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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ---------------------

                                   FORM 10-K

<Table>
<C>          <S>
    [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934



             FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001



                                   OR



    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
             SECURITIES EXCHANGE ACT OF 1934
</Table>

                             ---------------------

                         COMMISSION FILE NUMBER 0-25732

                                ATLAS AIR, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      84-1207329
(State or other jurisdiction of incorporation
               or organization)                     (I.R.S. Employer Identification No.)

     2000 WESTCHESTER AVE., PURCHASE, NY                           10577
   (Address of principal executive offices)                      (Zip Code)
</Table>

      Registrant's telephone number, including area code:  (914) 701-8000

       Securities registered pursuant to Section 12(g) of the Act:  NONE

       Securities registered pursuant to Section 12(b) of the Act:  NONE

     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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (sec. 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [X]

     Atlas Air, Inc. is a wholly-owned subsidiary of Atlas Air Worldwide
Holdings, Inc., and there is no market for the Registrant's common stock. As of
March 15, 2002, 100 shares of the Registrant's common stock were outstanding.

     The Registrant meets the conditions set forth in, and is filing this form
with the reduced disclosure format prescribed by, General Instruction I(1)(a)
and (b) of Form 10-K.

                      DOCUMENTS INCORPORATED BY REFERENCE
DESCRIPTION OF DOCUMENT                                    PART OF THE FORM 10-K
Portions of Atlas Air Worldwide                                  Part I (Item 1)
Holdings, Inc.'s Annual Report for                                           and
2001 on Form 10-K                                        Part IV (Item 14(a)(3))
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<PAGE>

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Atlas Air, Inc., a Delaware corporation, is a wholly-owned subsidiary of
Atlas Air Worldwide Holdings, Inc., a Delaware corporation. All references to
"Atlas Air," "the Company," "we," "us," or "our," refers to Atlas Air, Inc. and
its subsidiaries. Our principal executive offices are located at 2000
Westchester Avenue, Purchase, New York 10577 and our telephone number is (914)
701-8000. We are the world's largest air cargo outsourcer, operating the largest
fleet of Boeing 747 freighter aircraft in the world.

     Founded in 1992, Atlas Air began service with one Boeing 747-200 contracted
to China Airlines. First publicly traded on NASDAQ in 1995 under the symbol
ATLS, Atlas Air transferred its listing to the New York Stock Exchange on
November 11, 1997, trading under the symbol CGO. The holding company structure
was adopted in February 2001. Atlas Air's principal business has been the
provision of aircraft, crew, maintenance and insurance (ACMI) services for a
number of the world's leading airlines. Under an ACMI contract, clients receive
a dedicated aircraft in exchange for a guaranteed minimum monthly level of
operation. This model allows clients to utilize Atlas Air efficiencies in order
to expand their presence in the world's cargo markets without committing to
aircraft ownership.

     In 2001, Atlas Air also announced an expansion of its product line to
include a broader array of products and services. These new services are based
on the ACMI Contract model and include fractional ACMI, or the contractual
provision of a portion of the capacity of one or more aircraft to multiple
customers; partial ACMI, or the provision of an aircraft on less than a full
time basis; dry leases for aircraft (with maintenance and insurance if
requested); among other possibilities. These products typically require our
customers to commit to certain utilization levels under seasonal contracts, and
in many instances the revenue and cost structure vary from an ACMI Contract, as
the operations may include arrangements for the provision of fuel, and ground
handling and flight related expenses. We anticipate that airline customers will
find these products to be desirable and complementary to their own business
strategy, because risks that would otherwise be borne by a single customer, such
as contract term, load factor, fuel and ground handling, are shared among
several parties. To help facilitate the delivery of these expanded product
lines, Atlas Air has established hubs in Liege, Belgium and Miami, Florida.

     For more information concerning the operations of Atlas Air, please refer
to the Atlas Air Worldwide Holdings, Inc. Form 10-K filed for the year ended
December 31, 2001, which is incorporated herein by reference.

RISK FACTORS

     Investors and prospective investors should consider the following risk
factors in conjunction with other information provided in this Form 10-K, and in
conjunction with the Atlas Air Worldwide Holdings, Inc. Form 10-K filed for the
year ended December 31, 2001:

  ABILITY TO SERVICE DEBT AND LEASE PAYMENTS -- We have substantial indebtedness
  and lease payment obligations that we may not be able to service.

     We are highly leveraged. As of December 31, 2001, our total long-term debt
outstanding, net of current portion, was approximately $939 million, and our
long-term lease obligations, net of current portion, were approximately $2.0
billion. Our high degree of leverage could have important consequences to
prospective investors, including the following:

     - our ability to obtain additional financing for working capital, capital
       expenditures, acquisitions or general corporate purposes may be
       diminished in the future;

                                        1
<PAGE>

     - a substantial portion of our cash flow from operations will be required
       for the payment of principal and interest on our indebtedness and lease
       payments, thereby reducing the funds available for our operations and
       other purposes;

     - we may be substantially more leveraged than some of our competitors,
       which may place us at a competitive disadvantage; and

     - our substantial degree of leverage may hinder our ability to adjust
       rapidly to changing market conditions and could make us more vulnerable
       in the event of a downturn in our business or general economic
       conditions.

     Our ability to make scheduled payments of the principal of, or to pay
interest on, or to refinance, our indebtedness and to make scheduled payments
under our lease obligations depends on our future performance, which is subject
to economic, financial, competitive and other factors beyond our control. There
can be no assurance, however, particularly in light of the current depressed air
cargo market that our business will continue to generate sufficient cash flow
from operations in the future to service our debt and lease obligations. If
unable to do so, we may be required to refinance all or a portion of our
existing debt and leases, to sell assets or to obtain additional financing.
There can be no assurance that any such refinancing or that any such sale of
assets or additional financing would be possible on favorable terms.

  NEW AIRCRAFT FINANCING -- If we are unable to secure financing for our new
  aircraft deliveries, it may have a material adverse effect on our financial
  position and results of operations.

     Under the terms of the Boeing Purchase Agreement, in October 2000 Atlas Air
exercised options for four Boeing 747-400 freighter aircraft to be delivered in
2002. During 2001, Atlas Air reached an agreement with Boeing to amend the
delivery dates of the aircraft, whereby three of the aircraft are scheduled to
be delivered in 2002 and one aircraft in 2003. Atlas Air does not currently have
firm financing in place for any of the four Boeing 747-400 aircraft scheduled
for delivery in 2002 and 2003. However, Atlas Air is currently in discussions
with several sources for financing these aircraft. The inability to secure
financing for the Boeing 747-400 deliveries could result in a default under the
Boeing Purchase Agreement, which would permit Boeing to accelerate payments due
under the Boeing Purchase Agreement. Such acceleration would cause a default in
covenants of certain of the Company's indebtedness which would permit the
lenders to accelerate payment of a significant portion of all indebtedness,
which event would have a material adverse effect on the Company's financial
position and results of operations. However, Boeing has made an offer to finance
by sale-leaseback, each of the aircraft to be delivered in 2002, under terms
which are more favorable to Boeing. If Atlas Air is unable to secure other
financing more favorable to the Company, management believes it has the option
to utilize the proposed Boeing financing.

  RESTRICTIONS IMPOSED BY TERMS OF OUR INDEBTEDNESS AND LEASE
  OBLIGATIONS -- Restrictive covenants contained in our debt and lease
  instruments limit our ability to incur additional indebtedness and expand our
  operations.

     Certain of our debt instruments and lease agreements limit our ability to
undertake certain transactions. These instruments and agreements restrict our
ability to:

     - incur additional indebtedness;

     - incur liens, pay dividends or make other restricted payments;

     - consummate asset sales;

     - enter into transactions with affiliates;

     - impose restrictions on the ability of a subsidiary to pay dividends or
       make certain payments to us;

     - merge or consolidate with any other person; or

     - sell, assign, transfer, lease, convey or otherwise dispose of all or
       substantially all of our assets.

                                        2
<PAGE>

     Currently, under the terms of Atlas Air's Senior Notes, we do not meet the
financial ratios required in order to permit additional borrowing or
investments. Our failure or inability to obtain covenant relief on the Senior
Notes or our other debt instruments, if necessary, will restrict our ability to
borrow money which could have a material adverse effect on our business.

     In addition, certain of our other debt instruments contain other more
restrictive financial and operating covenants. Our ability to meet such
financial ratios and tests may be affected by events beyond our control. We
cannot give assurances that we will continue to meet such tests. A breach of any
of these covenants could result in a default under certain debt or lease
instruments, which would permit the lenders or lessors, as the case may be, to
elect to declare all amounts outstanding, under such debt or leases together
with accrued interest, to be immediately due and payable. If we are unable to
repay those amounts, such lenders or lessors, as the case may be, could proceed
against the collateral granted to them to secure that indebtedness, or the
lessors could repossess the collateral. If our lenders accelerate the payment of
indebtedness, our assets may not be sufficient to repay in full such
indebtedness and our other indebtedness.

  EXPANSION OF PRODUCT LINE AND SERVICES -- Failure to successfully execute our
  new expanded product service initiatives may have a material adverse effect on
  our financial position and results of operations.

     In 2001, we announced an expansion of our product line to include a broader
array of products and services. These new services are based on the ACMI
Contract model and include fractional ACMI, or the provision of a portion of the
capacity of one or more aircraft; partial ACMI, or the provision of an aircraft
on less than a full time basis; and dry leases for aircraft (which may include
maintenance and insurance if requested). These products typically require
customers to commit to certain utilization levels under seasonal contracts, and
in many instances the revenue and cost structure vary from an ACMI Contract, as
the operations may include arrangements for the provision of fuel, and ground
handling and flight related expenses. We believe that airline customers will
find these products to be desirable and complementary to their own business
strategy, because risks that would otherwise be borne by a single customer, such
as contract term, load factor, fuel and ground handling, are shared among
several parties. To help facilitate the delivery of these expanded product
lines, we have established hubs in Liege, Belgium and Miami, Florida. Failure to
successfully execute on the expanded product line plan, in the absence of
compensating improvements in other parts of the business, could have a material
adverse effect on our financial position and results of operations.

  LABOR STRIKE -- Any labor disruption or labor strikes would adversely affect
  our ability to conduct our business.

     All of our U.S. crew members are represented by unions. Collectively, these
employees represent approximately 56% of our workforce as of December 31, 2001.
Although we have never had a work interruption or stoppage and believe our
relations with our unionized employees are generally good, we are subject to
risks of work interruption or stoppage and/or may incur additional
administrative expenses associated with union representation of our employees.
If Atlas Air is unable to negotiate a contract with its crew members, we may be
subject to work interruptions and /or stoppages. Any sustained work stoppages
could adversely affect our ability to fulfill our obligations under ACMI
contracts and other agreements and could have a material adverse effect on our
financial condition and results of operations.

  DEPENDENCE ON SIGNIFICANT CUSTOMERS; GEOGRAPHIC CONCENTRATION -- The loss of a
  significant customer, or political and economic instability in the markets we
  serve, may adversely affect our business.

     In 2001, China Airlines Ltd. accounted for approximately 15% of our total
operating revenues, and no other customer accounted for 10% or more of our total
operating revenues. We believe that our relationships with our customers are
mutually satisfactory, as evidenced by the fact that we have renewed and, in
certain cases, added a number of ACMI Contracts with our existing customers.
However, there can be no assurance that any of our ACMI Contracts will be
renewed upon their expiration. The scheduled termination dates for the current
long-term ACMI Contracts range from 2002 to 2004. See "Business -- ACMI
Contracts" in the Atlas Air Worldwide Holdings, Inc. Form 10-K filed for the
year ended December 31, 2001, which is incorporated herein by reference. The
failure to renew any of our ACMI Contracts, or the renewal of any of
                                        3
<PAGE>

our ACMI Contracts on less favorable terms, could have a material adverse effect
on our results of operation. Additionally, we have concentrated a significant
percentage of our resources in routes between the United States and Asia and the
Pacific Rim and between Europe and Asia and the Pacific Rim. Any economic
decline or any military or political disturbance in these areas of the world
might prevent or interfere with our ability to provide service to our Asian and
Pacific Rim destinations and could have a material adverse effect on our results
of operation. Continuation of the current economic downturn in Europe, Asia and
the United States could adversely impact the cargo business of our customers
which could eventually affect our ability to obtain new ACMI contracts or to
obtain renewals of existing ACMI contracts on attractive economic terms.

  COMPETITION -- The market for air cargo services is highly competitive. If we
  do not successfully compete, our profits will suffer.

     A number of airlines currently provide services for themselves and for
others, similar to the services we offer and new airlines may be formed that
would also compete with us. Such airlines may have substantially greater
financial resources than we do. In addition, certain retail air freight
companies, such as Evergreen International and Northwest Cargo, compete with us
on a limited, indirect basis, generally outside of the ACMI Contract operating
structure. We believe that the most important elements for competition in the
air cargo business are the range, payload and cubic capacities of the aircraft
and the price, flexibility, quality and reliability of the cargo transportation
service. Our ability to achieve our strategic plan depends upon our success in
convincing major international airlines that outsourcing some portion of their
air cargo business remains more cost-effective than undertaking cargo operations
with their own incremental capacity and resources and upon our ability to
continue to obtain higher ACMI Contract rates in connection with the Boeing
747-400 aircraft compared to those currently obtained in connection with
existing Boeing 747-200 aircraft.

  AGING AIRCRAFT -- The maintenance and governmental compliance costs associated
  with older aircraft may adversely affect our profitability. The costs of
  complying with Directives and Service Bulletins for our Boeing 747-200/-300
  aircraft could be substantial.

     Our fleet currently includes 24 Boeing 747-200/-300 (Classics) aircraft in
service, all of which were manufactured between 1974 and 1990. Manufacturer
Service Bulletins and the Federal Aviation Administration Airworthiness
Directives issued under its "Aging Aircraft" program cause Boeing Classics
aircraft operators to be subject to extensive aircraft examinations and require
Boeing Classics aircraft to undergo structural inspections and modifications to
address problems of corrosion and structural fatigue at specified times.
Directives have been issued that require inspections and minor modifications to
Boeing Classics aircraft. It is possible that additional Service Bulletins or
Directives applicable to the types of aircraft or engines included in our fleet
could be issued in the future. The cost of compliance with Directives and of
following Service Bulletins cannot currently be estimated, but could be
substantial.

  UTILIZATION OF FUTURE AIRCRAFT -- If we fail to contract for the use of
  additional aircraft as they become available our profitability will be harmed.

     We do not yet have ACMI Contracts for aircraft scheduled for delivery
during 2002 and 2003. The failure to generate adequate revenue from new aircraft
pending the commencement of and service under ACMI Contracts, or the failure to
secure ACMI Contracts for such aircraft or to employ such aircraft in Scheduled
Service or ad hoc charter service, as well as the aircraft currently in service
in our fleet which may be returned to us pursuant to the terms of the ACMI
Contracts, could have a material adverse effect on our results of operation. See
"Business -- Aircraft" in the Atlas Air Worldwide Holdings, Inc. Form 10-K filed
for the year ended December 31, 2001, which is incorporated herein by reference.

  REGULATORY MATTERS -- We are subject to continued compliance with governmental
  regulations and authorities. Failure to comply with relevant rules and
  regulations would adversely affect our business.

     Under the Federal Aviation Act of 1958, as amended and recodified at 49
U.S.C. Subtitle VII (the "Aviation Act"), the Department of Transportation and
the FAA exercise regulatory authority over us. We
                                        4
<PAGE>

have obtained the necessary authority to conduct flight operations, including a
CPCN from the DOT and an Air Carrier Operating Certificate from the FAA;
however, the continuation of such authority is subject to our continued
compliance with applicable statutes, rules and regulations pertaining to the
airline industry, including any new rules and regulations that may be adopted in
the future. All air carriers are subject to strict scrutiny and inspection by
FAA officials and to the imposition of new regulatory requirements that can
negatively affect their operations. We have been considered to be a high-growth
carrier by the FAA and, therefore, have received heightened attention by the FAA
and DOT. FAA approval is required for each of our long-term ACMI Contracts and
DOT approval is required for each of our long-term ACMI Contracts with foreign
air carriers. In addition, FAA approval is required for each of our short-term
seasonal ACMI Contracts. In order to provide service to foreign points, we must
also obtain permission for such operations from the applicable foreign
governments and certain airport authorities. See "Business -- Governmental
Regulation" in the Atlas Air Worldwide Holdings, Inc. Form 10-K filed for the
year ended December 31, 2001, which is incorporated herein by reference.

     In addition, the DOT regulates the transportation of hazardous materials by
air cargo carriers. Although customers are required to label shipments that
contain hazardous materials, customers may not inform us when their cargo
includes hazardous materials. Although we have never had such an incident, the
transportation of unmanifested hazardous materials could result in fines,
penalties, banning hazardous materials from our aircraft for a period of time,
possible damage to our aircraft or other liability.

     We are subject to various international bilateral air services agreements
between the United States and the countries to which we provide service. We also
operate on behalf of foreign flag carriers between various foreign points
without serving the United States. These services are subject to the bilateral
agreements of the respective governments. Furthermore, these services require
FAA approval but not DOT approval. We must generally obtain permission from the
applicable foreign governments to provide service to foreign points. Moreover,
in some instances, ACMI Contracts are subject to prior and/or periodic approvals
of foreign governments, whose decisions may be affected by ongoing negotiations
and relations with the United States. For example, a ruling last year by an
aviation agency of the British government concluded that our long-term
wet-leases of Boeing 747-400 freighter aircraft to British Airways no longer
meets the "exceptional circumstances" exception necessary for their operating
approval, due to changed market conditions in the United Kingdom. Should other
countries adopt similar rules and/or begin enforcement of similar rules for
political purposes, our business could be adversely affected.

  CONTROL BY PRINCIPAL SHAREHOLDER -- We are wholly owned by Atlas Air Worldwide
  Holdings, Inc. (AAWH) which has a single shareholder with a controlling
  interest in AAWH, who may be able to determine the outcome of all matters to
  be voted upon by its shareholders.

     As of March 15, 2002, Linda Chowdry, a member of our Board of Directors and
widow of Michael A. Chowdry, our founder, beneficially owned approximately 44.3%
of AAWH common stock. As a result, Ms. Chowdry may be able to direct and control
our policies, including the election of directors, mergers, sales of assets and
other such transactions.

  DEPENDENCE UPON KEY MANAGEMENT PERSONNEL -- Our executive officers and key
  employees are critical to our business. These officers and key personnel may
  not remain with us, and their loss may harm our operations.

