatory to this Agreement warrants and represents that such signatory has full
authority and legal capacity to execute this Agreement on behalf of and intending to legally
bind the Parties hereto.
Signature page follows
35
IN WITNESS WHEREOF, this Blocked Space Agreement has been executed and delivered by the
Parties hereto on the date first above written.
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DHL NETWORK OPERATIONS (USA), INC.
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By:
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/s/ Jon E. Olin
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Name:
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Jon E. Olin
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Title:
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Executive Vice President, General Counsel and
Secretary
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POLAR AIR CARGO WORLDWIDE, INC.
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By:
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/s/ William J. Flynn
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Name:
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William J. Flynn
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Title:
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President and Chief Executive Officer
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[Signature Page to the Blocked Space Agreement]
Attachment 1.1
Definitions
AAP
and/or
AMF
means a non-containerized lower-deck ULD beginning with
stock numbers AAP or PLA.
AAWW
means Atlas Air Worldwide Holdings, Inc.
Action Plan
is defined in Section 7.2.
Additional Assured
is defined in Section 9.3.1.
Additional DHL Material
is defined in Section 2.7.2.
Additional Obligations
is defined in Section 5.4.5.
Affiliate
means, as to any specified Person, each Person directly or indirectly
controlling, controlled by or under common control with such specified Person. For purposes of
this definition, the term control (including the terms controlling, controlled by and under
common control with) means the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a Person, whether through ownership of voting
securities, by contract or otherwise.
Agreement
is defined in the Recitals and is further defined to mean this Agreement,
as amended or supplemented by any amendments or supplements, and the Schedules, Exhibits and
Attachments attached or referred to herein.
Aircraft
means six (6) 747-400F aircraft listed on Companys Air Operators
Certificate.
Aircraft Lease
means each of the following six aircraft leases:
(1) DRY SUBLEASE AGREEMENT (MSN 30808) between Polar as sub-sublessor, and Company, as
sub-sublessee.
(2) DRY SUBLEASE AGREEMENT (MSN 30809) between Polar as sub-sublessor, and Company, as
sub-sublessee.
(3) DRY SUBLEASE AGREEMENT (MSN 30810) between Polar as sub-sublessor, and Company, as
sub-sublessee.
(4) DRY SUBLEASE AGREEMENT (MSN 30811) between Polar as sub-sublessor, and Company, as
sub-sublessee.
(5) DRY SUBLEASE AGREEMENT (MSN 30812) between Polar as sublessor, and Company, as sublessee.
(6) DRY SUBLEASE AGREEMENT (MSN 32838) between Atlas Air, as sublessor, and Company, as
sublessee.
The six aircraft leases listed above shall each constitute an Aircraft Lease as that term is
defined in the Stock Purchase Agreement.
Aircraft Lessor
means either Atlas Air or Polar, as applicable.
Air Transportation Services
is defined in Section 2.5.
AKE
means a type of ULD that is a half width lower deck container with angle on one
end and a canvas or solid door.
ALF
means a containerized lower-deck ULD beginning with stock numbers AAR, P1P, PAG
or PAP.
Alternative Air Transportation Services
is defined in Section 2.5
AMA
means a 96 inch height containerized main-deck ULD beginning with stock numbers
AMA.
AMD
means a ULD that is a contoured main deck upper container and has a canvas door
and built-in net door straps.
AMJ
means a contoured and containerized main-deck ULD used to support MD11
operations.
Ancillary Agreements
means the following agreements:
(a) the Flight Services Agreement among Atlas Air, Polar and Company;
(b) the Aircraft sub-Dry Lease Agreements between Atlas Air and Company;
(c) the Aircraft Wet Lease Agreements between Atlas Air and the Company;
(d) the Shared Services Agreement between Atlas Air and Company; and
(e) the General Sales & Services Agency Agreement between Atlas Air and Company.
Annual Minimum Volume Guarantee
is defined in Section 2.7.4.
Annual Reconciliation
is defined in Section 4.5.
Applicable Law
means, with respect to any Person, any U.S. federal, state or local
or foreign law, statute, standard, ordinance, code, rule, regulation, resolution or promulgation,
constitution, treaty, convention or any order issued by a Governmental Entity that is binding upon
or applicable to such Person.
2
Arrival Criteria for Network Services
is defined in Section 2.8.5.
"
Assumption Expiration Date
is defined in Section 5.4.1.2.
ATA
is defined in Section 2.8.2.
ATD
is defined in Section 2.8.2.
Atlas Air
means Atlas Air, Inc.
Atlas Assumption
is defined in Section 5.4.6.
Atlas Lessee
is defined in Section 5.4.6.
BSA Commencement Date
means October 31, 2008 or such earlier date as DHL begins
placing the DHL Material on services operated by the Company pursuant to the terms of this
Agreement.
BSA Guarantee
the BSA Guarantee Agreement dated as of the date hereof by DP
Guarantor, in favor of the Company.
Blocked Space Fee
is defined in Section 3.1.
Blocked Space Rates
is defined in Section 2.4.
Business
means the scheduled airport-to-airport air cargo transportation services
conducted by Company.
Cancelled
is defined in Section 2.8.5.
[*].
[*].
Change of Control
means
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(i)
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any merger, consolidation or other business combination with or into
any other entity, or any other similar transaction, whether in a single transaction
or series of related transactions where: (a) following such transaction, the
stockholders of AAWW immediately prior to such transaction in the aggregate cease
to own less than [*] of the voting securities of the entity
surviving or resulting from such transaction (or the ultimate parent thereof) (such
ownership being based solely on the voting securities of AAWW owned by stockholders
immediately prior to such event) or (b) any [*] or [*] becomes the beneficial owner of more than [*] of the voting
securities of the entity surviving or resulting from such transaction (or the
ultimate parent thereof);
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3
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(ii)
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any transaction or series of related transactions after which
in excess of [*] of AAWWs voting power is held by a [*] or [*]
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(iii)
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any sale, transfer, lease, assignment, conveyance, exchange, mortgage
or other disposition, in one or a series of related transactions, of all or
substantially all of the assets, property or business of AAWW to any third party,
other than any transaction in the ordinary course of AAWWs business involving
aircraft; or
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(iv)
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if, during any period of [*], individuals who at the beginning of such
period constituted the directors of AAWW (together with any new directors whose
election by such directors or whose nomination for election by the stockholders of
AAWW was approved by a vote of a majority of the directors of AAWW then still in
office who were either directors at the beginning of such period or whose election
or nomination for election was previously so approved and together with any
directors who are Affiliates of DHL) cease for any reason to constitute a majority
of the directors of AAWW then in office and such directors are replaced by Persons
designated by a [*] or [*].
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Claims
means any threatened, pending or completed third-party claim, demand, action,
suit or proceeding, whether civil, arbitral, criminal, administrative, or investigative, and
whether formal or informal.
COC Termination Period
is defined in Section 5.3(a).
Company
is defined in the Recitals.
Company Indemnified Parties
is defined in Section 8.2.
Confidential Information
means all information and data obtained by or from the
other Party in connection with this Agreement, or otherwise related to this Agreement, which is
confidential or proprietary to one of the Parties, including its customers, customer lists,
information and data relating to customers, operations, policies, procedures, techniques, accounts,
computer programs and networks, and personnel.
Contingency Plan
is defined in Section 2.5.
Contractual Obligation
means, with respect to any Person, any written contract,
agreement, deed, mortgage, lease, license, indenture, note, bond or other documents or instrument
to which or by which such Person is legally bound.
Control
or
Controlled
shall be construed as defined under the Securities
Act of 1933 or the Securities Exchange Act of 1934 as promulgated by the U.S. Securities Exchange
Commission and from time to time in effect.
Core Network
is defined in Section 2.1.
4
Core Service
is defined in Section 2.2
CRAF
is defined in Section 13.1.
Damage
means any loss, cost (including reasonable legal fees and expenses), damage,
expense, action, suit, proceeding, judgment, claim, fine, amount paid in settlement, obligation or
other liability of any nature whatsoever, whether joint or several (including, without limitation,
all fees and expenses incurred by an Indemnified Party in establishing the right to indemnification
hereunder).
Departure Criteria
means the Departure Criteria for ACMI Services and the Departure
Criteria for Network Services.
Departure Criteria for ACMI Services
is defined in Section 2.8.3.
Departure Criteria for Network Services
is defined in Section 2.8.4.
DHL
is defined in the Recitals.
DHL Assumption
is defined in Section 5.4.1.2.
DHL Assumption Notice
is defined in Section 5.4.1.2.
DHL Blocked Space
is defined in Section 2.3.
DHL Lessee
is defined in Section 5.4.1.2.
DHL Material
means any and all of the air cargo products of DHL and its subsidiary
or Affiliated companies, and makes no distinction between the products that DHL offers to its
customers in regard to: price, speed, size, commodity, service commitment, or traffic documentation
of those products whatsoever. For the avoidance of doubt DHL Material shall have the broadest
possible meaning with regard to any and all materials capable of air transport.
DHL Core Material
means air express materials that constitute DHLs principal
express business and that are usually carried under a DHL house airway bill.
DHL Indemnified Parties
is defined in Section 8.1.
Dispute
means any genuine disagreement between the Parties arising out of a Partys
performance under this Agreement.
DOT
means the United States Department of Transportation.
DP Guarantor
means Deutsche Post AG, a corporation organized under the laws of
Germany.
Event of Default
is defined in Section 5.2.
Existing Sublease
is defined in Section 5.4.1.2.
5
FAA
means the United States Federal Aviation Administration.
FARs
is defined in Section 6.5.
Flight
is defined in Section 2.2.
Force Majeure Event
Is defined in Section 13.1.
Full Service Failure
is defined in Section 2.8.5.
Gap Period
is defined in Section 5.4.1.3.
Gap Period Payment
is defined in Section 5.4.1.3.
Governmental Entity
means any U.S. or non-U.S. federal, state or local government,
court, board, commission, regulatory or administrative agency or any department, bureau, branch or
other subdivision of any of the foregoing.
Ground Handling Criteria
means those criteria set forth in Section 2.8.6.
Holiday
means a day fixed by Applicable Law or custom on which ordinary business is
suspended in commemoration of some event or in honor of some Person in a jurisdiction relevant to
the Core Network.
IATA
is defined in Section 2.7.1.1.
ICAO
means the International Civil Aviation Organization.
Independent Services
is defined in Section 2.11.
Leases
is defined in Section 5.4.1.2.
Level 1 Arrival Time
is defined in Section 2.8.5.
Level 2 Arrival Time
is defined in Section 2.8.5.
Liquidated Damages
is defined in Section 5.4.1.1.
Liquidated Damages Payment
is defined in Section 5.4.1.1.
Management Escalation Procedure
is as set forth in Section 7.
Maintenance Program
means a maintenance program approved by the relevant civil
aviation authority for the Aircraft in accordance with the manufacturers specifications, including
servicing, testing, preventative maintenance, repairs, structural inspections, system checks,
overhauls, approved modifications, service bulletins, engineering orders, airworthiness directives,
corrosion control, inspections and treatments.
Measurement Period
is defined in Section 2.8.2.
6
Monthly Charges
is defined in Section 4.2.
MOP
is defined in Section 2.9.2.
Net Cost of the Core Network
is defined in Attachment 3.2.
New Subleases
is defined in Section 5.4.1.2.
OFAC
is defined in Section 6.7(c).
On-time
is defined in Section 2.8.4.
On-Time Level 1 Arrival
is defined in Section 2.8.5.
Operations Council
is defined in Section 7.2.
Over Pivot
is defined in Section 3.3.
Pallet
means any of the IATA defined ULDs including, but not limited to, PMC, PAG
and P1P.
Partial Service Failure
is defined in Section 2.8.5.
Party
and
Parties
are defined in the Recitals.
Performance Report
is defined in Section 2.8.2.
Person
means any individual or corporation, association, partnership, limited
liability company, joint venture, joint stock or other company, business trust, organization,
Government Entity or other entity of any kind.
Polar
means Polar Air Cargo LLC.
