Joseph C. Hete - Chief Executive Officer, President, Director, Member of Executive Committee and Chief Executive Officer of ABX Air Inc Quint O.

Turner - Chief Financial Officer and Principal Accounting Officer Richard F. Corrado - Chief Commercial Officer, President of Cargo Aircraft Management Inc and President of Airborne Global Solutions Inc

Andrew L. Jones - Stephens Inc., Research Division Arthur K.

Rowe - BB&T Capital Markets, Research Division Stephen O'Hara - Sidoti & Company, Inc. Adam Ritzer Seth Crystall - R.W.

Pressprich & Co.

Thank you, moderator. Good morning, and welcome to our third quarter 2014 earnings conference call.

With me today are Quint Turner, our Chief Financial Officer; Rich Corrado, our Chief Commercial Officer; and Joe Payne, our Senior Vice President, Corporate General Counsel. Yesterday, we issued our third quarter earnings release showing continued strong earnings growth.

In light of those results and our fourth quarter outlook, we increased our financial guidance for 2014. We also updated you regarding our discussions with DHL.

We have reached an agreement in principle that calls for a 4-year extension through March of 2019 in our role as DHL's principal source of air transport in North America. Our third quarter results were comparable to our very good second quarter, including double-digit percentage increases in earnings and adjusted EBITDA, which rose 11% to $44.6 million.

We also made more progress in restoring our margins in our airline businesses. The progress, following on our solid first-half results, 4 additional freighter dry lease placements and improved credit agreement terms all point toward a good year for 2014 and positions us well as we head into 2015.

We now expect to finish 2014 with adjusted EBITDA of approximately $175 million and expect to enter 2015 with new multiyear commercial agreements with DHL, covering the lease and operation of Boeing 767s, just as we do in support of DHL's North American network today. I'll be back to give you more color on this positive news in a few minutes after Quint summarizes our results for the quarter.

Quint?

Thanks, Joe, and good morning, everyone. Let me start by advising you that during the course of this call, we will make projections or other forward-looking statements that involve risks and uncertainties.

Our actual results and other future events may differ materially from those we describe here. These forward-looking statements are based on information, plans and estimates as of the date of this call, and Air Transport Services Group undertakes no obligation to update any forward-looking statements to reflect changes in underlying assumptions, factors, new information or other changes.

These factors include, but aren't limited to, the company's execution of definitive agreements on substantially the terms outlined in the nonbinding agreement and principal with DHL; changes in market demand for our assets and services, the number and timing of deployments of our aircraft, our operating airline's ability to maintain on-time service and control costs and other factors as described from time to time in our filings with the SEC, including our third quarter Form 10-Q. We will also refer to non-GAAP financial measures from continuing operations, including adjusted EBITDA and adjusted pretax earnings, which management believes are useful to investors in assessing ATSG's financial position and results.

These non-GAAP measures are not meant to be a substitute for our GAAP financials, and we advise you to refer to the reconciliations to GAAP measures, which are included in our earnings release and on our website. Joe described our third quarter results as more of the positive momentum we talked about in the second quarter, and that's certainly the case.

We are getting lots of bottom line benefit from the work we've done to modernize our fleet, sign new leases and improve margins in our airlines. Our third quarter results show that our leasing business is growing from deployment of additional mid-sized cargo aircraft freighters with external customers and that we are at essentially, the breakeven point for our airline operations after many months of hard work by their management teams.

For the third quarter, revenues were $138.4 million, down $2.5 million for the third quarter last year. Excluding revenues from reimbursable expenses, revenues for the quarter decreased by $4.8 million.

Keep in mind that a year ago, 3 of our 767s were operating in DHL's Mideast network under ACMI agreements that generated a lot of revenue, although there was a lot of costs from operating there as well. The last of those 3 freighters came back in February as that network wound down.

On the other hand, revenues from our combi flights for the U.S. military are up, reflecting more completed flights with our full complement 4 757 combis in service.

Our after-tax earnings from continuing operations were $9.6 million or $0.15 per share, a 23% increase from $7.8 million or $0.12 per share a year ago and $9.3 million or $0.14 per share in the second quarter. Adjusted EBITDA, which excludes gains or losses on our derivative instruments, was $44.6 million, up 11% from $40 million in the third quarter a year ago and flat with the second quarter.