     We believe that our success in acquiring ACMI Contracts, expanding our
product line to include a broader array of products and services, providing
scheduled service to international markets, and managing our operations will
depend substantially upon the continued services of many of our present
executive officers. The loss of the services of any of such persons could have a
material adverse effect on our business. We have employment agreements with such
officers, which are generally terminable at any time by either party.

                                        5
<PAGE>

  SEASONALITY OF CUSTOMERS' CARGO OPERATIONS -- Seasonal fluctuations in revenue
  may result in a reduction of available working capital.

     The cargo operations of our airline customers are seasonal in nature, with
peak activity traditionally in the second half of the year, and with a
significant decline occurring in the first quarter. As a result, our revenues
typically decline in the first quarter of the year as our minimum contractual
aircraft utilization level temporarily decreases. Our ACMI Contracts typically
allow our customers to cancel a maximum of 5% of the guaranteed hours of
aircraft utilization over the course of a year. Our customers most often
exercise such cancellation options early in the first quarter of the year, when
the demand for air cargo capacity has been historically low or following the
seasonal holiday peak in the latter part of the fourth quarter.

  AVAILABILITY OF INSURANCE COVERAGE -- Increased insurance costs will affect
  our profitability.

     We are required by the DOT to carry liability insurance on each of our
aircraft, and each of our aircraft leases and ACMI Contracts also require us to
carry such insurance. We currently maintain public liability and property damage
insurance and aircraft hull and liability insurance for each of the aircraft in
the fleet in amounts consistent with industry standards. We maintain baggage and
cargo liability insurance if not provided by our customers under ACMI Contracts.

     Following the terrorist attack of September 11, 2001, we and other airlines
faced a cancellation of war risk insurance. The U.S. Government provided war
risk insurance to U.S. airlines as there was no market provider of war risk
coverage. It is expected that the government program will be replaced by
commercial sources in 2002, at substantially higher rates. Although we believe
that our insurance coverage is adequate, there can be no assurance that the
amount of such coverage will not be changed upon renewal or that we will not be
forced to bear substantial losses from accidents. Substantial claims resulting
from an accident could have a material adverse effect on our financial condition
and could affect our ability to obtain insurance in the future.

  INDEPENDENT AUDITORS -- There is uncertainty concerning our continued use of
  Arthur Andersen, LLP as our independent auditors.

     The Company's independent certified public accountant, Arthur Andersen LLP,
has informed the Company that on March 14, 2002, it was indicted on federal
obstruction of justice charges arising from the U.S. government's investigation
of Enron Corporation. Arthur Andersen has indicated that it intends to contest
vigorously the indictment. The Company's Audit Committee has been carefully
monitoring this situation. As a public company, the Company is required to file
with the Securities and Exchange Commission (the SEC) annual audited financial
statements and quarterly financial statements reviewed by an independent
certified public accountant. The SEC has announced that it will continue
accepting financial statements audited by Arthur Andersen, and interim financial
statements reviewed by it, so long as Arthur Andersen is able to make certain
representations to its clients. The Company's access to the capital markets and
its ability to make timely SEC filings could be impaired if the SEC ceases
accepting financial statements audited by Arthur Andersen, if Arthur Andersen
becomes unable to make the required representations to the Company or if for any
other reason Arthur Andersen is unable to perform required audit-related
services for the Company. In such a case, the Company would promptly seek to
engage new independent certified public accountants or take such other actions
as may be necessary to enable the Company to maintain access to the capital
markets and produce timely financial reporting.

                                        6
<PAGE>

ITEM 2.  PROPERTIES

AIRCRAFT

     As of December 31, 2001, our current fleet of thirty-six aircraft includes
twenty-one Boeing 747-200's, three Boeing 747-300's, and twelve Boeing
747-400's, as follows:

<Table>
<Caption>
                                                       FLEET PROFILE
                              ---------------------------------------------------------------
                                                                                  AVERAGE AGE
                              AIRCRAFT TYPE    NO. OF AIRCRAFT   OWNED   LEASED   (IN YEARS)
                              --------------   ---------------   -----   ------   -----------
<S>                           <C>              <C>               <C>     <C>      <C>
Existing fleet..............  Boeing 747-200          21(A)       16         5       21.8
                              Boeing 747-300           3           2         1(B)    14.3
                              Boeing 747-400          12           2        10(C)     2.2
                                                    ----          --      ----
          Total.............................          36          20        16
To be delivered.............  Boeing 747-400         4(D)
</Table>

---------------

(A)  Six of these aircraft were designated in May 2001 as available for sale.
     The five leased aircraft are leased from third parties under three leases
     expiring in 2007 and one lease each expiring in 2009 and 2010.

(B)  The aircraft is leased from a third party under a lease expiring in 2005.

(C)  These aircraft are leased from third parties under three leases expiring in
     2019, three leases expiring in 2021, and two leases each expiring in 2020
     and 2024.

(D)  Atlas Air acquired 12 new Boeing 747-400 freighter aircraft and exercised
     options for four additional aircraft. The four option aircraft are
     scheduled for delivery in 2002/2003.

     In the past, we have been successful in obtaining new customers, or
establishing additional arrangements with existing customers, coincident with
the delivery of aircraft into the fleet or soon thereafter. However, from time
to time, we accept delivery of aircraft that have not been committed to a
particular product line, including ACMI Contracts. These aircraft have been
utilized temporarily as replacement aircraft during scheduled and unscheduled
maintenance of other aircraft, as well as for ad hoc charter arrangements.
Although we seek to identify a particular product line including new ACMI
Contracts, there can be no assurance that such arrangements will have been made
prior to the delivery of the four Boeing 747-400 aircraft scheduled to be
delivered during 2002 and 2003. Our inability to secure ACMI Contracts for these
aircraft or for existing aircraft upon termination of ACMI Contracts, or to
employ such aircraft in ad hoc charter service, or other ACMI Products could
have a material adverse effect on our business.

     From time to time, we engage in discussions with third parties regarding
possible acquisitions of aircraft that could expand our operations, and engage
in discussions with third parties regarding possible sales of aircraft to
improve the mix and age of the fleet. We are in discussions with third parties
for the possible acquisition and sale of aircraft in 2002 and beyond.

AIRCRAFT HELD FOR SALE

     Due to the 2001 global economic environment and the corresponding decline
in air cargo demand, the Company restructured its operating business plan and
decided to take six aircraft out of service and make them available for sale.
These aircraft were isolated from the rest of the fleet and the Company is
marketing the aircraft. Subsequent to September 11, 2001, the Company
experienced an increase in demand for charter services, both commercial and
military. To respond to this demand, the Company utilized four of the six
aircraft. However, the Company retains the flexibility to take the aircraft back
out of service should a buyer be found or charter demand soften. The Company
accounts for its aircraft in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Accordingly, the aggregate carrying amount of the aircraft of $246.2 million was
reduced to the expected net realizable value of $147.2 million, resulting in an
impairment charge of $99.0 million. This charge was recorded in two quarters,
prior to and post September 11, 2001. In the second quarter of 2001, the
impairment charge was $54.1 million and during the fourth quarter 2001, an
additional impairment charge of $44.9 million was recorded related to these six
aircraft. The net realizable values of these aircraft were based on a market
                                        7
<PAGE>

assessment of the value of the aircraft. The impairment charges are recorded in
the 2001 income statement under the caption "Restructuring and impairment".

FACILITIES

     Our principal offices are at 2000 Westchester Avenue, Purchase, New York
where we lease 120,000 square feet under a twelve year lease which expires in
May 2012. The office includes both operational and administrative support
functions, including flight and crew operations, maintenance and engineering,
material management, human resources, legal, finance and information technology.
In addition, Atlas Air leases warehouse space at Miami International Airport
(Dade County, Florida) on a month-to-month basis. The leased warehouse space is
used to store aviation equipment and aircraft components used to maintain
aircraft operated by us. We also maintain 2,000 square feet of warehouse space
at JFK Airport in New York City, New York.

ITEM 3.  LEGAL PROCEEDINGS

     During April 2001, Atlas Air reached an agreement with Air Line Pilots
Association (ALPA), to settle a lawsuit filed in May 1999 over the eligibility
of the crew members to participate in Atlas Air's profit sharing plan, pursuant
to the certification by the National Mediation Board (NMB) that crew members had
voted for representation by ALPA. The agreement reinstated the crew members to
the profit sharing plan, subject to future contract negotiation, and provided
for the distribution of withheld past profit sharing to all eligible crew
members. The amount totaled approximately $22.8 million. Atlas Air and ALPA also
agreed to dismiss legal proceedings with prejudice and to bar any future legal
claims as to crew members' exclusion from the profit sharing plan.

     On May 24, 2000, ALPA filed suit against Atlas Air in the Southern District
of Florida seeking to enjoin, as a violation of the Railway Labor Act, the
establishment of an Atlas Air subsidiary in the United Kingdom to conduct
overseas operations out of London Stansted Airport. We believe the suit is
without merit and intend to vigorously defend the action. This action is
currently in the discovery phase.

     During November of 2001, Malaysian Airlines returned a leased aircraft to
Atlas Air with one year remaining on the lease claiming a contractual right to
do so. Atlas Air vigorously disputes this interpretation of the contract. In
January of 2002, Atlas Air requested arbitration to settle the matter.
Arbitration will take place in London during the second quarter of 2002. Atlas
Air's claim seeks approximately $26.5 million plus interest, and Malaysian
Airlines has counterclaimed for $22.0 million plus interest claiming they were
misled as to their ability to cancel the agreement. We believe the counterclaim
is without merit. The arbitrator is likely to decide this matter in the fourth
quarter of 2002 or the first quarter of 2003.

     While the Company is, from time to time, involved in litigation in the
ordinary course of our business, there are no other material legal proceedings
pending against the Company or to which any of our property is subject.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     This Item is not applicable.

                                    PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     This Item is not applicable.

ITEM 6.  SELECTED FINANCIAL DATA

     This Item is omitted under the abbreviated disclosure rules prescribed by
General Instruction I(1)(a) and (b) of Form 10-K.

                                        8
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

RESULTS OF OPERATIONS

     The tables below set forth selected financial and operating data for the
four quarters of the years ended December 31, 2001, 2000 and 1999 (dollars in
thousands).

<Table>
<Caption>
                                                                 2001
                                  ------------------------------------------------------------------
                                  CUMULATIVE   4TH QUARTER   3RD QUARTER   2ND QUARTER   1ST QUARTER
                                  ----------   -----------   -----------   -----------   -----------
<S>                               <C>          <C>           <C>           <C>           <C>
Total operating revenues........   $687,309     $207,249      $150,713      $149,035      $180,312
Operating expenses..............    725,337      198,067       141,377       220,947       164,947
Operating (loss)/income.........    (38,028)       9,182         9,336       (71,912)       15,365
Other income (expense)..........    (70,015)     (18,164)      (19,195)      (15,715)      (16,941)
Net loss(1).....................    (68,473)     (13,659)       (4,211)      (49,022)       (1,582)
Block hours.....................    110,714       30,298        25,208        25,432        29,776
Average aircraft................       35.3         36.0          35.8          35.0          34.2
Operating margin................       (5.5)%        4.4%          6.2%        (48.3)%         8.5%
Pre-tax operating margin........      (15.7)%       (4.3)%        (6.5)%       (58.8)%        (0.9)%
</Table>

<Table>
<Caption>
                                                                 2000
                                  ------------------------------------------------------------------
                                  CUMULATIVE   4TH QUARTER   3RD QUARTER   2ND QUARTER   1ST QUARTER
                                  ----------   -----------   -----------   -----------   -----------
<S>                               <C>          <C>           <C>           <C>           <C>
Total operating revenues........   $790,468     $223,662      $208,611      $191,783      $166,412
Operating expenses..............    557,764      154,504       146,641       133,383       123,236
Operating income................    232,704       69,158        61,970        58,400        43,176
Other income (expense)..........    (95,177)     (18,907)      (24,757)      (27,734)      (23,779)
Net income......................     85,259       31,155        23,072        19,013        12,019
Block hours.....................    134,079       36,739        35,007        33,140        29,193
Average aircraft................       32.5         34.0          33.0          32.6          30.5
Operating margin................       29.4%        30.9%         29.7%         30.5%         25.9%
Pre-tax operating margin........       17.4%        22.5%         17.8%         16.0%         11.7%
</Table>

<Table>
<Caption>
                                                                 1999
                                  ------------------------------------------------------------------
                                  CUMULATIVE   4TH QUARTER   3RD QUARTER   2ND QUARTER   1ST QUARTER
                                  ----------   -----------   -----------   -----------   -----------
<S>                               <C>          <C>           <C>           <C>           <C>
Total operating revenues........   $637,081     $198,778      $161,896      $138,568      $137,839
Operating expenses..............    449,592      137,272       113,727        97,461       101,132
Operating income................    187,489       61,506        48,169        41,107        36,707
Other income (expense)..........    (88,654)     (22,845)      (25,620)      (19,875)      (20,314)
Net income(2)...................     53,270       23,670        14,093        13,270         2,237
Block hours.....................    109,608       34,166        27,650        23,861        23,931
Average aircraft................       29.0         30.3          30.0          28.4          27.0
Operating margin................       29.4%        30.9%         29.8%         29.7%         26.6%
Pre-tax operating margin........       15.5%        19.4%         13.9%         15.3%         11.9%
</Table>

---------------

(1) Net loss is after cumulative effect of a change in accounting principle for
    the 2001 Cumulative and 1st Quarter 2001 columns.

(2) Net income is after extraordinary item and cumulative effect of a change in
    accounting principle for the 1999 Cumulative and 1st Quarter 1999 columns.

     The cargo industry is generally seasonal in nature, with peak activity
typically occurring in the second half of the year, and with a significant
decline occurring in the first quarter. This decline in cargo activity is
largely due to the decrease in shipping that occurs following the December and
January holiday seasons associated

                                        9
<PAGE>

with the celebration of Christmas and the Chinese New Year. Certain customers
have, in the past, elected to use that period of the year to exercise their
contractual options to cancel a limited number (generally not more than 5% per
year) of guaranteed hours with us, and are expected to continue to do so in the
future. As a result, our revenues typically decline in the first quarter of the
year as our contractual aircraft utilization level temporarily decreases. We
seek to schedule, to the extent possible, our major aircraft maintenance
activities during this period to take advantage of any unutilized aircraft time.

     The aircraft acquisitions and lease arrangements are described in Note 7 of
our December 31, 2001 consolidated financial statements. The timing of when an
aircraft enters our fleet can affect not only annual performance, but can make
quarterly results vary, thereby affecting the comparability of operations from
period to period. In addition, the number of aircraft utilized from period to
period as spare or maintenance back-up aircraft may also cause quarterly results
to vary.

ACMI PRODUCTS

  ACMI CONTRACTS

     Our ACMI Contracts typically require our customers to guarantee monthly
minimum aircraft utilization levels at fixed hourly rates and are typically in
force for periods of one to five years, subject in certain limited cases to
early termination provisions.

     At December 31, 2001, we had ACMI Contracts with 11 full-time customers.
China Airlines Ltd. accounted for approximately 15%, and no other customer
accounted for 10% or more, of our total revenues for the year ended December 31,
2001. In addition, we have also operated short-term, seasonal ACMI Contracts
with companies such as UPS, FedEx and Emery Air Freight, among others, and
anticipate doing so in the future.

     Some of our ACMI Contracts allow customers to cancel up to a maximum of
approximately 5% of the guaranteed hours of aircraft utilization over the course
of a year. Our customers most often exercise such cancellation options early in
the first quarter or late in the fourth quarter of the year, when the demand for
air cargo capacity has been historically lower. We have found that such
cancellations provide a timely opportunity for the scheduling of maintenance on
our aircraft, to the extent possible.

     All of the ACMI Contracts provide that each of our aircraft be deemed to be
at all times under our exclusive operating control, possession and direction.
They also provide that, in order to service the routes designated by the
contract, we obtain the authority from the governments having jurisdiction over
the route. If we are required to use the customer's "call sign" in identifying
ourselves throughout our route, the customer must also have obtained underlying
authority from the governments having jurisdiction over the route. Therefore,
our route structure is limited to areas in which we can gain access from the
appropriate governments. Additionally, in many instances ACMI Contracts are
subject to prior and/or periodic approvals of foreign governments.

  EXPANDED PRODUCT LINES

     In 2001, Atlas Air announced an expansion of its product line to include a
broader array of products and services. These new services are based on the ACMI
Contract model and include fractional ACMI, or the provision of a portion of the
capacity of one or more aircraft; partial ACMI, or the provision of an aircraft
on less than a full time basis; and dry leases for aircraft (which may include
maintenance and insurance if requested). These products typically require our
customers to commit to certain utilization levels under seasonal contracts, and
in many instances the revenue and cost structure vary from an ACMI Contract, as
the operations may include arrangements for the provision of fuel, and ground
handling and flight related expenses. We anticipate that airline customers will
find these products to be desirable and complementary to their own business
strategy, because risks that would otherwise be borne by a single customer, such
as contract term, load factor, fuel and ground handling, are shared among
several parties. To help facilitate the delivery of these expanded product
lines, Atlas Air has established hubs in Liege, Belgium and Miami, Florida.

                                        10
<PAGE>

OTHER FLIGHT OPERATIONS

     In order to optimize utilization of our fleet, we regularly participate in
the ad hoc charter market where demand is relatively available. These operations
complement our ACMI Product business by increasing aircraft utilization during
low seasons, positioning flights for scheduled operations in directionally weak
markets, enabling the performance of extra sections to respond to peak season
demand, and diversifying our revenue streams. We participate in the Department
of Defense Civil Reserve Air Fleet (CRAF) Program under contracts with the
Airlift Mobility Command (AMC), where we have made our aircraft available to be
utilized by the U.S. military in support of their operations, and operate such
flights on competitively bid, full-cost contracts. Our participation in the U.S.
military response to the September 11, 2001 terrorist attack has provided our
business with significant additional revenues, and we expect to continue to
operate for the AMC in 2002.

  2001 COMPARED TO 2000

     Results of Operations.  The operating loss for the full year 2001 totaled
$38.0 million versus an operating profit of $232.7 million in 2000. Included in
the operating loss of 2001 was $116.2 million in restructuring and impairment
charges, $22.8 million relating to a settlement of a profit sharing dispute with
our pilots and $24.7 million of benefit from the Federal Stabilization Act
claims. Excluding these items, operating profits would have been $76.3 million.