Put/Call Agreement
is defined in Section 5.1.
Regulations
means any Applicable Law or regulation (including any internal corporate
regulation), official directive, or recommendation, mandatory requirement that applies to a Party,
the Aircraft or the operation of the Core Network under this Agreement.
Related Lease Documents
is defined in Section 5.4.1.2.
Replacement Guarantee
is defined in Section 5.5.
Required Insurance
is defined in Section 9.
Responsible Managers
is defined in Section 7.1.
Rules
is defined in Section 7.4.
7
SABLE Licensing Agreement
is defined in Section 2.9.3.
Schedule
is defined in Section 2.2.
Scheduled On-Time
is defined in Section 2.8.5.
Section 2.8.7.2 Dispute
means any Dispute between the Parties about whether an Event
of Default has occurred pursuant to Section 2.8.7.2.
Section 2.8.7.3 Dispute
means any Dispute between the Parties about whether an Event
of Default has occurred pursuant to Section 2.8.7.3.
Sector
means an origin, destination pair regardless of intermediate points or stops.
A Sector may comprise more than one flight.
Service Failure
is defined in Section 2.8.4.
SLU
means a shipper loaded unit; i.e., a ULD containing cargo loaded by the shipper
and tendered to the operating carrier already packaged for air transportation.
STA
is defined in Section 2.8.2.
STD
is defined in Section 2.8.2.
Term
is defined in Section 5.1.
Termination for Convenience
is defined in Section 5.1.
Third Party Confidential Information
means all information and data which are
confidential or proprietary to a third party and which are in the possession or control of one of
the Parties.
Transportation Security Administration
means the United States Transportation and
Security Administration.
Twice-monthly Payment
is defined in Section 4.1.
ULD
means a unit load device; i.e., a unit in which cargo is bulk loaded and
subsequently loaded as a unit into an aircraft.
[*] Fee
is defined in Section 3.2.
8
Exhibit 10.3
EXECUTION COPY
FLIGHT SERVICES AGREEMENT
Between
Atlas Air, Inc.
and
Polar Air Cargo Worldwide, Inc.
DATED JUNE 28, 2007
[*] = Portions of this exhibit have been omitted pursuant to a Confidential Treatment Request.
An unredacted version of this exhibit has been filed separately with the Commission.
EXECUTION COPY
TABLE OF CONTENTS
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Page
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WITNESSETH:
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3
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ARTICLE 1. Primary Obligations
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3
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ARTICLE 2. Assignment and Supervision of Flight Crewmembers
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4
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ARTICLE 3. Flight Crewmember Salary, Benefits and Allowances
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5
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ARTICLE 4. Maintenance Services; Related Operational Responsibilities
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6
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ARTICLE 5. Insurance Procurement and Administration
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7
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ARTICLE 6. Additional Responsibilities
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7
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ARTICLE 7. Operational Control
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10
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ARTICLE 8. Compensation
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11
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ARTICLE 9. Liability and Indemnity
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12
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ARTICLE 10. Insurance
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14
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ARTICLE 11. Force Majeure
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15
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ARTICLE 12. Preferred Customer Status, Alternative Suppliers and Additional Services
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16
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ARTICLE 13. Termination
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16
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ARTICLE 14. Taxes
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18
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ARTICLE 15. Assignment
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18
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ARTICLE 16. Foreign Government Requirements
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19
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ARTICLE 17. Conformity With Laws and Conventions
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19
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ARTICLE 18 Applicable Law and Jurisdiction.
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19
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ARTICLE 19. Confidentiality/Publicity
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19
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ARTICLE 20. Further Cooperation
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21
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ARTICLE 21. Merger/Modification
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21
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ARTICLE 22. Authorizations
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21
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ARTICLE 23. Miscellaneous
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21
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ANNEX A
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ANNEX B
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ATTACHMENT I
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2
FLIGHT SERVICES AGREEMENT
THIS FLIGHT SERVICES AGREEMENT (the/this Agreement), made and entered into this 28th day of
June, 2007 (the Effective Date), between ATLAS AIR, INC., a Delaware Corporation, having its
principal operating office at 2000 Westchester Avenue, Purchase, New York 10577, USA (ATLAS) and
POLAR AIR CARGO WORLDWIDE, INC., a Delaware Corporation having its principal place of business at
2000 Westchester Avenue, Purchase, NY 10577, USA (COMPANY) (each, a Party; collectively, the
Parties).
WITNESSETH:
WHEREAS, ATLAS is prepared to offer to COMPANY services that include aircraft maintenance,
insurance coverage and, at a future date, the provision of flight crew under a crew, maintenance,
and insurance (CMI) agreement memorialized herein; and
WHEREAS, in order to complement its own operational capability, COMPANY desires to avail
itself of the aforementioned services offered by ATLAS under such an agreement;
NOW, THEREFORE, in consideration of the foregoing, together with the mutually agreed upon
terms and conditions contained herein, the Parties agree as follows:
ARTICLE 1.
Primary Obligations
1.1. From and after the Effective Date, ATLAS shall provide comprehensive aircraft, engine
and component maintenance and maintenance services and hull and third party liability insurance
and insurance administration for six (6) Boeing 747-400F aircraft (the 400F Aircraft), as more
fully identified in
Annex A
hereto, which by this reference is made a part hereof, and one
(1) Boeing 747-200F aircraft (the Classic Aircraft), as more fully identified in
Annex
A
, all of which shall be referred to collectively as the Aircraft.
1.2. From and after the Effective Date, ATLAS shall provide flight crewmember travel and
administration services for those crew complements and individuals operating the Aircraft
(respectively, Flight Crewmembers and Flight Crews). Initially, such individuals shall be
employed by COMPANY (COMPANY Flight Crewmembers and COMPANY Flight Crews, respectively). At
such time as a single collective bargaining agreement covering ATLAS and theretofore COMPANY
Flight Crewmembers (the SCBA) is negotiated and takes effect (the SCBA Date), all COMPANY
Flight Crewmembers, with the exception of those retained by COMPANY in managerial positions, such
as directors of operations, maintenance, safety and quality assurance, and chief pilot, shall be
transferred to ATLAS and become ATLAS employees, and ATLAS shall thereafter provide qualified
Flight Crewmembers to COMPANY in sufficient numbers and of sufficient qualifications to operate
the Aircraft. Each Flight Crewmember assigned by ATLAS from and after the SCBA Date pursuant to
this Agreement shall be referred to as an Assigned Crewmember and a crew complement adequate to
operate an Aircraft from and after the SCBA Date shall be referred to
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as an Assigned Crew. The term Assigned Crewmember shall be deemed a subset of the term
Flight Crewmember and the term Assigned Crew shall be deemed a subset of the term Flight
Crew.
1.3. From and after the Effective Date, ATLAS shall provide specified services to support
COMPANYS operations as a stand-alone U.S.-certificated airline holding out scheduled air cargo
services to the general shipping public. All services provided by ATLAS to COMPANY pursuant to
this Agreement shall comply with COMPANYS FAA (defined below) approved operations programs,
policies and procedures.
1.4. The term of this Agreement (the Term) shall commence on the Effective Date and extend
until twenty (20) years following the date of commencement of the air transport capacity
commitments under that certain Blocked Space Agreement between DHL Network Operations (USA), Inc.
(DHL) and COMPANY of even date hereof (the agreement being termed the BSA and the commencement
date of DHLs obligations to purchase capacity thereunder, the BSA Commencement Date), subject
to early termination as set forth in Article 13 hereunder and, with respect to the Classic
Aircraft, in this Section 1.4. The Classic Aircraft shall be removed automatically from this
Agreement as of the BSA Commencement Date unless COMPANY gives ATLAS sixty (60) days prior
written notice of continuation. If the Classic Aircraft is continued beyond the BSA Commencement
Date, then commencing on and continuing after the BSA Commencement Date, either Party to this
Agreement shall have the right to remove the Classic Aircraft by giving the other Party one
hundred eighty (180) days prior written notice.
1.5. Unless otherwise directed by COMPANY, flights of the Aircraft (the Flights) shall be
operated in accordance with COMPANYS schedule(s) (the Schedule(s)) specified in
Annex
A
. Such Schedule(s) may be amended from time to time in accordance with the procedures set
forth in
Annex A
or as otherwise mutually agreed upon by the Parties.
1.6. Certain agreements of the Parties hereto relating to the Aircraft Leases as defined in
Attachment I hereto are set forth in Attachment I hereto, which is hereby incorporated by
reference in this Agreement.
ARTICLE 2.
Assignment and Supervision of Flight Crewmembers
2.1. Until the SCBA Date, the Aircraft shall be operated by Flight Crewmembers employed and
supervised by COMPANY. Commencing on and continuing after the SCBA Date, ATLAS shall provide to
COMPANY and COMPANY shall utilize Assigned Crews comprised of Assigned Crewmembers who are duly
qualified and hold current licenses and type ratings necessary to operate the Aircraft according
to the Schedules. Such Assigned Crewmembers shall be and remain employees of ATLAS. They shall
be properly certified in accordance with the rules and regulations of the U.S. Federal Aviation
Administration (FAA) and the International Civil Aviation Organization (ICAO), and shall
comply with the laws and requirements of all countries whose rules and regulations may apply under
this Agreement to the extent not in conflict with FAA rules and regulations.
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2.2. The terms and conditions of rostering, duty and rest times of Flight Crewmembers shall
be initially in accordance with the collective bargaining agreement in effect between such Flight
Crewmembers and Polar Air Cargo, Inc. on the Effective Date and, after the SCBA Date, in
accordance with the SCBA and, in any event, shall not be in violation of limitations established
by the FAA.
2.3. At all times when this Agreement is in effect, COMPANY shall have the authority and
responsibility to supervise, direct and control Flight Crewmembers, including Assigned
Crewmembers, during the performance of Flight Duties and on Duty Assignment at or away from Base.
For purposes of this Agreement, the term Flight Duties means any duties or responsibilities
performed aboard an Aircraft whether for purpose of operating the Aircraft, giving or receiving
training, receiving checks, checking or observing the performance of other Flight Crewmembers.
The term Duty Assignment means any duties or responsibilities other than Flight Duties. The
term Base means the common domicile of Flight Crewmembers from which operations are conducted.
ARTICLE 3.
Flight Crewmember Salary, Benefits,Allowances and Other Costs
3.1. For administrative purposes, until the SCBA Date, and subject to reconciliation pursuant
to Section 3.3 of Annex A, salaries, employee compensation and benefits of COMPANY Flight
Crewmembers, including but not limited to sick leave, workers compensation (or similar), payments
arising from furlough or severance, life and medical insurance, per diem compensation, all
employee-related taxes and insurance premiums to maintain the coverage required by Section 3.2
(collectively, Flight Crewmember Costs) shall be paid in the first instance by COMPANY, and
then charged back to ATLAS and netted against payments due to ATLAS under this Agreement, as set
forth in Section 8.2 and Annex A, Article 3 of this Agreement. After the SCBA Date, Flight
Crewmember Costs of Assigned Crewmembers shall in all instances be paid by ATLAS.
3.2. It is the Parties intent that, notwithstanding the above administrative payment
provisions, ATLAS shall bear exclusive responsibility, subject to Section 3.4, both before and
after implementation of the SCBA, for all (i) Flight Crewmember Costs, consisting of COMPANY
Flight Crewmember costs and Assigned Crewmember costs; (ii) any costs associated with the transfer
of COMPANY Flight Crewmembers to ATLAS pursuant to the implementation of the SCBA; and (iii) any
employment-related costs due to or arising out of any change to the terms or interpretation of the
collective bargaining agreement applicable to Flight Crewmembers since 21 July 2006 (the
Applicable CBA). To the extent that, notwithstanding ATLAS responsibility for such costs,
COMPANY incurs any of the above costs, they shall be charged back to ATLAS and netted against
payments due to ATLAS under this Agreement, as set forth in Section 8.2 and Annex A, Article 3.