We have reduced operating and overhead expenses since our fleet transitions led to temporary overlaps and significant crew retraining activity last year. Airline headcount has decreased 16% and pension expense is down, leading to a $2.4 million reduction in the salary, wage and benefit line item year-over-year.

Our direct operating costs such as nonreimbursed fuel, travel and landing and ramp fees were down from a year ago. We now have fewer crews and aircraft operating abroad and lower fuel burns in our combis.

These savings were partially offset by higher depreciation expense from new aircraft entering the fleet. Turning to our segments.

Pretax earnings from our leasing business, CAM, were down $2.3 million from last year's third quarter despite a $2.9 million increase in revenues from external customers. The 2 Boeing 767s and full impact of the 4 757 combis added to CAM's fleet since then have contributed to an increase in depreciation expense of $3 million.

We completed delivery of 3 more dry lease freighters to Cargojet and Amerijet during the quarter in addition to the one we delivered in June. But because these aircraft came from our airline fleets, CAM didn't earn revenue while they were being reconditioned prior to delivery.

As of September 30, CAM owned 53 freighter aircraft; 28 of them are leased to our airlines, 24 are leased to external customers and one is unassigned. Turning to ACMI Services, our airline segment.

We had a small pretax loss for the quarter of $126,000 compared with last year's third quarter loss of $7.1 million. Once again, the key components were the reduction in affiliate lease payments for the aircraft our airlines returned to CAM, lower personnel costs, including benefit and pension expenses, fewer airline maintenance checks than a year ago and the operating cost advantages afforded by our 757 combis.

Offsetting those factors was the replacement of 3 of our 767s that ABX was operating under short-term lease agreements with another carrier's 737s on lower volume routes in DHL's network. Much of the credit for this turnaround goes to the management team at Air Transport International, whose work to scale back operating expense and overhead contributed significantly to the $15.9 million improvement in our overall nonreimbursable expenses for the segment.

Our airline revenues were down while block hours decreased about 9%, but were flat after excluding our operations in the Mideast last year. We picked up additional hours in DHL's U.S.

and Latin American network under our CMI agreement, and our combi hours flown for the U.S. military in the third quarter increased slightly from second quarter of 2014.

As Joe said, we're encouraged about the outlook for this business in the fourth quarter. With all of our freighters in the air during the holiday peak, we expect ACMI Services to be profitable for the quarter and second half.

Pretax earnings from our other business activities declined to $2 million for the third quarter, down from $4.4 million for the third quarter 2013 and $4.1 million for the second quarter this year. Higher postretirement medical expenses, increased staffing for our expanded hangar facilities and lower earnings from managing sort centers for the U.S.

Postal Service were principal factors. Before I discuss our cash flow and liquidity, I should again mention that our deferred tax position offsets our federal income tax liability.

We don't expect to pay any significant cash federal income taxes until 2016 or later. Net cash flow from operations in the first 9 months is up 75% at $107.5 million versus $61.5 million for the first 9 months of 2013.

The strong increase stemmed primarily from higher earnings and lower pension contributions, which dropped from $27.6 million in the first 9 months of 2013 to $6.2 million for the same period this year. Capital expenditures for the first 9 months were $90.9 million, not including our $15 million investment in West Atlantic in January.

We spent $96.8 million over the same period last year. This year, we paid $57.8 million for the purchase of 2 Boeing 767-300 aircraft and next-generation avionics modifications, $14.8 million for required heavy maintenance and $7.1 million for our new hangar in Wilmington.

We now expect the CapEx spend of about $95 million for the full year. Through September, we drew $45 million from our amended revolver.

That funded our aircraft purchases and modifications and the 25% interest we took in West Atlantic, as well as other capital spending. We also made debt principal payments of $53.2 million.

We continue to project a debt-to-EBITDA ratio at year end of a little under 2:1. Before I turn it back to Joe, I do want to mention one item that we expect will affect our fourth quarter results.

Like many other companies with pension obligations, we've taken steps to reduce the volatility associated with those plans, primarily linked to changes in interest rates and the effect of those rates on the value of our obligations. These steps have also included increasing asset portfolio allocations to fixed income instruments, and lengthening the average duration of those investments.