     Our loss before a cumulative effect of a change in accounting principle was
$66.9 million in 2001, compared to income of $85.3 million in 2000. In the first
quarter of 2001, we recorded a charge of $1.6 million (net of tax) associated
with a cumulative change in accounting principle related to the fair-market
valuation adjustment of an interest rate swap, as required by SFAS 133 (as
defined). Including this cumulative change, the net loss for 2001 was $68.5
million compared to a net income of $85.3 million for 2000. This decline in
profitability was due to unique, one time charges noted above, the general
decline in demand from our customer base, and increased operating expenses.

     Operating levels decreased throughout 2001 caused by the marked decline in
demand by our customers for air cargo services, with an increase in activity
during the fourth quarter caused by seasonal demand. Block hours of 29,776 in
the first quarter of 2001 dramatically declined during the next two subsequent
quarters, and increased to 30,298 in the fourth quarter of 2001. Total operating
revenue increased from $180.3 million in the first quarter to $207.2 million in
the fourth quarter, representing higher block hour rates for the fourth quarter
compared to those of the first quarter of 2001, primarily due to the seasonality
of the business of our customers and increased military flying. We earned $9.2
million operating income and had a $13.7 million net loss in the fourth quarter
of 2001, compared to $15.4 million operating income and a $1.6 million net loss
in the first quarter of 2001. Operating income of $29.4 million for the fourth
quarter of 2001 (excluding the $20.2 million net charge for additional
fourth-quarter impairment and Federal Stabilization Act claims), decreased by
approximately 23% compared to operating income of $38.2 million in the first
quarter of 2001 (excluding the $22.8 million profit sharing settlement charge).

     Starting early in 2001, cargo industry participants felt the effects of a
worldwide recession particularly evident in the U.S. market. During the second
and third quarters of 2001, block hour production fell by 23% and 28%,
respectively, compared to the same periods of 2000. During the fourth quarter
2001, block hour production decreased by approximately 18% as strong seasonal
charter activity, combined with charter demand from the U.S. Military Air
Mobility Command somewhat offset ACMI Contract block hour declines.

     During the second quarter 2001, we announced measures designed to respond
to the current global economic environment and the corresponding decline in air
cargo demand. Accordingly, we announced we would furlough 105 crew members and
reduce our groundstaff workforce by 200 employees. Under the restructuring plan
finalized in the second quarter of 2001, the affected employees received
severance and termination benefits.

     In accordance with Emerging Issues Task Force No. 94-03, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructur-

                                        11
<PAGE>

ing)" and Staff Accounting Bulletin (SAB) No. 100, "Restructuring and Impairment
Charges", during the second quarter we recognized a liability for the cost of
termination benefits to be provided to involuntarily terminated employees and
also recorded other liabilities associated with the restructuring. This
restructuring charge of $3.9 million is recorded in the 2001 income statement
and is included under the caption 'Restructuring and impairment'. This liability
has been reduced by $3.3 million representing primarily employee severance
payments made since June 2001, and the resulting liability at December 31, 2001
was $0.6 million. The total number of our ground staff employees terminated
through December 31, 2001 under the restructuring plan was 192.

     The Atlas Air crew member furlough, which commenced in May 2001, was
completed in the second quarter. The ground staff layoffs and other associated
restructuring activities, which commenced in June 2001, were substantially
complete by the end of the third quarter. There were no revisions to the initial
restructuring cost estimates that were recorded in the second quarter. These
restructuring activities are expected to have no adverse material impact on our
ongoing operations.

     At the time of the employee furloughs and reductions, we restructured our
operating business plan and took six aircraft out of service and made them
available for sale. These aircraft have been isolated from the rest of the fleet
and we are marketing the aircraft, although post September 11, 2001, aircraft
sale transactions have been significantly curtailed. We account for our aircraft
in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". Accordingly, the aggregate
carrying amount of the aircraft of $246.2 million was reduced to the expected
net realizable value of $147.2 million, resulting in an impairment charge of
$99.0 million. This charge was recorded in two quarters, prior to and post
September 11, 2001. In the second quarter of 2001, the impairment charge was
$54.1 million and during the fourth quarter of 2001, an additional impairment
charge of $44.9 million was recorded related to these six aircraft. The net
realizable values of these aircraft were based on a market assessment of the
value of the aircraft. The impairment charges are recorded in the 2001 income
statement under the caption 'Restructuring and impairment'. Subsequent to
September 11, 2001, we experienced an increase in demand for charter services,
both commercial and military. To respond to this demand, Atlas Air restored to
operations four of the six parked aircraft, and retained the flexibility to take
the aircraft back out of service should a buyer be found or charter demand
soften.

     In conjunction with the closure of some of our locations and employee
layoffs, we recorded an impairment charge of approximately $0.7 million related
to computer hardware and software and leasehold improvements at the closed
locations. The charge represents the entire carrying value of these assets, as
we believe that these assets have no resale value.

     The changed business environment described above resulted in a review of
our strategy related to the construction of our maintenance hangar at Miami
International Airport. We recorded an impairment charge of $12.5 million in the
second quarter to write off $8.6 million of costs currently capitalized and
accrue for $3.9 million of costs related to site restoration and lease
termination costs to discontinue the project. The reserve balance as of December
31, 2001 was $3.6 million. The total impairment charge of $13.2 million is
recorded in the 2001 income statement under the caption 'Restructuring and
impairment'.

     Immediately following the terrorist attacks on September 11, 2001, the FAA
closed U.S. airspace. We resumed operations on September 14, 2001, after the FAA
order was rescinded. During the period in which the flight operations were
suspended, we experienced contract revenue losses and incurred incremental
expenses associated with crew and aircraft repositioning and added security
measures.

     In January 2002, Atlas Air filed an amended claim for $29.0 million under
the Air Transportation Safety and Stabilization Act, which provides direct
compensation to the U.S. airlines for direct and incremental losses that
resulted from the terrorist attacks for the September 11, 2001 through December
31, 2001 period. During the fourth quarter of 2001, Atlas Air recognized $24.7
million as a reduction to the operating expenses for the fourth quarter,
representing 85% of the total claim. In October 2001, the Federal government
paid Atlas Air $10.1 million as an initial payment of our claim under the
Federal Air Transportation Safety and Stabilization Act, and in February 2002,
Atlas Air received an additional $11.4 million. Payment of the balance of the
claim is dependent upon finalization of the DOT rules and guidelines related to
the audit of the
                                        12
<PAGE>

claims that have been filed by the airlines. Since payment of claims under this
Act are subject to a DOT audit, there can be no assurances that the balance will
be paid by the DOT or that upon the audit of the claim the DOT will not seek to
recover amounts already paid to Atlas Air.

     Operating Revenues.  Total operating revenues for the year ended December
31, 2001 decreased to $687.3 million compared to $790.5 million for 2000. This
decline is largely attributable to a decline in overall block hour production.
Revenue per block hour increased by approximately 5% to $6,208 for 2001,
compared to $5,896 for 2000. The increase in unit revenue was due to the change
in relative utilization of Boeing 747-400 aircraft versus Boeing 747-200
aircraft.

     Charters, scheduled service and other revenue grew to $81.9 million in 2001
versus $23.6 million in 2000. This increase was due principally to unusually
high levels of ad hoc charter activity in the second half of 2001, particularly
from the U.S. military.

     Operating Expenses.  Our principal operating expenses include salaries and
benefits; aircraft maintenance; aircraft and engine rentals; fuel costs for
non-ACMI contract services; ground handling and flight related expenses;
depreciation and amortization; and other expenses.

     Salaries, wages and benefits include all such expenses for our pilot and
ground staff work force. Salaries increased to $109.8 million in 2001 compared
to $108.3 million in 2000, or approximately 1%, principally reflecting the
reduced crew staffing and ground staff staffing announced in May 2001 and June
2001, respectively, that favorably impacted salary expenses, and the
reinstatement of profit sharing to Atlas Air crew members. On a block hour
basis, expenses increased by approximately 23% to $992 per block hour for 2001
from $808 per block hour for 2000. This increase in the block hour rate was
primarily due to less efficient use of crews caused by the decline in block
hours, salary adjustments based on seniority, and increase in ground staff
salaries. Final resolution of the labor contract of Atlas Air crew members and
results of the ALPA litigation will cause labor expense to increase. We continue
to review future staffing levels, which could impact this category in the
future. In March 2002, we announced a further furlough of crew members that will
be phased in over a period of thirteen months, depending upon market conditions.

     Maintenance expense decreased to $130.6 million in 2001 from $148.1 million
in 2000, or approximately 12%, due to the overall decline in aircraft block hour
production, offset by requirements to perform specified maintenance activity
regardless of flight activity. On a block hour basis, maintenance expense
increased year over year by approximately 7% to $1,180 per block hour for 2001
compared to $1,105 for 2000. Maintenance expenses include all expenses related
to the upkeep of the aircraft, including maintenance, labor, parts, supplies and
maintenance reserves. The costs of C Checks, D Checks and engine overhauls not
otherwise covered by maintenance reserves are capitalized as they are incurred
and amortized over the life of the maintenance event. We contract for a
significant part of our regular maintenance operations and support on a fixed
cost per flight hour basis.

     Aircraft and engine rentals were $125.0 million in 2001 compared to $79.1
million in 2000, or an increase of approximately 58%. This increase was
primarily due to the impact of a full year of rental expense in 2001 for
aircraft leases and sale-leasebacks during 2000, which reduced depreciation and
interest expense. There were no new leases entered into during 2001. From time
to time, we engage in discussions with third parties regarding possible lease
financing of aircraft currently in or new to our fleet.

     Because of the nature of our ACMI Contracts, our ACMI customers generally
bear all other operating expenses. As a result, we incur fuel and ground
handling when we operate on our own behalf either for ad hoc charters or for
ferry flights. Fuel expenses for our non-ACMI Contract services and charters
include both the direct costs of aircraft fuel as well as the cost of delivering
fuel into the aircraft. Fuel expense increased to $32.1 million for 2001
compared to $13.0 million for 2000, or by $19.1 million. This was primarily due
to increased charter activity, despite lower fuel prices year over year. On a
per block hour basis, fuel costs increased to $290 per block hour in 2001 from
$97 per block hour in 2000 reflecting the increase in block hours where we
provided the fuel. We expect this trend to continue in the future.

                                        13
<PAGE>

     Ground handling expenses for non-ACMI Contract services and charter
services include the costs associated with servicing our aircraft at the various
airports to which we operate. Other flight-related expenses include hull and
liability insurance, crew travel and meal expenses, initial, upgrade and
recurrent crew training costs and other expenses necessary to conduct our flight
operations, such as communication and navigation fees. Ground handling and
flight related expenses decreased to $64.7 million in 2001 compared to $74.1
million in 2000, or approximately 13%. On a block hour basis, ground handling
and flight related expenses increased approximately 6% to $585 per block hour
for 2001 compared to $552 per block hour for 2000. The increase in expense on a
per block hour basis is primarily due to an increase in charter service block
hours requiring ground handling services, offset by continued improvements in
crew travel and crew basing strategies.

     Depreciation and amortization expense decreased to $83.2 million in 2001
from $94.0 million in 2000, or approximately 12%. This decrease primarily
reflects the full-year impact of aircraft refinanced pursuant to sale-leaseback
transactions during the previous year, the cessation of depreciation expense
since May 2001 for six aircraft currently held for sale, partially offset by
additions to property and equipment, computers and leasehold improvements.

     Other operating expenses include travel related expenses for non-crew
members and other miscellaneous operating costs. Other operating expenses
increased to $65.6 million in 2001 from $41.1 million in 2000, or approximately
60%. On a block hour basis, these expenses increased to $592 per block hour in
2001 from $306 per block hour in 2000. The increase in cost from the prior year
was due primarily to allowance for account reserves, costs associated with the
completion of the relocation of our headquarters to Purchase, New York, and
other costs associated with the operation of our fleet and facilities.

     Other Income (Expense).  Other income (expense) consists of interest
income, interest expense and fair value changes in derivative instruments.
Interest income decreased to $19.8 million in 2001 from $28.6 million in 2000,
primarily due to reductions in average interest rates and reduced investment
balances. Interest expense decreased to $85.8 million for 2001 from $123.8
million for 2000, or approximately 31%. This decrease reflects the effect of
principal payments during 2000 and 2001 and repayment of debt on sale-leaseback
aircraft during 2000, resulting in a shift from interest expense to aircraft
rental expense. The change in fair value of the interest rate swap during 2001
was recorded in accordance with the provisions of SFAS 133.

     Income Taxes.  Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," we have recorded a tax provision based on tax rates in effect
during the period. Accordingly, we accrued for taxes at the rate of 38.1% in
2001 and 38.0% in 2000.

  2000 COMPARED TO 1999

     Operating Revenues.  Total operating revenues for the year ended December
31, 2000 increased to $790.5 million compared to $637.1 million for 1999, an
increase of approximately 24%. The average number of aircraft in our fleet
during 2000 was 32.5 compared to 29.0 during 1999. Total block hours for 2000
were 134,079 compared to 109,608 for 1999, an increase of approximately 22%,
reflecting the 12% increase in the average number of aircraft in our fleet
during 2000 and an increase in average daily aircraft block hour production of
9%. Revenue per block hour increased by approximately 1% to $5,896 for 2000
compared to $5,812 for 1999, due to the increase in the number of 747-400
freighter aircraft in our fleet and the increase in the volume of charter
operations year over year, for which the rate per block hour is higher in order
to offset additional operating costs borne by us under such arrangements.
Charter operations are performed on an ad hoc basis and are dependent upon
surplus availability of our aircraft and customer demand.

     Results of Operations.  Operating profit during 2000 of $232.7 million
reflected a 24% improvement over the operating profit during 1999 of $187.5
million. The operating results were favorably impacted by the increase in
747-400 freighter aircraft in our fleet and a more productive fleet, partially
offset by the increase in leased aircraft compared to owned aircraft. Income
before extraordinary item and cumulative effect of a change in accounting
principle was $85.3 million in 2000, compared to $61.3 million in 1999, an
increase of approximately 39%. In the first quarter of 1999, we recorded an
extraordinary charge associated with the write-
                                        14
<PAGE>

off of start-up costs related to the introduction of new Boeing 747-400
freighter aircraft into our fleet, as required by SOP 98-5 (as defined). Net
income of $85.3 million for 2000 reflected a 60% increase over the net income of
$53.3 million for 1999.

     Operating levels increased during 2000 with the delivery of three
additional new Boeing 747-400 freighter aircraft and two cargo configured
747-300 freighter aircraft. Block hours increased from 29,193 in the first
quarter of 2000 to 36,739 in the fourth quarter of 2000, reflecting the growth
in the average fleet size from 30.5 aircraft to 34.0 aircraft for the two
periods. Total operating revenue increased from $166.4 million in the first
quarter to $223.7 million in the fourth quarter, representing slightly higher
block hour rates for the fourth quarter compared to those of the first quarter
of 2000, primarily due to the seasonality of the business of our customers. We
earned $69.2 million operating income and $31.2 million net income in the fourth
quarter of 2000, compared to $43.2 million operating income and $12.0 million
net income in the first quarter of 2000.

     Operating Expenses.  Our principal operating expenses include salaries and
benefits; aircraft maintenance; aircraft and engine rentals; fuel costs for
non-ACMI contract services; ground handling and flight related expenses;
depreciation and amortization; and other expenses.

     Salaries, wages and benefits include all expenses for our pilot and ground
staff work force. Salaries increased to $108.3 million in 2000 compared to $80.7
million in 1999. The increase is primarily the result of an increase in the size
of our fleet year over year. In addition, during the second quarter of 1999, the
flight crew voted to be represented by ALPA (as defined), which resulted in the
exclusion of the flight crew from eligibility of participation in our profit
sharing plan. On a block hour basis, expenses increased by approximately 10% to
$808 per block hour from $737 per block hour. This increase in the block hour
rate was primarily due to seniority based salary adjustments for flight crew
members and salary increase for our ground staff.

     Maintenance expense increased to $148.1 million in 2000 from $131.2 million
in 1999, or approximately 13%, primarily due to the increased size of our fleet.
On a block hour basis, maintenance expense decreased year over year by
approximately 8% to $1,105 per block hour for 2000 compared to $1,197 for 1999,
principally as a result of increased efficiencies gained in the operation of our
standardized fleet. Maintenance expenses include all expenses related to the
upkeep of the aircraft, including maintenance, labor, parts, supplies and
maintenance reserves. The costs of C Checks, D Checks and engine overhauls not
otherwise covered by maintenance reserves are capitalized as they are incurred
and amortized over the life of the maintenance event. We contract for a
significant part of our regular maintenance operations and support on a fixed
cost per flight hour basis.

     Aircraft and engine rentals include the cost of leasing aircraft and spare
engines, as well as the cost of short-term engine leases required to replace
engines removed from our aircraft for either scheduled or unscheduled
maintenance and any related short-term replacement aircraft lease costs.
Aircraft and engine rentals were $79.1 million in 2000 compared to $51.2 million
in 1999, or an increase of approximately 55%, primarily due to an increase in
the number of leased aircraft included in our fleet in 2000.

     Because of the nature of our ACMI Contracts our ACMI customers generally
bear all other operating expenses. As a result, we incur fuel and ground
handling expenses when we operate on our own behalf either for ad hoc charters
or for ferry flights. Fuel expenses for our non-ACMI Contract services and
charters include both the direct costs of aircraft fuel as well as the cost of
delivering fuel into the aircraft. Fuel expense increased to $13.0 million for
2000 compared to $7.7 million for 1999, or by 69%. This was primarily due to
increased charter and scheduled service activity and higher fuel prices year
over year. On a per block hour basis, fuel costs increased to $97 per block hour
in 2000 from $70 per block hour in 1999 or by approximately 39%, reflecting the
increase in the price of fuel.

     Ground handling expenses for non-ACMI Contract services and charter
services include the costs associated with servicing our aircraft at the various
airports to which we operate. Other flight-related expenses include hull and
liability insurance, crew travel and meal expenses, initial, upgrade and
recurrent crew training costs and other expenses necessary to conduct our flight
operations, such as communication and navigation fees. Ground handling and
flight related expenses increased to $74.1 million in 2000 compared to $64.4
million

                                        15
<PAGE>

in 1999, or approximately 15%. On a block hour basis, ground handling and flight
related expenses decreased approximately 6% to $553 per block hour for 2000
compared to $587 per block hour for 1999. The decrease in expense on a per block
hour basis is primarily due to continued improvements in crew travel and crew
basing strategies.

     Depreciation and amortization expense increased to $94.0 million in 2000
from $78.4 million in 1999, or approximately 20%. This increase primarily
reflected increases in owned aircraft, engines and spare parts relating to the
increase in our fleet size, and other capital additions, partially offset by
aircraft refinanced pursuant to sale-leaseback transactions during the year.