ATLAS responsibility for such costs under this Section 3.2 is an affirmative obligation to
COMPANY, enforceable directly by DHL on behalf of COMPANY against ATLAS pursuant to Section 23.4
of this Agreement. For the avoidance of doubt, COMPANYs sole responsibility to ATLAS in relation
to CMI-related costs shall be the compensation stated in Article 2 of Annex A of this Agreement
and costs specifically assigned to COMPANY pursuant to this Agreement.
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3.3. Until the SCBA Date, COMPANY shall provide the applicable insurance with respect to
Flight Crewmembers under its own employers liability (or similar) insurance coverage. Commencing
with the SCBA Date, ATLAS shall cause COMPANY to be named as an additional insured with respect to
Assigned Crewmembers under its own employers liability (or similar) insurance coverage.
3.4. Notwithstanding anything to the contrary in this Agreement, ATLAS shall not be
responsible for the costs related to restrictions on or transfer of COMPANYs assets or operations
to which COMPANY would otherwise have been subject as a result of the Applicable CBA, which shall
continue to be the responsibility of COMPANY.
ARTICLE 4.
Maintenance Services; Related Operational Responsibilities
4.1. ATLAS shall perform, in a timely and complete manner under the supervision of COMPANY,
the maintenance obligations of COMPANY under each of the Aircraft Leases with respect to the 400F
Aircraft and the lease with respect to the Classic Aircraft (collectively, the Lease
Agreements). ATLAS maintenance-related responsibilities may be specified in more detail in
supplemental implementing agreements between ATLAS and COMPANY, as reasonably required by the FAA.
4.2. Further, ATLAS shall provide all maintenance of and maintenance administration for the
Aircraft, their engines and their components, including but not limited to A, C and D checks,
compliance with all Airworthiness Directives, Service Bulletins and similar requirements to be
performed by COMPANY under the Lease Agreements, line maintenance, heavy and line maintenance
program planning and engineering support, towing for maintenance purposes, ferry flights, hangar
fees, and local maintenance assistance.
4.3. The Aircraft shall be maintained in accordance with COMPANYS FAA approved Maintenance
Program. ATLAS shall endeavor to comply with any additional requirements imposed by any foreign
governmental authority with which COMPANY must comply in order to perform its obligations under
the BSA;
provided
that such requirements are not in conflict with FAA or U.S. Department
of Transportation (DOT) regulations and that all additional costs or charges relating thereto
shall be for COMPANYS account and shall be considered pursuant to the procedure set forth in
Section 1.4 of
Annex A
of this Agreement.
4.4. In the event that one or more Aircraft are required to be taken out of service in order
to perform C and D check maintenance pursuant to this Section 4, then ATLAS shall provide a
replacement aircraft with similar economics, payload capacity and fuel burn characteristics,
pursuant to the terms of that certain Standby Aircraft Wet Lease Agreement between the Parties of
even date hereof (the ACMI Agreement). In such case, any Block Hours flown by such replacement
aircraft shall be compensated according to the terms of the ACMI Agreement and, after the BSA
Commencement Date, shall count towards the Monthly Minimum Block Hour Guarantee.
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ARTICLE 5.
Insurance Procurement and Administration
5.1. ATLAS shall, at its own cost and expense (except with respect to certain additional war
risk insurance premium surcharges and other additional insurance charges referenced in Section
5.2), procure and maintain insurance coverages required to be maintained by COMPANY under the
terms of Section 9.1.1 and 9.1.2 of the BSA and
Annex B
to each of the Lease Agreements.
ATLAS also shall assume such administrative responsibilities as may fall on COMPANY in connection
with actual and potential claims under such insurance policies. ATLAS shall be entitled to adjust
and self-insure deductible amounts of any of the insurance coverages required to be maintained
under the above terms, provided that such self insurance is consistent with industry norms and
practices. To the extent that the requirement of COMPANY to provide coverage for risk of loss of
cargo and mail carried on the Aircraft after the BSA Commencement Date in an amount not less than
Fifty Million U.S. Dollars (US $50,000,000) for any one occurrence requires an increased premium
by the insurance underwriters, such increased premium shall be at COMPANYS expense. If DHL
requests that the coverage required by the preceding phrase be provided via a separate or
stand-alone policy (separate and apart from that coverage included in Atlas Air Worldwide
Holdings, Inc. (AAWW) or ATLAS aviation hull and liability insurance), then increased costs, if
any, of such separate or stand-alone policy shall be at COMPANYS expense and shall be in an
amount equal to the costs of such policy minus any reduction in cost accruing to AAWW or ATLAS as
a result of such separation of such policy from the existing coverage.
5.2. The policy territory of each type of insurance specified above shall be worldwide,
subject to such territorial exclusions as may be usual and customary in the worldwide airline
insurance industry. COMPANY shall be responsible for any additional war risks premium surcharges
or other additional charges applicable as a result of operations to, through or over any
geographical areas that are not covered under a standard insurance policy.
ARTICLE 6.
Additional Responsibilities
6.1. The specific responsibilities of ATLAS shall include:
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(a)
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After the SCBA Date, supplying the Assigned Crews in accordance with the
requirements of this Agreement;
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(b)
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Providing all travel and hotel administration services for the Flight Crews
(unless otherwise agreed by the Parties); and
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(c)
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Securing visas, work permits, endorsements, airport identification/access cards
and other similar documents required in connection with the utilization of Flight
Crewmembers hereunder.
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6.2. Subject to FAA approval, ATLAS shall provide flight planning and dispatch support with
employees supplied to COMPANY;
provided
that if FAA approval cannot be obtained, the Block
Hour Rate referenced and defined in Section 8.1 shall be reduced by an
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amount equal to ATLAS cost to provide such services and COMPANY shall provide such services
for its own account.
6.3. ATLAS shall be subject to the on-time performance standards (the On-Time Performance
Standards) set forth in
Annex B
hereto, which by this reference is incorporated herein by
reference and made a part hereof.
6.4. (a) Notwithstanding anything else in this Agreement to the contrary, COMPANY shall
provide or otherwise assume responsibility for all of the following:
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(i)
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Flight Crew and Flight Crewmember operational oversight and
training program certification;
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(ii)
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Maintenance operational oversight and program certification;
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(iii)
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Flight operational control;
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(iv)
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Aircraft fuel (including all in plane fuel costs such as fuel
storage, transportation, if applicable, and fuel related taxes) and into-plane
fueling services;
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(v)
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The costs of en route and air traffic control fees;
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(vi)
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Landing and/or departure fees, parking fees and airport
handling charges;
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(vii)
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The costs of Flight Crew hotel accommodation and hotel
transfers and Flight Crew positioning and de-positioning without markup (except
for such accommodation, transfers and positioning and de-positioning required
as a result of crew training);
provided
, however, that ATLAS shall take
responsibility for these items in return for a fixed cost per block hour, the
determination of which shall be transparent and subject to review pursuant to
the procedure set forth in Section 1.3 of
Annex A
of this Agreement,
and which shall not include any profit margin or uplift, to be billed at month
end as set forth in Article 2 of
Annex A
;
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(viii)
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The costs of local Flight Crew ground transportation from Aircraft to airport
terminal/customs/immigration;
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(ix)
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Catering and Flight Crew meals as per ATLAS policy;
provided
, however, that ATLAS shall take responsibility for these items
in return for a fixed cost per block hour, the determination of which shall be
transparent and subject to review pursuant to the procedure set forth in
Section 1.3 of
Annex A
of this Agreement, and which shall not include
any profit margin or uplift, to be billed at month end as set forth in Article
2 of
Annex A
;
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(x)
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When COMPANYS rotations are 12 hours or longer such that
Flight Crew rest becomes necessary or is required, COMPANY shall provide
provisioning of Flight Crew bed rest linens for each Flight Crew member,
including one sheet, pillow, pillowcase and blanket. Disposable linens or
those similar to COMPANYS own crew linens are acceptable;
provided
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however, that ATLAS shall take responsibility for these items in return for a
fixed cost per block hour, the determination of which shall be transparent and
subject to review pursuant to the procedure set forth in Section 1.3 of
Annex A
of this Agreement, and which shall not include any profit
margin or uplift, to be billed at month end as set forth in Article 2 of
Annex A
;
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(xi)
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Receiving, collecting and distributing all necessary flight
operational paperwork to ATLAS crewmembers to dispatch the Aircraft;
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(xii)
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Aircraft handling (including use of ground power during
Aircraft ground times for cargo loading and unloading), cargo loading or
unloading, pushback, lavatory cleaning, water and trash removal, cleaning of
flight deck (including linen service) and all cargo compartments, and deicing;
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(xiii)
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Preparation and packaging of cargo, buildup and breakdown of pallets, ramp
positioning and de-positioning, and all similar cargo handling activities;
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(xiv)
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All Customs fees, penalties, duties and taxes in connection
with the traffic and transportation of and handling of cargo and mail;
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(xv)
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Security costs and expenses as set forth in Section 7.3(a);
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(xvi)
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Unit load devices (ULDs), including required nets and
tension equipment meeting all FAA regulations and standards;
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(xvii)
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Warehousing, receipt, delivery, ground transport and documentation of cargo
traffic at all stations;
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(xviii)
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Cargo and mail insurance as set forth in Section 5.2;
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(xix)
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All taxes as set forth in Article 14 below;
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(xx)
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All costs associated with ground operations training to be
provided by ATLAS to COMPANY (if such training is requested by COMPANY); and,
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(xxi)
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Positioning/depositioning costs, if incurred, for the Aircraft
from/to New York at the commencement and termination of Flights under this
Agreement.
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(b)
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Any and all costs or charges arising from or related to this Section 6.4 as
being payable by COMPANY to third parties shall be paid by COMPANY directly to such
third parties, and COMPANY hereby indemnifies ATLAS against any and all such related
costs, fees, or charges. In the event payment of any such costs or charges cannot be
achieved as described above, then COMPANY indemnifies and agrees to reimburse ATLAS
promptly for said costs, fees, or charges;
provided
, however, that ATLAS shall
make all reasonable commercial efforts to have such costs and charges redirected
through COMPANY in the future.
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ARTICLE 7.
Operational Control
7.1. During the Term of this Agreement, the Aircraft shall be registered under the laws of
the United States of America. Notwithstanding any other provision of this Agreement (including
those set forth in the attached Annexes), the Aircraft shall at all times be under the exclusive
possession, direction, and operational control of COMPANY.
7.2. Flight Crewmembers shall not be obliged to operate the Aircraft in violation of the
terms or conditions of any insurance policy relating to the Aircraft or its operation, in
contravention of the time regulations applicable to Flight Crewmembers to be provided hereunder or
in violation of any other law, rule or regulation controlling COMPANYS operations under this
Agreement.
7.3. (a) COMPANY shall be required at its expense to adhere to ATLAS security procedures,
including but not limited to security procedures relating to the Flight Crew, Aircraft and
cargo. ATLAS security procedures shall be provided to COMPANY upon request. COMPANY shall
also be responsible for compliance with all Transportation Security Administration
regulations and requirements, including but not limited to, screening of cargo destined for
or outbound from the United States, screening of service personnel requiring access to the
flight deck on Flights destined for or departing from the United States, screening of all
individuals to be transported on the Aircraft including Flight Crews on Flights destined for
or departing from the United States, providing security for the aircraft while on the
ground, secure transportation for Flight Crews when required, and compliance with host
country security requirements. ATLAS shall have the right to approve or disapprove
COMPANYS security vendors and contractors for the operations contemplated by this
Agreement. ATLAS shall have the right to inspect and audit COMPANYS security program
(including services provided by any approved vendor or contractor), and COMPANY agrees to
cooperate in any such inspection or audit, provided such inspection or audit shall be
conducted at reasonable times and shall not cause a material disruption to COMPANYS
operation.
(b) Flight Crewmembers shall not be obligated to operate to any country or airport requested
by COMPANY if such operations would be contrary to ATLAS security procedures or directives
or to regulations or directives of any governmental entity, including but not limited to the
United States Departments of State and Treasury, the
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DOT and the FAA. ATLAS will advise COMPANY as promptly as possible of country-related and
airport-related operating restrictions of the above types for locations in the Core Network
as defined in the BSA. Subject to the other provisions of this Agreement governing use,
availability and assignment of aircraft, ATLAS will not unreasonably withhold approval of
COMPANY requests to operate to countries and airports not covered by the above types of
restrictions. ATLAS will provide information with respect to countries, cities and/or
airports with restricted overflight, landing and other special requirements on specific
request by COMPANY.
