10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended March 31, 2002

Commission File Number 1-6512

AIRBORNE, INC.

(Exact name of registrant as specified in its charter)

Delaware	91-2065027
(State of incorporation or organization)	(IRS Employer Identification No.)

3101 Western Avenue

P.O. Box 662

Seattle, Washington 98111-0662

(Address of Principal Executive Office)

Registrant’s telephone number, including area code: (206) 285-4600

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: x     No: ¨

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the close of the period covered by this report.

Common Stock, par value $1 per share
Outstanding (net of 3,234,526 treasury shares) as of March 31, 2002	48,307,185 shares

FORWARD LOOKING STATEMENTS

Statements contained in this quarterly report on Form 10-Q that are not historical facts are considered forward-looking statements (as that term is defined in the Private Securities Litigation Reform Act of 1995). These forward-looking statements are based on expectations, estimates and projections as of the date of this filing, and involve risks and uncertainties that are inherently difficult to predict. Actual results may differ materially from those expressed in the forward-looking statements for any number of reasons, including those described in this report or in “Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2001.

PART I.    FINANCIAL INFORMATION

Item 1.    FINANCIAL STATEMENTS

AIRBORNE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share data)

(Unaudited)

	Three Months Ended March 31
	2002			2001
REVENUES:
Domestic	$	712,067		$	730,099
International		76,453			93,422
		788,520			823,521
OPERATING EXPENSES:
Transportation purchased		249,031			267,039
Station and ground operations		264,119			280,374
Flight operations and maintenance		125,366			151,686
General and administrative		63,414			66,067
Sales and marketing		22,276			24,002
Depreciation and amortization		49,121			52,638
		773,327			841,806
EARNINGS (LOSS) FROM OPERATIONS		15,193			(18,285	)
OTHER INCOME (EXPENSE):
Interest, net		(6,871	)		(4,497	)
Discounts on sales of receivables		(1,305	)		(3,758	)
Other		1,896			273
EARNINGS (LOSS) BEFORE INCOME TAXES		8,913			(26,267	)
INCOME TAX (EXPENSE) BENEFIT		(3,645	)		9,272
NET EARNINGS (LOSS)	$	5,268		$	(16,995	)
NET EARNINGS (LOSS) PER SHARE:
BASIC	$	0.11		$	(0.35	)
DILUTED	$	0.11		$	(0.35	)
DIVIDENDS PER SHARE	$	0.04		$	0.04

See notes to consolidated financial statements.

1

AIRBORNE, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

	March 31, 2002			December 31, 2001
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	393,165		$	201,500
Accounts receivable, less allowance of $11,549 and $11,509		133,019			126,040
Spare parts and fuel inventory		37,655			38,413
Refundable income taxes		178			27,161
Deferred income tax assets		30,768			30,572
Prepaid expenses and other		36,455			28,021
TOTAL CURRENT ASSETS		631,240			451,707
PROPERTY AND EQUIPMENT, NET		1,229,194			1,247,373
EQUIPMENT DEPOSITS and OTHER ASSETS		52,037			47,764
TOTAL ASSETS	$	1,912,471		$	1,746,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	120,578		$	141,873
Salaries, wages and related taxes		88,409			75,458
Accrued expenses		146,917			145,997
Income taxes payable		2,629			—
Current portion of debt		108,008			107,410
TOTAL CURRENT LIABILITIES		466,541			470,738
LONG-TERM DEBT		368,532			218,053
DEFERRED INCOME TAX LIABILITIES		143,303			143,526
POST RETIREMENT LIABILITIES		54,590			39,423
OTHER LIABILITIES		40,950			40,888
SHAREHOLDERS’ EQUITY:
Preferred Stock, without par value—
Authorized 6,000,000 shares, no shares issued
Common stock, par value $1 per share—
Authorized 120,000,000 shares
Issued 51,541,711 and 51,375,711 shares		51,542			51,376
Additional paid-in capital		307,227			304,984
Retained earnings		543,882			540,544
Accumulated other comprehensive income		(4,238	)		(2,820	)
		898,413			894,084
Treasury stock, 3,234,526 and 3,240,526 shares, at cost		(59,858	)		(59,868	)
		838,555			834,216
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,912,471		$	1,746,844

See notes to consolidated financial statements.

2

AIRBORNE, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

(Unaudited)

	Three Months Ended March 31
	2002			2001
OPERATING ACTIVITIES:
Net earnings (loss)	$	5,268		$	(16,995	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		49,121			52,638
Deferred income taxes		(420	)		806
Postretirement obligations		12,967			(6,323	)
Other		(1,548	)		5,836
CASH PROVIDED BY OPERATIONS		65,388			35,962
Change in:
Proceeds from receivable securitization facility		—			50,000
Receivables		(6,979	)		20,123
Inventories and prepaid expenses		(7,676	)		(2,837	)
Refundable income taxes		26,983			867
Accounts payable		(21,295	)		(24,577	)
Accrued expenses, salaries and taxes payable		18,699			16,105
NET CASH PROVIDED BY OPERATING ACTIVITIES		75,120			95,643
INVESTING ACTIVITIES:
Additions to property and equipment		(27,199	)		(26,325	)
Proceeds from sale of securities		1,656			—
Other		(1,915	)		1,439
NET CASH USED BY INVESTING ACTIVITIES		(27,458	)		(24,886	)
FINANCING ACTIVITIES:
Issuance of convertible debt, net of issuance costs		145,125			—
Payments on bank notes, net		—			(43,000	)
Principal payments on debt		(1,611	)		(116	)
Proceeds from common stock issuance		2,419			783
Dividends paid		(1,930	)		(1,924	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES		144,003			(44,257	)
NET INCREASE IN CASH		191,665			26,500
CASH AND CASH EQUIVALENTS AT JANUARY 1		201,500			40,390
CASH AND CASH EQUIVALENTS AT MARCH 31	$	393,165		$	66,890

See notes to consolidated financial statements.

3

AIRBORNE, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2002 (Unaudited)

NOTE A—SUMMARY OF FINANCIAL STATEMENT PREPARATION:

The consolidated financial statements included herein are unaudited but include all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and results of operations and cash flows for the interim periods reported.

Certain amounts for prior periods have been reclassified to conform to the 2002 presentation.

NOTE B—LONG-TERM DEBT:

Long-term debt consists of the following:

	March 31, 2002			December 31, 2001
	(In thousands)
Senior debt:
Senior notes	$	200,000		$	200,000
Convertible senior notes		150,000			—
Aircraft loan		60,658			61,651
Capital lease obligations		45,291			43,070
Revenue bonds		13,200			13,200
Revolving bank credit		—			—
Other debt		7,391			7,542
		476,540			325,463
Less current portion		(108,008	)		(107,410	)
	$	368,532		$	218,053

On March 25, 2002, the Company issued $150,000,000 of 5.75% Convertible Senior Notes due April 2007. The proceeds of the sale are intended, in part, to fund the repayment of $100,000,000 of 8.75% notes due December 15, 2002 at their stated maturity. The notes are convertible into shares of the Company’s common stock, at the option of the holder, at a conversion rate of 42.7599 shares per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to a conversion price of $23.39 per share.

The Company’s revolving bank credit agreement provides for a total commitment of $275,000,000 and expires in June 2004. The agreement provides that the Company pledge a substantial majority of its assets as collateral to secure the commitment, reduce available borrowing capacity by the amount of outstanding letters of credit and maintain compliance with certain restrictive covenants. Capacity under the facility is dependent on a borrowing base determined by the amount of eligible collateral, with a maximum commitment of $275,000,000. The Company has eligible collateral in the borrowing base to support $148,000,000 of the $275,000,000 commitment and has the ability to increase the borrowing base by pledging additional eligible collateral. With the current level of eligible collateral, available capacity under the agreement, net of outstanding letters of credit, was $50,500,000. At March 31, 2002 no borrowings were outstanding under the agreement and the Company was in compliance with restrictive covenants including covenants requiring the maintenance of minimum levels of earnings before interest, taxes, depreciation and amortization (EBITDA), leverage and debt service coverage ratios and required levels of liquidity. The agreement also restricts the Company from declaring or paying dividends on its common stock during any calendar quarter in excess of $2,000,000 (plus up to an additional $300,000 for dividends on any common stock issued upon conversion of the Company’s convertible senior notes securities described below). The Company’s $200,000,000 of outstanding non-convertible senior notes are also collateralized by assets of the Company.

4

NOTE C—EARNINGS PER SHARE:

Basic earnings per share are based upon the weighted average number of common shares outstanding during the interim period. Diluted earnings per share are based upon the weighted average number of common shares outstanding during the interim period plus dilutive common equivalent shares applicable to the assumed exercise of outstanding stock options and, when applicable, the assumed conversion of convertible senior notes.

Weighted average shares outstanding used in earnings per share computations were as follows:

	Three Months Ended March 31
	2002	2001
WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic	48,253,078	48,079,634
Diluted	48,589,135	48,080,472

NOTE D—SEGMENT INFORMATION

The Company has organized its business into two reportable operating segments. The domestic segment derives its revenues from the door-to-door delivery of small packages and documents throughout the United States, Canada and Puerto Rico. Domestic operations are supported principally by Company operated aircraft and facilities. The international segment derives its revenues from express door-to-door delivery and a variety of freight services. International revenues are recognized on shipments where the origin and/or destination is outside of locations supported by the domestic segment. The Company uses a variable cost approach to delivering international services through use of existing commercial airline capacity in connection with its domestic network and independent express and freight agents in locations not currently served by Company-owned foreign operations.

The following is a summary of key segment information (in thousands):

	Three Months Ended March 31
	2002			2001
SEGMENT REVENUES:
Domestic	$	712,067		$	730,099
International		76,453			93,422
	$	788,520		$	823,521
SEGMENT EARNINGS (LOSS) FROM OPERATIONS:
Domestic	$	16,932		$	(16,528	)
International		(1,739	)		(1,757	)
	$	15,193		$	(18,285	)

NOTE E—OTHER COMPREHENSIVE INCOME

Other comprehensive income includes the following transactions and tax effects for the three month periods ended March 31, 2002 and 2001, respectively (in thousands):

	Before Tax			Income Tax (Expense) or Benefit			Net of Tax
2002
Unrealized securities gains arising during the period	$	679		$	(262	)	$	417
Less: Reclassification adjustment for gains realized in net income		(1,656	)		638			(1,018	)
Net unrealized securities losses		(977	)		376			(601	)
Foreign currency translation adjustments		(256	)		99			(157	)
Unrealized gain on interest rate swap		656			(252	)		404
Additional minimum pension liabilities		(1,729	)		665			(1,064	)
Other comprehensive income	$	(2,306	)	$	888		$	(1,418	)

5

	Before Tax			Income Tax (Expense) or Benefit		Net of Tax
2001
Unrealized securities losses arising during the period	$	(145	)	$	56	$	(89	)
Less: Reclassification adjustment for gains realized in net income		(32	)		12		(20	)
Net unrealized securities losses		(177	)		68		(109	)
Foreign currency translation adjustments		(201	)		67		(134	)
Other comprehensive income	$	(378	)	$	135	$	(243	)

NOTE F—SUPPLEMENTAL GUARANTOR INFORMATION—SENIOR NOTES

In connection with the issuance of $200,000,000 of Senior Notes (“Notes”) by Airborne Express, Inc. (“AEI”), certain subsidiaries (collectively, “Guarantors”) of the Company have fully and unconditionally guaranteed, on a joint and several basis, the obligations to pay principal, premium, if any, and interest with respect to the Notes. The Guarantors are ABX Air Inc. (“ABX”) and Sky Courier, Inc. (“SKY”), which are wholly-owned subsidiaries of the Company, and Airborne FTZ Inc. (“FTZ”) and Wilmington Air Park Inc. (“WAP”), which are wholly-owned subsidiaries of ABX.