Another action we have initiated is to offer lump-sum pension settlements from the pension trust divested former ABX non-pilot participants in our pension plans. Assuming we achieve the acceptance rates we expect by year end from the ABX non-pilot group, we project that our fourth quarter operating results will include a significant noncash pretax charge associated with these settlements of between $6 million and $10 million.

If we expand this approach to include the ABX pilots, the charge would likely exceed $10 million. Our adjusted EBITDA projection and adjusted pretax income for 2014 would exclude those charges.

Joe is ready now to discuss our operations, our revised framework with DHL and the rest of our outlook picture. Joe?

Thanks, Quint. Our big news at this time is that we have reached an agreement in principle with DHL.

It means that CAM and ABX Air have worked out the essential terms of the respective agreements that will govern their relationships with DHL at least through March 2019. We're pleased that DHL has once again selected us to be its principal provider of airlift within North America.

This is the first step toward another milestone in our 11-year relationship with DHL, following on the original service agreements we struck when DHL acquired Airborne in 2003 and the foundation 2010 agreements that govern our current relationship. We know that DHL recognizes the experience, reliability and scale we bring to the support of regional air cargo networks as the world's largest company principally focused on leasing, operating and servicing mid-sized freighter aircraft.

No other company in the world brings together the full set of assets and services required to manage and operate a national air express network on a contracted basis. Under the framework we have worked out, we would lease to DHL and operate at least 15 767 freighters, 14 200s and 1 300 through March of 2019.

That's a 4-year extension of our operating agreement, plus new and extended lease terms for up to 4 years with 15 freighters that DHL now says it will require. The proposed framework continues to represent an excellent platform to grow that fleet further as DHL's business expands.

16 of our own 767 freighters are operating in DHL's network today. The status of that last one is undetermined, but could continue to operate in DHL's network next year.

As we said in our release, much of what we do for DHL would remain the same under the proposed amendments to our CMI agreement. ABX Air crews will operate CAM owned 767 freighters under most of DHL's principal air network routes that begin and ends within the U.S.

Our 767s will carry the majority of DHL's U.S. cargo after it enters and before it leaves the U.S.

Those CAM-owned freighters, and potentially other 767s in DHL's network, will continue to be serviced by AMES. Keep in mind that we have other agreements with DHL that are beyond the scope of the proposed framework, including agreements for the 4 757 freighters that ATI operates, a direct maintenance agreement between DHL and AMES and certain fuel and other agreements between DHL in our logistics business.

We expect to complete definitive agreements with DHL by the end of the year. The new terms would take effect by the end of March 2015, when our current CMI agreement is set to expire.

I'll give you some insight into how it would work in a moment. So before we talk about 2015, I want to tell you how pleased I am about our 2014 results, which through 9 months, are tracking ahead of last year in every consolidated revenue and earnings metric we follow.

Revenues are up 2%, pretax income and EPS from our continuing operations are up 9% and 8%, respectively. Our adjusted EBITDA from continuing operations is up 14%, and our cash flow from operations is up 75% this year.

Those results speak to the creativity, enthusiasm and plain old hard work of employees throughout ATSG and its businesses. Now that we are well into the fourth quarter, I'm confident that we're heading toward one of the best years in our history given the scale of the business we have today.

Until this week, our biggest 2014 achievement was leasing 4 additional 767s freighters to Cargojet and Amerijet. After signing those leases in May, we transferred 4 767s from our airlines back to CAM, which refurbished and redeployed them over the summer.

The ongoing effect of those additional external leases in our CAM and ACMI Services results demonstrates how our business model allows us to reposition assets towards the best possible return. This spring, we had 5 underutilized 767s at our airlines, while -- which, while available for ACMI Service, were still generating affiliate lease revenues for CAM.

Though when CAM contracted with dry lease customers for 4 of them, we were able to quickly transfer them back to CAM for reconditioning and redeployment to new customers. ACMI Services reaped the earnings benefit from lower lease payments to CAM while CAM could respond quickly when customers needed access to our freighters for network expansion, improving our overall cash return.