     Other operating expenses include travel related expenses for non-crew
members and other miscellaneous operating costs. Other operating expenses
increased to $41.1 million in 2000 from $36.1 million in 1999, or approximately
14%. On a block hour basis, these expenses decreased to $306 per block hour in
2000 from $329 per block hour in 1999, or approximately 7%.

     Other Income (Expense).  Other income (expense) consists of interest income
and interest expense. Interest income for 2000 was $28.6 million compared to
$20.0 million for 1999, primarily due to increases in the amount of funds
available for investing as well as an overall increase in the rates of return on
investments. Interest expense increased to $123.8 million for 2000 from $108.7
million for 1999, or approximately 14%. This increase reflects the financing
costs associated with the purchase of additional aircraft in the second half of
2000 and the issuance of $217.3 million under the 2000 EETCs.

     Income Taxes.  Pursuant to the provisions of SFAS No. 109 "Accounting for
Income Taxes," we have recorded a tax provision based on tax rates in effect
during the period. Accordingly, we accrued for taxes at the rate of 38.0% during
2000 and 1999.

LIQUIDITY AND CAPITAL RESOURCES

     Our balance sheet reflected cash and cash equivalents and short-term
investments of $311.9 million and $559.0 million at December 31, 2001 and 2000,
respectively. At December 31, 2001 we had working capital of $352.2 million
compared to $483.3 million at December 31, 2000. The decrease in our working
capital is largely a result of capital expenditures for aircraft deposits, debt
payments and a dividend payment to Atlas Air Worldwide Holdings, Inc. for the
purchase of Polar Air Cargo.

     Historically, our business has been largely contractual ACMI flying. This
business has not been working-capital intensive. As such, we have not maintained
a working-capital borrowing facility. With the growth of expanded product lines,
we expect to become more working-capital intensive as these product lines and
our ad hoc charter service business includes the provision of fuel, ground and
cargo handling (See Note 1 -- Organization). We maintain a reasonably high level
of liquidity relative to operating costs.

     Cash used in operations for the year ended December 31, 2001 was $1.5
million, compared to cash provided by operations of $165.0 million and $190.4
million for 2000 and 1999, respectively. Cash used in operations for the year
ended December 31, 2001 was primarily attributable to our net loss for the year
adjusted for non-cash charges, and decreases in our deferred tax liability,
accounts payable and accrued expenses, and income taxes payable and increase in
accounts receivable. Operating cash flows for the year ended December 31, 2000
were attributable to net income for the year adjusted for non-cash charges, and
increases in our deferred tax liability, and accounts payable and accrued
expenses. Cash provided by operations for the year ended December 31, 1999 was
attributable to our net income for the year adjusted for non-cash charges, and
increases in our deferred tax liability and accounts payable and accrued
expenses.

     Cash used in investing activities for the year ended December 31, 2001 was
$143.0 million, compared to $413.4 million and $453.9 million for 2000 and 1999,
respectively. For the year ended December 31, 2001 cash used in investing
activities primarily comprised of pre-delivery deposits on our Boeing 747-400
aircraft scheduled for delivery in 2002 and 2003 and other capital improvements
including aircraft modifications and maintenance, net of proceeds from sales of
property and equipment of $129.1 million and funding of an affiliate of $15.0
million. For the year ended December 31, 2000, cash used in investing activities
was comprised of purchases of property and equipment, net of proceeds from the
sale of equipment, of
                                        16
<PAGE>

$401.5 million and purchases of short-term and long-term investments, net of
maturities, of $11.9 million. Property and equipment purchases in 2000 were
comprised primarily of final payments associated with the delivery of three new
Boeing 747-400s in the first and second quarters of the year, costs associated
with the three Boeing 747-300s converted from combi to full freighter
configuration and placed into service in October and December 2000, and January
2001, initial costs associated with the four new Boeing 747-400s expected to be
delivered in 2002, and other capital improvement costs including those
associated with our headquarters in Purchase, NY, and a new training facility in
Miami, FL. Our investment purchases primarily consist of commercial paper,
market auction preferreds, corporate notes, corporate bonds, and US government
securities, and are all classified as held to maturity. Cash used in investing
activities for the year ended December 31, 1999 consisted of purchases of
property and equipment, net of proceeds from the sale of equipment, of $334.5
million and purchases of short-term investments, net of maturities, of $119.4
million. Property and equipment purchases in 1999 were comprised primarily of
costs associated with the new Boeing 747-400 aircraft, four of which were
delivered in 1999, purchases of spare airframe and engine parts associated with
the new aircraft in our fleet, purchases of spare engines for the Boeing
747-400s, and other capital improvements including leasehold improvements to our
various offices and upgrades and improvements to our accounting and inventory
computer systems.

     Cash used in financing activities for the year ended December 31, 2001 was
$149.9 million, compared to cash provided by financing activities of $410.5
million and $145.5 million for 2000 and 1999, respectively. For the year ended
December 31, 2001, cash used in financing activities consisted primarily of
payments of notes payable of $119.3 and dividends paid to Atlas Air Worldwide
Holdings, Inc., of $39.8 million, offset by net proceeds from debt issuance of
$9.2 million. For the year ended December 31, 2000, cash provided by financing
activities consisted primarily of proceeds from the offering of 3,465,000 shares
of our common stock and exercises of common stock options of $107.1 million,
proceeds from the issuance of treasury stock under our employee stock purchase
plan of $1.2 million, and proceeds from debt issuance and lease financing, net
of principal payments and debt issuance and deferred lease costs of $302.2
million. In 2000 we received funding under the 1999 and 2000 EETCs associated
with the delivery of the three new Boeing 747-400s in the first and second
quarters. We also arranged beneficial lease financing for four of our 747-400s
and four of our 747-200s that were previously owned aircraft during the year.
The net book values were removed and associated debt was repaid for each
aircraft. Debt financing was also arranged for the two 747-300s placed into
service in December 2000 and January 2001. Cash provided by financing activities
for the year ended December 31, 1999 consisted of proceeds from the exercise of
common stock options of $15.7 million, proceeds from the issuance of treasury
stock under our employee stock purchase plan, net of purchases of $0.3 million,
and proceeds from debt issuance and lease financing, net of principal payments
and debt issuance and deferred lease costs of $129.6 million. In 1999, we
received funding under the 1998 and 1999 EETCs associated with the delivery of
four new Boeing 747-400s.

     Under the terms of the Boeing Purchase Agreement, in October 2000 Atlas Air
exercised options for four Boeing 747-400 freighter aircraft to be delivered in
2002. During 2001, Atlas Air reached an agreement with Boeing to amend the
delivery dates of the aircraft, whereby three of the aircraft are scheduled to
be delivered in 2002 and one aircraft in 2003. The Boeing Purchase Agreement
requires Atlas Air to pay pre-delivery deposits to Boeing prior to the delivery
date of each Boeing 747-400 freighter aircraft in order to secure delivery of
the aircraft and to defray a portion of the manufacturing costs. As of December
31, 2001, pre-delivery deposits totaled $214.2 million, of which $78.2 million
has been in cash and $136.0 million have been in the form of deferred payments
(Note 5 to the Consolidated Financial Statements). At delivery, we are obligated
to pay the purchase price net of cash deposits made to date. Pre-delivery
deposits scheduled to be paid to Boeing during 2002 total $22 million.

     We are in discussions with Boeing in an effort to defer delivery of some or
all of the aircraft scheduled for 2002. As noted above, we have successfully
deferred one of the aircraft to later 2003. However, Atlas Air is currently in
discussions with Boeing to have the 2002 aircraft delivered as late in the year
as possible. Atlas Air does not currently have firm financing in place for any
of the four Boeing 747-400 aircraft scheduled for delivery in 2002 and 2003.
However, Atlas Air is currently in discussions with several sources for
financing these aircraft. The inability to secure financing for the Boeing
747-400 deliveries could result in a default

                                        17
<PAGE>

under the Boeing Purchase Agreement, which would permit Boeing to accelerate
payments due under the Boeing Purchase Agreement. Such acceleration would cause
a default in covenants of certain of the Company's indebtedness which would
permit the lenders to accelerate payment of a significant portion of all
indebtedness, which event would have a material adverse effect on the Company's
financial position and results of operations. However, Boeing has made an offer
to finance by sale-leaseback, each of the aircraft to be delivered in 2002,
under terms which are more favorable to Boeing. If Atlas Air is unable to secure
other financing more favorable to the Company, management believes it has the
option to utilize the proposed Boeing financing.

     The following table summarizes our financial obligations for principal
payments under existing debt agreements and our lease obligations to be paid,
beginning in 2002 and thereafter (in thousands):

<Table>
<Caption>
                                             NEXT     YEARS 2    YEARS 4
                                             YEAR      AND 3      AND 5     THEREAFTER
                                           --------   --------   --------   ----------
<S>                                        <C>        <C>        <C>        <C>
EETC's...................................  $ 13,743   $ 22,284   $ 16,702   $  137,362
AFL III Term Loan........................    18,255    108,182     86,712           --
Aircraft Credit Facility.................        --     47,675     20,432           --
Senior Notes.............................        --         --    284,475      152,853
Other....................................    13,936     29,683     23,291        9,401
Operating lease payments.................   166,978    294,074    276,469    1,449,688
Capital lease payments...................     1,768      3,197      1,460           --
</Table>

     Excluded from the above table are aircraft pre-delivery deposits for the
four Boeing 747-400 aircraft, which at December 31, 2001 totaled $214.2 million,
of which $78.2 million has been in cash and $136.0 million has been in the form
of deferred payments. We expect to finance the deferred obligation at the time
we take delivery of the Boeing 747-400 aircraft (See Note 5 to the Consolidated
Financial Statements).

     As part of our initiatives launched in 2001 to adjust to the more uncertain
economic environment, we have severely reduced our non-aircraft capital
spending. For the foreseeable future, such spending will be largely confined to
mandatory aircraft related expenditures.

     Along with the financing associated with the Boeing 747-400s noted above,
we regularly review financing opportunities and alternatives. Given our current
levels of liquidity and financing, combined with the existence of certain
restrictive financial ratio covenants in certain of our credit facilities, we
are unlikely to add to our liability structure, other than with respect to the
Boeing deliveries noted above, in the near future. See -- "Debt Covenants." We
have and will continue to evaluate equity capital alternatives

     We believe that our liquidity on hand, which totaled $311.9 million in cash
and cash equivalents and short term investments at December 31, 2001, will be
sufficient to meet our ongoing liquidity needs for the next twelve months and
beyond. We expect to fund our future capital commitments through internally
generated funds together with general Company financings and aircraft financing
transactions, should they become available to us. However, there can be no
assurance that sufficient financings will be available for all aircraft and
other capital expenditures not covered by firm financing commitments.

     Under FAA Directives issued under its "Aging Aircraft" program, we are
subject to extensive aircraft examinations and will be required to undertake
structural modifications to our fleet to address the problem of corrosion and
structural fatigue. As part of the FAA's overall Aging Aircraft program, it has
issued Directives requiring certain additional aircraft modifications to be
accomplished. We estimate that the modification costs per 747-200/300
("Classics") aircraft will range between $2 million and $3 million. Fifteen
aircraft in our Classics fleet have already undergone the major portion of such
modifications. The remaining nine Classics aircraft will require modification
prior to the year 2013. Other Directives have been issued that require
inspections and minor modifications to Boeing 747-200 aircraft. The newly
manufactured 747-400 freighter aircraft were delivered to us in compliance with
all existing FAA Directives at their respective delivery dates. It is possible
that additional Directives applicable to the types of aircraft or engines
included in our fleet could be issued in the future, the cost of which could be
substantial.

                                        18
<PAGE>

     From time to time we engage in discussions with third parties regarding
possible acquisition or sale of aircraft in our fleet. We are currently in
discussions with third parties for the possible acquisition and sale of aircraft
for 2002 and beyond.

DEBT COVENANTS

  AIRCRAFT CREDIT FACILITY

     In May 1996, Atlas Air entered into a revolving credit facility (the
"Aircraft Credit Facility") with Goldman Sachs Credit Partners L.P., as
Syndication Agent, and Bankers Trust Company ("BTCo"), as Administrative Agent.
This revolving loan facility provides for the acquisition and conversion of
flight equipment. In April 2000, Atlas Air amended its Aircraft Credit Facility
with Deutsche Bank as successor to BTCo. to provide for a $175 million revolving
credit facility with a three-year revolving period and a subsequent two-year
term loan period. With respect to the aircraft currently financed under the
Aircraft Credit Facility, the term loan period will be from April 25, 2003 to
April 25, 2005 in the event that permanent financing has not been obtained for
such flight equipment financed under the facility. Each borrowing is secured by
a first priority security interest in the collateral flight equipment of that
borrowing. At the time of each borrowing, Atlas Air must select either a Base
Rate Loan (prime rate plus a spread), or a Eurodollar Rate Loan (Eurodollar rate
plus a spread). Atlas Air selected the Eurodollar Rate Loan for substantially
all borrowings in 1999, 2000 and 2001.

     In 2001, Atlas Air amended this Aircraft Credit Facility to include, among
other items, a revision of its financial covenants, including the minimum
interest coverage and maximum leverage ratios, and the addition of certain
liquidity requirements. The ratio requirements were eased through 2002, to what
Atlas Air believes are achievable levels. Covenant tests are conducted
quarterly, and further amendments may be necessary if financial performance
falls short of expected levels. There can be no assurance that Atlas Air could
successfully negotiate waivers or amendments to the Aircraft Credit Facility in
the event that the financial covenants are not met. Failure to obtain such
waivers or amendments would permit the lenders to accelerate payment of a
substantial portion of our long term indebtedness, which would have a material
adverse effect on Atlas Air. As part of the amendment, a new liquidity covenant
was added that requires Atlas Air to maintain $200 million in cash and
short-term investments. The amendment also included the requirement to prepay
$7.6 million in outstanding debt and reduced the available amount to $140
million from $175 million. As of December 31, 2001, Atlas Air had $68.1 million
outstanding under the Aircraft Credit Facility.

     Additional covenants with respect to the Aircraft Credit Facility require
specific levels of insurance, as well as contain requirements regarding
possession, maintenance, and lease or transfer of the flight equipment. Certain
covenants applicable to Atlas Air include, among other restrictions, limitations
on indebtedness, liens, investments, contingent obligations, restricted junior
payments, capital expenditures, amendments of material agreements, leases,
transactions with shareholders and affiliates and the conduct of business. Atlas
Air is in compliance with all covenants.

  AFL III TERM LOAN FACILITY

     In April 2000, Atlas Air formed a wholly-owned subsidiary, Atlas Freighter
Leasing III, Inc. (AFL III) for the purpose of entering into a $300 million term
loan facility (the "AFL III Term Loan Facility") to refinance all of the
aircraft and spare engines previously financed under the AFL Term Loan Facility
and the AFL II Term Loan Facility, plus one aircraft previously financed under
the Aircraft Credit Facility and three Boeing 747-400 spare engines owned by
Atlas Air. As a result of this refinancing, Atlas Air has and will continue to
experience lower interest rates and extended repayment terms as compared to the
previous financings. The AFL III Term Loan Facility consists of Term Loan A in
the amount of $165 million and Term Loan B in the amount of $135 million, for
which interest is based on the Eurodollar rate plus a spread. Quarterly
scheduled principal payments of $5.0 million and $1.7 million, respectively,
commenced in July 2000 and increase over time to $9.1 million and $6.2 million,
respectively, such that Term Loan A is to be fully paid in April 2005 and Term
Loan B is to be fully paid in April 2006, with a final payment of $37.3 million.
In September 2000, AFL III sold one aircraft financed under the AFL III Term
Loan Facility,

                                        19
<PAGE>

which released the lien on the aircraft and reduced the aggregate amount
outstanding under the facility by $22.9 million.

     The AFL III Term Loan Facility is secured by a first priority interest in
the ten subject aircraft, plus twelve spare engines, and is restrictive with
respect to limitations on: indebtedness, liens, investments, contingent
obligations, restricted junior payments, capital expenditures, amendments of
material agreements, leases, transactions with shareholders and affiliates, and
the conduct of business, among other restrictions.

     In 2001, the AFL III Term Loan Facility financial covenants were amended in
the same manner as the Aircraft Credit Facility amendments. There can be no
assurance that Atlas Air could successfully negotiate waivers or amendments to
the AFL III Term Loan Facility in the event that the financial covenants are not
met. Failure to obtain such waivers or amendments would permit the lenders to
accelerate payment of a substantial portion of Atlas Air's long term
indebtedness, which would have a material adverse effect on Atlas Air. The
amendment also included a $23.7 million prepayment. This prepayment effectively
prepaid amounts otherwise due in 2002, reducing scheduled 2002 payments from
$42.0 million to $18.3 million. As of December 31, 2001, Atlas Air had
approximately $213.1 million outstanding under the AFL III Term Loan Facility.

     The subsidiary structure of AFL III was designed for the purposes of
providing additional credit protection to the lenders of AFL III. Atlas Air has
intercompany lease agreements with AFL III for the use of the ten aircraft and
twelve spare engine assets. As of March 2002, the Company became aware of an
administrative error which had caused certain intercompany rental payments which
were payable between Atlas Air and the wholly owned AFL III subsidiary to go
unpaid. The failure to make these intercompany transfers constituted a technical
Event of Lease Default under the lease agreements between AFL III (the lessor)
and Atlas Air (the lessee) and a related Event of Default under the AFL III
credit agreement. These unpaid amounts were subsequently transferred to the AFL
III subsidiary in March 2002 at which point the events of default were remedied
and Atlas Air became compliant with all covenants. At no time were either Atlas
Air or AFL III in arrears with regards to any amounts of principal or interest
due to external lenders.

  SENIOR NOTES

     In August 1997, Atlas Air consummated the offering of $150 million of
unsecured 10 3/4% Senior Notes due 2005 (the "10 3/4% Senior Notes"). The
proceeds from the offering of the 10 3/4% Senior Notes were used to, among other
things, repay short-term indebtedness incurred to make pre-delivery deposits to
Boeing for the purchase of 10 new freighter aircraft and for additional
pre-delivery deposits as they become due.

     In April 1998, Atlas Air consummated the offering of $175 million of
unsecured 9 1/4% Senior Notes due 2008 (the "9 1/4% Senior Notes") at 99.867%.
The proceeds of the offering of 9 1/4% Senior Notes were used for general
corporate purposes.