ABX is a certificated air carrier that owns and operates the domestic express cargo services for which AEI is the sole customer. ABX also offers air charter services on a limited basis to third-party customers. FTZ owns certain aircraft parts inventories that it sells primarily to ABX but also has limited sales to third-party customers. FTZ is also the holder of a foreign trade zone certificate at the Wilmington airport property. WAP is the owner of the Wilmington airport property, which includes the Company’s main sort facility, aircraft maintenance facilities, runways and related airport facilities and airline administrative and training facilities. ABX is the only occupant and customer of WAP. SKY provides expedited courier services and regional logistics warehousing primarily to third-party customers.

Revenues and net earnings recorded by ABX, FTZ, and WAP are controlled by the Company and are based on various discretionary factors. Investment balances and revenues between Guarantors have been eliminated for purposes of presenting financial information below. Intercompany advances and liabilities represent net amounts due between the various entities. The Company provides its subsidiaries with a majority of the cash necessary to fund operating and capital expenditure requirements.

6

The following are consolidating condensed balance sheets of the Company as of March 31, 2002 and December 31, 2001 and the related consolidating condensed statements of operations and cash flows for the three months ended March 31, 2002 and 2001:

Balance Sheet Information:

March 31, 2002	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non- guarantors			Elimination			Consolidated
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	391,470		$	—		$	772		$	923		$	—		$	393,165
Accounts receivable		12,701			—			9,570			110,748			—			133,019
Spare parts and fuel inventory		—			—			34,892			2,763			—			37,655
Refundable income taxes		178			—			—			—			—			178
Deferred income tax assets		30,768			—			—			—			—			30,768
Prepaid expenses and other		20,405			—			15,550			500			—			36,455
Total current assets		455,522			—			60,784			114,934			—			631,240
Property & equipment,net		101,515			—			1,123,501			4,178			—			1,229,194
Intercompany advances		34,204			447,595			(33,942	)		3,558			(451,415	)		—
Equipment deposits and other assets		31,686			10,858			9,594			10			(111	)		52,037
Total assets	$	622,927		$	458,453		$	1,159,937		$	122,680		$	(451,526	)	$	1,912,471
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	83,432		$	—		$	37,331			102		$	(287	)	$	120,578
Salaries, wages and related taxes		52,827			—			35,584			(2	)		—			88,409
Accrued expenses and income taxes payable		142,827			167			5,789			763			—			149,546
Current portion of debt		101,345			—			6,663			—			—			108,008
Total current liabilities		380,431			167			85,367			863			(287	)		466,541
Long-term debt		106,102			150,000			112,430			—			—			368,532
Intercompany liabilities		—			—			336,127			—			(336,127	)		—
Deferred income tax liabilities		(7,190	)		—			149,961			532			—			143,303
Postretirement liabilities		46,552			—			8,038			—			—			54,590
Other liabilities		40,950			—			—			—			—			40,950
Shareholders’ equity:
Common stock		1			51,542			(9	)		120			(112	)		51,542
Additional paid in capital		164			307,065			(755	)		115,753			(115,000	)		307,227
Retained earnings		60,155			9,537			468,778			5,412			—			543,882
Accumulated other comprehensive income		(4,238	)		—			—			—			—			(4,238	)
Treasury stock		—			(59,858	)		—			—			—			(59,858	)
Total shareholders’ equity		56,082			308,286			468,014			121,285			(115,112	)		838,555
Total liabilities and shareholders’ equity	$	622,927		$	458,453		$	1,159,937		$	122,680		$	(451,526	)	$	1,912,471

7

Balance Sheet Information:

December 31, 2001	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non-guarantors		Elimination			Consolidated
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	191,629		$	—		$	607		$	9,264	$	—		$	201,500
Accounts receivable		18,706			—			10,113			97,289		(68	)		126,040
Spare parts and fuel inventory		—			—			36,272			2,141		—			38,413
Refundable income taxes		27,161			—			—			—		—			27,161
Deferred income tax assets		30,572			—			—			—		—			30,572
Prepaid expenses and other		13,918			—			13,627			476		—			28,021
Total current assets		281,986			—			60,619			109,170		(68	)		451,707
Property & equipment, net		109,622			—			1,133,490			4,261		—			1,247,373
Intercompany advances		157,681			302,279			12,949			12,884		(485,793	)		—
Equipment deposits and other assets		31,078			5,963			16,224			10		(5,511	)		47,764
Total assets	$	580,367		$	308,242		$	1,223,282		$	126,325	$	(491,372	)	$	1,746,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	84,867		$	—		$	53,146		$	4,552	$	(692	)	$	141,873
Salaries, wages and related taxes		46,976			—			28,482			—		—			75,458
Accrued expenses and income taxes payable		139,132			—			6,261			604		—			145,997
Current portion of debt		100,877			—			6,533			—		—			107,410
Total current liabilities		371,852			—			94,422			5,156		(692	)		470,738
Long-term debt		103,951			—			114,102			—		—			218,053
Intercompany liabilities		—			—			370,168			—		(370,168	)		—
Deferred income tax liabilities		(6,967	)		—			150,164			329		—			143,526
Postretirement liabilities		11,905			—			27,518			—		—			39,423
Other liabilities		40,888			—			—			—		—			40,888
Shareholders’ equity:
Common stock		1			51,376			(9	)		120		(112	)		51,376
Additional paid in capital		8			304,976			3,171			115,753		(118,924	)		304,984
Retained earnings		61,549			11,758			463,746			4,967		(1,476	)		540,544
Accumulated other comprehensive income		(2,820	)		—			—			—		—			(2,820	)
Treasury stock		—			(59,868	)		—			—		—			(59,868	)
Total shareholders’ equity		58,738			308,242			466,908			120,840		(120,512	)		834,216
Total liabilities and shareholders’ equity	$	580,367		$	308,242		$	1,223,282		$	126,325	$	(491,372	)	$	1,746,844

8

Statement of Operations Information:

Three months ended March 31, 2002	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
Revenues	$	773,041		$	—		$	15,479		$	—		$	788,520
Operating expenses:
Transportation purchased		469,072			—			(220,041	)		—			249,031
Station and ground operations		223,482			—			40,637			—			264,119
Flight operations and maintenance		(455	)		—			126,435			(614	)		125,366
General and administrative		44,789			271			18,316			38			63,414
Sales and marketing		22,076			—			200			—			22,276
Depreciation and amortization		11,813			—			37,225			83			49,121
		770,777			271			2,772			(493	)		773,327
Earnings (loss) from operations		2,264			(271	)		12,707			493			15,193
Other income (expense):
Interest, net		(4,755	)		(175	)		(1,941	)		—			(6,871	)
Discounts on sales of receivables		(965	)		—			—			(340	)		(1,305	)
Other		1,896			—			—			—			1,896
Earnings (loss) before income taxes		(1,560	)		(446	)		10,766			(153	)		8,913
Income tax (expense) benefit		166			156			(4,258	)		291			(3,645	)
Net earnings (loss)	$	(1,394	)	$	(290	)	$	6,508		$	444		$	5,268

Three months ended March 31, 2001	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
Revenues	$	806,184		$	—		$	17,337		$	—		$	823,521
Operating expenses:
Transportation purchased		512,940			—			(245,901	)		—			267,039
Station and ground operations		236,877			—			43,497			—			280,374
Flight operations and maintenance		—			—			152,345			(659	)		151,686
General and administrative		48,045			219			17,763			40			66,067
Sales and marketing		23,644			—			358			—			24,002
Depreciation and amortization		12,072			—			40,485			81			52,638
		833,578			219			8,547			(538	)		841,806
Earnings (loss) from operations		(27,394	)		(219	)		8,790			538			(18,285	)
Other income (expense):
Interest, net		1,333			19,009			(24,839	)		—			(4,497	)
Discounts on sales of receivables		(4,344	)		—			—			586			(3,758	)
Other		273			—			—			—			273
Earnings (loss) before income taxes		(30,132	)		18,790			(16,049	)		1,124			(26,267	)
Income tax (expense) benefit		10,814			424			(1,770	)		(196	)		9,272
Net earnings (loss)	$	(19,318	)	$	19,214		$	(17,819	)	$	928		$	(16,995	)

9

Statement of Cash Flows Information:

Three months ended March 31, 2002	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
OPERATING ACTIVITIES:
Net earnings (loss)	$	(1,394	)	$	(290	)		6,508		$	444		$	5,268
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash operating activities		42,145			(5,051	)		23,234			(208	)		60,120
Change in current assets and liabilities		164,099			(144,992	)		(798	)		(8,577	)		9,732
Net cash provided (used) by operating activities		204,850			(150,333	)		28,944			(8,341	)		75,120
INVESTING ACTIVITIES:
Net cash used by investing activities		(223	)		—			(27,235	)		—			(27,458	)
FINANCING ACTIVITIES:
Net cash provided (used) By financing activities		(4,786	)		150,333			(1,544	)		—			144,003
Net increase (decrease) in cash		199,841			—			165			(8,341	)		191,665
Cash and cash equivalents at January 1		191,629			—			607			9,264			201,500
Cash and cash equivalents at March 31	$	391,470		$	—		$	772		$	923		$	393,165

Three months ended March 31, 2001	Airborne Express, Inc.			Airborne Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
OPERATING ACTIVITIES:
Net earnings (loss)	$	(19,318	)	$	19,214		$	(17,819	)	$	928		$	(16,995	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash operating activities		3,467			(156	)		50,262			(616	)		52,957
Change in current assets and liabilities		71,569			(2,621	)		(12,897	)		3,630			59,681
Net Cash provided by operating activities		55,718			16,437			19,546			3,942			95,643
INVESTING ACTIVITIES:
Net cash used by investing activities		(5,499	)		—			(19,335	)		(52	)		(24,886	)
FINANCING ACTIVITIES:
Net cash used by financing activities		(27,704	)		(16,437	)		(116	)		—			(44,257	)
Net increase in cash		22,515			—			95			3,890			26,500
Cash and cash equivalents at January 1		37,523			—			52			2,815			40,390
Cash and cash equivalents at March 31	$	60,038		$	—		$	147		$	6,705		$	66,890

10

NOTE G—SUPPLEMENTAL GUARANTOR INFORMATION—CONVERTIBLE SENIOR NOTES

On March 25, 2002, the Company issued $150 million of 5.75% Convertible Senior Notes due April 2007 (“Notes”). In connection with the issuance of these Notes, the Company and certain subsidiaries (collectively, “Guarantors”) have fully and unconditionally guaranteed, on a joint and several basis, the obligations to pay principal, premium, if any, and interest with respect to the Notes. The Guarantors are AEI, ABX, SKY, WAP, FTZ, Aviation Fuel, Inc. (“AFI”) and Sound Suppression, Inc. (“SSI”). AEI provides domestic and international delivery services in addition to performing customer service, sales and marketing activities. AFI purchases and sells aviation and other fuels. SSI retrofits company aircraft with hush kits to meet noise regulations. A description of the operating activities of the other guarantors and their relationship to the Company is contained in Note F.

The following are consolidating condensed balance sheets of the Company as of March 31, 2002 and December 31, 2001 and the related consolidating condensed statements of operations and cash flows for the three months ended March 31, 2002 and March 31, 2001. A description regarding the basis of presenting these statements is contained in Note F.