(c) COMPANY acknowledges that U.S. government agencies, including the U.S. Treasury
Departments Office of Foreign Assets Control (OFAC) and the U.S. Commerce Departments
Bureau of Industry and Security, place limitations on certain types of exports to, and other
transactions with, named non-U.S. governments, entities and individuals. COMPANY warrants
that it will conduct its business pursuant to this Agreement in a manner that does not cause
ATLAS to violate any such requirements. In particular, without limiting the applicability
of the above, COMPANY represents that it will not knowingly cause goods to be exported on
ATLAS services to, cause goods to be imported on ATLAS services from, or in using ATLAS
services otherwise engage in financial transactions with, persons whom OFAC has identified
as specifically designated terrorists. In any event, COMPANY agrees to indemnify and hold
harmless from all costs, expenses (including reasonable attorneys fees), losses,
liabilities, damages, fines, and judgments incurred by ATLAS as a result of violation of
the abovementioned requirements by COMPANY or its employees, representatives, agents,
vendors or customers.
(d) Without limiting the foregoing and to the extent consistent with applicable law, ATLAS
shall exercise reasonable commercial efforts to align its security policies with those of
COMPANY.
ARTICLE 8.
Compensation
8.1. The agreed price for the services provided by ATLAS pursuant to this Agreement shall be
a per-Block-Hour price (the Block Hour Rate) as set forth in
Annex A
. Until the BSA
Commencement Date, COMPANY shall compensate ATLAS in the amount determined by multiplying the
applicable Block Hour Rate by the number of actual Block Hours operated. From and after the BSA
Commencement Date, COMPANY shall compensate ATLAS in the amount determined by multiplying the
applicable Block Hour Rate by, (a) in the case of the 400F Aircraft, the minimum number of Block
Hours guaranteed in
Annex A
(the Monthly Minimum Block Hour Guarantee) or actual Block
Hours operated, whichever is greater, and, (b) in the case of the Classic Aircraft, actual Block
Hours operated. Compensation relating to services provided by ATLAS for the Classic Aircraft
pursuant to this Agreement, [*]. The number of Block Hours operated shall be based on the
Flight(s) in the ACARS record of aircraft movements if ACARS is installed, or recorded in the
Captains Flight Log (which, if ACARS is not installed, shall be made available to COMPANY), which
shall be regarded as final. For purposes of this Agreement, the term Block Hours shall refer to
the elapsed time of a Flight, in hours, computed as of the time the Aircraft leaves the chocks for
departure until
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the actual time of arrival in the chocks at the end of the Flight. COMPANY shall operate the
Aircraft at a minimum Block Hour per cycle ratio as set forth in
Annex A
.
8.2. Except to the extent specified otherwise in this Agreement, all CMI-related costs
incurred directly and in the first instance by COMPANY, including, but without limitation, all
COMPANY Flight Crewmember Costs and any additional crew-related costs borne by COMPANY but
identified as the responsibility of ATLAS pursuant to Section 3.2 of this Agreement, shall be
charged back to ATLAS and netted against payments due ATLAS under this Agreement as set forth in
Annex A
.
8.3. Procedures for invoicing, payment and giving notice are as specified in
Annex A
.
ARTICLE 9.
Liability and Indemnity
9.1. ATLAS shall assume liability for, and indemnify and hold COMPANY, its shareholders,
directors, officers, employees, agents, and subcontractors free and harmless from, any and all
claims, expenses, and legal fees with respect to:
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(a)
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Loss of or damage to the Aircraft occurring during the Term of this Agreement,
when caused by services performed by ATLAS pursuant to Article 4 of this Agreement; and
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(b)
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Death of or injury to employees of COMPANY and any individual(s) carried on the
Aircraft at COMPANYS discretion in support of COMPANYS business occurring during the
Term of this Agreement, when caused by services performed by ATLAS pursuant to this
Agreement; and
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(c)
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Death of or injury to persons, and loss of or damage to property, other than
cargo carried hereunder, occurring during the Term of this Agreement, when caused by
services performed by ATLAS pursuant to this Agreement;
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(d)
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Any costs for which responsibility has been assigned exclusively to ATLAS under
this Agreement.
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unless such loss, damage, death, or injury is caused by the willful misconduct or gross
negligence of COMPANY, its employees, officers, agents, or subcontractors.
9.2. ATLAS, its employees, officers, agents, and subcontractors shall not be liable for, and
COMPANY shall indemnify, defend and hold ATLAS, its employees, officers, agents, and
subcontractors free and harmless from any and all claims, expenses, and legal fees with respect of
the following:
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(a)
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Loss, delay, non-delivery, damage to, or any other claims relating to cargo,
property, or mail carried or to be carried on the Flight(s) under this Agreement; and
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(b)
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Death of or injury to personnel of COMPANY, its agents, and/or subcontractors
while acting in connection with or performance of this Agreement,
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unless such loss, damage, death, or injury is caused by the willful misconduct or gross
negligence of ATLAS, its employees, officers, agents or subcontractors.
9.3. COMPANY is responsible for damage, up to the amount of ATLAS maximum hull deductible
per incident, to the Aircraft, and/or its parts, equipment, and attachments installed thereon, if
resulting from such causes as, but not limited to, fueling, loading, unloading, or other ground
handling by COMPANY, its agents or subcontractors. Where such damage is caused by the negligence
and/or willful misconduct of COMPANY, its agents or subcontractors, COMPANYS Minimum Block Hour
Guarantee referred to herein shall not be reduced for cancellations caused by such damage. Normal
wear and tear is excepted.
9.4. In no event shall either Party be held liable to the other, and each Party hereby
expressly waives any claim it may have against the other, for incidental, consequential, special
or punitive damages of any kind, including loss of market or future profits that may arise under
this Agreement.
9.5. COMPANY shall assure that cargo of a dangerous, hazardous, or offensive nature is packed
in accordance with IATA and ICAO dangerous goods regulations, and 49 C.F.R. Part 175 for
transportation on board the Aircraft, and that such cargo is accompanied by a duly executed
shippers declaration for dangerous goods. In the event United States laws or governmental
regulations relating to carriage of hazardous cargo change, COMPANY shall change its packaging
and/or handling requirements accordingly. COMPANY shall indemnify and hold ATLAS, its officers,
employees, agents and subcontractors free and harmless from and against any and all losses, costs,
claims, demands, judgments, expenses, or fines (including FAA civil actions, fines, and penalties
and all costs associated with defending or litigating such costs, including reasonable attorneys
fees) which ATLAS may suffer or incur due to failure to comply with this provision.
9.6. COMPANY warrants that the cargo to be transported on the Aircraft shall not contain any
contraband, materials, products, or other substances the importation, possession, transportation,
or distribution of which would constitute a violation of any law or regulations of the United
States or any other governmental authority having jurisdiction over the Aircraft or operations
hereunder. COMPANY agrees to indemnify and hold ATLAS harmless from all costs, expenses
(including attorneys fees), losses, liabilities, damages, fines, and judgments (including
attorneys fees) incurred by ATLAS as a result of any breach of the terms and conditions set forth
herein.
9.7. The Parties shall promptly notify each other of the existence of any Claim to which
indemnification obligations might apply;
provided
, however, that the failure to give such
notice (other than notice of the commencement of a legal proceeding) shall not adversely affect
any right of indemnification under the Agreement. The indemnifying Party shall be entitled to
control the defense of any such legal proceedings, through legal counsel reasonably satisfactory
to the indemnified Party, at the sole expense of the indemnifying Party, and the indemnified Party
shall cooperate and consult with the indemnifying Party in the defense of
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such Claim and shall have the right, but not the obligation, to participate in the defense at
its own expense. If the indemnifying Party elects not to direct such defense, the indemnified
Party will have the right, at its own discretion, to direct such defense at the indemnifying
Partys sole expense. The indemnifying Party shall have the right to compromise or settle, with
the indemnified Partys prior written approval (such approval not to be unreasonably withheld),
any claim or litigation regarding which it is required to indemnify. If the indemnified Party
refuses to approve any compromise or settlement recommended by the indemnifying Party which would
have concluded such claim or litigation but for the indemnified Partys failure to give approval,
the indemnifying Partys liability to the indemnified Party hereunder with respect to any such
claim or litigation shall not exceed the amount which the indemnifying Party would have paid
pursuant to such proposed compromise or settlement.
ARTICLE 10.
Insurance
10.1. The insurance carried by each Party with respect to activities contemplated by this
Agreement shall be primary and non-contributory.
10.2. Each Party shall arrange for its insurers to waive any rights of recourse including
subrogation against the other Party, its officers, directors, shareholders, agents, employees,
agents, or subcontractors in accordance with any liability assumed hereunder.
10.3. To the extent both Parties are not carried on the same insurance policy or certificate,
each Party, with respect to its own responsibilities hereunder, shall designate the other Party an
additional insured in its policies covering liability risks respectively assumed hereunder, and
shall have inserted in those policies an appropriate severability of interest and cross liability
clauses.
10.4. To the extent both Parties are not carried on the same insurance policy or certificate,
each Party shall procure that the interest of the other Party in such insurances shall be insured
regardless of any breach or failure or violation by the insured of any warranties, declarations or
conditions contained in such policies.
10.5. (a) Prior to commencement of operations hereunder and reasonably in advance of any
expiration of each policy of insurance required pursuant to this Agreement, each Party shall
deliver to the other Party a certificate or certificates evidencing the insurance referred to
herein and each Party shall arrange that the policy territory of such insurances shall be
worldwide, subject to such territorial exclusions as may be usual and customary in the worldwide
airline insurance industry. It is understood and agreed that to the extent that the Parties are
on the same insurance policy or insurance certificate, the Parties will be delivering to each
other identical certificates.
(b) Each Party shall ensure that such certificate includes a provision giving the other Party
not less than thirty (30) days notice (ten (10) days in the event of cancellation due to
non-payment) of intent to cancel or materially alter the insurance (in a manner adverse to the
other Party) carried as required by this Agreement, and not less than seven (7) days notice (or
such shorter period as may be customary) in respect of changes in war and allied perils coverage
14
exclusions. It is understood and agreed that to the extent that the Parties are on the same
insurance policy or certificate, then the obligations of this Section 10.5(b) can be satisfied by
one Party giving written notice to the other Party (within the applicable timeframes noted above).
10.6. Notwithstanding the foregoing, to the extent that the Parties to this Agreement are
party to the same insurance policy or program, the provisions of Section 10.1 through Section 10.4
of this Article 10, shall be interpreted to appropriately reflect the usual and customary terms of
being party to the same insurance policy or program.
ARTICLE 11.
Force Majeure
11.1.
Force Majeure Event
means acts or events not within the control of the Party
bound to perform and which, by exercise of due diligence, such Party is unable to overcome. A
Force Majeure Event includes acts of God, seizure, severe weather to the extent that it prevents
aircraft operations in the relevant region or airport, strikes, labor stoppage, lockouts, or other
industrial disturbances, acts of the public enemy, acts of terrorism, national emergency, war,
shutdown of airspace, embargoes, blockades, riots, epidemics, lightning, earthquakes, floods,
tornadoes, explosions, failure of public utilities, and any other causes not within the control of
the Party claiming such event. For the avoidance of doubt, a Force Majeure Event shall not
include any mechanical breakdown of any aircraft, unless such mechanical breakdown is caused by a
Force Majeure.