     In November 1998, Atlas Air consummated the offering of $150 million of
unsecured 9 3/8% Senior Notes due 2006 (the "9 3/8% Senior Notes"). The proceeds
of the offering of 9 3/8% Senior Notes were used for general corporate purposes,
which included the redemption of the 12 1/4% Equipment Notes due 2002. In June
2000, the Atlas Air completed a common stock offering for net cash proceeds of
$104 million, a portion of which was used to repurchase $12.5 million of the
10 3/4% Senior Notes, $22.0 million of the 9 1/4% Senior Notes, and $3.0 million
of the 9 3/8% Senior Notes.

     The Senior Notes are general unsecured obligations of Atlas Air, which rank
pari passu in right of payment to any of Atlas Air's existing and future
unsecured senior indebtedness. The Senior Notes are effectively subordinated,
however, to all Atlas Air's secured indebtedness and to all indebtedness of its
subsidiaries.

     Covenants with respect to the Senior Notes contain certain limitations on
Atlas Air and its subsidiaries' ability to, among other things: incur additional
indebtedness, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur liens, create restrictions on the ability of a subsidiary to pay dividends
or make certain payments, sell or issue preferred stock of subsidiaries to third
parties, merge or consolidate with any other person, or sell, assign, transfer,
lease,
                                        20
<PAGE>

convey or otherwise dispose of all or substantially all of their assets. Atlas
Air is in compliance with all such covenants as of December 31, 2001. Atlas Air
is restricted by covenants in its ability to incur any additional indebtedness
and pay dividends.

     Interest on the Senior Notes accrue from their date of original issuance,
and is payable semi-annually in arrears. The Senior Notes are redeemable, in
whole or in part, at Atlas Air's option, at any time, on or after August 1, 2001
for the 10 3/4% Senior Notes, on or after April 15, 2003 for the 9 1/4% Senior
Notes, and on or after November 15, 2002 for the 9 3/8% Senior Notes, initially
at a premium of their principal amount, plus accrued interest, declining ratably
to 100% of their principal amounts, plus accrued interest.

  1998 EETCS

     In February 1998, Atlas Air completed an offering of $538.9 million of
pass-through certificates, also known as Enhanced Equipment Trust Certificates
(the "1998 EETCs"). The 1998 EETCs are not direct obligations of, or guaranteed
by, Atlas Air and are not included in its consolidated financial statements
until such time that it draws upon the proceeds to take delivery and ownership
of an aircraft. The cash proceeds from the transaction were used to finance
(through four leveraged leases and one secured debt financing) the first five
new Boeing 747-400 freighter aircraft delivered to Atlas Air during the period
July 1998 through December 1998. In connection with the secured debt financing,
Atlas Air took ownership of the aircraft and executed equipment notes in the
aggregate amount of $107.9 million with a weighted average interest rate of
7.6%. As of December 31, 2001, Atlas Air had $92.9 million outstanding under the
1998 EETCs.

     In November and December 1997, Atlas Air entered into three Treasury Note
hedges, approximating $300 million of principal, for the purpose of minimizing
the risk associated with fluctuations in the interest rates which were the basis
for the pricing of the 1998 EETCs in January 1998. The effect of the hedge
resulted in a deferred cost of $6.3 million, which is amortized over the
approximate twenty-year life associated with this financing.

  1999 EETCS

     In April 1999, Atlas Air completed an offering of $543.6 million of
Enhanced Equipment Trust Certificates ("1999 EETCs"). The 1999 EETCs are not
direct obligations of, or guaranteed by, Atlas Air and therefore are not
included in its consolidated financial statements until such time that it draws
upon the proceeds to take delivery and ownership of an aircraft. The cash
proceeds from the 1999 EETCs transaction were deposited with an escrow agent and
were used to finance, (through one leveraged lease and four secured debt
financings), five new Boeing 747-400 freighter aircraft delivered to Atlas Air.
In connection with these secured debt financings, Atlas Air executed equipment
notes in the aggregate amount of $325.1 million and $109.9 million in 1999 and
2000, respectively, with weighted average interest rates of 7.6%. Subsequently,
Atlas Air entered into sale-leaseback transactions with respect to three of
these aircraft, which reduced the aggregate amount of the equipment notes to
$102.6 million. As of December 31, 2001, Atlas Air had $97.2 million outstanding
under the 1999 EETCs.

  OTHER DEBT

     Other debt primarily consists of separate financings of three of the
Company's 747-200 freighter aircraft and a capital lease on the flight
simulator. The weighted average interest rate for all other debt at December 31,
2001 was 8%, with terms ranging from one to eight years.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

     Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties and potentially result in materially
different results under different assumptions and conditions. The Company has
prepared the accompanying financial statements in conformity with generally
accepted accounting principles, which require management to make estimates and
assumptions that affect the reported amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates

                                        21
<PAGE>

under different assumptions or conditions. The Company has identified the
following critical accounting policies utilized in the preparation of these
financial statements:

  REVENUE RECOGNITION

     Under our ACMI contracts, revenue is recognized in the financial statements
for the actual block hours operated on behalf of a customer during a calendar
month, unless the actual block hours are less than the minimum guaranteed hours
under the contract, in which case revenue is recognized for minimum guaranteed
hours. Some contracts have a provision that allow customers to make up the
shortfall in the minimum guaranteed hours over specified future months
(measurement period). Under those contracts, revenue is recognized for the
actual block hours flown and recognition of the shortfall in minimum guaranteed
hours is deferred until either the shortfall has not been made up at the end of
the measurement period or there is a fair degree of certainty during the
measurement period that the cumulative shortfall will not be made up.

  PROPERTY AND EQUIPMENT

     The Company has approximately $1.3 billion in net property and equipment at
December 31, 2001. The recorded values of the assets are affected by a number of
policy elections made by the Company, including estimation of useful lives,
salvage values, timing of aircraft maintenance and nature of maintenance
agreements and in 2001 impairment charges. Owned aircraft are stated at cost.
Expenditures for major additions, improvements, flight equipment modifications
and certain overhaul and maintenance costs are capitalized. A significant
portion of scheduled and unscheduled maintenance is contracted with three
maintenance providers under long-term agreements pursuant to which monthly
reserve payments are made to the providers based on flight-hours and such
amounts are charged to expense currently. Other maintenance and repairs are
charged to expense as incurred, except for significant engine overhaul
maintenance which is capitalized and charged to expense on a flight-hour basis
and certain C and D checks which are capitalized and amortized over the
corresponding life. Owned aircraft are depreciated over their estimated useful
lives of 20 to 30 years using the straight-line method and estimated salvage
values of 10% of cost. The cost and accumulated depreciation of property and
equipment disposed of are removed from the related accounts and any gain or loss
is reflected in the results of operations. Substantially all property and
equipment is specifically pledged as collateral for indebtedness of the Company.
Whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable, management evaluates the recorded asset
balances, net of accumulated depreciation, for impairment based on the
undiscounted future cash flows associated with the asset or based on a market
assessment of the value of the aircraft.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". These standards revise the rules related to the accounting
for business combinations, goodwill and other intangible assets. SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase accounting method. SFAS No. 142 states that
goodwill is no longer subject to amortization over its useful life. Rather,
goodwill is subject to at least annual assessment for impairment and is to be
written down to its fair value only if the carrying amount is greater than the
fair value. In addition, intangible assets should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. SFAS No. 141
is not expected to have a material effect on the Company's financial position or
results of operations.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This standard addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard requires
recognition of the fair value of a liability for an asset retirement obligation
in the period in which it is incurred and is effective for financial statements
issued for fiscal years beginning after June 15, 2002. This standard is not
expected to have a material effect on the Company's financial position or
results of operations.
                                        22
<PAGE>

     In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". This standard addresses financial accounting
and reporting for the impairment of long-lived assets and for long-lived assets
to be disposed of. This Statement supercedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
and the accounting and reporting provisions of APB Opinion 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", for the disposal of a segment of a business (as previously
defined in that Opinion). This standard is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those fiscal years. Management is reviewing the provisions of this
statement and does not expect them to have a material effect on the Company's
financial position or results of operations.

FORWARD-LOOKING STATEMENTS

     Certain statements included or incorporated by reference in this Form 10-K
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 2lE of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause our actual results, levels of activity,
performance or achievements or industry results, to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. Forward-looking statements represent
the Company's expectations and beliefs concerning future events, based on
information available to the Company at the date of this report. Some factors
that could significantly impact net income, revenues, expenses, and block hours
include, without limitation, the adverse impact of the September 11, 2001,
terrorist attacks on the economy in general; the demand for air cargo; the
ability to reduce operating costs and conserve financial resources, taking into
account increased costs incurred or to be incurred as a consequence of the
attacks; the higher costs associated with new airline security directives and
any other increased regulation of air carriers; the significantly higher costs
of aircraft insurance coverage for future claims caused by acts of war,
terrorism, sabotage, hijacking and other similar perils, and the extent to which
such insurance will continue to be available; the ability to raise financing in
light of the September 11, 2001, events; the price of jet fuel; actions of the
U.S., foreign and local governments; the economic environment of the airline
industry and the economic environment in general. In addition, forward-looking
statements generally can be identified by the use of forward-looking terminology
such as "may", "will", "expect", "intend", "estimate", "anticipate", "believe",
"confident" or "continue" or the negative thereof or variations thereon or
similar terminology. Although we believe that the expectations reflected in such
forward-looking statements are reasonable, we can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from our expectations are disclosed under
"Risk Factors" and elsewhere in this Form 10-K.

     To the extent that any of the statements contained herein relating to our
expectations, assumptions and other Company matters are forward-looking, they
are made in reliance upon the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Such statements are based on current expectations
that involve a number of uncertainties and risks that could cause actual results
to differ materially from those projected in the forward-looking statements,
including, but not limited to, risks associated with:

     - worldwide business and economic conditions;

     - product demand and the rate of growth in the air cargo industry;

     - the impact of competitors and competitive aircraft and aircraft financing
       availability;

     - the ability to attract and retain new and existing customers;

     - normalized aircraft operating costs and reliability;

     - management of growth and complying with FAA policies;

     - the continued productivity of our workforce;

                                        23
<PAGE>

     - dependence on key personnel; and

     - other regulatory requirements.

     As a result of the foregoing and other factors, no assurance can be given
as to our future results and achievements. Neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Our exposure to market risk associated with changes in interest rates
relates primarily to our short-term investments in our investment portfolio and
to our debt obligations. Our policy is to manage interest rate risk through a
combination of fixed and floating rate debt and by selectively entering into
swap agreements, depending upon market conditions.

<Table>
<Caption>
                                                                                                                  FAIR
EXPECTED MATURITY DATES:             2002      2003      2004       2005       2006     THEREAFTER    TOTAL      VALUE
------------------------           --------   -------   -------   --------   --------   ----------   --------   --------
                                                                     ($ IN THOUSANDS)
<S>                                <C>        <C>       <C>       <C>        <C>        <C>          <C>        <C>
Assets
  Cash equivalents
    Fixed rate...................  $ 40,483   $    --   $    --   $     --   $     --    $     --    $ 40,483   $ 40,491
    Avg. interest rate...........       2.1%       --%       --%        --%        --%         --%        2.1%
  Short-term investments
    Fixed rate...................  $105,955   $44,332   $    --   $     --   $     --    $     --    $150,287   $151,062
    Avg. interest rate...........       4.6%      6.2%       --%        --%        --%         --%        5.1%
  Long-term investments
      Fixed rate.................  $     --   $    --   $    --   $     --   $     --    $ 41,100    $ 41,100   $ 41,100
      Avg. interest rate.........        --%       --%       --%        --%        --%        6.0%        6.0%
Long-term debt
  Fixed rate.....................  $ 21,107   $21,426   $17,444   $155,474   $165,128    $299,617    $680,196   $589,689
  Avg. interest rate.............       9.1%      9.1%      9.1%       8.9%      10.4%        7.7%        9.1%
  Floating rate..................  $ 24,827   $76,815   $92,138   $ 67,447   $ 43,563    $     --    $304,790   $304,790
  Avg. interest rate.............       5.3%      5.6%      5.9%       5.4%       5.3%         --%        5.7%
Swap (notional amount)...........  $ 25,654   $25,654   $ 6,414   $     --   $     --    $     --    $ 57,722   $  6,519
  Avg. interest rate
    Floating rate payee..........       6.5%      6.5%      6.5%        --%        --%         --%        6.5%
    Fixed rate payer.............       2.5%      2.5%      2.5%        --%        --%         --%        2.5%
</Table>

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     The Consolidated Financial Statements and schedules that constitute Item 8
follow the text of this report. An index to the Consolidated Financial
Statements appears in Item 14(a) of this report.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

     None.

                                    PART III

ITEMS 10-13.

     These Items are omitted under the abbreviated disclosure rules prescribed
by General Instruction I(1)(a) and (b) of Form 10-K.

                                        24
<PAGE>

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a)(1) FINANCIAL STATEMENTS

<Table>
<S>                                                           <C>
Index to Consolidated Financial Statements..................  F-1
Report of Independent Public Accountants....................  F-2
Consolidated Statements of Operations.......................  F-3
Consolidated Balance Sheets.................................  F-4
Consolidated Statements of Cash Flows.......................  F-5
Consolidated Statements of Stockholders' Equity.............  F-6
Notes to Consolidated Financial Statements..................  F-7
</Table>

     (a)(2) FINANCIAL STATEMENT SCHEDULES

     None required.

     (a)(3) LIST OF EXHIBITS

     Please refer to the Atlas Air Worldwide Holdings, Inc. Form 10-K for the
year ended December 31, 2001 for a complete listing of all exhibits.

     (b) REPORTS ON FORM 8-K

     None.

                                        25
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 1st day of
April, 2002.

                                          ATLAS AIR, INC.

                                          By:     /s/ DOUGLAS A. CARTY
                                            ------------------------------------
                                                      Douglas A. Carty
                                              Senior Vice President and Chief
                                                      Financial Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons in the capacities and on the
dates indicated. Each person whose signature appears below hereby constitutes
Douglas A. Carty and Richard H. Shuyler, and each of them singly, such person's
true and lawful attorneys, each with full power of substitution to sign for such
person and in such person's name and capacity indicated below, and any and all
amendments to this Report, and to file the same with the Securities and Exchange
Commission, hereby ratifying and confirming such person's signature as it may be
signed by said attorneys to any and all amendments.

<Table>
<Caption>
                    SIGNATURE                                       TITLE                       DATE
                    ---------                                       -----                       ----
<C>     <C>                                          <C>                                    <S>

              /s/ RICHARD H. SHUYLER                     Chief Executive Officer, and       April 1, 2002
 ------------------------------------------------                  Director
                Richard H. Shuyler

               /s/ JAMES T. MATHENY                  President, Chief Operating Officer,    April 1, 2002
 ------------------------------------------------                and Director
                 James T. Matheny

                  /s/ BRIAN ROWE                      Chairman of the Board of Directors    April 1, 2002
 ------------------------------------------------
                    Brian Rowe

                /s/ BERL BERNHARD                                  Director                 April 1, 2002
 ------------------------------------------------
                  Berl Bernhard

                /s/ LINDA CHOWDRY                                  Director                 April 1, 2002
 ------------------------------------------------
                  Linda Chowdry

             /s/ LAWRENCE W. CLARKSON                              Director                 April 1, 2002
 ------------------------------------------------
               Lawrence W. Clarkson

              /s/ RICHARD GALBRAITH                                Director                 April 1, 2002
 ------------------------------------------------
                Richard Galbraith

              /s/ STEPHEN A. GREENE                                Director                 April 1, 2002
 ------------------------------------------------
                Stephen A. Greene

                /s/ DAVID K.P. LI                                  Director                 April 1, 2002
 ------------------------------------------------
                  David K.P. Li

                /s/ RONALD WOODARD                                 Director                 April 1, 2002
 ------------------------------------------------
                  Ronald Woodard
</Table>

                                        26
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-2
Consolidated Statements of Operations for the years ended
  December 31, 2001, 2000 and 1999..........................  F-3
Consolidated Balance Sheets as of December 31, 2001 and
  December 31, 2000.........................................  F-4
Consolidated Statements of Cash Flows for the years ended
  December 31, 2001, 2000 and 1999..........................  F-5
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 2001, 2000 and 1999..............  F-6
Notes to Consolidated Financial Statements..................  F-7
</Table>

                                       F-1
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Atlas Air, Inc.:

     We have audited the accompanying consolidated balance sheets of Atlas Air,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 2001 and 2000,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2001.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Atlas Air, Inc. and subsidiaries as of December 31, 2001 and 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States.

     As discussed in Note 4 to the consolidated financial statements, on January
1, 2001, the Company changed its method of accounting for derivative instruments
and hedging activities.

                                          ARTHUR ANDERSEN LLP

Denver, Colorado,
March 29, 2002.