Balance Sheet Information:

March 31, 2002	Airborne, Inc.			Guarantors			Non-guarantors		Elimination			Consolidated
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	—		$	391,505		$	1,660	$	—		$	393,165
Accounts receivable		—			22,300			110,719		—			133,019
Spare parts and fuel inventory		—			37,655			—		—			37,655
Refundable income taxes		—			178			—		—			178
Deferred income tax assets		—			30,768			—		—			30,768
Prepaid expenses and other		—			36,086			369		—			36,455
Total current assets		—			518,492			112,748		—			631,240
Property and equipment, net		—			1,229,194			—		—			1,229,194
Intercompany advances		447,595			(275	)		4,095		(451,415	)		—
Equipment deposits and other assets		10,858			41,290			—		(111	)		52,037
Total assets	$	458,453		$	1,788,701		$	116,843	$	(451,526	)	$	1,912,471
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	—		$	120,865		$	—	$	(287	)	$	120,578
Salaries, wages and related taxes		—			88,409			—		—			88,409
Accrued expenses and income taxes payable		167			148,700			679		—			149,546
Current portion of debt		—			108,008			—		—			108,008
Total current liabilities		167			465,982			679		(287	)		466,541
Long-term debt		150,000			218,532			—		—			368,532
Intercompany liabilities		—			336,127			—		(336,127	)		—
Deferred income tax liabilities		—			143,303			—		—			143,303
Postretirement liabilities		—			54,590			—		—			54,590
Other liabilities		—			40,950			—		—			40,950
Shareholders’ equity:
Common stock		51,542			102			10		(112	)		51,542
Additional paid in capital		307,065			162			115,000		(115,000	)		307,227
Retained earnings		9,537			533,191			1,154		—			543,882
Accumulated other comprehensive income		—			(4,238	)		—		—			(4,238	)
Treasury stock		(59,858	)		—			—		—			(59,858	)
Total shareholders’ equity		308,286			529,217			116,164		(115,112	)		838,555
Total liabilities and shareholders’ equity	$	458,453		$	1,788,701		$	116,843	$	(451,526	)	$	1,912,471

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Balance Sheet Information:

December 31, 2001	Airborne, Inc.			Guarantors			Non-guarantors		Elimination			Consolidated
	(in thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	—		$	191,664		$	9,836	$	—		$	201,500
Accounts receivable		—			28,763			97,277		—			126,040
Spare parts and fuel inventory		—			38,413			—		—			38,413
Refundable income taxes		—			27,161			—		—			27,161
Deferred income tax assets		—			30,572			—		—			30,572
Prepaid expenses and other		—			27,619			402		—			28,021
Total current assets		—			344,192			107,515		—			451,707
Property and equipment, net		—			1,247,373			—		—			1,247,373
Intercompany advances		302,279			452			9,487		(312,218	)		—
Equipment deposits and other assets		5,963			41,912			—		(111	)		47,764
Total assets	$	308,242		$	1,633,929		$	117,002	$	(312,329	)	$	1,746,844
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	—		$	142,497		$	—	$	(624	)	$	141,873
Salaries, wages and related taxes		—			75,458			—		—			75,458
Accrued expenses and income taxes payable		—			145,380			617		—			145,997
Current portion of debt		—			107,410			—		—			107,410
Total current liabilities		—			470,745			617		(624	)		470,738
Long-term debt		—			218,053			—		—			218,053
Intercompany liabilities		—			196,593			—		(196,593	)		—
Deferred income tax liabilities		—			143,526			—		—			143,526
Postretirement liabilities		—			39,423			—		—			39,423
Other liabilities		—			40,888			—		—			40,888
Shareholders’ equity:
Common stock		51,376			(102	)		10		(112	)		51,376
Additional paid in capital		304,976			8			115,000		(115,000	)		304,984
Retained earnings		11,758			527,411			1,375		—			540,544
Accumulated other comprehensive income		—			(2,820	)		—		—			(2,820	)
Treasury stock		(59,868	)		—			—		—			(59,868	)
Total shareholders’ equity		308,242			524,701			116,385		(115,112	)		834,216
Total liabilities and shareholders’ equity	$	308,242		$	1,633,929		$	117,002	$	(312,329	)	$	1,746,844

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Statement of Operations Information:

Three months ended March 31, 2002	Airborne, Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
Revenues	$	—		$	788,520		$	—		$	788,520
Operating expenses:
Transportation purchased		—			249,031			—			249,031
Station and ground operations		—			264,119			—			264,119
Flight operations and maintenance		—			125,366			—			125,366
General and administrative		271			63,143			—			63,414
Sales and marketing		—			22,276			—			22,276
Depreciation and amortization		—			49,121			—			49,121
		271			773,056			—			773,327
Earnings (loss) from operations		(271	)		15,464			—			15,193
Other income (expense):
Interest, net		(175	)		(6,696	)		—			(6,871	)
Discounts on sales of receivables		—			(965	)		(340	)		(1,305	)
Other		—			1,896			—			1,896
Earnings (loss) before income taxes		(446	)		9,699			(340	)		8,913
Income tax (expense) benefit		156			(3,920	)		119			(3,645	)
Net earnings (loss)	$	(290	)	$	5,779		$	(221	)	$	5,268

Three months ended March 31, 2001	Airborne, Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
Revenues	$	—		$	823,521		$	—		$	823,521
Operating expenses:
Transportation purchased		—			267,039			—			267,039
Station and ground operations		—			280,374			—			280,374
Flight operations and maintenance		—			151,686			—			151,686
General and administrative		219			65,848			—			66,067
Sales and marketing		—			24,002			—			24,002
Depreciation and amortization		—			52,638			—			52,638
		219			841,587			—			841,806
Loss from operations		(219	)		(18,066	)		—			(18,285	)
Other income (expense):
Interest, net		19,009			(23,506	)		—			(4,497	)
Discounts on sales of receivables		—			(4,344	)		586			(3,758	)
Other		—			273			—			273
Earnings (loss) before income taxes		18,790			(45,643	)		586			(26,267	)
Income tax (expense) benefit		424			9,053			(205	)		9,272
Net earnings (loss)	$	19,214		$	(36,590	)	$	381		$	(16,995	)

13

Statement of Cash Flows Information:

Three months ended March 31, 2002	Airborne, Inc.			Guarantors			Non- guarantors			Consolidated
	(in thousands)
OPERATING ACTIVITIES:
Net earnings (loss)	$	(290	)	$	5,779		$	(221	)	$	5,268
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash operating activities		(5,051	)		65,290			(119	)		60,120
Change in current assets and liabilities		(144,992	)		162,560			(7,836	)		9,732
Net cash provided (used) by operating activities		(150,333	)		233,629			(8,176	)		75,120
INVESTING ACTIVITIES:
Net cash used by investing activities		—			(27,458	)		—			(27,458	)
FINANCING ACTIVITIES:
Net cash provided (used) by financing activities		150,333			(6,330	)		—			144,003
Net increase (decrease) in cash		—			199,841			(8,176	)		191,665
Cash and cash equivalents at January 1		—			191,664			9,836			201,500
Cash and cash equivalents at March 31	$	—		$	391,505		$	1,660		$	393,165

Three months ended March 31, 2001	Airborne, Inc.			Guarantors			Non- guarantors		Consolidated
	(in thousands)
OPERATING ACTIVITIES:
Net earnings (loss)	$	19,214		$	(36,590	)	$	381	$	(16,995	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Non-cash operating activities		(156	)		52,907			206		52,957
Change in current assets and liabilities		(2,621	)		57,363			4,939		59,681
Net cash provided by operating activities		16,437			73,680			5,526		95,643
INVESTING ACTIVITIES:
Net cash used by investing activities		—			(24,886	)		—		(24,886	)
FINANCING ACTIVITIES:
Net cash used by financing activities		(16,437	)		(27,820	)		—		(44,257	)
Net increase in cash		—			20,974			5,526		26,500
Cash and cash equivalents at January 1		—			39,121			1,269		40,390
Cash and cash equivalents at March 31	$	—		$	60,095		$	6,795	$	66,890

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

RESULTS OF OPERATIONS

We achieved improved quarterly operating performance in the first quarter of 2002. The reduction in operating expenses was the primary factor contributing to the enhanced operating performance compared to the first quarter of 2001. We were able to accomplish this performance despite a difficult economic environment that has hampered shipment and revenue growth. The first quarter of 2002 marks the fourth consecutive quarter of improved operating results. This sequential progress can be attributed to the implementation of key strategic initiatives beginning in 2001, including the expansion of our product line, the implementation of yield management actions, as well as the continued reduction in operating expense levels.

We had net earnings in the first quarter of 2002 of $5.3 million or $.11 per diluted share, including a non-recurring after tax gain of $1.0 million, or $.02 per share, from the sale of certain securities. This compares to a net loss of $17.0 million or $.35 per share in the first quarter of 2001 and net earnings of $2.2 million or $.05 per share in the fourth quarter of 2001. The fourth quarter of 2001 included an after tax credit of $3.2 million, or $.07 per share, related to federal compensation recorded under the Air Transportation Safety and System Stabilization Act, and after tax gains on the sale of radio frequencies of $.6 million or $.01 per share. Excluding those one-time items, a net loss would have been recorded of $.03 per share.

The following table is an overview of our shipments, revenue and weight trends for the quarters indicated:

	Three Months Ended March 31
	2002		2001		Change
Shipments (in thousands):
Domestic
Overnight		39,885		45,618	–12.6	%
Next Afternoon Service		13,185		13,428	–  1.8	%
Second Day Service		23,797		24,215	–  1.7	%
Ground Delivery Service		6,163		—	n/a
100 Lbs. and Over		51		60	–15.0	%
Total Domestic		83,081		83,321	–  0.3	%
International
Express		1,330		1,600	–16.9	%
Freight		87		102	–14.7	%
Total International		1,417		1,702	–16.7	%
Total Shipments		84,498		85,023	–  0.6	%
Average Pounds per Shipment:
Domestic		4.44		4.14	7.2	%
International		55.43		51.92	6.8	%
Average Revenue per Pound:
Domestic	$	1.88	$	2.07	–  9.2	%
International	$	0.98	$	1.04	–  5.8	%
Average Revenue per Shipment:
Domestic	$	8.53	$	8.72	–  2.2	%
International	$	53.95	$	54.89	–  1.7	%

        Total revenues decreased 4.3% to $789 million in the first quarter of 2002 compared to revenues of $824 million in the first quarter of 2001. Shipment volumes decreased .6% to 84.5 million in the first quarter compared to 85.0 million in the same quarter a year ago. The first quarter of 2002 had one less operating day than in 2001. On a per day basis total shipments increased 1.0% over levels achieved in the first quarter of 2001.

Domestic revenues decreased 2.5% to $712 million in the first quarter of 2002 compared to $730 million in the first quarter of 2001. Domestic shipments were 83.1 million in the first quarter compared to 83.3 million in the first quarter of 2001. On a per day

15

basis, domestic shipments increased 1.3% in the first quarter of 2002 compared to a 3.5% per day increase in the first quarter of 2001 over 2000 levels. Average revenue per domestic shipment was $8.53 compared to $8.72 in the first quarter of 2001. The decline in total domestic revenues and domestic revenue per shipment was due primarily to a higher percentage of total shipments being from lower yielding deferred products and to the reduction in the fuel surcharge.

Domestic revenues in the first quarter of 2002 and 2001 included fuel surcharge revenues which were used to help offset the historically high prices of fuel in our air and surface operations. During 2001 we had in place a fuel surcharge of 4% applied to our air express products and a 1.2% surcharge on our airborne@home and Ground Delivery Service products. The fuel surcharge rates were reduced effective January 14, 2002 to 2.9% on air express products and 1% on airborne@home and ground products. Fuel surcharge revenues totaled $17.8 million in the first quarter of 2002 compared to $24.6 million in the first quarter of 2001.

In early 2002 we took actions to increase rates on both domestic and international express services to improve our shipment yields. These actions included a phased in general rate increase on domestic services commensurate with increases of our major competitors and the introduction of a residential delivery fee and delivery area surcharge fee. These new industry-standard fees match recent competitor actions.