11.2. Upon occurrence of a Force Majeure Event, the affected Party shall give prompt notice
to the other Party of such event. Upon giving such notice, and continuing during the period of a
Force Majeure Event, all obligations of the Parties hereunder affected by such Force Majeure event
shall be suspended until such event is no longer materially affecting the services to be rendered
hereunder. The payment for all services provided up to the occurrence of a Force Majeure Event
shall not be affected by such event and shall be payable when due. If the performance of this
Agreement shall be materially prevented or delayed by reason of a Force Majeure Event either as a
whole or with respect to one or more Aircraft for a period of more than thirty (30) days, then
either Party shall have the option to terminate this Agreement in its entirety or with respect to
the affected Aircraft, respectively, upon written notice to the other Party
provided
,
however
, that COMPANY and ATLAS shall take all commercially reasonable efforts to make
alternative air transport capacity arrangements in order to avoid terminating this Agreement both
as a whole and with respect to the affected Aircraft; and
provided further
, that if this
Agreement is terminated by COMPANY pursuant to this Section 11.2, then any COMPANY Flight
Crewmember Costs and related costs as set forth in Article 3 of this Agreement shall continue to
be the responsibility of and charged back to ATLAS as long as the COMPANY has and continues to
take all commercially reasonable efforts to mitigate such costs and such costs do not include in
any event costs related to restrictions on or transfer of its assets or operations to which
COMPANY would otherwise have been subject as a result of the Applicable CBA.
15
ARTICLE 12.
Preferred Customer Status, Alternative Suppliers and Additional Services
12.1. Within sixty (60) days following the Effective Date, ATLAS will inform COMPANY of any
anticipated non-renewing Boeing 747-400F ACMI agreements in relation to its fleet, and will keep
COMPANY reasonably informed of any material changes thereto. ATLAS shall make timely offers in
response to COMPANYS defined requirements for such available capacity and contract at the
offering terms to COMPANY, subject to ATLAS prior commitments.
12.2. In the event that COMPANY acquires additional aircraft of acceptable fleet type and
desires to procure for a sufficient duration additional crew and maintenance services from ATLAS
and ATLAS agrees to provide such services, then such services shall be charged to COMPANY at rates
consistent with this Agreement.
12.3. When ATLAS outsources or procures any component of the services it provides under this
Agreement from a third-party supplier, COMPANY shall be entitled to [*], provided that the
procurement of such services from an alternative third party supplier shall not negatively affect
ATLAS overall profit margin under this Agreement.
12.4. Except as described in Section 12.3, nothing contained in this Agreement will limit
COMPANYS right to procure additional air transportation services from any other third-party
supplier.
ARTICLE 13.
Termination
13.1. Either Party may terminate this Agreement at any time, with immediate effect, by notice
in writing to the other:
(a) If the other is declared bankrupt, or becomes insolvent, or files a petition for
bankruptcy, or if the whole or a substantial part of the others property is seized before
judgment or under an execution, or if a bankruptcy or insolvency proceedings commenced
against the other in any jurisdiction and such proceedings, if involuntary, are not
dismissed or discharged within sixty (60) days; or
(b) If the other defaults in the performance of any material covenant, term or condition
contained in this Agreement including COMPANYS default in the payment of any amounts due
hereunder within ten (10) business days of its due date and such default continues
unremedied during ten (10) business days from the time written notice of default has been
given, and in the case of ATLAS default where such default is material to the business of
COMPANY, unless such default is capable of cure and the defaulting Party is diligently
taking steps to effect such cure
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provided
,
however
, no such default shall
occur if such failure is due to the fault of ATLAS, acting as contractor to the COMPANY
under that certain Shared Services Agreement, dated as of the date hereof between the
Parties, to disperse such funds when due. The foregoing right of termination shall not
apply to a default for failure to meet performance standards included in
Annex
16
B
to this Agreement, with remedies for any such default being governed exclusively
by Section 13.4.
13.2. ATLAS shall have the option to terminate this Agreement at any time, with immediate
effect, by giving the COMPANY written notice of termination upon an Event of Default (as defined
in each Lease Agreement) under the applicable Lease Agreement (but this Agreement shall only be
terminated with respect to the affected Aircraft and shall otherwise continue); provided, that
such Event of Default is not due to the fault of Atlas under this Agreement or any other
Transaction Document, as defined in that certain Stock Purchase Agreement of November 28, 2006
between Polar Air Cargo Worldwide, Inc. and DHL Network Operations (USA), Inc.
13.3. This Agreement will terminate (i) automatically in its entirety upon termination of the
BSA in its entirety or (ii) with respect to one or more Aircraft upon termination of the BSA with
respect to the affected Aircraft terminated under the BSA (but this Agreement shall only be
terminated with respect to the affected Aircraft and shall otherwise continue),
provided
,
however
, that in the event of a termination pursuant to item (i) or (ii) hereof, the
COMPANY and ATLAS shall take all commercially reasonable efforts to make alternative air transport
capacity arrangements in order to avoid terminating this Agreement both as a whole and with
respect to the affected Aircraft. In the event that there is a call-up of said Aircraft under
CRAF or a similar program and ATLAS services are required under this Agreement to enable COMPANY
to fulfill its commitments under CRAF or a similar program, notwithstanding the continuation of
the Force Majeure Event, this Agreement shall continue in effect with respect to the affected
Aircraft until such time as ATLAS services hereunder are no longer needed to enable COMPANY to
operate the Aircraft under CRAF or such similar program.
13.4. Following an Event of Default as specified in Section 3.2 or 3.3 of
Annex B
hereto, COMPANY shall have the right to terminate this Agreement after giving notice of such Event
of Default to ATLAS, which right shall be effective for a period of one hundred and eighty (180)
days following the end of the Final Measurement Period that led to such Event of Default. If no
Event of Default is declared by COMPANY during such period, such Event of Default shall be deemed
to be no longer in effect and continuing;
provided
,
however
, that such right of
termination shall not be exercisable if (i) a Dispute between the Parties about whether an Event
of Default has occurred pursuant to Section 3.2 or 3.3 of
Annex B
hereto, as applicable,
has been referred to the Management Escalation Procedure set forth in the BSA and the outcome of
such proceeding is still pending, or (ii) the terms of an Action Plan or alternative Action Plan
(as defined in the BSA) have not come to a final conclusion;
provided
,
further
,
that in connection with clauses (i) and (ii) the 180-day period shall be suspended during such
time, but such 180-day period shall resume if the Management Escalation Procedure, including
arbitration thereunder, determines that an Event of Default did occur. COMPANY shall have the
right to terminate this Agreement until the later of (a) the end of such resumed 180-day period
and (b) the 90
th
day following the final determination of such Management Escalation
Procedure, including arbitration thereunder (if no Event of Default is declared by COMPANY during
such period, then such Event of Default shall be deemed to be no longer in effect and continuing).
If COMPANY elects to terminate this Agreement pursuant to this Section 13.4, it shall provide
sixty (60) days notice or other notice period as may be mutually agreed by the Parties in writing
prior to such termination.
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13.5. At the direction of DHL pursuant to
Section 4.3
of the Stockholders Agreement,
dated the date hereof, among COMPANY, DHL and AAWW or pursuant to its third party beneficiary
rights hereunder, COMPANY may terminate this Agreement for convenience at five (5) years, ten (10)
years and fifteen (15) years after the BSA Commencement Date by giving ATLAS one (1) years prior
written notice (Termination for Convenience),
provided
,
however
, COMPANYs right
to a Termination for Convenience upon the fifth year anniversary of the BSA Commencement Date
shall be subject to DHL, in the event a COMPANY Call Right or an ATLAS Put Right (as such terms
are defined in that certain Put/Call Agreement dated as of the date hereof (the Put/Call
Agreement) is exercised pursuant to the Put/Call Agreement, providing upon the date of such
Termination for Convenience a new guarantee, for the ATLAS Leases (as defined in the Put/Call
Agreement), and the indemnity agreement in favor of ATLAS, from Deutsche Post AG, or another
creditworthy Affiliate of DHL reasonably acceptable to ATLAS as provided in Article 3 of the
Put/Call Agreement.
13.6. In the event that this Agreement is terminated pursuant to any of the above provisions
and, after the SCBA Date, COMPANY requires Flight Crews for the Aircraft from the ATLAS seniority
list, ATLAS will, at the option of COMPANY, provide such flight crews at ATLAS fully burdened
cost (including salary, pension, medical and similar costs) on such terms and for such duration as
COMPANY may reasonably require.
13.7. In the event this Agreement is terminated in accordance with any of the foregoing
provisions, such termination shall be without prejudice to the rights and liabilities hereunder
and at law and in equity; provided, however, that neither Party shall not be entitled to claim or
recover from the other Party any consequential or special damages.
ARTICLE 14.
Taxes
Any and all payments due to ATLAS hereunder shall be free from, and COMPANY shall pay and hold
ATLAS free and harmless from, any and all liability for any and all sales and/or use taxes, excise
taxes and property taxes (including property taxes assessed based on frequency of operations, time
in jurisdiction, time on ground, landings or otherwise), duties, fees, withholdings, value added
taxes, or other similar assessments or charges, including any and all amount(s) of interest and
penalties which may be or become due in connection therewith, imposed or withheld by any
governmental authority or agency, or other entity which may be or become due arising out of or
resulting from the terms and conditions of this Agreement and/or payments hereunder, and/or the
operation of the Aircraft hereunder, except for taxes levied on the income of ATLAS.
ARTICLE 15.
Assignment
This Agreement will inure to the benefit and be binding upon each of the Parties hereto and
their respective successors and permitted assigns. NO PERSON OR ENTITY OTHER THAN THE PARTIES,
EXCEPT AS OTHERWISE SPECIFICALLY CONTEMPLATED BY ARTICLE 19 OR SECTION 23.4, SHALL HAVE ANY RIGHTS,
CLAIMS, BENEFITS OR POWERS UNDER THIS AGREEMENT AND THIS AGREEMENT SHALL NOT BE
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CONSTRUED OR INTERPRETED TO CONFER ANY RIGHTS, CLAIMS BENEFITS OR POWERS UPON ANY THIRD PARTY.
Neither this Agreement, nor the rights or obligations of either Party, may be assigned, subleased,
delegated or transferred, in whole or in part, without the prior written consent of the other
Party, except that subject to FAA approval, ATLAS may assign, transfer or delegate this Agreement
to an affiliate that is able to perform the terms and conditions of ATLAS hereunder,
provided
, that performance by such transferee continues to be guaranteed by AAWW under the
Indemnity Agreement dated as of the date hereof.
ARTICLE 16.
Foreign Government Requirements
The Parties recognize that foreign governments have regulations or policies on aircraft
leasing and other transactions that may impede the implementation of commercial aviation business
arrangements. Should any relevant foreign government delay implementation of, or render it
difficult or impossible to implement the transactions contemplated by this Agreement and related
agreements, the Parties shall cooperate with each other in an effort to modify the structure of
this Agreement and the services to be provided hereunder in such fashion as will enhance
implementation of this Agreement without affecting the economics of the Parties overall
arrangement.
ARTICLE 17.
Conformity With Laws and Conventions
17.1. The provisions of this Agreement shall be subject to, and at no time be in conflict
with, the laws of any country which has authority to exercise jurisdiction over this Agreement or
with applicable international conventions or applicable IATA traffic resolutions.
17.2. Any provisions of this Agreement that are found to be contrary to any law, regulation,
convention or resolution shall be deemed cancelled as of the date of effectiveness of such law,
regulation, convention or resolution and revised accordingly by means of an amendment to this
Agreement as provided for herein and such cancellation shall not affect the validity of the other
provisions of this Agreement, so long as the Parties receive the benefit of the bargain
contemplated by the terms and conditions of this Agreement.
ARTICLE 18.
Applicable Law and Jurisdiction
This Agreement and the interpretation and performance hereof shall be governed by the
applicable laws of the State of New York, USA, and each Party consents to New York as the exclusive
jurisdiction and venue for any legal proceedings, and of the federal and state courts located in
the State of New York, USA for enforcement action.
ARTICLE 19.