                                       F-2
<PAGE>

                        ATLAS AIR, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<Table>
<Caption>
                                                                   YEAR ENDED DECEMBER 31,
                                                              ---------------------------------
                                                                2001        2000        1999
                                                              ---------   ---------   ---------
<S>                                                           <C>         <C>         <C>
Revenues:
  Contract services.........................................  $ 605,450   $ 766,851   $ 618,866
  Charters, scheduled services and other....................     81,859      23,617      18,215
                                                              ---------   ---------   ---------
         Total operating revenues...........................    687,309     790,468     637,081
Operating expenses:
  Salaries, wages and benefits..............................    109,837     108,344      80,724
  Maintenance, materials and repairs........................    130,592     148,124     131,189
  Aircraft fuel.............................................     32,104      12,994       7,690
  Aircraft and engine rentals...............................    125,019      79,134      51,173
  Ground handling and flight related expenses...............     64,719      74,078      64,376
  Depreciation and amortization.............................     83,154      94,006      78,379
  Other.....................................................     65,585      41,084      36,061
  Federal Stabilization Act claims..........................    (24,650)         --          --
  Profit sharing settlement expense.........................     22,815          --          --
  Restructuring and impairment..............................    116,162          --          --
                                                              ---------   ---------   ---------
         Total operating expenses...........................    725,337     557,764     449,592
Operating income............................................    (38,028)    232,704     187,489
Other income/(expense):
  Interest income...........................................     19,798      28,610      20,006
  Interest expense..........................................    (85,814)   (123,787)   (108,660)
  SFAS 133 fair value adjustment of interest rate swap......     (3,999)         --          --
                                                              ---------   ---------   ---------
                                                                (70,015)    (95,177)    (88,654)
                                                              ---------   ---------   ---------
(Loss)/income before income taxes...........................   (108,043)    137,527      98,835
Benefit (provision) for income taxes........................     41,159     (52,268)    (37,556)
                                                              ---------   ---------   ---------
(Loss)/income before extraordinary item and cumulative
  effect of a change in accounting principle................    (66,884)     85,259      61,279
Extraordinary item:
  Loss from extinguishment of debt, net of applicable tax
    benefit of $3,872.......................................         --          --      (6,593)
  Cumulative effect of a change in accounting principle, net
    of applicable tax benefit of $850.......................         --          --      (1,416)
  Cumulative effect of a change in accounting principle, net
    of applicable tax benefit of $933.......................     (1,589)         --          --
                                                              ---------   ---------   ---------
Net (loss)/income...........................................  $ (68,473)  $  85,259   $  53,270
Other comprehensive income (unrealized gain on securities
  net of tax)...............................................        494          --          --
                                                              ---------   ---------   ---------
Total comprehensive (loss)/income...........................  $ (67,979)  $  85,259   $  53,270
                                                              =========   =========   =========
Basic earnings per share (Note 1):
  Income before extraordinary item and cumulative effect of
    a change in accounting principle........................        N/A   $    2.33   $    1.79
  Extraordinary item........................................                     --       (0.19)
  Cumulative effect of a change in accounting principle.....                     --       (0.04)
                                                                          ---------   ---------
  Net income................................................              $    2.33   $    1.56
                                                                          =========   =========
  Weighted average common shares............................                 36,555      34,245
Diluted earnings per share (Note 1):
  Income before extraordinary item and cumulative effect of
    a change in accounting principle........................        N/A   $    2.31   $    1.77
  Extraordinary item........................................                     --       (0.19)
  Cumulative effect of a change in accounting principle.....                     --       (0.04)
                                                                          ---------   ---------
  Net income................................................              $    2.31   $    1.54
                                                                          =========   =========
  Weighted average common shares............................                 36,947      34,500
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-3
<PAGE>

                        ATLAS AIR, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2001         2000
                                                              ----------   ----------
<S>                                                           <C>          <C>
                                       ASSETS

Current assets:
  Cash and cash equivalents.................................  $  199,270   $  493,723
  Short-term investments....................................     112,634       65,269
  Accounts receivable, (net of allowance of $19,060 and
     $9,171, respectively)..................................     119,303      129,543
  Due from affiliates.......................................      28,873           --
  Income taxes receivable...................................      23,848           --
  Prepaid expenses and other................................      26,975       16,394
                                                              ----------   ----------
          Total current assets..............................     510,903      704,929
Property and equipment:
  Flight equipment..........................................   1,617,673    1,537,047
  Other.....................................................      47,494       43,815
                                                              ----------   ----------
                                                               1,665,167    1,580,862
  Less accumulated depreciation.............................    (317,360)    (245,976)
                                                              ----------   ----------
          Net property and equipment........................   1,347,807    1,334,886
Other assets:
  Debt issuance costs, (net of accumulated amortization of
     $20,373 and $16,255, respectively).....................      20,616       24,540
  Deposits and other........................................      60,763      109,702
                                                              ----------   ----------
                                                                  81,379      134,242
                                                              ----------   ----------
          Total assets......................................  $1,940,089   $2,174,057
                                                              ==========   ==========

                        LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt and capital lease
     obligation.............................................  $   45,934   $   55,018
  Accounts payable and accrued expenses.....................     112,801      135,287
  Income tax payable........................................          --       31,359
                                                              ----------   ----------
          Total current liabilities.........................     158,735      221,664
Long-term debt and capital lease obligation, net of current
  portion...................................................     939,052    1,037,789
Other liabilities...........................................     344,763      286,120
Deferred income tax liability...............................      53,078       76,278
Commitments and contingencies (Note 7)
Stockholders' equity: (Note 12)
  Preferred Stock, $1 par value; none and 10,000,000 shares
     authorized; no shares issued...........................          --           --
  Common Stock, $0.01 par value; 1,000 and 50,000,000 shares
     authorized; 100 and 38,227,757 shares issued...........          --          382
  Additional paid-in capital................................     304,305      305,871
  Retained earnings.........................................     139,662      247,763
  Deferred compensation -- restricted stock.................          --         (286)
  Treasury Stock, at cost; none and 60,824 shares,
     respectively...........................................          --       (1,524)
  Accumulated other comprehensive income....................         494           --
                                                              ----------   ----------
          Total stockholders' equity........................     444,461      552,206
                                                              ----------   ----------
          Total liabilities and stockholders' equity........  $1,940,089   $2,174,057
                                                              ==========   ==========
</Table>

   The accompanying notes are an integral part of these consolidated balance
                                    sheets.
                                       F-4
<PAGE>

                        ATLAS AIR, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                 YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2001        2000        1999
                                                            ---------   ---------   ---------
<S>                                                         <C>         <C>         <C>
OPERATING ACTIVITIES:
Net income (loss).........................................  $ (68,473)  $  85,259   $  53,270
Adjustments to reconcile net income (loss) to net cash
  (used in) provided by operating activities:
  Depreciation and amortization...........................     83,154      94,006      78,379
  Provision for doubtful accounts.........................     10,157          --          --
  Amortization of debt issuance costs and lease financing
     gains and losses.....................................    (10,103)     (2,424)      1,514
  Net gain on disposition of property and equipment.......    (15,241)     (1,594)     (3,586)
  SFAS No. 133 fair value adjustment of interest rate
     swap.................................................      6,521          --          --
  Restructuring and impairment............................    108,387          --          --
  Extraordinary loss......................................         --          --      10,465
  Write-off of start-up costs.............................         --          --       2,266
  Deferred tax (benefit) provision........................    (23,200)      9,028      32,199
  Changes in operating assets and liabilities:
     Accounts receivable and other........................    (24,373)    (47,858)     (6,745)
     Deposits and other...................................     10,927     (15,673)       (377)
     Accounts payable and accrued expenses................    (24,079)     12,907      31,020
     Income tax receivable/payable........................    (55,207)     31,359      (8,034)
                                                            ---------   ---------   ---------
       Net cash (used in) provided by operating
          activities......................................     (1,530)    165,010     190,371
INVESTING ACTIVITIES:
Purchase of property and equipment........................   (181,170)   (415,268)   (370,521)
Proceeds from sale of property and equipment..............     52,096      13,808      36,000
Purchase of investments...................................   (107,204)   (138,286)   (139,368)
Maturity of investments...................................    108,269     126,340      20,000
Funding of an affiliate...................................    (15,000)         --          --
                                                            ---------   ---------   ---------
       Net cash used in investing activities..............   (143,009)   (413,406)   (453,889)
FINANCING ACTIVITIES:
Issuance of Common Stock..................................         59     107,089      15,658
Purchase of Treasury Stock................................         --          --        (776)
Issuance of Treasury Stock................................         --       1,236       1,034
Net proceeds from debt issuance and lease financing.......     11,514     540,814     470,860
Principal payments on notes payable.......................   (119,335)   (226,026)   (339,955)
Debt issuance costs and deferred lease costs..............     (2,327)    (12,599)     (1,325)
Dividend paid to Atlas Air Worldwide Holdings, Inc. ......    (39,825)         --          --
                                                            ---------   ---------   ---------
       Net cash (used in) provided by financing
          activities......................................   (149,914)    410,514     145,496
                                                            ---------   ---------   ---------
       Net increase (decrease) in cash and cash
          equivalents.....................................   (294,453)    162,118    (118,022)
Cash and cash equivalents at beginning of period..........    493,723     331,605     449,627
                                                            ---------   ---------   ---------
Cash and cash equivalents at end of period................  $ 199,270   $ 493,723   $ 331,605
                                                            =========   =========   =========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-5
<PAGE>

                        ATLAS AIR, INC. AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 12)
                                 (IN THOUSANDS)

<Table>
<Caption>
                                                                                                     ACCUMULATED
                                 COMMON STOCK     ADDITIONAL                                            OTHER           TOTAL
                               ----------------    PAID-IN     RETAINED   TREASURY     DEFERRED     COMPREHENSIVE   STOCKHOLDERS'
                               SHARES    AMOUNT    CAPITAL     EARNINGS    STOCK     COMPENSATION      INCOME          EQUITY
                               -------   ------   ----------   --------   --------   ------------   -------------   -------------
<S>                            <C>       <C>      <C>          <C>        <C>        <C>            <C>             <C>
Balance, December 31, 1998...   33,820    $338     $178,131    $108,892   $(3,471)         --             --          $283,890
  Exercise of stock options,
    including income tax
    benefits of $4,220.......      661       7       19,871          --        --          --             --            19,878
  Purchase of Treasury
    Stock....................       --      --           --          --      (776)         --             --              (776)
  Issuance of Treasury
    Stock....................       --      --           --          32     1,810          --             --             1,842
  Deferred compensation --
    Restricted Stock.........       --      --           --          --        --        (404)            --              (404)
  Net income.................       --      --           --      53,270        --          --             --            53,270
                               -------    ----     --------    --------   -------       -----           ----          --------
Balance, December 31, 1999...   34,481     345      198,002     162,194    (2,437)       (404)            --           357,700
                               -------    ----     --------    --------   -------       -----           ----          --------
  Sale of Common Stock.......    3,465      34      103,447          --        --          --             --           103,481
  Exercise of stock options,
    including income tax
    benefits of $403.........      282       3        4,008          --        --          --             --             4,011
  Issuance of Treasury
    Stock....................       --      --           --         267       969          --             --             1,236
  Deferred compensation --
    Restricted Stock.........       --      --          414          88       102         (85)            --               519
  Restricted Stock
    Forfeitures..............       --      --           --         (45)     (158)        203             --                --
  Net income.................       --      --           --      85,259        --          --             --            85,259
                               -------    ----     --------    --------   -------       -----           ----          --------
Balance, December 31, 2000...   38,228     382      305,871     247,763    (1,524)       (286)            --           552,206
Exercise of stock options,
  including income tax
  benefits of $15............        3      --           59          --        --          --             --                59
Recapitalization -- Atlas
  Air, Inc. (see Footnote
  12)........................  (38,231)   (382)      (1,625)        197     1,524         286             --                --
Dividend paid to Atlas Air
  Worldwide Holdings,
  Inc. ......................       --      --           --     (39,825)       --          --             --           (39,825)
Accumulated other
  comprehensive income.......       --      --           --          --        --          --            494               494
  Net income.................       --      --           --     (68,473)       --          --             --           (68,473)
                               -------    ----     --------    --------   -------       -----           ----          --------
Balance, December 31, 2001...       --    $ --     $304,305    $139,662   $    --       $  --           $494          $444,461
                               =======    ====     ========    ========   =======       =====           ====          ========
</Table>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                       F-6
<PAGE>

                        ATLAS AIR, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  ORGANIZATION

     Atlas Air, Inc. (the "Company") provides airport to airport cargo services
throughout the world to major international airlines pursuant to contractual
arrangements with its customers in which the Company provides the aircraft,
crew, maintenance and insurance ("ACMI"), referred to as "contract services."
The Company also provides charter services and scheduled services on an ad hoc
basis. The principal markets served by the Company are Asia and the Pacific Rim
from the United States and Europe, and between South America and the United
States.

     In 2001, Atlas Air announced an expansion of its product line to include a
broader array of products and services. These new services are based on the ACMI
Contract model and include fractional ACMI, or the provision of a portion of the
capacity of one or more aircraft; partial ACMI, or the provision of an aircraft
on less than a full time basis; and dry leases for aircraft (which may include
maintenance and insurance if requested). These products typically require
customers to commit to certain utilization levels under seasonal contracts, and
in many instances the revenue and cost structure vary from an ACMI Contract, as
the operations may include arrangements for the provision of fuel and ground
handling and flight related expenses. The Company believes that airline
customers will find these products to be desirable and complementary to their
own business strategy, because risks that would otherwise be borne by a single
customer, such as contract term, load factor, fuel and ground handling, are
shared among several parties. To help facilitate the delivery of these expanded
product lines, Atlas Air has established hubs in Liege, Belgium and Miami,
Florida. Failure to successfully execute on the expanded product line plan, in
the absence of compensating improvements in other parts of the business, could
have a material adverse effect on Atlas Air's financial position and results of
operations.

  AIRCRAFT PURCHASE COMMITMENTS

     Under the terms of the Boeing Purchase Agreement, in October 2000 Atlas Air
exercised options for four Boeing 747-400 freighter aircraft to be delivered in
2002. During 2001, Atlas Air reached an agreement with Boeing to amend the
delivery dates of the aircraft, whereby three of the aircraft are scheduled to
be delivered in 2002 and one aircraft in 2003. However, Atlas Air is currently
in discussions with Boeing to have the 2002 aircraft delivered as late in the
year as possible. Atlas Air does not currently have firm financing in place for
any of the four Boeing 747-400 aircraft scheduled for delivery in 2002 and 2003.
However, Atlas Air is currently in discussions with several sources for
financing these aircraft. The inability to secure financing for the Boeing
747-400 deliveries could result in a default under the Boeing Purchase
Agreement, which would permit Boeing to accelerate payments due under the Boeing
Purchase Agreement. Such acceleration would cause a default in covenants of
certain of the Company's indebtedness which would permit the lenders to
accelerate payment of a significant portion of all indebtedness, which event
would have a material adverse effect on the Company's financial position and
results of operations. However, Boeing has made an offer to finance by
sale-leaseback, each of the aircraft to be delivered in 2002, under terms which
are more favorable to Boeing. If Atlas Air is unable to secure other financing
more favorable to the Company, management believes it has the option to utilize
the proposed Boeing financing.

  PRINCIPLES OF CONSOLIDATION

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All material intercompany
balances and transactions have been eliminated in consolidation.

                                       F-7
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  USE OF ESTIMATES

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

  PROPERTY AND EQUIPMENT

     Owned aircraft are stated at cost. Expenditures for major additions,
improvements, flight equipment modifications and certain overhaul and
maintenance costs are capitalized. A significant portion of scheduled and
unscheduled maintenance is contracted with four maintenance providers under
long-term agreements pursuant to which monthly reserve payments are made to the
providers based on flight-hours and such amounts are charged to expense
currently. Other maintenance and repairs are charged to expense as incurred,
except for significant engine overhaul maintenance which is capitalized and
charged to expense on a flight-hour basis over the life of the overhaul and C
and D checks which are capitalized and amortized over the corresponding life.
Owned aircraft are depreciated over their estimated useful lives of 20 to 30
years, using the straight-line method and estimated salvage values of 10% of
cost. The cost and accumulated depreciation of property and equipment disposed
of are removed from the related accounts and any gain or loss is reflected in
the results of operations. Substantially all property and equipment is
specifically pledged as collateral for indebtedness of the Company. Whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, management evaluates the recorded asset balances, net of
accumulated depreciation, for impairment based on the undiscounted future cash
flows associated with the asset. See Note 17 for discussion of impairment
charges related to aircraft held for sale.

  CAPITALIZED INTEREST

     Interest attributable to funds used to finance the acquisition and
modification of aircraft is capitalized as an additional cost of the related
aircraft. Interest is capitalized at the Company's weighted average interest
rate on long-term debt, or where applicable, the interest rate related to
specific borrowings. Capitalization of interest ceases when the aircraft is
placed in service. Capitalized interest was $12,754,000, $7,641,000 and
$21,036,000 for the years ended December 31, 2001, 2000 and 1999, respectively.

  DEBT ISSUANCE COSTS

     Costs associated with the issuance of debt are capitalized and amortized
over the life of the respective debt obligation, using the effective interest
method for amortization. In January 1999, $2,491,000 of unamortized debt
issuance costs were written off as an extraordinary loss recognized upon
extinguishment of the 12 1/4% Equipment Notes due 2002. Amortization of debt
issuance costs was $4,118,000, $5,154,000 and $5,231,000 for the years ended
December 31, 2001, 2000 and 1999, respectively.

  CASH EQUIVALENTS

     All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents.

  INVESTMENTS

     The Company invests excess cash in various available-for-sale securities,
as defined in SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS No. 115 requires investments in

                                       F-8
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

debt and equity securities classified as available for sale be measured at fair
market value and unrealized gains and losses recorded as a component of other
comprehensive income (see Note 2).

  EARNINGS PER SHARE

     No earnings per share data is provided for 2001 due to the recapitalization
of Atlas Air, Inc. (see Note 12).

     Basic earnings per share for 2000 and 1999 were computed by dividing net
income/(loss) before cumulative effect by the weighted average number of shares
of common stock outstanding during the period. In addition, diluted earnings per
share amounts include potential common shares including restricted stock and
options granted under the Company's annual and long-term incentive plans. The
number of diluted shares is calculated using the treasury stock method, which
excludes anti-dilutive shares from the calculation.

     Basic and diluted earnings per share were calculated as follows (amounts in
thousands):

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31
                                                          ---------------------------
                                                           2001      2000      1999
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Earnings Attributable to Common Stockholders (Basic and
  Diluted).............................................       N/A
  Net income before extraordinary item and cumulative
     effect of an accounting change....................             $85,259   $61,279
  Extraordinary item...................................                  --    (6,593)
  Cumulative effect of an accounting change............                  --    (1,416)
                                                          -------   -------   -------
  Net income...........................................             $85,259   $53,270
                                                          =======   =======   =======
Shares.................................................       N/A
  Weighted average shares outstanding for Basic EPS....              36,555    34,245
  Employee options and restricted shares...............                 392       255
                                                          -------   -------   -------
  Weighted average shares outstanding for Diluted
     EPS...............................................              36,947    34,500
                                                          =======   =======   =======
</Table>

     For the twelve months ended December 31, 2000 and 1999, approximately
249,000 and 561,000 employee stock options, respectively, were not considered in
calculating diluted earnings per share, because inclusion of such shares would
have had an anti-dilutive effect.

  INCOME TAXES

     The Company provides for income taxes using the asset and liability method.
Under this method deferred income taxes are recognized for the tax consequences
of temporary differences by applying enacted statutory tax rates applicable to
future years to differences between the financial statement carrying amounts and
the tax bases of existing assets and liabilities. The effect on deferred taxes
of a change in tax laws or tax rates is recognized in income in the period that
includes the enactment date.

  FAIR VALUE OF FINANCIAL INSTRUMENTS

     The Company's financial instruments consist of cash, certificates of
deposit, short-term and long-term investments, short-term trade receivables and
payables, long-term debt and deferred aircraft obligations. The carrying values
of cash and cash equivalents and short-term trade receivables and payables
approximate fair value. The fair value of long-term debt is estimated based on
current rates available for similar debt with similar maturities and security
(see Note 3).