We continued to experience year over year declines in our core express shipment volumes. Core express shipments declined 8.6% in the first quarter compared to a decline of 3.8% in last year’s first quarter. Our core express products are Overnight Express, Next Afternoon Service (NAS) and Second Day Service(SDS) excluding airborne@home shipments. Higher yielding Overnight Express shipments decreased 12.6% in the first quarter of 2002 compared to a decrease of 4.9% in the first quarter of 2001. The NAS product decreased 1.8% in this year’s first quarter compared to a decline of 3.6% a year ago. SDS shipment volumes declined 3.6% compared to a decline of 1.2% in the first quarter of 2001. However, core express product volumes increased 2.2% on a per day basis in the first quarter of 2002 in comparison to the fourth quarter of 2001.

In April 2001 we expanded our service portfolio by introducing our Ground Delivery Service(GDS) product. This new product leverages our sort and linehaul infrastructure and was initially marketed to a targeted customer base. We will be marketing this product to an expanded customer segment more aggressively in the coming quarters subject to an appropriate balance between growth and yields. GDS is an important growth initiative that offers us the opportunity not only to generate revenues from the deferred ground segment, where we have not previously participated, but also to leverage GDS with cross marketing of higher yielding air express shipments. GDS has shown strong growth since its introduction, producing volumes of 5.8 million shipments (excluding .4 million airborne @home shipments shipped via GDS) in the first quarter of 2002, or 92,000 shipments per day. This compares to 3.2 million and 1.5 million shipments in the fourth and third quarters of 2001, respectively.

Our airborne@home product increased 12.1% to 5.9 million shipments in the first quarter of 2002 compared to 5.2 million shipments in the first quarter of 2001. This service is intended to capture primarily business-to-consumer shipments from e-commerce and catalog fulfillment providers. airborne@home utilizes an arrangement with the U.S. Postal Service to provide final delivery of the product.

Total domestic shipments per day increased 1.3% in the first quarter this year compared to last year, as the significant growth in our deferred products offset the decline in our core express shipments.

International revenues decreased 18.2% in the first quarter of 2002 to $76 million compared to $93 million in the first quarter of 2001. Total international shipments decreased 16.7% to 1.4 million shipments in this year’s first quarter compared to an increase of 4.9% to 1.7 million shipments in the first quarter of 2001. Our international express shipments declined 16.9% in the first quarter compared to an increase of 4.6% in the same period of 2001. The international freight shipments declined 14.7% in the first quarter of 2002 compared to an 8.5% increase a year ago. International shipments and revenues were impacted in the first quarter by continued global economic weakness, particularly in U.S. exports.

16

International margin percentages improved in the first quarter due to cost reduction and yield enhancement measures. However, net segment operating results were impacted due to the lower shipment volumes producing a segment loss from operations of $1.7 million, the same as reported in the first quarter of 2001.

The cost reduction measures implemented during 2001 were instrumental in the improvement in first quarter of 2002 results and the sequential quarterly improvements we have made since the first quarter of 2001. Operating expense per shipment decreased 7.6% to $9.15 in the first quarter of 2002 compared to $9.90 in the first quarter of 2001 and $9.79 for full year of 2001. We have been aggressively managing our costs through numerous cost cutting actions designed to adjust our cost structure to be more in line with the volume levels being generated. The reduction of labor hours combined with modest per day shipment volume growth resulted in significant improvement in productivity of 8.5% in the first quarter of 2002 compared to a .1% improvement in the first quarter of 2001. Our reduction and combination of airline flight segments resulted in a reduction in fuel consumption and savings in maintenance cost. The decline in jet fuel prices also had a positive impact on operating expenses.

Transportation purchased as a percentage of revenues decreased to 31.6% in the first quarter of 2002 as compared to 32.4% in the same period a year ago. Total transportation purchased expense decreased 6.7% in the first quarter compared to last year. The decrease in costs was due, in part, to lower commercial airline and offshore agent costs associated with fewer international shipments. Delivery costs paid to the U.S. Postal Service increased due to the higher volumes of airborne@home shipments.            

Station and ground expense as a percentage of revenues was 33.5% in this year’s first quarter compared to 34.0% in the first quarter of 2001. Total station and ground expense decreased 5.8% in the first quarter of 2002 compared to a year ago as a result of significant reductions in labor hours for domestic operations. These reductions were also aided by relatively mild winter weather. While productivity improved, higher wage, benefit and workers compensation costs partially offset the effects of hours reductions.

Flight operations and maintenance expense as a percentage of revenues was 15.9% in the first quarter of 2002 compared to 18.4% in the first quarter of 2001. This category of expense declined 17.4% in the first quarter of 2002 compared to a year ago due in part to lower jet fuel prices and reduced fuel consumption compared to the same period in 2001. The average aviation fuel price per gallon was $.71 in the first quarter compared to $1.00 and $.77 in the first and fourth quarters of 2001, respectively. Aviation fuel consumption decreased 12.0% in the first quarter to 38.4 million gallons compared to a decrease of 4.6% in the first quarter of 2001. The decrease in consumption was primarily due to our efforts to reduce and combine certain flight segments to reduce costs beginning in the second quarter of 2001. Also, the placement of three 767 aircraft in service since the first quarter of 2001 allowed less fuel efficient DC-8 aircraft to be moved to shorter lane segments or backup status or removed from service. The improvement in flight operations and maintenance expense was also aided by lower weather related costs due to the mild weather and lower incurred aircraft maintenance expenses. Lower levels of heavy maintenance expenses were incurred in the first quarter of 2002 than in the same period in 2001, and were 5.8% as a percentage of revenues in the first quarter of 2002 compared to 6.3% in the first quarter of 2001. We anticipate maintenance expenses to increase in the second quarter of 2002 to more historical levels. The relatively high cost of fuel over the past several years has hampered our efforts to enter into fuel hedging contracts at acceptable prices. While we may enter into fuel hedge contracts in the future, no fuel contracts were entered into during 2001 or the first quarter of 2002.

General and administrative expense as a percentage of revenues was 8.0% in the first quarter of 2002 and the first quarter of 2001. Total general and administrative costs decreased 4.0% in the first quarter of 2002 compared to an increase of 8.4% in the first quarter of 2001. We took actions to reduce costs in this category of expense in 2001 and continue to employ strong cost controls over labor and discretionary costs. These cost reduction efforts have helped to mitigate cost pressures from wage and pension cost increases and the reinstatement of certain incentive plans that had been suspended during 2001.

17

Sales and marketing expenses as a percentage of revenues decreased to 2.8% in the first quarter of 2002 compared to 2.9% in the first quarter of 2001. While costs have been added to increase the number of sales personnel, lower marketing and packaging expenses resulted in a 7.2% decline in this category of expense in comparison to the first quarter of 2001.

Depreciation and amortization expense totaled 6.2% of revenues in the first quarter of 2002 and 6.4% in the first quarter of 2001. Depreciation and amortization expense decreased 6.7% in the first quarter of 2002 compared to 2001 to $49 million due to relatively lower levels of capital expenditures made in 2001 coupled with the timing of certain aircraft assets becoming fully depreciated.

Interest expense increased in the first quarter of 2002 compared to the same period a year ago due to higher levels of outstanding debt coupled with lower levels of capitalized interest. There was no interest capitalized during the first quarter of 2001 compared to $1.1 million of capitalized interest in the first quarter of 2002 on the acquisition and modification of 767 aircraft. Offsetting interest expense was $.8 million of interest income recorded in the first quarter of 2002 from cash equivalent short-term investments.

Discounts on the sales of receivables associated with recording the obligation to fund the purchaser’s costs under our accounts receivable securitization facility were $1.3 million in the first quarter of 2002 compared to $3.8 million in the first quarter of 2001. The decrease in cost is due to lower discounts on amounts sold as a result of the lower interest rate environment. Because of the sales recognition treatment associated with these securitization transactions, the cost is recorded separate from interest expense.

Included in other income in the first quarter of 2002 was a non-recurring gain of $1.7 million from the sale of an equity interest in one of our international agents.

Our effective tax expense rate of 40.9% in the first quarter of 2002 compares to a tax benefit rate of 35.3% in the first quarter of 2001.

We recorded compensation of $13 million in 2001 provided to us under the Air Transportation Safety and System Stabilization Act (“Act”). The Act provided eligible cargo carriers compensation for certain direct losses associated with the closure of the national air system for a two-day period following the terrorist attacks of September 11 and incremental losses through December 31, 2001. The compensation amounts recorded were based on our interpretation of the Act and related rules. We are in the process of completing final information and audit filings with the Department of Transportation (“DOT”) and, while we believe we have complied with the Act, the ultimate amount of proceeds we will realize is subject to audit and interpretation by the DOT. We cannot be assured of the ultimate outcome of the DOT’s final review, but it is possible that a reduction to the amount of compensation previously recognized could occur.

Outlook

The performance of the U.S. and global economies will have an impact on our operating results for the balance of 2002 and beyond. The current lack of certainty regarding sustained economic growth has caused us to expect continued pressure on year over year shipment and revenue growth, particularly in our higher yielding express products for the balance of 2002. During the first six weeks of the second quarter of 2002 core express shipment volumes continue to be lower than core express volumes for the comparable period of 2001.

We expect that our GDS product will continue to show strong growth with current estimates of 130,000 shipments per day in the second quarter of 2002, with 10% to 15% sequential quarterly growth. We expect 3% to 5% sequential quarterly growth in our airborne@home product in the second quarter of 2002. Both product lines should experience seasonal increases in the fourth quarter of the year.

18

While we continue to aggressively manage costs, it will be difficult to sequentially reduce labor hours and operating costs to the extent achieved in the latter half of 2001 and through the first quarter of 2002. We anticipate labor productivity improvement in the second quarter of 2002, but below the level achieved in the first quarter of the year. Productivity improvement will be much more difficult in the second half of 2002 without volume growth due to the more difficult year over year comparisons. Compensation pressures will also serve to offset some of our anticipated productivity gains.

We mentioned in our Management, Discussion and Analysis included in our Annual Report on Form 10-K that we expected increases in 2002 in employee health care, pension and insurance related costs. While employee healthcare costs trended lower than expected in the first quarter of 2002, we still anticipate that the impact of the increase in these categories of expense will be in the range of $25 to $30 million for the year.

Flight operations costs are also anticipated to be higher during the remainder of the year than the level achieved in the first quarter due to increased scheduled maintenance and higher fuel costs. In April 2002, the price of aviation fuel increased approximately 12% over first quarter of 2002 yet we have not adjusted our fuel surcharge percentages. The fuel surcharge percentage may not necessarily increase or decrease in correlation with the cost of fuel. Accordingly, during a period of rising fuel prices, additional costs may not be offset by corresponding increases in fuel surcharge revenues. We continue to monitor fuel cost trends and may make changes to the surcharge as warranted.

Interest expense is anticipated to increase for the next several quarters due to the March 25, 2002 issuance of $150 million of convertible senior notes. This quarterly increase is expected to be approximately $2.0 million until the maturity of $100 million of senior notes in December of this year.

Our effective tax expense rate is expected to be between 40% and 42% for the balance of 2002.

While growth in our deferred products is encouraging, cost pressures and the lack of core express revenue growth could have an adverse effect on operating results for the remainder of the year.

Financial Condition, Liquidity and Capital Resources

During 2001 we achieved our objectives of increasing our liquidity sources and cash reserves through the renegotiation of our bank credit agreement, increasing the size of our accounts receivable securitization facility and securing financing of five 767 aircraft. These efforts and stringent management over capital expenditures were primary factors in the substantial increase in cash to $201.5 million in cash and cash equivalents on the balance sheet as of December 31, 2001. Operating cash flows in the first quarter of 2002 coupled with proceeds from a $150 million private placement offering of convertible senior notes in March 2002 raised cash and cash equivalent balances to $393.2 million as of March 31, 2002.