Confidentiality/Publicity
19.1. Each of the Parties shall treat as strictly confidential and shall not reproduce or use
for its own purposes or divulge, or permit to be divulged, to others (i) all information and
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data obtained by or from the other Party in connection with this Agreement, or otherwise
related to this Agreement, which is confidential or proprietary to one of the Parties, including
its customers, customer lists, information and data relating to customers, operations, policies,
procedures, techniques, accounts, computer programs and networks, and personnel (Confidential
Information); and (ii) all information and data which are confidential or proprietary to a third
party and which are in the possession or control of one of the Parties (Third Party Confidential
Information);
provided
, that COMPANY may reproduce or use for its own purposes all
Confidential Information and Third Party Confidential Information of ATLAS that was used directly
in the conduct of the scheduled service business operated by Polar Air Cargo, Inc. prior to the
date hereof other than Third Party Confidential Information subject to restraints on disclosure
and which such Party reasonably believes disclosure of such information would result in the breach
of such Partys obligations related to such Third Party Confidential Information (the Business
Confidential Information). Each of the Parties shall limit access to the Confidential
Information and Third Party Confidential Information to its employees having a need to know.
Further, upon reasonable notice from the other Party or upon termination of this Agreement, return
to the other Party all Confidential Information and Third Party Confidential Information in its
possession in whatever form and on whatever medium embodied;
provided
, that this sentence
shall not apply to the COMPANY with respect to the Business Confidential Information.
19.2. The Parties shall not knowingly, directly or indirectly, divulge, communicate or use to
the detriment of the other Party, or for the benefit of any other person(s), or misuse in any way,
the Confidential Information or Third Party Confidential Information.
19.3. The Parties may disclose Confidential Information or Third Party Confidential
Information:
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(a)
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to professionals engaged by a Party who has a legitimate need to review this
Agreement, the Confidential Information or the Third Party Confidential Information,
and only after such party agrees to be bound by this Article 19;
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(b)
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as may be required pursuant to subpoena, court order, or request of a
governmental authority having jurisdiction over a Party;
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(c)
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with the consent of the other Party, which may be withheld in that Partys
discretion;
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(d)
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in an action or other proceeding to enforce or which otherwise concerns this
Agreement; or
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(e)
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otherwise required by law.
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Notwithstanding the foregoing, each Party and its representatives and affiliates may disclose to
any and all persons, without limitation of any kind, the tax treatment, tax strategies and tax
structure of the transactions contemplated herein and all materials of any kind (including opinions
or other tax analyses) that are provided to such Parties and their representatives and affiliates
relating to such tax treatment, tax strategies and tax structure.
19.4. If a Party receives a subpoena, court order or governmental request calling for the
disclosure of this Agreement, the Party shall notify the other Party to provide that Party with an
opportunity to object to the requested disclosure. However, nothing herein shall require a Party
to violate any subpoena, court order or governmental request for disclosure.
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19.5. All inquiries from the press concerning the activities of ATLAS or any of its affiliate
companies shall be referred to ATLAS spokesperson.
ARTICLE 20.
Further Cooperation
From time to time, as and when requested by any Party to this Agreement, each other Party
shall execute and deliver, or cause to be executed and delivered, all such documents and
instruments, and shall take, or cause to be taken, all such further or other actions, as such other
Party may reasonably deem necessary or desirable to carry out the intent of this Agreement.
ARTICLE 21.
Merger/Modification
This Agreement sets forth the entire agreement and understanding between the Parties as to the
subject matter hereof, and as of the date of this Agreement merges and supersedes all prior
discussions, agreements and understandings concerning the subjects covered by this Agreement.
Unless expressly provided herein, this Agreement may not be changed or modified except by agreement
in writing signed by both Parties. The waiver by either Party of performance of any term, covenant
or condition of this Agreement in a particular instance shall not constitute a waiver of any
subsequent breach or preclude such Party from thereafter demanding performance thereof according to
the terms hereof.
ARTICLE 22.
Authorizations
The Parties agree that each of them, in accordance with their respective responsibilities
hereunder, shall timely apply for and obtain all necessary governmental approvals, traffic rights,
airport clearances, and other permission (if any shall be required) with regard to the services to
be rendered hereunder.
ARTICLE 23.
Miscellaneous
23.1. To the extent permitted by Applicable Law, including FAA regulations, COMPANY shall
make a reasonable effort to accommodate ATLAS personnel on Flights operated pursuant to this
Agreement upon request, provided, however, that priority shall be given to ATLAS personnel
utilized in the performance of this Agreement.
23.2. A waiver of any default hereunder shall not be deemed a waiver of any other or
subsequent default hereunder.
23.3. This Agreement shall not be construed against the Party preparing it, but shall be
construed as if both Parties jointly prepared it and any uncertainty or ambiguity shall not be
interpreted against either Party. In the event that any one or more of the provisions of this
Agreement shall be determined to be invalid, unenforceable, or illegal, such invalidity,
unenforceability or illegality shall not affect any other provision of this Agreement and the
Agreement shall remain in full force and effect and be construed as if such invalid,
21
unenforceable or illegal provision had never been contained herein. The Parties shall
undertake good faith consultations in order to replace any such invalid, unenforceable or illegal
provision with a replacement provision intended to accomplish, as near as possible, the purpose
and intent of the original such provision.
23.4. This Agreement is for the benefit of COMPANY and its stockholders and DHL may, upon a
material default hereunder for which DHL has given COMPANY prior written notice of any action or
remedy it requests COMPANY to take in accordance with this Agreement, and COMPANY has not done so
within sixty (60) days following receipt of such notices, enforce the rights of COMPANY on behalf
of COMPANY under this Agreement. Subject to such enforcement right, the Parties hereto shall
continue to have the ability to amend, waive and exercise all rights under this Agreement, and
nothing herein shall affect the governance of COMPANY under the direction of COMPANYS Board of
Directors and management.
23.5. Each Party has had an opportunity to review this Agreement, with benefit of legal
counsel of its own choosing if desired, and no adverse rule of construction or interpretation
shall be applied against ATLAS or COMPANY as the drafting Party of this Agreement.
23.6. Headings, as used herein, are added for the purpose of reference and convenience only,
and shall in no way be referred to in construing the provisions of this Agreement.
23.7. Each signatory to this Agreement warrants and represents that such signatory has full
authority and legal capacity to execute this Agreement on behalf of and intending to legally bind
the Parties hereto.
23.8. Each Party, in its performance under this Agreement, is and shall be engaged and acting
as an independent contractor in its own separate business. Each Party shall retain complete and
exclusive control over its personnel and operations and the conduct of its business. No Party,
its officers, employees or agents shall in any manner make any representation or take any actions
which may give rise to the existence of any employment, agency, partnership or other like
relationship between the Parties hereunder. The employees, agents and independent contractors of
each Party shall be and remain employees, agents and independent contractors of such Party for all
purposes, and shall not be deemed to be employees, agents or independent contractors of the other
Party. Neither Party shall have supervisory power or control over any employees, agents or
independent contractors employed or engaged by the other Party.
23.9. This Agreement may be executed in any number of counterparts (including by facsimile or
electronic transmission), each of which shall be deemed to be an original, but all of which
together shall constitute one binding agreement on the Parties, notwithstanding that not all
Parties are signatories on the same counterpart.
23.10. Each of the Parties shall pay the fees and expenses of their own counsel, accountants
or other experts, and all expenses incurred by such Party incident to the negotiations,
preparation and execution of this Agreement.
[Signature Page Follows]
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THIS FLIGHT SERVICES AGREEMENT has been executed in duplicate by the duly authorized
representatives of the Parties hereto on the date first hereinabove written.
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POLAR AIR CARGO WORLDWIDE, INC.
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ATLAS AIR, INC.
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By:
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/s/ William J. Flynn
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By:
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/s/ William J. Flynn
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Name:
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William J. Flynn
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Name:
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William J. Flynn
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Title:
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President and Chief Executive
Officer
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Title:
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President and Chief Executive
Officer
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Exhibit 10.4
EXECUTION COPY
INDEMNITY AGREEMENT
INDEMNITY AGREEMENT, dated as of June 28, 2007 (this
Agreement
), made by and among
Atlas Air Worldwide Holdings, Inc., a Delaware corporation (
AAWW
), Polar Air Cargo
Worldwide, Inc. (f/k/a Airline Acquisition Corp I), a Delaware corporation (the
Company
)
and DHL Network Operations (USA), Inc., an Ohio corporation (the
Investor
; and together
with the AAWW and the Company, the
Parties
).
SECTION 1. Defined Terms
1.1. Definitions. (a) Capitalized terms used, but not defined herein, shall have the meaning
ascribed to them in the Purchase Agreement.
(b) The following terms shall have the following meanings:
Agreement
means this Indemnity Agreement, as the same may be amended, supplemented
or otherwise modified from time to time.
AAWW
is defined in the Preamble.
AAWW Working Capital Facility
means that certain working capital facility of the
Company funded by AAWW in accordance with the Contribution Agreement.
BSA Tax Costs
is defined in
Section 6.1.2(c)
.
Company
is defined in the Preamble.
Company Obligations
means the collective reference to all obligations and
Liabilities of:
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a.
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the Company for (1) costs of preparing the Preliminary
Closing Statement of Net Working Capital as described in
Section
2.6.1
of the Purchase Agreement and (2) any remaining fees and
disbursements due to the Auditor in connection with a Dispute regarding the
Preliminary Closing Statement of Net Working Capital once the Investor has
paid for its allocable portion pursuant to
Section 2.6.3(c)
of the
Purchase Agreement;
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b.
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the Company and the Company Affiliates to pay any
brokerage or finders fee in connection with the Contemplated Transactions,
including any brokerage or finders fee pursuant to the agreements and
arrangements listed in
Section 3.19
of the Company Disclosure
Schedule;
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c.
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the Company to pay all costs and expenses directly
incurred by the Company (other than Taxes that are (a) incurred after the Closing Date or
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(b) the subject matter of
Section 6
hereof or which
are specifically allocated to or indemnified by a Person pursuant to any of
the Transaction Documents) in connection with the Purchase Agreement, the
Transaction Documents and the Contemplated Transactions through the Closing
Date); and
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d.
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the Company to indemnify and hold harmless the Investor
Indemnified Persons for any and all Losses incurred by such Investor
Indemnified Persons or any of them as a result of or arising out of certain
events specified in
Section 8.1
of the Purchase Agreement, subject
to the terms and conditions of the Purchase Agreement, including
Section 8.3
,
Section 8.4
,
Section 8.5
and
Section 8.6
thereof.
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Company RD Losses
is defined in
Section 6.1.2(a)
.
Contribution Agreement
means the Contribution Agreement dated as of the
Closing Date from AAWW to the Company.
Controlled Affiliate
means an Affiliate of a Party with respect to which such Party
exercises (directly or through Affiliates, which are themselves controlled) either (i) a majority
of such Affiliates voting power or (ii) actual control of such Affiliate.
Dividend Note
is defined in
Section 6.1.1
.
Funding Request
is defined in
Section 5.2.1
.
Investor
is defined in the Preamble.
Investor Obligations
means the collective reference to all obligations and
Liabilities of the Investor under the Purchase Agreement.
Parties
is defined in the Preamble.
Polar
means Polar Air Cargo LLC.
Polar Obligations
means the obligation of Polar to indemnify the Company under
Section 6.1.1 of the Asset Conveyance Agreement.
Pre-Closing Tax Period
means all taxable periods ending on or before the
Closing Date and the portion through the end of the Closing Date of any taxable period that
includes (but does not end on) the Closing Date.
Purchase Agreement
is defined as that certain Stock Purchase Agreement dated as of
November 28, 2006 between the Company and the Investor, as the same may be amended, supplemented or
otherwise modified from time to time.
Refundable Deposit
is defined in
Section 5.2.1
.
2
Related Proceeding
is defined in
Section 7.10
.
Tax Costs
is defined in
Section 6.1.2(a)
.
1.2.