Still, every year has some puts and takes. We have had some negative impact from the return of 3 767s that DHL replaced with 737s and year-over-year from the wind-down of a portion of DHL's Mideast network that we had supported over the last several years.

But despite those events, our results so far for the fourth quarter and business booked for the rest of the year gives me confidence that all of our available freighters will be deployed during the holiday peak this year. Accordingly, we are raising our outlook for adjusted EBITDA this year to approximately $175 million.

That's our third upward adjustment of the year and at least $10 million more than the low end of our 2000 range we first set back in March. We have not yet completed our budgeting process for 2015, so we're not prepared to issue comprehensive 2015 guidance.

But most of you have already modeled our 2015 results. So I want to share a few things you should consider as you factor in some recent changes in our business.

As it now stands, our proposed new agreements with DHL would impact our 2015 results and those in the out years as well compared with our potential earnings if the current agreements were extended. Our new lease agreements would be at somewhat lower rates per aircraft than current rates.

This savings certainly will benefit our customer, but the revenue visibility and duration we obtain from extension of the existing 767s -- 13 767 dry leases, coupled with multiyear commitments on at least 2 others is also very positive news for our company. The proposed changes to the CMI agreement will bring us more annual revenue but also end reimbursement of certain aircraft maintenance costs for DHL dedicated aircraft.

The upside is that if we can manage our business more rigorously for even greater efficiency, recognizing the need to maintain service quality, we have opportunities to earn good margins under the revised CMI. We are already making plans for a comprehensive effort to achieve those greater efficiencies throughout our affected operations.

This includes the discussions of changes with the union that represents our ABX flight groups. Looking at all these factors today, we anticipate that the proposed changes in our leases and CMI agreement with DHL would reduce our annualized adjusted EBITDA by $5 million to $10 million starting next April compared with what we would earn under our current lease and CMI terms.

Another element of our DHL relationship that we have referenced -- referred you to in the past is also changing next year. The noncash earnings benefit we recognized from the amortization of our note with DHL, which is approximately $1.6 million per quarter pretax, ends when the note reaches 0 in March 2015.

We reflect those amounts as revenues under the current CMI agreement. Factoring in all those items, we still expect a solid year in 2015, with revenue and overall adjusted EBITDA growth from 2014.

How much growth we achieve will be determined over the coming months and has been our practice, we expect to provide you more specific guidance on that when our fourth quarter earnings are released next year. Looking forward into 2015.

Rich Corrado's team continues its efforts to develop new business that would accelerate our growth, and we will continue to look at strategic options that could take us into growing complementary businesses. Our capital allocation options also include demand-driven investments in additional aircraft, including our option to buy 1 more Boeing 767-300 freighter and opportunistic stock repurchases once our agreements with DHL are completed and fully disclosed.

In sum, I regard the positive steps that are improving profitability at our airlines and growth in our aircraft leasing business is key to shaping ATSG into a more diverse company with a broader customer base and opportunities to capture the benefits of operating more efficiently in the years ahead. The solid foundation we will gain from the renewal of our DHL business for 4 more years is important, but it's clearly up to us to build on that foundation with growing profitable relationships with other companies around the world.

You have my commitment that we will maximize our efforts to reach that goal. That concludes our prepared remarks, moderator.

We are ready to take the first question.

This is actually Andrew on for Jack. A couple of questions from us.

So you guys mentioned in your prepared remarks, it seems like the leasing environment is improving, overall, especially given what seems to be further stabilization in the global air freight markets. Could you give us a little more color on what opportunities you're seeing for your aircrafts today, both from like a customer vertical and also like geographically?

Sure, I'll let Rich Corrado take that one. Rich?

Thanks for the question. We've seen very consistent demand really since the second quarter of the year.

Growth has been consistent as well since the fourth quarter of 2013. That's translated into freighter demand only in the second half of this year as there was excess capacity in the market.

And right now we've got very strong demand for the fourth quarter, as Joe's remark has mentioned, we look to be fully deployed. Going into 2015, we see very strong demand.

We've put up 2 additional ACMI routes in Europe. We just put up an ACMI route in the Americas, and we see some very strong trends and opportunities in Europe, in the Americas and also in the Far East on both a dry leasing and wet leasing basis.

Perfect. Another one, just on the DHL, the new, I guess, agreement with DHL.