Cash provided by operations net of the change in working capital for the first quarter of 2002 was $75.1 million compared to $45.6 million in the first quarter of 2001 (exclusive of $50 million in proceeds from our receivables securitization facility). The improvement in operating cash flow is primarily due to improved operating performance.

Capital expenditures and financing associated with those expenditures are significant factors that affect our financial condition. During the first quarter of 2002 we spent $27.1 million on capital improvements compared to $26.3 million in the first quarter of 2001. Capital spending levels were reduced significantly in 2001 in comparison to previous year levels through management efforts to reduce spending to a level below the level of cash flow generated from operations. We anticipate the level of capital spending for 2002 to be up to $175 million, compared to $126 million in 2001, primarily as a result of committed aircraft acquisitions and technology investments. We took delivery of one 767 aircraft in the first quarter of 2002 and anticipate taking delivery of up to two additional aircraft this year. Growth in the new ground product is not anticipated to require significant capital expenditures since it is

19

designed to leverage our existing sort, linehaul and pickup and delivery infrastructure. We may add additional regional hubs to augment this service, but these will probably be leased facilities and should not require significant capital.

In addition to our existing cash and cash equivalent reserves, we had $50 million in available borrowing capacity under our bank credit agreement as of March 31, 2002. No borrowings were outstanding under this agreement. This facility is collateralized by a substantial majority of our assets and contains certain restrictive covenants. We were in compliance with all restrictive covenants as of March 31, 2002. We also had eligible receivables to support an additional $40 million of sales proceeds under our accounts receivable securitization facility (as of March 31, 2002 we had received $200 million of sales proceeds under this facility).

On March 25, 2002 we completed a private placement offering of $150 million of 5.75% convertible senior notes. The notes are for a five-year term maturing in April 2007. Proceeds from the placement will be used, in part, to pay off $100 million of senior notes that mature in December 2002.

In our opinion, existing cash and cash equivalents coupled with anticipated cash flow from operations and available capacity under the accounts receivable securitization facility and bank credit agreement should provide adequate flexibility for financing capital expenditures and funding debt maturities scheduled in 2002.

While we believe we have the ability to sufficiently fund our planned operations and capital expenditures for 2002, certain circumstances could arise that would materially affect liquidity. Cash flows from operations could be affected by deterioration in core shipment volumes caused by a continued slow economy, further terrorist attacks, or our inability to successfully implement sales growth initiatives in a cost effective manner. Operating results could also be negatively impacted by prolonged labor disputes or changes in our cost structure from areas such as a significant rise in fuel prices. Weakening operating performance also could result in our inability to remain in compliance with financial covenants contained in our bank credit and accounts receivable securitization agreements, thereby reducing liquidity sources and potentially requiring the use of cash collateral to support outstanding letters of credit. Lower revenues could also cause amounts currently drawn under the securitization facility to be reduced.

Critical Accounting Policies and Estimates

The “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as disclosures included elsewhere in the Form 10-Q, are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingencies. On an on-going basis, we evaluate the estimates used, including those related to bad debts, self-insurance reserves, valuation of spare-parts inventory, impairments of property and equipment, income taxes and contingencies and litigation. We base our estimates on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies involve the more significant judgments and estimates used in the preparation of the consolidated financial statements.

We maintain an allowance for doubtful accounts for estimated losses resulting from the potential inability of our customers to make required payments. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

We continually evaluate the fair value of our property and equipment. When an asset is considered impaired, as has been the case with certain DC-8 aircraft that have been removed from service recently, the asset is adjusted to its fair value. Changes in the

20

estimated useful lives of certain assets resulting from excess capacity or changes in regulations grounding the use of our aircraft could require significant impairment losses to be recorded.

We value spare parts inventory at the lower of cost or market and write down the value of inventory for estimated obsolescence. An inventory reserve is maintained based upon estimates of spare part utilization by aircraft type. Should actual parts usage be affected by conditions that are less favorable than those projected by management, revisions to the estimated inventory reserve may be required.

We have not recorded a valuation allowance to reduce our deferred tax assets, as we believe it is more likely than not that the deferred tax asset will be realized. We have considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance. Should we determine that we will not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Self-insurance reserves for workers compensation, automobile, and general liability are based upon historical data and recent claim trends. Changes in claim severity and frequency could result in actual claims being materially different than the amounts provided for in our results of operations.

We are involved in legal matters that have a degree of uncertainty associated with them. We continually assess the likely outcomes of these matters and the adequacy of amounts, if any, provided for these matters. There can be no assurance that the ultimate outcome of these matters will not differ materially from our assessment of them. There can also be no assurance that we know all matters that may be brought against us or that we may bring against other parties at any point in time.

New Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”. SFAS No. 142, which was effective January 1, 2002, requires, among other things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires a transitional goodwill impairment test six months from the date of adoption. The adoption of SFAS Nos. 142 did not have a significant impact on our financial position or results of operations as of or for the three months ended March 31, 2002.

In August 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Additionally, the associated asset retirement costs will be capitalized as part of the carrying amount of the long-lived asset. The adoption of SFAS No. 143, which is effective for companies with fiscal years beginning after June 15, 2002 is not expected to have a significant impact on our financial position or results of operations.

In October 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets, and supersedes SFAS No. 121, “Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets To Be Disposed Of”, and portions of APB No. 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”. SFAS No. 144 requires the use of one accounting model for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the definition of discontinued operations. The adoption of SFAS No. 144, which was effective for our first quarter of 2002, did not have a significant impact on our financial position or results of operations.

21

PART II.    OTHER INFORMATION

Item 4.    Submission of Matters to a Vote of Security Holders.

The annual meeting of Airborne, Inc. was held at the Sheraton Hotel, 1400 Sixth Avenue, Seattle, Washington on April 30, 2002. A total of 40,353,799 shares were represented at the meeting in person or by proxy, comprising 84% of the outstanding shares of the Company entitled to vote at the meeting on the record date (February 19, 2002).

The following directors were duly elected for terms ending in 2005:

	Votes For	Votes Withheld
James H. Carey	30,771,970	9,581,829
Carl D. Donaway	31,113,563	9,240,236
Andrew B. Kim	30,786,764	9,567,035

The following are continuing directors with terms expiring as indicated:

Terms Expiring in 2003	Terms Expiring in 2004
Richard M. Rosenberg	Harold M. Messmer, Jr.
William Swindells	Mary Agnes Wilderotter
	Rosalie J. Wolf

At the meeting, the shareholders approved the selection of Deloitte & Touche LLP as independent auditors for the coming year. The following table sets forth information regarding the voting on that proposal:

Votes Cast For Proposal	Votes Cast Against Proposal	Abstentions
39,800,594	503,459	49,746.

The shareholders also approved the proposal to urge the Board of Directors to take all necessary steps, in compliance with state law, to declassify the Board for the purpose of director elections. The following table sets forth information regarding the voting on that proposal:

Votes Cast For Proposal	Votes Cast Against Proposal	Abstentions
26,132,970	4,800,823	169,113

The shareholders rejected the proposal to request that the Board of Directors adopt a Golden Parachute Policy requiring shareholder approval of certain severance agreements. The following table sets forth information regarding the voting on that proposal:

Votes Cast For Proposal	Votes Cast Against Proposal	Abstentions
9,707,974	20,875,757	519,175

The shareholders approved the proposal to recommend that the Board of Directors seek shareholder approval prior to adopting any poison pill and redeem or terminate any pill now in effect unless it is approved by a shareholder vote. The following table sets forth information regarding the voting on that proposal:

Votes Cast For Proposal	Votes Cast Against Proposal	Abstentions
18,811,656	1,766,553	83,438

After the close of the meeting, the following additional votes were received on the poison pill proposal: For: 42,995; Against: 86,240; Abstentions: 2,376.

The shareholders also approved the proposal to recommend that the Board of Directors adopt a policy of confidential voting at all shareholder meetings. The following table sets forth information regarding the voting on that proposal:

Votes Cast For Proposal	Votes Cast Against Proposal	Abstentions
18,833,561	3,805,669	22,417

After the close of the meeting, the following additional votes were received on the confidential voting proposal: For: 36,843; Against: 92,092; Abstentions: 2,676.

The Board of Directors, at its annual meeting on April 30, 2002, reappointed Carl D. Donaway as Chief Executive Officer and also appointed him Chairman of the Board.

At the meeting, the Board of Directors also declared a quarterly cash dividend of $0.04 per share on the common stock of the Company payable on May 28, 2002 to shareholders of record on May 14, 2002.

22

Item 6.    Exhibits and Reports on Form 8-K.

(a)  Exhibits—

Exhibit No. 10	Material Contracts
10(a)	Executive Incentive Compensation Plan (EICP) 2000-2004
10(b)	Executive Group Incentive Compensation Plan (EGICP) 2000-2004
10(c)	First Amendment to Amended and Restated Credit Agreement dated March 14, 2002

(b)  Reports on Form 8-K

On March 15, 2002 the Company filed a Form 8-K containing a copy of a press release announcing the Company's intent to raise a total of approximately $100 million of gross proceeds through a private offering of convertible senior notes.

On March 25, 2002 the Company filed a Form 8-K containing copies of press releases announcing that, on March 19, 2002, it had agreed to sell, and on March 25, 2002, it had closed the sale of, $150 million principal amount of convertible senior notes.

On May 9, 2002 the Company filed a Form 8-K to reissue its consolidated financial statements as of December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001. The reissued financial statements include certain financial information regarding the subsidiaries of the Company that have guaranteed the recently issued convertible senior notes.

23

SIGNATURES

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

		AIRBORNE, INC. (Registrant)
Date:	5/14/02	/S/    LANNY H. MICHAEL
		Lanny H. Michael Executive Vice President, Chief Financial Officer
Date:	5/14/02	/S/    ROBERT T. CHRISTENSEN
		Robert T. Christensen
		Chief Accounting Officer

24

EX-10.(A)

                                                                   Exhibit 10(a)

                           [LOGO OF AIRBORNE EXPRESS]

                      Executive Incentive Compensation Plan
                                     (EICP)

                                   2000 - 2004



                       Airborne Freight Corporation D/B/A
                               "Airborne Express"

                      EXECUTIVE INCENTIVE COMPENSATION PLAN
                      -------------------------------------

                  Effective January 1, 2000 - December 31, 2004

1)   Purpose
     -------

     The purpose of this Plan is to achieve Corporate goals by providing
     incentive compensation to eligible key executives who through industry,
     ability and exceptional service, contribute materially to the success of
     Airborne Express.

2)   Definitions
     -----------
     When used in the Plan, the following words and phrases shall have the
     following meanings:

     a)   Attainment - The actual results of effort to reach the Target for a
          ----------
          Performance Measure, usually stated as a percentage of Target.

     b)   Beneficiary - The beneficiary or beneficiaries designated to receive
          -----------
          the amount, if any, payable under the Plan upon the death of a
          Participant.

     c)   Board - The Board of Directors of Airborne Freight Corporation.
          -----

     d)   Compensation Committee - The Compensation Committee of the Board.
          ----------------------

     e)   Maximum - The point above Target that represents the maximum payout
          -------
          level for a particular Performance Measure.

     f)   Net Profit - Pre-tax, pre-profit sharing net profit.
          ----------

     g)   Participant - Any employee eligible to receive awards under section 4.
          -----------

     h)   Performance Measure - A specific objective measure to assess success
          -------------------
          in achieving established goals. Permitted Performance Measures are
          listed in section 5.

     i)   Plan - The 2000 - 2004 Executive Incentive Compensation Plan.
          ----

     j)   Plan Year - Each calendar year for which Performance Measures and
          ---------
          Targets are established for the Company.

     k)   Retirement - When an employee leaves active service and qualifies
          ----------
          under the Company's regular or early retirement programs.

     l)   Revenue Growth - Percentage growth in sales revenue over the prior
          --------------
          year.

     m)   Target - The point at which performance equals 100% of the stated
          ------
          objective.

     n)   Threshold - The point below Target at which incentive payout for each
          ---------
          Performance Measure begins.