Rules of Construction
. Except as otherwise explicitly specified to the contrary,
(i) references to a Section, Sub-section, Exhibit or Schedule means a Section, Sub-section, Exhibit
or Schedule to this Agreement, unless another agreement is specified, (ii) the words hereof,
herein, hereunder and words of similar import shall refer to this Agreement as a whole and not
to any particular Section or provision of this Agreement, and reference to a particular Section of
this Agreement shall include all subsections thereof, (iii) the word including will be construed
as including without limitation, (iv) the words party and parties shall refer to AAWW, the
Company and the Investor, (v) definitions shall be equally applicable to both the singular and
plural forms of the terms defined, and references to the masculine, feminine or neuter gender shall
include each other gender, (vi) accounting terms used herein and not otherwise defined herein are
used herein as defined by GAAP in effect as of the date hereof, consistently applied, (vii)
references to any Applicable Law, a particular statute or regulation include all rules and
regulations thereunder and any successor statute, rules or regulation, in each case as amended and
from time to time in effect unless otherwise expressly specified, (viii) references to $ or
dollars are to United States currency and (ix) references to a particular Person include such
Persons successors and assigns to the extent not prohibited by this Agreement.
SECTION 2. REPRESENTATIONS AND WARRANTIES
2.1.
AAWW Representations and Warranties
. AAWW hereby represents and warrants to the
Company and the Investor on and as of the date hereof that (a) AAWW is a corporation duly
organized, validly existing and in good standing under the laws of the State of Delaware, (b) the
execution, delivery and performance by AAWW of this Agreement are within its corporate powers, have
been duly authorized by all necessary corporate action, and do not contravene (i) its charter or
by-laws or (ii) any Applicable Law or any contractual restriction binding on or affecting it and
(c) this Agreement has been duly executed and delivered by AAWW and constitutes the legal, valid
and binding obligation of AAWW, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency and laws affecting creditors rights generally and to general
equitable principles.
2.2.
Company Representation and Warranties
. The Company hereby represents and
warrants to AAWW and the Investor on and as of the date hereof that (a) the Company is a
corporation duly organized, validly existing and in good standing under the laws of the State of
Delaware, (b) the execution, delivery and performance by the Company of this Agreement are
within its corporate powers, have been duly authorized by all necessary corporate action, and do
not contravene (i) its charter or by-laws or (ii) any Applicable Law or any contractual restriction
binding on or affecting it and (c) this Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company, enforceable against
it in accordance with its terms, subject to applicable bankruptcy, insolvency and laws affecting
creditors rights generally and to general equitable principles.
3
2.3.
Investor Representation and Warranties
. The Investor hereby represents and
warrants to AAWW and the Company on and as of the date hereof that (a) the Investor is a
corporation duly organized, validly existing and in good standing under the laws of the State of
Ohio, (b) the execution, delivery and performance by the Investor of this Agreement are within its
corporate powers, have been duly authorized by all necessary corporate action, and do not
contravene (i) its charter or by-laws or (ii) any Applicable Law or any contractual restriction
binding on or affecting it and (c) this Agreement has been duly executed and delivered by the
Investor and constitutes the legal, valid and binding obligation of the Investor, enforceable
against it in accordance with its terms, subject to applicable bankruptcy, insolvency and laws
affecting creditors rights generally and to general equitable principles.
SECTION 3. INDEMNITY OF COMPANY OBLIGATIONS
3.1.
Indemnity of Obligations
. Effective as of the date hereof, AAWW will indemnify
and hold harmless (i) the Investor and the Company from, against and in respect of any and all
Losses incurred by the Investor or the Company as a result of or arising out of the Company
Obligations and (ii) the Company from, against and in respect of any and all Losses incurred by the
Company as a result of or arising out of the Polar Obligations.
3.2.
Investor Obligations Unaffected
. The provisions of
Section 3.1
shall not
be construed to defeat, impair or limit in any way any rights or remedies of the Company (or any
other Company Indemnified Person, as applicable) may have against the Investor under the Purchase
Agreement with respect to the Investor Obligations nor shall the Investor in any way be deemed to
have been released from the Investor Obligations.
SECTION 4. COVENANTS
4.1.
Transaction Documents
. AAWW hereby agrees to take all reasonable actions as the
parent of its Affiliates to cause the Affiliates (other than the Company) to perform their
obligations under the Transaction Documents to which they are a party and to cause the Company to
perform its obligations under the Blocked Space Agreement (other than with respect to the
Liquidated Damages and any Gap Period Damages, each defined therein), in each case in accordance in
all material respects with the terms thereof, in each case from and after the BSA Commencement
Date.
4.2.
Net Working Capital Covenant
. AAWW hereby agrees to provide such assistance and
cooperation to the Company in the preparation of the Preliminary Closing Statement of Net Working
Capital as is reasonably necessary to permit the Company to perform its obligations under
Section 2.6
of the Purchase Agreement.
4.3.
Confidentiality
. The Parties agree that (except as provided herein or in the
Purchase Agreement or contemplated hereby or thereby) the fact of, and the terms and conditions of
this Agreement, and the transactions contemplated hereby, shall not be disclosed by such Party or
its Affiliates to any third party without the prior consent of the other Parties, except to the
extent that such disclosure is required by Applicable Law (including any regulatory filings made
with any Governmental Entity) in which case the Party (or its Affiliates) required to make the
disclosure shall allow the other Parties reasonable time to comment on such disclosure and/or
4
seek a protective order or other appropriate relief (with the reasonable cooperation of all Parties and
their Affiliates) in advance of such disclosure. Notwithstanding the foregoing, each Party and its
representatives and Affiliates may disclose to any and all persons, without limitation of any kind,
the tax treatment, tax strategies and tax structure of the transactions contemplated herein and all
materials of any kind (including opinions or other tax analyses) that are provided to such Parties
and their representatives and Affiliates relating to such tax treatment, tax strategies and tax
structure.
4.4.
Non-Compete
. From the BSA Commencement Date, AAWW agrees that prior to the
earlier to occur of the fifth anniversary of the Closing Date or the termination of the Blocked
Space Agreement, without the prior written approval of the Investor, which will not be unreasonably
withheld, AAWW will not, and will cause its Controlled Affiliates not to (a) provide, directly or
indirectly, to any Person scheduled airport-to-airport cargo transportation services on the Core
Routes other than through the Company, (b) apply for any Permit that, if granted, would permit AAWW
or any such Controlled Affiliate (other than the Company) to operate for itself scheduled
airport-to-airport transportation services over the Core Routes, (c) utilize the Core Routes for
the conduct of any business other than the business conducted directly by the Company or (d) permit
the Company to sell, assign or otherwise transfer the Core Routes or any interest or rights therein
to any Person;
provided
,
however
, that the foregoing shall not limit the right of
AAWW and its Controlled Affiliates to (i) own, either directly or indirectly, individually or
jointly, up to fifteen percent (15%) of the equity interests of any Person (other than the Company)
that provides scheduled airport-to-airport cargo transportation services over the Core Routes, (ii)
operate charters on the Core Routes, or (iii) provide charter, ACMI wet lease or other ACMI
services on the Core Routes (including providing ACMI or such related services to any Person
providing scheduled airport-to-airport cargo transportation services on the Core Routes) so long
as, in the case of each of the clauses (i)-(iii), AAWW or such Controlled Affiliate does not bear
commercial risk based upon the capacity utilized on the related flight, but rather is compensated
on a per flight or hourly basis.
4.5.
Further Assurances
. From time to time, as and when requested by any Party to
this Agreement, each other Party shall execute and deliver, or cause to be executed and delivered,
all such documents and instruments, and shall take, or cause to be taken, all such
further or other actions, as such other Party may reasonably deem necessary or desirable to
consummate the Contemplated Transactions and the transactions contemplated in the Transaction
Documents.
SECTION 5. INVESTOR FUNDING OBLIGATIONS
5.1.
Working Capital Funding Obligations Following the BSA Commencement Date
. From
and after the BSA Commencement Date and continuing through the term of the Blocked Service
Agreement, the Investor will fund the Companys working capital requirements (including amounts
required to repay any balance under the AAWW Working Capital Facility outstanding as of the BSA
Commencement Date) relating to services to which the Investor is entitled to have performed under
the Blocked Space Agreement or services which generate revenue that reduces the Net Cost of the
Core Network (defined therein).
5.2.
Funding of a Refundable Deposit
.
5
5.2.1. If the Company requests, which request may be provided by the Company at the Companys
election beginning thirty (30) days after the Closing Date, the Investor shall, not later than two
(2) business days following such request (a
Funding Request
) by the Company, make (or
cause to be made) an advance by wire transfer of immediately available funds (to an account
designated by the Company provided in such Funding Request) in the amount of a $30 million
refundable deposit (the
Refundable Deposit
).
5.2.2.
Use of the Refundable Deposit
. The Company may use any or all of the
Refundable Deposit for any or all of the following purposes:
(a) to distribute to AAWW (i) an amount up to the amount of any positive Net Working
Capital (as determined in accordance with
Section 2.6
of the Purchase Agreement),
(ii) any payments in respect of the Dividend Note or (iii) any other non-pro rata dividend
or distribution to the holder of Class A Common Stock allowed under Section 4.2.11 of the
Company Charter;
(b) to repay any outstanding advances as of the date of such Refundable Deposit under
the AAWW Working Capital Facility; or
(c) to fund any working capital requirements as necessary to conduct the Companys
business prior to the BSA Commencement Date;
provided
,
however
, the Refundable Deposit may not be applied to satisfy any
obligations of the Investor under any other agreements between the Investor and the Company.
5.2.3.
Interest Earned
. Any interest earned on the Refundable Deposit will be for the
account of the Company.
5.2.4.
Refund of the Refundable Deposit
. The Refundable Deposit will become
refundable to the Investor upon the earlier of (a) the ninetieth (90
th
) day following
the BSA Commencement Date and (b) January 31, 2009.
5.2.5.
Tax Treatment of the Refundable Deposit
.
(a) Each of the Company and the Investor acknowledges that it is intended that the
Refundable Deposit be treated as a nontaxable deposit or loan for income tax purposes and
agrees to treat the Refundable Deposit for all income tax purposes accordingly. In
furtherance of the foregoing, the Company agrees to accrue imputed interest deductions on
the Refundable Deposit and the Investor agrees to accrue a corresponding amount of imputed
interest income.
(b) In the event that a taxing authority takes the position in a tax audit or similar
proceeding involving AAWW or its affiliates that the Refundable Deposit should have been
treated as taxable income of the Company rather than as a nontaxable deposit or loan for
income tax purposes, and to the extent that the Investor has complied and continues to
comply with its payment obligations pursuant to
Section 6.1.2(b)
herein, AAWW and
its affiliates shall: (i) use reasonable efforts to defend the position in such proceeding
that the Refundable Deposit was properly treated as a nontaxable deposit or loan for income
tax purposes; (ii) at the reasonable request of Investor, contest any challenge of its
position with respect to the Refundable Deposit
6
(including through judicial proceedings);
(iii) not settle or compromise any such proceeding without the consent of the Investor,
which consent may not be unreasonably withheld; and (iv) keep the Investor reasonably
informed of the status of such proceedings to the extent such proceeding relates to the tax
treatment of the Refundable Deposit. The Investor shall bear all costs and expenses
(including legal fees) for any such contest that AAWW would not have otherwise pursued.
SECTION 6. TAX INDEMNIFICATION
6.1.
Tax Indemnity
.
6.1.1.
Indemnification of the Company and the Investor by AAWW.
AAWW hereby agrees to
indemnify and hold harmless the Investor and the Company from and against any Losses attributable
to all Taxes (or the non-payment thereof) (i) of the Company or Polar for the Pre-Closing Tax
Period, (ii) of the Company directly attributable to the dividend of the $102 million note by the
Company to AAWW (the
Dividend Note
), the Polar Conversion, the conveyance by Polar to
Atlas Air of certain assets and liabilities of Polar prior to or on the Closing, the Asset
Conveyance, the Polar Distribution, the Polar Note Assumption, capital contributions by AAWW to the
Company pursuant to the Contribution Agreement, and payments by the Company to AAWW under the
Dividend Note or as non pro rata dividends made solely with respect to the Class A Common Stock,
(iii) of any member of an affiliated, consolidated, combined or unitary group of which the Company
or Polar was a member on or
prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any
analogous or similar state, local or foreign law or regulation, and (iv) of any Person (other than
the Company and Polar) imposed on the Company as a transferee, successor, or by contract (other
than commercial contracts, such as leases or customer contracts) in respect of a transaction
occurring or contract entered into on or prior to the Closing;
provided
,
however
,
that AAWW will not be liable for any Losses under this
Section 6.1.1
to the extent such
Losses are attributable to the Refundable Deposit. To the extent there are any Losses of the
Company in a Post-Closing Tax Period directly attributable to any change of an accounting method
for Tax purposes or change in a Tax election with regard to the Company, Polar, the Business or the
Assets, which such change is made on or after July 1, 2006 and is effective for periods prior to
the Closing, AAWW shall indemnify and hold the Company and/or the Investor harmless against any
such Losses.