                                       F-9
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK

     For the year ended December 31, 2001, China Airlines Ltd. accounted for
approximately 15%, and no other customer accounted for 10% or more, of the
Company's total revenues. For the year ended December 31, 2000, China Airlines
Ltd. and Korean Airlines accounted for approximately 22% and 18%, respectively,
and no other customer accounted for 10% or more of the Company's total revenues.
For the year ended December 31, 1999, China Airlines Ltd. accounted for
approximately 26%, and no other customer accounted for 10% or more of the
Company's total revenues. Accounts receivable from these principal customers
were $8,269,000 and $38,454,000 in the aggregate at December 31, 2001 and 2000,
respectively.

  RECLASSIFICATIONS

     Certain prior year amounts have been reclassified to conform to current
year presentation.

  SUPPLEMENTAL CASH FLOW INFORMATION

     The aggregate interest payments made by the Company were $104,891,000,
$141,155,000 and $115,521,000 for the years ended December 31, 2001, 2000 and
1999, respectively.

     The Company made federal and state income tax payments (net of refunds) of
approximately $31,018,000, $12,494,000 and $12,620,000 in the years ended
December 31, 2001, 2000 and 1999, respectively.

  RECENT PRONOUNCEMENTS

     In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 141, "Business Combinations" and SFAS No. 142, "Goodwill and Other
Intangible Assets". These standards revise the rules related to the accounting
for business combinations, goodwill and other intangible assets. SFAS No. 141
requires that all business combinations initiated after June 30, 2001 be
accounted for using the purchase accounting method. SFAS No. 142 states that
goodwill is no longer subject to amortization over its useful life. Rather,
goodwill is subject to at least annual assessment for impairment and is to be
written down to its fair value only if the carrying amount is greater than the
fair value. In addition, intangible assets should be separately recognized if
the benefit of the intangible asset is obtained through contractual or other
legal rights, or if the intangible asset can be sold, transferred, licensed,
rented or exchanged, regardless of the acquirer's intent to do so. SFAS Nos. 141
and 142 are not expected to have a material effect on the Company's financial
position or results of operations.

     In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This standard addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. The standard requires
recognition of the fair value of a liability for an asset retirement obligation
in the period in which it is incurred and is effective for financial statements
issued for fiscal years beginning after June 15, 2002. This standard is not
expected to have a material effect on the Company's financial position or
results of operations.

     In August 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets". This standard addresses financial accounting
and reporting for the impairment of long-lived assets and of long-lived assets
to be disposed of. This Statement supercedes SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and of Long-Lived Assets to be Disposed of", and
the accounting and reporting provisions of APB Opinion 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", for the disposal of a segment of a business (as previously
defined in that Opinion). This standard is effective for financial statements
issued for fiscal years beginning after December 15, 2001, and

                                       F-10
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interim periods within those fiscal years. Management is reviewing the
provisions of this statement and does not expect them to have a material effect
on the Company's financial position or results of operations.

2. INVESTMENTS

     The Company invests excess cash in various available-for-sale securities as
defined in SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". SFAS No. 115 requires investments in debt and equity securities
classified as available for sale be measured at fair market value and unrealized
gains and losses recorded as a component of other comprehensive income. These
securities were classified as held to maturity as of December 31, 2000. The
following table sets forth the aggregate fair market value, book value
(amortized/accreted cost) and unrealized gains/losses by major security type as
of December 31, 2001 and 2000 (in thousands):

<Table>
<Caption>
                                                        FAIR                    UNREALIZED
                  SECURITY TYPE                     MARKET VALUE   BOOK VALUE   GAIN (LOSS)
                  -------------                     ------------   ----------   -----------
<S>                                                 <C>            <C>          <C>
DECEMBER 31, 2001:
CASH AND SHORT TERM INVESTMENTS:
  Asset backed securities.........................    $  2,266      $  2,248       $ 18
  Money market funds..............................      15,032        15,027          5
  Corporate bonds.................................      43,303        43,153        150
  Certificates of deposit.........................       4,490         4,490         --
  Commercial paper................................      35,275        34,982        293
  Euro bonds......................................      14,982        14,888         94
  Market auction preferreds.......................      15,513        15,513         --
  Municipal bonds.................................      22,025        22,025         --
  Corporate notes.................................      18,557        18,398        159
  Taxable auction securities......................       3,005         3,005         --
  US Government agencies..........................      17,105        17,042         63
  Cash and overnight investments..................     120,351       120,351         --
                                                      --------      --------       ----
          Total cash and short term investments...    $311,904      $311,122       $782
                                                      ========      ========       ====
OTHER INVESTMENTS:
     Guaranteed investment contracts..............    $ 41,100      $ 41,100       $ --
                                                      --------      --------       ----
          Total other investments (included in
            Deposits and other....................    $ 41,100      $ 41,100       $ --
                                                      ========      ========       ====
DECEMBER 31, 2000:
CASH AND SHORT TERM INVESTMENTS:
  Corporate bonds.................................    $ 29,284      $ 29,260       $ 24
  Commercial paper................................     128,376       128,406        (30)
  Taxable auction securities......................       7,500         7,500         --
  Municipal bonds.................................       8,850         8,850         --
  Market auction preferreds.......................     127,825       127,825         --
  US Government agencies..........................       6,999         7,000         (1)
  Corporate notes.................................      15,117        15,054         63
  Euro bonds......................................       2,233         2,230          3
  Cash and overnight investments..................     232,808       232,808         --
                                                      --------      --------       ----
          Total cash and short term investments...    $558,992      $558,933       $ 59
                                                      ========      ========       ====
OTHER INVESTMENTS:
  Guaranteed investment contracts.................    $ 41,100      $ 41,100       $ --
  US Government agencies..........................       6,002         6,000          2
  Corporate notes.................................      10,207        10,199          8
  Corporate bonds.................................      17,254        17,325        (71)
  Euro bonds......................................      14,316        14,286         30
                                                      --------      --------       ----
          Total other investments (included in
            Deposits and other)...................    $ 88,879      $ 88,910       $(31)
                                                      ========      ========       ====
</Table>

                                       F-11
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Accrued interest on investments held at December 31, 2001 was approximately
$1.9 million. Accrued interest on investments held at December 31, 2000 was
approximately $3.0 million. Interest earned on these investments and related
maturities are reinvested in similar securities.

3.  LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

     Long-term debt and capital lease obligations and current maturities are as
follows (in thousands):

<Table>
<Caption>
                                                                  DECEMBER 31,
                                                              ---------------------
                                                                2001        2000
                                                              --------   ----------
<S>                                                           <C>        <C>
AFL III Term Loan Facility..................................  $213,149   $  264,353
Aircraft Credit Facility....................................    68,107       97,852
10 3/4% Senior Notes due 2005...............................   137,475      137,475
9 1/4% Senior Notes due 2008................................   152,853      152,837
9 3/8% Senior Notes due 2006................................   147,000      147,000
1998 EETCs..................................................    92,892      101,536
1999 EETCs..................................................    97,199      102,613
Other.......................................................    76,311       89,141
                                                              --------   ----------
                                                               984,986    1,092,807
Current maturities..........................................   (45,934)     (55,018)
                                                              --------   ----------
Long-term debt, net.........................................  $939,052   $1,037,789
                                                              ========   ==========
</Table>

  AIRCRAFT CREDIT FACILITY

     In May 1996, Atlas Air entered into a revolving credit facility (the
"Aircraft Credit Facility") with Goldman Sachs Credit Partners L.P., as
Syndication Agent, and Bankers Trust Company ("BTCo"), as Administrative Agent.
This revolving loan facility provides for the acquisition and conversion of
flight equipment. In April 2000, Atlas Air amended its Aircraft Credit Facility
with Deutsche Bank as successor to BTCo. to provide for a $175 million revolving
credit facility with a three-year revolving period and a subsequent two-year
term loan period. With respect to the aircraft currently financed under the
Aircraft Credit Facility, the term loan period will be from April 25, 2003 to
April 25, 2005 in the event that permanent financing has not been obtained for
such flight equipment financed under the facility. Each borrowing is secured by
a first priority security interest in the collateral flight equipment of that
borrowing. At the time of each borrowing, Atlas Air must select either a Base
Rate Loan (prime rate plus a spread), or a Eurodollar Rate Loan (Eurodollar rate
plus a spread). Atlas Air selected the Eurodollar Rate Loan for substantially
all borrowings in 1999, 2000 and 2001.

     In 2001, Atlas Air amended this Aircraft Credit Facility to include, among
other items, a revision of its financial covenants, including the minimum
interest coverage and maximum leverage ratios, and the addition of certain
liquidity requirements. The ratio requirements were eased through 2002, to what
management believes are achievable levels. Covenant tests are conducted
quarterly, and further amendments may be necessary if financial performance
falls short of expected levels. There can be no assurance that Atlas Air could
successfully negotiate waivers or amendments to the Aircraft Credit Facility in
the event that the financial covenants are not met. Failure to obtain such
waivers or amendments would permit the lenders to accelerate payment of a
substantial portion of our long term indebtedness, which would have a material
adverse effect on Atlas Air. As part of the amendment, a new liquidity covenant
was added that requires Atlas Air to maintain $200 million in cash and
short-term investments. The amendment also included the requirement to prepay
$7.6 million in outstanding debt and reduced the available amount to $140
million from

                                       F-12
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$175 million. As of December 31, 2001, Atlas Air had $68.1 million outstanding
under the Aircraft Credit Facility.

     Additional covenants with respect to the Aircraft Credit Facility require
specific levels of insurance, as well as contain requirements regarding
possession, maintenance, and lease or transfer of the flight equipment. Certain
covenants applicable to Atlas Air include, among other restrictions, limitations
on indebtedness, liens, investments, contingent obligations, restricted junior
payments, capital expenditures, amendments of material agreements, leases,
transactions with shareholders and affiliates and the conduct of business. Atlas
Air is in compliance with all covenants.

  AFL III TERM LOAN FACILITY

     In April 2000, Atlas Air formed a wholly-owned subsidiary, Atlas Freighter
Leasing III, Inc. (AFL III) for the purpose of entering into a $300 million term
loan facility (the "AFL III Term Loan Facility") to refinance all of the
aircraft and spare engines previously financed under the AFL Term Loan Facility
and the AFL II Term Loan Facility, plus one aircraft previously financed under
the Aircraft Credit Facility and three Boeing 747-400 spare engines owned by
Atlas Air. As a result of this refinancing, Atlas Air has and will continue to
experience lower interest rates and extended repayment terms as compared to the
previous financings. The AFL III Term Loan Facility consists of Term Loan A in
the amount of $165 million and Term Loan B in the amount of $135 million, for
which interest is based on the Eurodollar rate plus a spread. Quarterly
scheduled principal payments of $5.0 million and $1.7 million, respectively,
commenced in July 2000 and increase over time to $9.1 million and $6.2 million,
respectively, such that Term Loan A is to be fully paid in April 2005 and Term
Loan B is to be fully paid in April 2006, with a final payment of $37.3 million.
In September 2000, AFL III sold one aircraft financed under the AFL III Term
Loan Facility, which released the lien on the aircraft and reduced the aggregate
amount outstanding under the facility by $22.9 million.

     The AFL III Term Loan Facility is secured by a first priority interest in
the ten subject aircraft, plus twelve spare engines, and is restrictive with
respect to limitations on: indebtedness, liens, investments, contingent
obligations, restricted junior payments, capital expenditures, amendments of
material agreements, leases, transactions with shareholders and affiliates, and
the conduct of business, among other restrictions.

     In 2001, the AFL III Term Loan Facility financial covenants were amended in
the same manner as the Aircraft Credit Facility amendments. There can be no
assurance that Atlas Air could successfully negotiate waivers or amendments to
the AFL III Term Loan Facility in the event that the financial covenants are not
met. Failure to obtain such waivers or amendments would permit the lenders to
accelerate payment of a substantial portion of Atlas Air's long term
indebtedness, which would have a material adverse effect on Atlas Air. The
amendment also included a $23.7 million prepayment. This prepayment effectively
prepaid amounts otherwise due in 2002, reducing scheduled 2002 payments from
$42.0 million to $18.3 million. As of December 31, 2001, Atlas Air had
approximately $213.1 million outstanding under the AFL III Term Loan Facility.

     The subsidiary structure of AFL III was designed for the purposes of
providing additional credit protection to the lenders of AFL III. Atlas Air has
intercompany lease agreements with AFL III for the use of the ten aircraft and
twelve spare engines. As of March 2002, Atlas Air became aware of an
administrative error which had caused certain intercompany rental payments which
were payable between Atlas Air and the wholly owned AFL III subsidiary to go
unpaid. The failure to make these intercompany transfers constituted a technical
Event of Lease Default under the lease agreements between AFL III (the lessor)
and Atlas Air, Inc. (the lessee) and a related Event of Default under the AFL
III credit agreement. These unpaid amounts were subsequently transferred to the
AFL III subsidiary in March 2002 at which point the events of default were
remedied and Atlas Air became compliant with all covenants. At no time were
either Atlas Air or AFL III in arrears with regards to any amounts of principal
or interest due to external lenders.
                                       F-13
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  SENIOR NOTES

     In August 1997, Atlas Air consummated the offering of $150 million of
unsecured 10 3/4% Senior Notes due 2005 (the "10 3/4% Senior Notes"). The
proceeds from the offering of the 10 3/4% Senior Notes were used to, among other
things, repay short-term indebtedness incurred to make pre-delivery deposits to
Boeing for the purchase of 10 new freighter aircraft and for additional
pre-delivery deposits as they become due.

     In April 1998, Atlas Air consummated the offering of $175 million of
unsecured 9 1/4% Senior Notes due 2008 (the "9 1/4% Senior Notes") at 99.867%.
The proceeds of the offering of 9 1/4% Senior Notes were used for general
corporate purposes.

     In November 1998, Atlas Air consummated the offering of $150 million of
unsecured 9 3/8% Senior Notes due 2006 (the "9 3/8% Senior Notes"). The proceeds
of the offering of 9 3/8% Senior Notes were used for general corporate purposes,
which included the redemption of the 12 1/4% Equipment Notes due 2002.

     In June 2000, Atlas Air completed a common stock offering for net cash
proceeds of $104 million, a portion of which was used to repurchase $12.5
million of the 10 3/4% Senior Notes, $22.0 million of the 9 1/4% Senior Notes,
and $3.0 million of the 9 3/8% Senior Notes.

     The Senior Notes are general unsecured obligations of Atlas Air, which rank
pari passu in right of payment to any of Atlas Air's existing and future
unsecured senior indebtedness. The Senior Notes are effectively subordinated,
however, to all Atlas Air's secured indebtedness and to all indebtedness of its
subsidiaries.

     Covenants with respect to the Senior Notes contain certain limitations on
Atlas Air and its subsidiaries' ability to, among other things: incur additional
indebtedness, pay dividends or make certain other restricted payments,
consummate certain asset sales, enter into certain transactions with affiliates,
incur liens, create restrictions on the ability of a subsidiary to pay dividends
or make certain payments, sell or issue preferred stock of subsidiaries to third
parties, merge or consolidate with any other person, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of their assets.
Atlas Air is in compliance with all such covenants as of December 31, 2001.

     Interest on the Senior Notes accrue from their date of original issuance,
and is payable semi-annually in arrears. The Senior Notes are redeemable, in
whole or in part, at Atlas Air's option, at any time, on or after August 1, 2001
for the 10 3/4% Senior Notes, on or after April 15, 2003 for the 9 1/4% Senior
Notes, and on or after November 15, 2002 for the 9 3/8% Senior Notes, initially
at a premium of their principal amount, plus accrued interest, declining ratably
to 100% of their principal amounts, plus accrued interest.

  1998 EETCS

     In February 1998, Atlas Air completed an offering of $538.9 million of
pass-through certificates, also known as Enhanced Equipment Trust Certificates
(the "1998 EETCs"). The 1998 EETCs are not direct obligations of, or guaranteed
by, Atlas Air and are not included in its consolidated financial statements
until such time that it draws upon the proceeds to take delivery and ownership
of an aircraft. The cash proceeds from the transaction were used to finance
(through four leveraged leases and one secured debt financing) the first five
new Boeing 747-400 freighter aircraft delivered to Atlas Air during the period
July 1998 through December 1998. In connection with the secured debt financing,
Atlas Air took ownership of the aircraft and executed equipment notes in the
aggregate amount of $107.9 million with a weighted average interest rate of
7.6%. As of December 31, 2001, Atlas Air had $92.9 million outstanding under the
1998 EETCs.

     In November and December 1997, Atlas Air entered into three Treasury Note
hedges, approximating $300 million of principal, for the purpose of minimizing
the risk associated with fluctuations in the interest rates which were the basis
for the pricing of the 1998 EETCs in January 1998. The effect of the hedge
resulted

                                       F-14
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in a deferred cost of $6.3 million, which is amortized over the approximate
twenty-year life associated with this financing.

  1999 EETCS

     In April 1999, Atlas Air completed an offering of $543.6 million of
Enhanced Equipment Trust Certificates ("1999 EETCs"). The 1999 EETCs are not
direct obligations of, or guaranteed by, Atlas Air and therefore are not
included in its consolidated financial statements until such time that it draws
upon the proceeds to take delivery and ownership of an aircraft. The cash
proceeds from the 1999 EETCs transaction were deposited with an escrow agent and
were used to finance, (through one leveraged lease and four secured debt
financings), five new Boeing 747-400 freighter aircraft delivered to Atlas Air.
In connection with these secured debt financings, Atlas Air executed equipment
notes in the aggregate amount of $325.1 million and $109.9 million in 1999 and
2000, respectively, with weighted average interest rates of 7.6%. Subsequently,
Atlas Air entered into sale-leaseback transactions with respect to three of
these aircraft, which reduced the aggregate amount of the equipment notes to
$102.6 million. As of December 31, 2001, Atlas Air had $97.2 million outstanding
under the 1999 EETCs.

  OTHER DEBT

     Other debt primarily consists of separate financings of two 747-200
freighter aircraft and one 747-300 freighter aircraft and capital leases on the
flight simulator. (See Note 7). The weighted average interest rate for all other
debt at December 31, 2001 was 8%, with terms ranging from one to eight years.