3)   Administration

     a)   The Compensation Committee will have the power to interpret the Plan
          and to make all determinations necessary or desirable for its
          administration.

     b)   The decision of the Compensation Committee on any question concerning
          the interpretation or administration of the Plan will be final and
          conclusive. Nothing in the Plan will be deemed to give any officer or
          employee, or legal representatives or assigns, any right to
          participate in the Plan except to such extent as the Compensation
          Committee may determine pursuant to the provisions of the Plan.



4)   Eligibility

          a)   Positions eligible for the EICP are:

                 Chairman of the Board
                 Chief Executive Officer
                 President
                 Chief Operating Officer
                 Senior Executive Vice Presidents
                 Chief Executive Officer, ABX Air, Inc.
                 Executive Vice Presidents
                 President, ABX Air, Inc.
                 Chief Financial Officer

                 Except as otherwise provided below, Participants for a Plan
                 Year must be employed for the entire Plan Year.

          b)   With approval of the Compensation Committee, prior to June 30 of
               each Plan Year, additional employees may be included in the Plan,
               with any award pro-rated as shall be determined by the
               Compensation Committee.

          c)   Participants who retire in good standing during the year will be
               eligible for a pro-rated award for the year in which they retire
               provided they are on the active payroll on June 30th or later of
               the Plan Year.

          d)   Participants who take a leave of absence will have their awards
               calculated based on actual Airborne salary earnings for the
               calendar year. Any disability insurance payments will not be
               included as earnings in calculating awards. Participants who are
               on a leave of absence for more than 90 days and who continue to
               receive full or partial salary continuance will have their awards
               adjusted. Any salary paid while on a leave of absence period over
               90 days will not be included in the base used to calculate
               awards.

5)   Performance Measures
     --------------------
     Unless otherwise determined by the Committee, bonuses will be based on two
     Performance Measures -- Net Profit and Revenue Growth. In addition to or in
     lieu of one or both of the preceding Performance Measures, the Committee
     may select one or more of the following Performance Measures: earnings per
     share, shipment growth, increase in stock price, return on assets or return
     on equity. The Compensation Committee will set annual Targets for each
     Performance Measure within 90 days after the beginning of each Plan Year
     and such Targets may not be changed thereafter. The Targets may be ratified
     by the Board. Unless within 90 days after the beginning of each Plan Year
     the Committee selects Performance Measures in addition to or in lieu of one
     or both of Net Profit and Revenue Growth, bonuses will be allocated based
     on Attainment of Targets as follows:

     a)   Net Profit earnings is the major corporate Performance Measure and
          shall be the basis of 75% of the bonus allocation.

     b)   An 60% Threshold is set on targeted Net Profit.

     c)   A 150% Maximum is set on targeted Net Profit.

     d)   Revenue Growth is the second major corporate Performance Measure and
          shall be the basis of 25% of the bonus allocation.

     e)   An 60% Threshold is set on targeted Revenue Growth.

     f)   A 150% Maximum is set on targeted Revenue Growth.

6)   Qualifiers on Performance Measures
     ----------------------------------

     a)   The bonus percentage is applied to the Participant's salary paid in
          the Plan (calendar) Year.

     b)   No bonus will be paid for Revenue Growth unless the Threshold Net
          Profit is achieved.

     c)   To receive any award under EICP, a Participant's individual
          performance must be evaluated as at least competent by the
          Compensation Committee.

     d)   The Committee has the discretion to reduce or eliminate any award for
          any reason, including the failure of a participant to earn an award
          under another incentive compensation plan, such as EGICP.



7)   Bonus Amounts
     -------------
     Actual bonuses will be determined by multiplying the following percentages,
     or a pro-rated portion thereof, by the Participant's annual salary.



                                 Threshold                           Maximum
Position                      (60% of Target)    Target (1)     (150% of Target)
- --------------------------------------------------------------------------------
                                                            
Chief Executive Officer            40.0%           100.0%            200.0%
Chief Operating Officer            28.0%            70.0             140.0%
Sr. EVPs, CEO ABX Air, Inc.        26.0%            65.0%            130.0%
EVPs, President ABX Air, Inc.      24.0%            60.0%            120.0%


8)   Allocations
     -----------
     Unless otherwise determined under section 5, the EICP incentive payment
     percentages for Attainment of Performance Measures are:

                             Chief Executive Officer


                                  100% Corporate
          Goal Attainment      Profit      Revenue      Total
          ---------------------------------------------------
                                              

          Threshold            30.00%        10.00%     40.00%
          Target               75.00%        25.00%    100.00%
          Maximum             150.00%        50.00%    200.00%

                           Chief Operating Officer

                                  100% Corporate
          Goal Attainment      Profit      Revenue      Total
          ---------------------------------------------------
          Threshold            21.00%         7.00%     28.00%
          Target               52.50%        17.50%     70.00%
          Maximum             105.00%        35.00%    140.00%

                           Sr. EVPs, CEO ABX Air, Inc.

                                  100% Corporate
          Goal Attainment      Profit      Revenue      Total
          ---------------------------------------------------
          Threshold            19.50%         6.50%     26.00%
          Target               48.75%        16.25%     65.00%
          Maximum              97.50%        32.50%    130.00%

                          EVPs, President ABX Air, Inc.

                                  100% Corporate
          Goal Attainment      Profit      Revenue      Total
          ---------------------------------------------------
          Threshold            18.00%         6.00%     24.00%
          Target               45.00%        15.00%     60.00%
          Maximum              90.00%        30.00%    120.00%




9)   Example
     -------
     An example incentive calculation for the CEO level is shown below.

10)  Form of Payment
     ---------------
     Awards shall be paid entirely in cash. Payments will be made as soon as
     practicable after audited performance results are known and approved by the
     Compensation Committee, which should be on or about March 1. Award checks
     are prepared by the Payroll Department and the amounts are subject to tax
     withholding and Capital Accumulation Plan (CAP) deductions.

     If a Participant dies before the end of the Plan Year an amount equal to a
     pro-rated portion thereof as of the date of death shall be paid in one lump
     cash sum to the Participant's Beneficiary.

11)  Limitation on Allocation
     ------------------------
     Notwithstanding any other provision of the Plan, in no circumstances will
     the total amount allocated as an award to a Participant for any Plan Year
     exceed $1,500,000.

12)  Designation of Beneficiaries
     ----------------------------
     Each Participant shall file with the Company a written designation of one
     or more persons as the Beneficiary who shall be entitled to receive the
     amount, if any, payable under the Plan upon the Participant's death. A
     Participant may, from time to time, revoke or change his Beneficiary
     designation without the consent of any prior Beneficiary by filing a new
     designation. The last such designation received shall be controlling,
     provided, however, that no designation, or change or revocation thereof,
     shall be effective unless received by the Company prior to the
     Participant's death, and in no event shall it be effective as of a date
     prior to such receipt.

13)  Absence of Valid Designation
     ----------------------------
     If no such Beneficiary designation is in effect at the time of a
     Participant's death, or if no designated Beneficiary survives the
     Participant, or if such designation conflicts with the law, the Participant
     shall be deemed to have designated the Participant's estate as the
     Participant's Beneficiary and the Participant's estate shall receive the
     payment of the amount, if any, under the Plan upon the Participant's death.
     If the Compensation Committee is in doubt as to the right of any person to
     receive such amount, the Compensation Committee may direct retention of
     such amount, without liability for any interest thereon, until the rights
     thereto are determined or the Compensation Committee may pay such amount to
     any court of appropriate jurisdiction and such payment shall be a complete
     discharge of the liability of the Plan and of Airborne Express therefore.

14)  No Liability of Compensation Committee, Board Members or Officers
     -----------------------------------------------------------------
     No members of the Compensation Committee, Board or Corporate officers shall
     be personally liable by reason of any contract or other instrument executed
     by them or on their behalf nor for any mistake or judgment made in good
     faith, and Airborne shall indemnify and hold harmless each member of the
     Board and each other officer, employee or director of Airborne Express to
     whom any duty or power relating to the administration or interpretation of
     the Plan may be allocated or delegated, against any cost or expense
     (including counsel fees) or liability (including any sum paid in settlement
     of a claim with the approval of the Compensation Committee) arising out of
     any act or omission to act in connection with the Plan unless arising out
     of such person's own fraud or bad faith.

15)  Right to Amend, Suspend or Terminate Plan
     -----------------------------------------
     The Board reserves the right at any time to amend, suspend or terminate the
     Plan in whole or in part and for any reasons and without the consent of any
     Participant or Beneficiary; provided that no such amendment shall adversely
     affect rights to receive any amount to which Participants or Beneficiaries
     have become entitled prior to such amendment. Unless otherwise provided
     herein, any amendment, modification, suspension or termination of any
     provisions of the Plan may be made retroactively.

16)  No Rights to Continued Employment or Bonus
     ------------------------------------------
     Nothing contained in the Plan shall give any employee the right to be
     retained in the employment of Airborne Express or affect the right of
     Airborne Express to dismiss any employee. The adoption of the Plan shall
     not constitute a contract between Airborne Express and any employee. No
     Participant shall receive any right to be granted an award hereunder nor
     shall any such award be considered as compensation under any employee
     benefit plan of Airborne Express except as otherwise determined by Airborne
     Express.




17)  No Right, Title, or Interest in Assets
     --------------------------------------
     The Participant shall have no right, title, or interest whatsoever in or to
     any investments which Airborne Express may make to aid in meeting its
     obligations under the Plan. Nothing contained in the Plan, and no action
     taken pursuant to its provisions, shall create or be construed to create a
     fiduciary relationship between Airborne Express and any Participant or any
     other person. To the extent that any person acquires a right to receive
     payments from Airborne Express under this Plan, such right shall be no
     greater than the right of an unsecured general creditor of Airborne
     Express.

18)  Unfunded Plan: Governing Law
     ----------------------------
     The Plan is intended to constitute an incentive compensation arrangement
     for a select group of management or highly compensated personnel and all
     rights thereunder shall be governed by and construed in accordance with the
     laws of the State of Washington.

EX-10.(B)

                                                                   Exhibit 10(b)


                   Executive Group Incentive Compensation Plan
                                     (EGICP)

                                   2000 - 2004




                       Airborne Freight Corporation D/B/A
                            "Airborne Express, Inc."

                   EXECUTIVE GROUP INCENTIVE COMPENSATION PLAN
                   -------------------------------------------

                  Effective January 1, 2000 - December 31, 2004

1)   Purpose
     -------
     The purpose of this Plan is to achieve Corporate goals by providing
     incentive compensation to eligible key executives who through industry,
     ability and exceptional service, contribute materially to the success of
     Airborne Express.