What portion of your current EBITDA does the current DHL contract comprise?

Yes, it depends on which contract you're talking about, and we really -- we don't break it down that specifically. But certainly it's -- they're 55% of our revenue and we have 13 aircraft under 13 767s that are leased with them, Andrew.

So it's a substantial portion of the EBITDA but we don't disclose it by customer.

Okay. Okay, that makes sense.

And then one more. Quint, this is for you.

Kind of thinking into next year, if interest rates were to hold kind of at current levels, would you expect pension expense to be kind of a headwind or tailwind as EPS will move into 2015?

Well, of course, recently, interest rates have moved a little higher [indiscernible], which is helpful in terms of lowering the 2015 pension expense run rate. However, as you know, prior to recently, they have been down as compared to where they were at the end of last year.

So I think you're still looking at a headwind, currently, but it all depends upon what happens between now and the end of December, obviously.

Congratulations on the new DHL agreement. Just to follow up on one of the prior questions.

So after peak, how many underutilized aircraft do you anticipate having?

After peak, we'll still have the 3 that we referenced in the script. Obviously, we're -- we mentioned that we're fully deployed for the fourth quarter in terms of the peak season but we'll be back to 2 aircraft that are with our affiliated airlines and one that is with our leasing entity.

Got you, got you. And then we've seen several reports on the placement of a 300 with Aloha Air.

Just wondering why haven't seen or heard anything from you guys on that, and if you could provide any further details?

Yes. As a general rule, in the past, you look back historically unless there was something that was really unusual, we don't put out any kind of releases in regards to ACMI contracts.

We certainly do from a dry lease perspective. But with the puts and takes on an annual basis in terms of some ACMI agreements ending and other ones starting up, we just never elected to put anything out, specific press releases in that regard, Chip.

Okay. And then just one more for me.

Could you remind me of the overall impact, what that was from the loss of the Mideast business back in February?

When you say the impact, in terms of -- are you talking about the revenue side?

Yes.

I mean when you think about it, we had 3 aircraft deployed over there on an ACMI basis, and it's a pretty substantial chunk of revenue. If you look at it from sort of block hour perspective, I mean, it peaked.

DHL Mideast was about 1,500 block hours a quarter, call it, 500 block hours a month. So it's really a substantial hit from a revenue perspective.

I was just curious if you could expand on the investment in West Atlantic, maybe where that stands? I mean I think in the past you talked about potentially leasing some aircraft into them in Europe and I was just kind of curious where that stood.

Maybe it's been kind of delayed given maybe the outlook in Europe, that would be great.

Steve, we still plan to deploy aircraft with West Atlantic in Europe, 767. Really, the delay in getting one placed with them is in regard to the certification process from the Europeans.

They have a different standard for some of the maintenance-related items. And so we have to go through a bunch of historical records, but we still anticipate having multiple aircraft placed with Atlantic -- West Atlantic, in 2015.

Okay. And then I guess, 2 last questions.

So what's a CapEx for 2015? I mean in the past, you guys have talked about really not looking at CapEx, unless you had kind of a multi-year commitment in hand.

Kind of where -- just curious where you stand on that. I mean look at 2015, even -- I would say flat earnings on maintenance CapEx level, you guys would do a lot of free cash flow.

And then maybe what the plans are there in terms of -- it seems like demand is improving but maybe not enough to kind of ramp-up CapEx. And then maybe just on the fourth quarter guidance for the airline, the ACMI, expected to be profitable for the second half.

It seems like a pretty easy hurdle. I'm just kind of curious, is that just being conservative or are we just kind of modestly profitable here in the fourth quarter?

In terms of the CapEx, Steve, to start with, as we've mentioned, we do have an option on a 767-300 aircraft which we may or may not elect to move on but aside from that, we don't have, on the growth side, any commitment. So you're looking at a maintenance CapEx level of, call it, $35 million, $40 million is what absent adding in some growth investments in the mix.

That's the CapEx we'd be looking at. As far as the ACMI Services segment, I mean, with the full deployment that we expect to have during the fourth quarter, you're correct that it shouldn't be a stretch to say those are profitable.