6.1.2.
Indemnification by the Investor
.
(a)
Tax Liabilities of the Company Attributable to Reclassification of the
Refundable Deposit
. The Investor hereby agrees to advance amounts to the Company equal
to any liability for incremental Taxes (or the non-payment thereof) and associated costs
and expenses (
Tax Costs
) of the Company to the extent that such incremental Tax
Costs are attributable to the recharacterization of the Refundable Deposit as income of the
Company rather than a nontaxable deposit or loan (such incremental Tax Costs, the
Company RD Losses
). The incremental Tax Costs will be calculated on a with and
without basis by comparing the cash Tax Costs of the Company if the Refundable Deposit had
not been recharacterized with the cash Tax Costs of the Company taking into account the
fact that the Refundable Deposit has been recharacterized. Such advances shall be made
promptly following any determination that such
7
incremental Tax Costs have been incurred and
shall be repaid to the Investor only as and to the extent contemplated by the last sentence
of this
Section 6.1.2(a)
. For the avoidance of doubt, the loss by the Company of
the imputed interest deductions that would have been available had the Refundable Deposit
been characterized as a nontaxable deposit or loan shall not be taken into account in
determining Company RD Losses, but any interest and penalties attributable to any
under-reporting of taxable income by reason of claiming a deduction for the related imputed
interest deductions shall be included in determining Company RD Losses. To the extent the
Company actually realizes a cash Tax savings in a year following the realization of
incremental Tax costs for which the Investor advanced amounts to the Company pursuant to
this
Section 6.1.2(a)
, and such cash Tax savings correlates to the relevant
incremental cash Tax costs in the earlier year (e.g., because the recharacterization
resulted in an acceleration of income), the Company shall repay to the Investor, with
reasonable promptness following the date upon which the Company actually realizes such cash
Tax savings, the advances made under this
Section 6.1.2(a)
up to an amount equal to
the amount of such cash Tax savings.
(b)
Tax Liabilities of AAWW Attributable to Reclassification of the Refundable
Deposit
. The Investor hereby agrees to indemnify and hold harmless AAWW and its
affiliates from and against any Losses attributable to Taxes (or the non-payment thereof)
of AAWW and its affiliates (other than the Company) to the extent that such Taxes are
attributable to the recharacterization of the Refundable Deposit as income of the Company
realized at a time the Company is a member of AAWWs consolidated group and taken into
account on AAWWs consolidated and combined income tax returns rather than as a nontaxable
deposit or loan. For purposes of this
Section 6.1.2(b)
, the use by AAWW or its
affiliates of any net operating losses to offset income resulting from the
recharacterization of the Refundable Deposit shall not be taken into account in determining
Losses (for example, incremental Tax attributable to incremental income resulting from the
recharacterization shall be calculated as if there were no net operating losses available
to offset such incremental income).
(c)
Tax Liabilities Attributable to Working Capital Funding After the BSA
Commencement Date
. The Investor hereby agrees to advance amounts to the Company equal
to any liability for incremental Taxes (or the non-payment thereof) and associated costs
and expenses (
BSA Tax Costs
) of the Company to the extent that such incremental
BSA Tax Costs are attributable to the fact that working capital requirements of the Company
following the BSA Commencement Date are funded through payments (including advance
payments) under the Blocked Space Agreement rather than through a working capital facility
similar to the AAWW Working Capital Facility. The incremental BSA Tax Costs will be
calculated on a with and without basis by comparing the cash BSA Tax Costs of the Company
if the working capital requirements had been funded through a working capital facility
similar to the AAWW Working Capital Facility to the cash BSA Tax Costs given that working
capital requirements are funded through payments under the Blocked Space Agreement. Such
advances shall be made promptly following any determination that such incremental BSA Tax
Costs have been incurred and shall be repaid to the Investor only as and to the extent
contemplated by the last sentence of this
Section 6.1.2(c)
. To the extent the
Company actually realizes a cash Tax savings in a year following the realization of
incremental BSA Tax Costs for which the Investor advanced amounts to the Company pursuant
to this
Section 6.1.2(c)
, and such cash Tax savings correlates to the relevant
incremental cash Tax costs in the earlier year (e.g., because the working capital funding
mechanism resulted in an acceleration of taxable income), the Company shall repay to
8
the Investor, with reasonable promptness following the date upon which the Company actually
realizes such cash Tax savings, the advances made under this
Section 6.1.2(c)
up to
an amount equal to the amount of such cash Tax savings.
SECTION 7. MISCELLANEOUS
7.1.
Amendments and Waivers in Writing
. No amendment or waiver of any provision of
this Agreement will be valid and binding unless it is in writing and signed, in the case of an
amendment, by all of the Parties, or in the case of a waiver, by the Party against whom the
waiver is to be effective.
7.2.
Notices
. All notices, requests, demands, claims and other communications
required or permitted to be delivered, given or otherwise provided under this Agreement must be in
writing (unless otherwise provided herein) and must be delivered, given or otherwise provided:
(a) by hand (in which case, it will be effective upon delivery);
(b) by facsimile (in which case, it will be effective upon receipt of confirmation of
good transmission); or
(c) by overnight delivery by an internationally recognized courier service (in which
case, it will be effective on the Business Day after being deposited with such courier
service);
in each case, to the address (or facsimile number) listed below:
If to AAWW, to:
Atlas Air Worldwide Holdings, Inc.
2000 Westchester Avenue
Purchase, NY 10577-2543
Facsimile number: (914) 701-8333
Attention: Adam R. Kokas, Esq., Senior Vice President,
General Counsel and Secretary
and with a copy to:
Ropes & Gray LLP
One International Place
Boston, Massachusetts 02110
Facsimile number: (617) 951-7050
Attention: Hemmie Chang, Esq.
If to the Company, to:
Polar Air Cargo Worldwide, Inc.
c/o Atlas Air Worldwide Holdings, Inc
2000 Westchester Avenue
9
Purchase, NY 10577-2543
Facsimile number: (914) 701-8333
Attention: Adam R. Kokas, Esq., Senior Vice President,
General Counsel and Secretary
and with a copy to:
DHL Network Operations (USA), Inc.
1200 South Pine Island Road
Plantation, Florida 33324
Facsimile number: (954) 888-7159
Attention: General Counsel
If to the Investor, to:
DHL Network Operations (USA), Inc.
1200 South Pine Island Road
Plantation, Florida 33324
Facsimile number: (954) 888-7159
Attention: General Counsel
Each Party may specify different address or facsimile number by giving notice in accordance
with this
Section 7.2
to the other Parties hereto.
7.3.
No Waiver by Course of Conduct; Cumulative Remedies
. No failure to exercise, nor
any delay in exercising, on the part of a Party, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise of any other right,
power or privilege. A waiver by a Party of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which such Party would otherwise have on any
future occasion.
7.4.
Successors and Assigns; No Third Party Beneficiary
. Subject to the immediately
following sentence, this Agreement will be binding upon and inure to the benefit of the Parties
hereto and their respective successors and permitted assigns, each of which such successors and
permitted assigns will be deemed to be a party hereto for all purposes hereof. No Party may
assign, delegate or otherwise transfer either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written consent of the other Parties, except that the
Investor shall be entitled to assign and transfer its rights, interests and obligations hereunder
to another entity (or entities) that is a wholly-owned subsidiary of Deutsche Post AG (a
corporation organized under the laws of Germany) that is able to perform the terms and conditions
of the Investor hereunder as long as the transferees obligations under the Agreement continue to
be fully guaranteed by the DP Guarantee. Except as expressly provided in this
Section 7.4
,
this Agreement is for the sole benefit of the Parties and their permitted successors and assignees
and nothing herein expressed or implied will give or be construed to give any Person, other than
the Parties and such successors and assignees, any legal or equitable rights hereunder.
10
7.5.
Counterparts
. This Agreement may be executed in any number of counterparts, each
of which will be deemed an original, but all of which together will constitute but one and the same
instrument. This Agreement will become effective when duly executed by each Party.
Facsimile execution and delivery of this Agreement shall be legal, valid and binding execution
and delivery for all purposes. Facsimile or other electronic execution and delivery of this
Agreement shall be legal, valid and binding execution and delivery for all purposes.
7.6.
Severability
. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction will not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction. In the event that any
provision hereof would, under Applicable Law, be invalid or unenforceable in any respect, each
Party intends that such provision will be construed by modifying or limiting it so as to be valid
and Enforceable to the maximum extent compatible with, and possible under, Applicable Law.
7.7.
Section Headings
. The Section headings used in this Agreement are for
convenience of reference only and are not to affect the construction hereof or be taken into
consideration in the interpretation hereof.
7.8.
Integration
. This Agreement represents the entire agreement of the Parties with
respect to the subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by any of the Parties relative to subject matter hereof and thereof
not expressly set forth or referred to herein.
7.9.
Continuing Effect
. Except for the Assignment and Assumption, the Purchase
Agreement shall continue to be and shall remain in full force and effect in accordance with its
terms. This Agreement shall not constitute an amendment or waiver of any provision of the Purchase
Agreement not expressly referred to herein and shall not be construed as an amendment, waiver or
consent to any action on the part of AAWW or the Company that would require an amendment, waiver or
consent of the Investor except as expressly stated herein.
7.10.
Submission to Jurisdiction; Waivers
. Each Party irrevocably submits to the
exclusive jurisdiction of the New York Courts for the purposes of any Action arising out of or
relating in any way whatsoever (whether in contract, tort or otherwise) to this Agreement (the
Related Proceeding
). Each Party agrees to commence any such Related Proceeding in the
United States District Court for the Southern District of New York or if such Related Proceeding
may not be brought in such court for jurisdictional reasons, then in the Supreme Court of the State
of New York, New York County. Each Party further agrees that service of any process, summons,
notice or document by U.S. registered mail to such Partys respective address set forth in
Section 7.2
shall be effective service of process in New York with respect to any matters
to which it has submitted to jurisdiction in this
Section 7.10
. Each Party irrevocably and
unconditionally waives any objection to the laying of venue of any Related Proceeding in any New
York Court, and hereby and thereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such New York Court that any such Related Proceeding brought in any such New
York Court has been brought in an inconvenient forum.
11
EACH PARTY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY RELATED PROCEEDING.
7.11.
GOVERNING LAW
. THIS AGREEMENT, THE RIGHTS OF THE PARTIES AND ALL ACTIONS
ARISING IN WHOLE OR IN PART UNDER OR IN CONNECTION HEREWITH SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
7.12.
Acknowledgements
. The Parties hereby acknowledges that it has been advised by
counsel in the negotiation, execution and delivery of this Agreement.
[Signature Page Follows ]
12
IN WITNESS WHEREOF, the undersigned has caused this Indemnity Agreement to be duly executed
and delivered as of the date first above written.
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ATLAS AIR WORLDWIDE HOLDINGS, INC.
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By:
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/s/ William J. Flynn
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Name:
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William J. Flynn
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Title:
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President and Chief Executive Officer
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POLAR AIR CARGO WORLDWIDE, INC.
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By:
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/s/ William J. Flynn
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Name:
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William J. Flynn
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Title:
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President and Chief Executive Officer
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DHL NETWORK OPERATIONS (USA), INC.
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By:
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/s/ Jon E. Olin
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Name:
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Jon E. Olin
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Title:
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Executive Vice President
General Counsel and
Secretary
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[Signature Page to Indemnity Agreement]