2)   Definitions
     -----------

     When used in the Plan, the following words and phrases shall have the
     following meanings:

     a)   Attainment - The actual results of effort to reach the Target for a
          ----------
          Performance Measure, usually stated as a percentage of Target.

     b)   Beneficiary - The beneficiary or beneficiaries designated to receive
          -----------
          the amount, if any, payable under the Plan upon the death of a
          Participant.

     c)   Board - The Board of Directors of Airborne Freight Corporation.
          -----

     d)   Compensation Committee - The Compensation Committee of the Board.
          ----------------------

     e)   Maximum - The point above Target that represents the maximum payout
          -------
          level for a particular Performance Measure.

     f)   Net Profit - Pre-tax, pre-profit sharing net profit.
          ----------

     g)   Participant - Any employee eligible to receive awards under section 4.
          -----------

     h)   Performance Measure - A specific objective measure to assess success
          -------------------
          in achieving established goals. Permitted Performance Measures are
          listed in section 5.

     i)   Plan - The 2000 - 2004 Executive Group Incentive Compensation Plan.
          ----

     j)   Plan Year - Each calendar year for which Performance Measures and
          ---------
          Targets are established for the Company.

     k)   Retirement - When an employee leaves active service and qualifies
          ----------
          under the Company's regular or early retirement programs.

     l)   Target - The point at which performance equals 100% of the stated
          ------
          objective.


     m)   Threshold - The point below Target at which incentive payout for each
          ---------
          Performance Measure begins.

3)   Administration
     --------------
     a)   The Compensation Committee will have the power to interpret the Plan
          and to make all determinations necessary or desirable for its
          administration.

     b)   The decision of the Compensation Committee on any question concerning
          the interpretation or administration of the Plan will be final and
          conclusive. Nothing in the Plan will be deemed to give any officer or
          employee, or legal representatives or assigns, any right to
          participate in the Plan except to such extent as the Compensation
          Committee may determine pursuant to the provisions of the Plan.


                                                                               2



4)   Eligibility
     -----------

     a)   Positions eligible for the Executive Group Incentive Compensation Plan
          (EGICP) are:

            Senior Executive Vice Presidents
            Executive Vice Presidents (EVPs)
            Chief Executive Officer, ABX Air, Inc.
            President, ABX Air, Inc.
            Chief Financial Officer (CFO)

     Except as otherwise provided below, participants for a Plan Year must be
     employed for the entire Plan Year.

     b)   With approval of the Compensation Committee, prior to June 30 of each
          Plan Year, additional employees may be included in the Plan, with any
          award pro-rated as shall be determined by the Compensation Committee.

     c)   Participants who retire in good standing during the year will be
          eligible for a pro-rated award for the year in which they retire
          provided they are on the active payroll on June 30th or later of the
          Plan Year.

     d)   Participants who take a leave of absence will have their awards
          calculated based on actual Airborne salary earnings for the calendar
          year. Any disability insurance payments will not be included as
          earnings in calculating awards. Participants who are on a leave of
          absence for more than 90 days and who continue to receive full or
          partial salary continuance will have their awards adjusted. Any salary
          paid while on a leave of absence period over 90 days will not be
          included in the base used to calculate awards.

5)   Performance Measures

     Unless otherwise determined by the Committee, bonuses for the Executive
     Group will be based on the following Performance Measure -- assigned
     management by objectives (MBOs) that specifically relate to the individual
     executive and his/her responsibilities. The Compensation Committee will set
     annual Targets for the Performance Measure within 90 days after the
     beginning of each Plan Year and such Targets will not be changed
     thereafter. The Targets may be ratified by the Board.

     MBO is the performance measure and is the basis of 100% of the bonus
     allocation.

          (1)  Quantitatively based, but judgmentally applied.
          (2)  Meaningful - represents impact of position.
          (3)  Reporting System - uses existing reporting systems.
          (4)  Quantifiable results are subject to override by the
               Committee/CEO/CFO.

6)   Qualifiers on Performance Measures
     ----------------------------------

     a)   The amount of bonus paid on MBO achievements will be at the discretion
          of the Committee/CEO/CFO.
     b)   The bonus percentage is applied to the Participant's salary paid in
          the Plan (calendar) Year.
     c)   No bonus will be paid for Revenue Growth unless the Threshold for Net
          Profit is achieved.
     d)   To receive any award under EGICP, a Participant's individual
          performance must be evaluated as at least competent by the
          Compensation Committee.
     e)   The Committee has the discretion to reduce or increase or eliminate
          any award earned under the EGICP plan.

7)   Bonus Amounts
     -------------
     Actual bonuses will be determined by multiplying the following percentages,
     or a pro-rated portion thereof, by the Participant's annual salary.

                                    Threshold                      Maximum
Position                         (60% of Target)    Target(1)  (150% of Target)
- --------------------------------------------------------------------------------
Sr. EVPs, CEO ABX Air, Inc.           26.0%          65.0%          130.0%
EVPS, President ABX Air, Inc.         24.0%          60.0%          120.0%

          (1) The Committee/CEO/CFO have the authority to increase or decrease
          the quantifiable MBO attainment percents based on their judgment of
          MBO accomplishments.


8)   Allocations
     -----------
     Unless otherwise determined under section 5, the EGICP incentive payment
     percentages for Attainment of Performance Measures are:

                          Sr. EVPs, CEO ABX Air, Inc.
                          (70% Corporate / 30% MBO)


                70% Corporate                      30% MBO
   Goal                           Corp.
Attainment    Profit   Revenue    Total    MBO #1 (1)   MBO #2 (1)   MBO Total
- --------------------------------------------------------------------------------
                                                   
Threshold     13.65%    4.55%     18.20%      3.90%        3.90%        7.80%
Target        34.12%   11.38%     45.50%      9.75%        9.75%       19.50%
Maximum       68.25%   22.75%     91.00%     19.50%       19.50%       39.00%


          (1) The Committee/CEO/CFO have the authority to increase or decrease
          the quantifiable MBO attainment percents based on their judgment of
          MBO accomplishments.


                                                                               3





                          EVPs, President ABX Air, Inc.
                          (70% Corporate / 30% MBO)


                70% Corporate                      30% MBO
   Goal                           Corp.
Attainment    Profit   Revenue    Total    MBO #1 (1)   MBO #2 (1)   MBO Total
- --------------------------------------------------------------------------------
                                                   
Threshold     12.60%    4.20%     16.80%      3.60%        3.60%        7.20%
Target        31.50%   10.50%     42.00%      9.00%        9.00%       18.00%
Maximum       63.00%   21.00%     84.00%     18.00%       18.00%       36.00%


          (1) The Committee/CEO/CFO have the authority to increase or decrease
          the quantifiable MBO attainment percents based on their judgment of
          MBO accomplishments.

9)   Example
     -------
     An example incentive calculation for the EVP level is shown on Pages 6 - 7.

10)  Form of Payment
     ---------------
     Awards shall be paid entirely in cash. Payments will be made as soon as
     practicable after audited performance results are known and approved by the
     Compensation Committee, which should be on or about March 1. Award checks
     are prepared by the Payroll Department and the amounts are subject to tax
     withholding and Capital Accumulation Plan (CAP) deductions.

     If a Participant dies before the end of the Plan Year an amount equal to a
     pro-rated portion thereof as of the date of death shall be paid in one lump
     cash sum to the Participant's Beneficiary.

11)  Designation of Beneficiaries
     ----------------------------
     Each Participant shall file with the Company a written designation of one
     or more persons as the Beneficiary who shall be entitled to receive the
     amount, if any, payable under the Plan upon the Participant's death. A
     Participant may, from time to time, revoke or change his Beneficiary
     designation without the consent of any prior Beneficiary by filing a new
     designation. The last such designation received shall be controlling,
     provided, however, that no designation, or change or revocation thereof,
     shall be effective unless received by the Company prior to the
     Participant's death, and in no event shall it be effective as of a date
     prior to such receipt.

12)  Absence of Valid Designation
     ----------------------------
     If no such Beneficiary designation is in effect at the time of a
     Participant's death, or if no designated Beneficiary survives the
     Participant, or if such designation conflicts with the law, the Participant
     shall be deemed to have designated the Participant's estate as the
     Participant's Beneficiary and the Participant's estate shall receive the
     payment of the amount, if any, under the Plan upon the Participant's death.
     If the Compensation Committee is in doubt as to the right of any person to
     receive such amount, the Compensation Committee may direct retention of
     such amount, without liability for any interest thereon, until the rights
     thereto are determined or the Compensation Committee may pay such amount to
     any court of appropriate jurisdiction and such payment shall be a complete
     discharge of the liability of the Plan and of Airborne Express therefore.


                                                                               4



13)  No Liability of Compensation Committee, Board Members or Officers
     -----------------------------------------------------------------
     No members of the Compensation Committee, Board or Corporate officers shall
     be personally liable by reason of any contract or other instrument executed
     by them or on their behalf nor for any mistake or judgment made in good
     faith, and Airborne shall indemnify and hold harmless each member of the
     Board and each other officer, employee or director of Airborne Express to
     whom any duty or power relating to the administration or interpretation of
     the Plan may be allocated or delegated, against any cost or expense
     (including counsel fees) or liability (including any sum paid in settlement
     of a claim with the approval of the Compensation Committee) arising out of
     any act or omission to act in connection with the Plan unless arising out
     of such person's own fraud or bad faith.

14)  Right to Amend, Suspend or Terminate Plan
     -----------------------------------------
     The Board reserves the right at any time to amend, suspend or terminate the
     Plan in whole or in part and for any reasons and without the consent of any
     Participant or Beneficiary; provided that no such amendment shall adversely
     affect rights to receive any amount to which Participants or Beneficiaries
     have become entitled prior to such amendment. Unless otherwise provided
     herein, any amendment, modification, suspension or termination of any
     provisions of the Plan may be made retroactively.

15)  No Rights to Continued Employment or Bonus
     ------------------------------------------
     Nothing contained in the Plan shall give any employee the right to be
     retained in the employment of Airborne Express or affect the right of
     Airborne Express to dismiss any employee. The adoption of the Plan shall
     not constitute a contract between Airborne Express and any employee. No
     Participant shall receive any right to be granted an award hereunder nor
     shall any such award be considered as compensation under any employee
     benefit plan of Airborne Express except as otherwise determined by Airborne
     Express.

16)  No Right, Title, or Interest in Assets
     --------------------------------------
     The Participant shall have no right, title, or interest whatsoever in or to
     any investments which Airborne Express may make to aid in meeting its
     obligations under the Plan. Nothing contained in the Plan, and no action
     taken pursuant to its provisions, shall create or be construed to create a
     fiduciary relationship between Airborne Express and any Participant or any
     other person. To the extent that any person acquires a right to receive
     payments from Airborne Express under this Plan, such right shall be no
     greater than the right of an unsecured general creditor of Airborne
     Express.

17)  Unfunded Plan: Governing Law
     ----------------------------
     The Plan is intended to constitute an incentive compensation arrangement
     for a select group of management or highly compensated personnel and all
     rights thereunder shall be governed by and construed in accordance with the
     laws of the State of Washington.

                                                                               5

EX-10.(C)

                                                                   EXHIBIT 10(c)

            FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
            --------------------------------------------------------

         THIS FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is dated as of the 14th day of March, 2002, among AIRBORNE EXPRESS,
INC., a Delaware corporation ("Express"), ABX AIR, INC., a Delaware corporation
("ABX"; ABX and Express each a "Borrower" and, together, jointly and severally,
the "Borrowers"), AIRBORNE, INC., a Delaware corporation (the "Parent"), the
Lenders party hereto, and WACHOVIA BANK, N.A., a national banking association,
as a Lender, the Administrative Agent, and the Collateral Agent.

                             W I T N E S S E T H :
                             - - - - - - - - - -

         WHEREAS, the Borrowers, the Parent, the Administrative Agent, the
Collateral Agent, and the Lenders are parties to that certain Amended and
Restated Credit Agreement dated as of June 29, 2001 (as the same may be amended,
restated, supplemented, or otherwise modified from time to time, the "Credit
Agreement");

         WHEREAS, the Borrowers and the Parent have requested and the
Administrative Agent, the Collateral Agent, and the Lenders party hereto have
agreed to certain amendments to the Credit Agreement, subject to the terms and
conditions hereof;

         NOW, THEREFORE, for and in consideration of the above premises and
other good and valuable consideration, the receipt and sufficiency of which
hereby is acknowledged by the parties hereto, the Borrowers, the Parent, the
Administrative Agent, the Collateral Agent, and the Lenders party hereto hereby
covenant and agree as follows:

1.          Definitions. Unless otherwise specifically defined herein, each term
            -----------
         used herein which is defined in the Credit Agreement shall have the
         meaning assigned to such term in the Credit Agreement. Each reference
         to "hereof," "hereunder," "herein," and "hereby" and each other similar
         reference and each reference to "this Agreement" and each other similar
         reference contained in the Credit Agreement shall from and after the
         date hereof refer to the Credit Agreement as amended hereby.