Another thing that can affect ACMI Services' profitability is the timing of maintenance that they have to perform on the aircrafts they're using. Typically, the fourth quarter is a relatively light maintenance time as well.

So we do expect them to be solidly profitable in the fourth quarter and for the second half and perhaps we were a little conservative, we didn't give specific -- as you know, we give EBITDA guidance for the full entity. We don't typically give real specific guidance for each segment.

A couple of questions. In terms of the lump sum potential, I guess, pension settlements, if you offer that to pilots, do those pilots then have to retire?

Or do they just decide to defease their part of the pension plan?

No. It's a requirement they would have to retire in order to collect that, Adam.

Okay. And how many potential pilots could that be offered to?

Well, we've offered it to anybody that's 55 and older but right now, we don't have any idea in terms of how many would be willing to take that lump sum at this point in time, Adam.

No, I'm not saying how many would take it, how many are 55 and older?

I think right now about 150, roughly, I think in that category.

Okay. If that was to be the case, would you be able to replace those pilots with, I guess, younger pilots who are on a lower pay scale?

No. Right now we still have about 75 to 80 pilots that are still on furlough at this point in time, Adam.

So I mean from a standpoint of -- depending upon timing, they would get recalled right at this point.

Okay. And they are at a similar pay grade as ones who are 55 and potentially retire?

Yes.

Okay. I always thought that would maybe be a benefit but I guess it's not.

Got it. You also mentioned that in terms of the $5 million or $10 million potential EBITDA decrease you may be able to achieve efficiencies.

So my question is are the efficiencies included in that $5 million or $10 million lower rates? Or could you possibly do better than that $5 million or $10 million drop?

Well, Adam, that kind of covers the gamut in terms of the range that we think in terms of what we can net out, when the dusts settles.

Okay. So it's at $5 million or $10 million net between lower rates and possible efficiencies you could achieve?

Correct.

Got it. Another question is, you mentioned that you have an option on a 767-300.

Is that a currently under a full lease agreement?

It's essentially a power by the hour lease right now, Adam, and we can exercise that option. I think we have extension out to the end of the year in order to do the exercise on that.

If not, the lease would continue into 2015.

Okay. So in the past, you've specifically said you would not purchase any new planes unless they're under long-term lease agreements.

So why would you go out there with 3 underutilized aircraft now, buy something with what you call power by the hour, that's not on a long-term lease agreement?

I didn't say we were going to buy, we have an option to buy if we want.

Well, I'm saying why even consider buying it if you said in the past you would not buy something unless it's under a long-term agreement.

Conditions change. As we roll into -- through the end of this year and into 2015, if we get some bites on some of these aircraft that are underutilized today, then it would make sense to go after it.

Keep in mind, it is a 300 and 2 of that aircraft that are underutilized today are 200. So if there's demand for another couple of 300s, it would make sense to pursue it.

Okay. Would you go ahead and do this with still underutilized aircraft?

Again, Adam, it goes to what the demand is in terms of in what aircraft are available. So yes, if we got a demand for 300s and I still had 2 underutilized 200s, I would still go after the 300.

It just makes sense in terms of filling the customer demand.

Okay. Well, I -- again, in the past, you've said you would not do that unless it's under long-term agreement.

I wish you would stick to that because the capital allocation issue is still out there and I think a lot of your shareholders don't want you expanding the fleet unless it's under long-term agreements versus doing buybacks and again, I think you should stick to that and I don't think you should go out there and do this with 3 underutilized aircrafts.

Adam, I don't think I said anything that was contrary to we've said in the past.

Again, we could agree to disagree, but I'll leave that up to your other shareholders, but you did say you wouldn't do that unless it's under long-term agreements.

And I didn't say anything about doing it on a short-term agreement, Adam. So let's just call it as it is and move on.

Do you have another question, please?

I have no more question. That's all I wanted to say.

I have a few questions. Concerning the DHL contract.

I mean you seem to be saying on the call that you see strong demand maybe going into 2015 and I understand DHL is an important customer of yours, but I'm just wondering why you would go into an agreement extended out with the economics of, let's say, cash flow declined annually. I would tend to think that the demand is really strong, you'd be able to put in place leases that would, at least, equal and it wouldn't be in a negative situation.

So if you could just help me understand that a little bit.

Sure, Seth. I mean when you look at the -- what we're gaining here, of course, is a 4-year extension of our operating agreement as well as if you look at just the 13 aircraft, the extensions on those probably averages 18 months.

So your 230-some months. You're at, call it, $40 million to $50 million of additional revenue.

There's a base stability and visibility to cash flow that is provided by the new deal, which, I think, is quite attractive to us and something that a lot of ACMI carriers just don't have. So we feel it's a very good decision on our part.

And keep in mind, if someone came to you and wanted to take multiple aircraft, this number of aircraft, that far out, of course, you're going to take that into account when you look at the pricing.

Okay. In terms of the option you have on the one plane, is that the Guggenheim plane?

If you can say, what the cost of that option would be?

Well, we don't -- we'd prefer not to talk about the exact pricing on the aircraft, but yes, it will be a sister ship to -- that we purchased at the end of September.

And those were $25 million each, is that what that was?

Those were in that range, yes.

Okay. Quint, you talked about the, I guess, the pension, the decline in the pension expense 2014 versus 2013 so far.

And then you said that they currently have some headwinds. Could you just give me -- try to quantify or at least a little bit of direction in terms of 2015, if everything kind of stays the same or maybe incrementally moves up?

If we'd be looking at 2015 pension expense, let's say, in the $10 million range, are we looking back up towards $20 million or more?

Yes. If you're looking at the change in pension, call it '15 versus '14, there's 2 things to keep in mind here, Seth.

One is the actual cash deposits into the pension trust and if you'll recall, our cash deposits in '14 were about $21 million less, call it than they were in '13. So from a cash flow standpoint, the free cash flow standpoint, certainly, the pension was a significant good guy for us in '14.

Now as we look to '15, we really don't expect much change on the cash side. So it's more of a push.

But the good news is it's a very low level because the plans are very well funded. In terms of the expense side, which is a noncash expense, it depends upon where that interest rate comes out.

Because our plans are frozen, the biggest variable that impacts it changes in interest rate. And as I mentioned during the earlier remarks, if you pegged it where the interest rate is now, it is lower than it was at the end of 2013, which means that the noncash expense related to the pension would be higher next year.

But that's, recently, come back some as the rates have risen recently. So it really depends on where it lines up.

If it's about the same as it was at the end of '13, there won't be much change at all in the pension expense year-over-year. If it stays where it is now, there will be some increase.

It just depends on that rate.

Okay, just last question on free cash flow. I know in terms of capital allocation, if there's an available aircraft with a lease attached, you would go do that.

You talk about stock buybacks. If you just map out your, let's say, EBITDA $175 million because I think in the press release you said it would maybe be a little bit more than that.

CapEx, maintenance CapEx is $40 million, interest expense maybe $13 million, $14 million range, your cash pension, again, is going to be a low number. What else is going to be eating to your cash at that point other than going to purchase a plane?

It would seem to be you'd have a lot of free cash. Is that going to be burning a hole in your pocket to want to spend or would you consider dividends or all the kind of shareholder friendly initiatives?

Well, I think we've said that we'll -- that all of those things are options for us and it's not as if something burns a hole in your pocket and you're compelled to spend it without clear return on invested capital achievement. But we should generate well in excess of $1 a share in terms of free cash flow, the way things stand today.

Right. It seems like a lot more than that.

I just was wondering if there's any other cash that I haven't thought of that is out there but I don't think so. So okay.

You missed debt repayment. There's some scheduled debt repayment, of course.

Right. But that's usually pretty minimal at this point.

And once the DHL note is paid off, then you can do the share buybacks. So I guess -- and you could implement dividends.

Correct.

Thanks, Joe. As I said in my prepared remarks, our agreement in principal with DHL would secure our position as DHL's primary air transport provider in North America for another 4 years under terms that enhance DHL's competitiveness and growth potential here.

That's another strong endorsement of the assets and expertise we offer and as well as the challenge to protect our margins with new cost-reduction efforts. We expect to wrap-up definitive agreements with DHL next month before the close of another good year for ATSG as a whole.

We hope you all have a great holiday season and we look forward to sharing more of our 2015 outlook when our fourth quarter results come out February-March timeframe. Thanks, and have a quality day.