2.          Amendments.  (a) Section 1.01 of the Credit  Agreement is hereby
            ----------
         amended (i) by adding the following new  definition  thereto in
         alphabetical order:

               "Convertible Debt Offering" means an offering of Debt by the
          Parent, convertible into common stock (i) that, by its terms, shall
          not: (a) exceed $150,000,000 in the aggregate principal amount
          (including therein an over-allotment option); (b) bear interest per
          annum at a rate higher than 10.0%; (c) mature sooner than December 31,
          2006; (d) be secured by any collateral security or Guaranteed (other
          than by Guarantees of the Borrowers or the Subsidiaries of the Parent
          that Guarantee Debt owed to the Lenders under this Agreement) or
          otherwise violate any provision of this Credit Agreement; (e) whether
          as Debt or after any conversion as Capital Stock, be callable or
          redeemable (except in the case of a change of control with respect to
          the Parent), in either case, by the holder thereof; or (f) be issued
          by the Parent on a date after June 30, 2002, and (ii) $100,000,000 of
          the proceeds of which will be invested as permitted by Section
          6.16(g), (h), (i),




          (j) or (n), and which shall be applied solely to the repayment on the
          maturity date of the notes issued under the terms of the Indenture
          that are due and payable in December 2002.

         and (ii) by amending and restating in its entirety clause (b) of the
definition of "Net Cash Proceeds" as follows:

               (b) with respect to any cash proceeds received by the Parent or
          any Subsidiary in respect of the issuance of any Capital Stock or
          Redeemable Preferred Stock or the incurring of any Debt for money
          borrowed (except Debt (i) secured by Purchase Money Liens, and (ii)
          obtained from the Convertible Debt Offering), all such cash proceeds,
          after deducting therefrom all reasonable and customary costs and
          expenses incurred by the Parent or such Subsidiary directly in
          connection with the issuance of such Capital Stock or Redeemable
          Preferred Stock or the incurring of such Debt for money borrowed.

     (b)  Section 2.12(c)(ii) of the Credit Agreement hereby is amended and
restated in its entirety as follows:

               (ii) 100% of the Net Cash Proceeds from the issuance of Capital
          Stock (other than pursuant to a bona fide employee or director stock
          option plan of the Parent), Redeemable Preferred Stock or Debt (other
          than the Loans) described in clause (b) of the definition of "Net Cash
          Proceeds"; and

     (c)  Section 6.05(b) of the Credit Agreement hereby is amended and restated
in its entirety as follows:

               (b) The Parent will not, nor will it permit any Subsidiary to,
          sell, lease or otherwise transfer any assets to, any other Person, or
          discontinue or eliminate any business line or segment, provided that
          the foregoing limitation on the sale, lease or other transfer of
          assets and on the discontinuation or elimination of a business line or
          segment shall not prohibit (i) the sale of Receivables pursuant to the
          Receivables Securitization Program; (ii) sale and leaseback
          transactions described in the definition of "Excluded Aircraft
          Financings"; or (iii) so long as no Event of Default is in existence
          and subject to Section 2.12(c), the sale, lease or other transfer of
          assets (other than Capital Stock issued by any Subsidiary of the
          Parent) not exceeding $5,000,000 in book value in the aggregate in any
          Fiscal Year among all of such assets of the Parent and the
          Subsidiaries, or $500,000 in book value in any one instance; (iv) upon
          the prior written consent of the Required Lenders, which consent shall
          not be unreasonably withheld or delayed, so long as no Event of
          Default is in existence, the sale, lease or other transfer of assets
          (other than Capital Stock issued by any Subsidiary of the Parent)
          owned by Subsidiaries (other than the Borrowers) and located at places
          of business outside of the United States not exceeding $10,000,000 in
          book value in the aggregate in any Fiscal Year; or (v) the sale of the
          Parent's and the Subsidiaries' inventory in the ordinary course of
          business.

     (d)  Section 6.15 of the Credit Agreement hereby is amended and restated in
its entirety as follows:

               SECTION 6.15. Restricted Payments.

               The Parent will not declare or make any Restricted Payment during
          any Fiscal Year; provided that, so long as no Event of Default is in
          existence before or after giving effect thereto, (a) solely with
          respect to the Parent's Fiscal Quarter ending on June 30, 2002, Parent
          may make certain Restricted Payments during such Fiscal Quarter
          consisting of (i) redemptions declared


                                       2



          prior to or during such Fiscal Quarter in an amount not exceeding
          $250,000 with respect to certain shareholder rights plans of the
          Parent, and (ii) Dividends declared prior to or during such Fiscal
          Quarter in an amount not exceeding $2,000,000; and (b) for all other
          Fiscal Quarters, Parent may pay Dividends in an amount not exceeding
          $2,000,000 (plus, with respect to any common stock obtained via
          conversion in connection with the Convertible Debt Offering, an
          additional amount not exceeding $300,000) during any Fiscal Quarter
          with respect to Dividends declared prior to or during such Fiscal
          Quarter.

     (e)  A new clause (p) is hereby added to Section 6.16 of the Credit
Agreement as follows:

             (p) Investments which constitute Guarantees permitted under the
          terms of Section 6.24 of this Agreement;

     (f)  Section 6.24 of the Credit Agreement hereby is amended and restated in
its entirety as follows:

               SECTION 6.24. Permitted Debt.

               The Parent will not, nor will it permit any Subsidiary to,
          create, assume, issue, or incur any Debt other than (i) Debt existing
          on the date hereof and listed on Schedule 6.24; (ii) Debt under this
          Agreement or the other Loan Documents; (iii) Debt incurred by an
          Aircraft Financing Subsidiary in connection with an Excluded Aircraft
          Financing; (iv) Debt incurred by a Domestic Subsidiary and arising
          from any Swap Agreement relating to an Excluded Aircraft Financing;
          (v) Debt secured by Purchase Money Liens; (vi) Debt issued by the
          Parent and Guaranteed by the Borrowers and other Subsidiaries of the
          Parent pursuant to the Convertible Debt Offering; and (vii) other Debt
          in an aggregate principal amount not to exceed $1,000,000 at any time.

3.          Restatement of Representations and Warranties. The Borrowers and the
            ---------------------------------------------
         Parent hereby restate and renew each and every representation and
         warranty heretofore made by any of them in the Credit Agreement and the
         other Loan Documents as fully as if made on the date hereof (except
         that to the extent such representation or warranty is expressly made as
         of a prior date) and with specific reference to this Amendment and all
         other Loan Documents executed and/or delivered in connection herewith.

4.          Effect of Amendment. Except as set forth expressly hereinabove, all
            -------------------
         terms of the Credit Agreement and the other Loan Documents shall be and
         remain in full force and effect, and shall constitute the legal, valid,
         binding and enforceable obligations of the Borrowers and the Parent.
         The amendments contained herein shall be deemed to have prospective
         application only, unless otherwise specifically stated herein.

5.          Ratification.  The Borrowers and the Parent hereby restate,  ratify,
            ------------
         and reaffirm each and every term,  covenant and condition set forth in
         the Credit Agreement and the other Loan Documents effective as of the
         date hereof.

6.          Counterparts.  This  Amendment  may be executed in any number of
            ------------
         counterparts via facsimile transmission and by different parties
         hereto in separate counterparts, each of which when so executed and
         delivered shall be deemed to be an original and all of which
         counterparts, taken together, shall constitute but one and the same
         instrument.



                                       3



7.          Section References.  Section titles and references used in this
            ------------------
         Amendment shall be without  substantive meaning or content of any kind
         whatsoever and are not a part of the agreements among the parties
         hereto evidenced hereby.

8.          No Default. To induce the Administrative Agent, the Collateral
            ----------
         Agent, and the Lenders party hereto to enter into this Amendment and to
         continue to make advances pursuant to the Credit Agreement, the
         Borrowers and the Parent hereby acknowledge and agree that, as of the
         date hereof, and after giving effect to the terms hereof, there exists
         (i) no Default or Event of Default and (ii) no right of offset,
         defense, counterclaim, claim or objection in favor of the Borrowers or
         the Parent arising out of or with respect to any of the Loans or other
         obligations of the Borrowers or the Parent owed to the Lenders under
         the Credit Agreement.

9.          Further  Assurances.  The  Borrowers  and the Parent agree to take
            -------------------
         such further actions as the Administrative Agent or the Collateral
         Agent shall reasonably request in connection herewith to evidence the
         amendments herein contained.

10.         Governing Law. This  Amendment  shall be governed by and construed
            -------------
         and interpreted in accordance  with, the laws of the State of Georgia.

11.         Conditions  Precedent.  This  Amendment  shall become  effective
            ---------------------
         only upon execution and delivery (i) of this Amendment by the
         Borrowers, the Parent, the Administrative  Agent, the Collateral Agent,
         and the Required Lenders, and (ii) of the Consent and Reaffirmation of
         Guarantors at the end hereof by each of the Guarantors.


                         [SIGNATURES ON FOLLOWING PAGES]



                                       4




         IN WITNESS WHEREOF, the Borrowers, the Parent, the Administrative
Agent, the Collateral Agent, and each of the Lenders party hereto has caused
this Amendment to be duly executed, under seal, by its duly authorized officer
as of the day and year first above written.

                          BORROWERS:

                          AIRBORNE EXPRESS, INC.                    (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------


                          ABX AIR, INC.                             (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------

                          PARENT:

                          AIRBORNE, INC.                            (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------





                          ADMINISTRATIVE AGENT:

                          WACHOVIA BANK, N.A., as Administrative Agent
                                                                    (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------

                          COLLATERAL AGENT:

                          WACHOVIA BANK, N.A., as Collateral Agent
                                                                    (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------




                          LENDERS:

                          WACHOVIA BANK, N.A.                       (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          NATIONAL CITY BANK                        (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          THE BANK OF TOKYO-MITSUBISHI, LTD.
                          PORTLAND BRANCH                           (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          BANK OF AMERICA, N.A.                     (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          U.S. BANK NATIONAL ASSOCIATION            (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          THE BANK OF NEW YORK                      (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          ABN-AMRO BANK N.V.                        (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                          THE INDUSTRIAL BANK OF JAPAN,
                          LIMITED                                   (SEAL)

                          By:
                              -------------------------------------------------
                          Title:
                                 ----------------------------------------------






                  CONSENT AND REAFFIRMATION OF GUARANTORS

         Each of the undersigned (i) acknowledges receipt of the foregoing First
Amendment to Amended and Restated Credit Agreement (the "Amendment"), (ii)
consents to the execution and delivery of the Amendment by the parties thereto
and (iii) reaffirms all of its obligations and covenants under its respective
Subsidiary Guaranty Agreement or Parent Guaranty (as the case may be) dated as
of June 29, 2001, executed by it, and agrees that none of such obligations and
covenants shall be affected by the execution and delivery of the Amendment. This
Consent and Reaffirmation may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.

                          SKY COURIER, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)

                          AIRBORNE FTZ, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)

                          WILMINGTON AIR PARK, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)

                          AVIATION FUEL, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)

                          SOUND SUPPRESSION, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)

                          AIRBORNE, INC.

                          By:
                              -------------------------------------------------
                          Title:
                                -----------------------------------------(SEAL)