  FAIR VALUE OF LONG-TERM DEBT

     Based on current rates available for similar debt with similar maturities
and security, the fair values of the Aircraft Credit Facility, AFL III Term Loan
Facility and Other Debt at December 31, 2001, are estimated to be their carrying
values. All of the Senior Notes and the EETCs are publicly traded. Based on
published trading prices at December 31, 2001, the fair values of the Senior
Notes and the EETCs are estimated to be as follows (in thousands):

<Table>
<Caption>
                                                               FAIR VALUE
                                                               ----------
<S>                                                            <C>
10 3/4% Senior Notes........................................    $125,102
9 1/4% Senior Notes.........................................     130,050
9 3/8% Senior Notes.........................................     122,010
1998 EETCs..................................................      77,962
1999 EETCs..................................................      81,935
</Table>

  FIVE YEAR DEBT MATURITIES

     At December 31, 2001 principal repayments on long-term debt for the next
five years were as follows (in thousands):

<Table>
<S>                                                            <C>
2002........................................................   $45,934
2003........................................................    98,241
2004........................................................   109,581
2005........................................................   222,921
2006........................................................   208,691
Thereafter..................................................   299,617
</Table>

                                       F-15
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

4.  HEDGING ACTIVITY

     In September 1997, the Company entered into an interest rate swap for the
purpose of hedging its floating rate debt. The notional amount of the interest
rate swap at inception was $210 million, decreasing over a term of eight years.
The Company pays a fixed interest rate of 5.72%, increasing .25% annually, and
receives a floating interest rate based on 3-month LIBOR, whereby the net
interest settles quarterly. For the quarterly interest period which included
December 31, 2001, the notional amount was $114.5 million, the fixed interest
rate was 6.5% and the 3-month LIBOR rate was 2.5%. While it is not the intention
of the Company to terminate the interest rate swap, it is estimated that the
Company would have had to pay approximately $6.5 million, based on published
trading prices, to settle the interest rate swap at December 31, 2001.

     In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded on the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. SFAS No. 133, as amended by SFAS
No. 137 and SFAS No. 138, is effective for fiscal quarters of fiscal years
beginning after June 15, 2000. Upon adoption of SFAS 133 on January 1, 2001, the
Company recognized the fair value of the interest rate swap, net of tax, of $1.6
million as a charge to the income statement. The Company recognized the fair
value of the interest rate swap, net of tax, of $1.6 million as a charge to the
income statement. This amount is reflected as a cumulative effect of a change in
accounting principle for the first quarter of 2001. Subsequent changes in the
fair value of the swap are recognized in other income/(expense) under the
heading "SFAS 133 fair value adjustment of interest rate swap". The fair value
of the interest rate swap at December 31, 2001 was $6.5 million in favor of the
counter party and is included in Other Liabilities .

5.  DEFERRED AIRCRAFT OBLIGATIONS

     In June 1997, the Company entered into the Boeing Purchase Agreement (see
Note 7) to purchase 10 new Boeing 747-400 freighter aircraft, with options to
purchase up to ten additional Boeing 747-400 aircraft. The Boeing Purchase
Agreement requires the Company to pay pre-delivery deposits in order to secure
delivery of the Boeing 747-400 freighter aircraft and to defray a portion of the
manufacturing costs. In addition, the Boeing Purchase Agreement provides for a
deferral of a portion of the pre-delivery deposits (Deferred Aircraft
Obligations) for which the Company accrues and pays interest quarterly at
6-month LIBOR, plus 2.00%. Included in other liabilities as of December 31,
2001, was $136.0 million of Deferred Aircraft Obligations at a combined interest
rate of 4.35%. The Company settled its Deferred Aircraft Obligations upon
delivery of each of the first twelve Boeing 747-400 aircraft (including two
exercised options), which were delivered in 1998, 1999 and 2000. In October
2000, the Company exercised options for four additional Boeing 747-400s to be
delivered in 2002. Financing for the initial twelve aircraft was secured through
the 1998 EETCs, 1999 EETCs and the 2000 EETCs. The Company expects to settle the
balance of its Deferred Aircraft Obligations upon delivery of the four aircraft.

6.  INCOME TAXES

     The Company has net operating loss carryforwards of approximately
$80,213,000 as of December 31, 2001, which will expire in 2021. The Company has
generated approximately $51,253,000 of alternative minimum tax credit
carryforwards which are available in subsequent years to reduce its regular tax
liability subject to statutory limitations. All tax years of the Company that
are statutorily open are subject to examination by the Internal Revenue Service
("IRS"), as well as state and local tax authorities. Currently,

                                       F-16
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the fiscal year ended March 31, 1994, the short year ended December 31, 1994 and
the calendar year ended December 31, 1995 are under examination by the IRS. The
Company believes that it has adequately provided for all income tax liabilities
and that final resolution of any IRS examination will not have a material effect
on its financial position or results of operations.

     The provision for income taxes consisted of the following (in thousands):

<Table>
<Caption>
                                                           YEAR ENDED DECEMBER 31,
                                                         ----------------------------
                                                           2001      2000      1999
                                                         --------   -------   -------
<S>                                                      <C>        <C>       <C>
Current:
  Federal..............................................  $(16,950)  $41,496   $ 4,370
  State and local......................................    (1,009)    1,744       987
Deferred:
  Federal..............................................   (23,209)    8,253    31,363
  State and local......................................         9       775       836
                                                         --------   -------   -------
  (Benefit)/Provision for income taxes.................  $(41,159)  $52,268   $37,556
                                                         ========   =======   =======
</Table>

     The provisions for income taxes were at rates different from the U.S.
federal statutory rate for the following reasons:

<Table>
<Caption>
                                                              YEAR ENDED DECEMBER 31,
                                                              ------------------------
                                                               2001     2000     1999
                                                              ------   ------   ------
<S>                                                           <C>      <C>      <C>
Statutory federal income tax provision rate.................  35.00%   35.00%   35.00%
State and local income taxes, net of federal tax benefit....   1.00     1.00     1.00
Nondeductible and other items...............................   2.10     2.00     2.00
                                                              -----    -----    -----
  Effective tax provision rate..............................  38.10%   38.00%   38.00%
                                                              =====    =====    =====
</Table>

     Deferred income taxes arise from temporary differences between the tax
bases of assets and liabilities and their reported amounts in the financial
statements. The net deferred income tax liability components are as follows (in
thousands):

<Table>
<Caption>
                                                                AT DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax liabilities:
  Tax depreciation in excess of book depreciation...........  $247,828   $250,231
Deferred tax assets:
  Tax benefit of net operating loss carryforwards...........    29,077         --
  Alternative minimum tax credits...........................    51,253     53,364
  Deferred lease financing gains and losses.................   112,625    118,479
  Other.....................................................     1,795      2,110
                                                              --------   --------
     Total deferred tax assets..............................   194,750    173,953
                                                              --------   --------
     Net deferred tax liability.............................  $ 53,078   $ 76,278
                                                              ========   ========
</Table>

                                       F-17
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7.  COMMITMENTS AND CONTINGENCIES

  AIRCRAFT/ REAL ESTATE LEASES

     Minimum annual rental commitments under capital leases and noncancellable
aircraft and real estate operating leases with initial or remaining terms of
more than one year ($ in thousands):

<Table>
<Caption>
                                                            AIRCRAFT
                                                      --------------------   REAL ESTATE
                                                      CAPITAL   OPERATING     OPERATING
YEARS ENDING DECEMBER 31,                             LEASES      LEASES       LEASES
-------------------------                             -------   ----------   -----------
<S>                                                   <C>       <C>          <C>
2002................................................  $ 1,768   $  164,348     $ 2,630
2003................................................    1,599      145,581       2,630
2004................................................    1,598      143,095       2,768
2005................................................    1,460      139,636       2,868
2006................................................       --      131,097       2,868
Thereafter..........................................       --    1,433,193      16,495
                                                      -------   ----------     -------
Total minimum lease payments........................  $ 6,425   $2,156,950     $30,259
                                                                ==========     =======
Less amounts representing interest..................     (912)
                                                      -------
Present value of future minimum capital lease
  payments..........................................    5,513
Less current obligations under capital lease........   (1,376)
                                                      -------
Long-term obligations under capital lease...........  $ 4,137
                                                      =======
</Table>

     In addition to the above commitments, the Company leases engines under
short-term lease agreements on an as needed basis.

     Capital leased assets cost, accumulated amortization, and capital lease
liability balances of $5.8 million, $0.3 million, and $5.5 million,
respectively, are included in flight equipment, accumulated depreciation, and
current and long-term debt balances, respectively on the Company's consolidated
balance sheet as of December 31, 2001.

     Aircraft and engine rental expenses, including short-term rentals, were
$125,019,000, $79,134,000 and $51,173,000 for the years ended December 31, 2001,
2000 and 1999, respectively.

     Real estate rental expenses were $5.7 million, $3.5 million and $2.7
million for the years ended December 31, 2001, 2000, and 1999, respectively.

  BOEING PURCHASE AGREEMENT

     In June 1997, Atlas Air entered into the Boeing Purchase Agreement to
purchase 10 new Boeing 747-400 freighter aircraft with options for 10 additional
aircraft, all to be powered by GE engines. In February 1999, Atlas Air exercised
options for two additional aircraft that were delivered in 2000, and in October
2000 Atlas Air exercised options for four additional aircraft for delivery in
2002. As a result of Atlas Air being a large purchaser of Boeing 747-400
freighter aircraft, it was able to negotiate from Boeing and GE a significant
discount off the aggregate list price for the 16 Boeing 747-400 freighter
aircraft, four installed engines per aircraft and additional spare engines. In
addition, Atlas Air obtained certain ancillary products and services at
advantageous prices. Due to production problems at Boeing, some of the 1998
delivery positions of the Boeing 747-400 aircraft were delayed. Atlas Air was
compensated for these delays.

     During 2001, Atlas Air reached an agreement with Boeing to amend the
delivery dates of the aircraft, whereby three of the aircraft are scheduled for
delivery in 2002 and one aircraft in 2003. We have been in discussions with
Boeing for a number of months in an effort to defer delivery of some or all of
the aircraft

                                       F-18
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

scheduled for 2002. The Boeing Purchase Agreement requires that Atlas Air pay
pre-delivery deposits to Boeing prior to the delivery date of each Boeing
747-400 freighter aircraft in order to secure delivery of the Boeing 747-400
freighter aircraft and to defray a portion of the manufacturing costs. Based on
the current expected firm aircraft delivery schedule, Atlas Air expects the
maximum total amount of pre-delivery deposits at any time outstanding will be
approximately $162.4 million for the four aircraft to be delivered in 2002 and
2003. Upon each delivery, Boeing refunds Atlas Air the pre-delivery deposits
associated with the delivered Boeing 747-400 freighter aircraft. In addition,
the Boeing Purchase Agreement provides for a deferral of a portion of the
pre-delivery deposits (Deferred Aircraft Obligations -- see Note 5) for which
Atlas Air accrues and pays interest quarterly at 6-month LIBOR, plus 2.0%. As of
December 31, 2001, there was $136.0 million of deferred aircraft obligations
included in other liabilities, and the combined interest rate was approximately
4.35%.

     Atlas Air is currently in discussions with Boeing to have the 2002 aircraft
delivered as late in the year as possible. Atlas Air does not currently have
firm financing in place for any of the four Boeing 747-400 aircraft scheduled
for delivery in 2002 and 2003. However, Atlas Air is currently in discussions
with several sources for financing these aircraft. The inability to secure
financing for the Boeing 747-400 deliveries could result in a default under the
Boeing Purchase Agreement, which would permit Boeing to accelerate payments due
under the Boeing Purchase Agreement. Such acceleration would cause a default in
covenants of certain of the Company's indebtedness which would permit the
lenders to accelerate payment of a significant portion of all indebtedness,
which event would have a material adverse effect on the Company's financial
position and results of operations. However, Boeing has made an offer to finance
by sale-leaseback, each of the aircraft to be delivered in 2002, under terms
which are more favorable to Boeing. If Atlas Air is unable to secure other
financing more favorable to the Company, management believes it has the option
to utilize the proposed Boeing financing.

  MAINTENANCE AGREEMENTS

     In June 1996, we entered into a ten-year engine maintenance agreement with
GE for the engine maintenance of up to 15 aircraft powered by CF6-50E2 engines
at a fixed rate per flight hour, subject to an annual formula increase. In
December 1999, we entered into a ten-year maintenance agreement with MTU
Maintenance Hanover, a subsidiary of Daimler Chrysler Aerospace, to provide
regular maintenance at a fixed rate per flight hour for 43 engines, the majority
of which were previously serviced under an agreement with KLM Royal Dutch
Airlines.

     During the initial 36 month operating period, the Boeing 747-400 aircraft's
airframe will be covered under manufacturer's warranties. As a result, the
Company does not expect to incur significant maintenance expense in connection
with the Boeing 747-400 airframe during the warranty period. In addition, the
Boeing 747-400 airframe limited maintenance requirements will provide a higher
operational reliability with lower maintenance costs during the early years of
operation, typically for at least the first five years. The Company will incur
expenses associated with routine daily maintenance of both the airframe and the
engines. In July 1998, the Company entered into an agreement with Lufthansa
Technik pursuant to which Lufthansa Technik provides all required maintenance
for our initial order of twelve Boeing 747-400 aircraft, plus any additional
Boeing 747-400 aircraft that we purchase pursuant to our option in the Boeing
Purchase Agreement, on a fixed cost per flight hour basis for ten years, subject
to an annual escalation adjustment. The Company may terminate the agreement in
June 2003. In connection with an engine purchase agreement with GE, we have also
entered into two agreements with GE to provide ongoing maintenance on the Boeing
747-400 aircraft engines at a fixed cost per flight hour, subject to an annual
escalation adjustment.

                                       F-19
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  EMPLOYMENT AGREEMENTS

     The Company has entered into employment agreements with certain key
employees. Such employment agreements provide for, among other things, base
annual salary, certain bonuses, the grant of options to purchase common stock of
the Company under the 1995 Stock Option Plan (see Note 13), and in certain
circumstances severance benefits.

  LABOR

     All of our U.S. crew members are represented by unions. Collectively, these
employees represent approximately 56% of our workforce as of December 31, 2001.
Although we have never had a work interruption or stoppage and believe our
relations with our unionized employees are generally good, we are subject to
risks of work interruption or stoppage and/or may incur additional
administrative expenses associated with union representation of our employees.
Atlas Air and the Air Line Pilots Association (ALPA) are currently in
negotiations in an effort to reach a revised tentative agreement under the
direction for mediator appointed by the National Mediation Board (NMB). If Atlas
Air is unable to negotiate a contract with its crew members, the Company may be
subject to work interruptions and /or stoppages. Any sustained work stoppages
could adversely affect our ability to fulfill its obligations under ACMI
contracts and other agreements and could have a material adverse effect on our
financial condition and results of operations. (See Note 20.)

  FAA AIRWORTHINESS DIRECTIVES

     Under the Federal Aviation Administration's (the "FAA") Directives issued
under its "Aging Aircraft" program, the Company is subject to extensive aircraft
examinations and will be required to undertake structural modifications to its
fleet to address the problem of corrosion and structural fatigue. As part of the
FAA's overall Aging Aircraft program, it has issued Directives requiring certain
additional aircraft modifications to be accomplished. The Company estimates that
the modification costs per Boeing 747-200 and -300 ("Classics") aircraft will
range between $2 million and $3 million. Fifteen aircraft in the Company's
Classics fleet have already undergone the major portion of such modifications.
The remaining nine Classics aircraft will require modification prior to the year
2013. Directives have been issued that require inspections and minor
modifications to Boeing Classics aircraft. The newly manufactured Boeing 747-400
freighter aircraft were delivered to the Company in compliance with all existing
FAA Directives at their respective delivery dates. It is possible that
additional Directives applicable to the types of aircraft or engines included in
the Company's fleet could be issued in the future, the cost of which could be
substantial.

  LEGAL PROCEEDINGS

     During April 2001, Atlas Air reached an agreement with the ALPA to settle a
lawsuit filed in May 1999 over the eligibility of the crew members to
participate in Atlas Air's profit sharing plan, pursuant to the certification by
the NMB that crew members had voted for representation by ALPA. The agreement
reinstated the crew members to the profit sharing plan, subject to future
contract negotiation, and provided for the distribution of withheld past profit
sharing in an aggregate amount of $22.8 million to all eligible crewmembers.
Atlas Air and ALPA also agreed to dismiss legal proceedings with prejudice and
to bar any future legal claims as to crew members exclusion from the profit
sharing plan.

     In May 2000, ALPA filed suit against the Company in the Southern District
of Florida seeking to enjoin, as a violation of the Railway Labor Act, the
establishment of an Atlas Air subsidiary in the United Kingdom to conduct
overseas operations from London Stansted Airport. The Company believes the suit
is without merit and intend to vigorously defend the action. This action is
currently in the discovery phase.

                                       F-20
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     During November 2001, Malaysian Airlines returned a leased aircraft to
Atlas Air with one year remaining on the lease, claiming a contractual right to
do so. Atlas Air vigorously disputes this interpretation of the contract. In
January 2002, Atlas Air requested arbitration to settle the matter. Arbitration
will take place in London during the second quarter of 2002. Atlas Air is
claiming damages of approximately $26.5 million plus interest, and Malaysian
Airlines has counterclaimed for $22.0 million plus interest claiming they were
misled as to their ability to cancel the agreement. The Company believes the
counterclaim is without merit. The arbitrator is likely to decide this matter in
the fourth quarter of 2002 or the first quarter of 2003.

     While the Company is, from time to time, involved in litigation in the
ordinary course of business, there are no other material legal proceedings
pending against it or to which any of its property is subject.

8.  RELATED PARTY TRANSACTIONS

     A loan of up to $750,000, bearing interest at 5.87%, was extended in June
1996 to one officer for the purpose of constructing a residence. In May 1998,
the Company forgave $500,000 of the principal, plus accrued interest. In June
1998 and March 1999, interest-free loans of $100,000 and $65,500, respectively,
were extended to an officer of the Company, due on demand, subject to certain
conditions and restrictions. In December 1999, the Company extended two
interest-free bridge loans of $150,000 and $25,000 to an officer for the purpose
of relocating that officer's residence from Colorado to New York, due no later
than December 31, 2000. This loan was repaid in full to the Company in January
2001. As of December 31, 2001, the outstanding balance of officer demand loans,
including accrued interest, was approximately $417,000.

     During the year ended December 31, 2001, Atlas Air declared and paid
dividends totaling $39.8 million to Atlas Air Worldwide Holdings, Inc.

     During the fourth quarter of 2001, a vendor returned a deposit of $10.3
million to Atlas Air Worldwide Holdings, Inc. which should have properly been
returned to Atlas Air, Inc. Therefore, an intercompany receivable of $10.3
million exists on Atlas Air, Inc.'s financial statements at December 31, 2001.
This deposit was paid to Atlas Air, Inc. by Atlas Air Worldwide Holdings, Inc.
in the first quarter of 2002.

9.  ACCOUNTS PAYABLE AND ACCRUED EXPENSES

     The components of accounts payable and accrued expenses are as follows (in
thousands):

<Table>
<Caption>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2001       2000
                                                              --------   --------
<S>                                                           <C>        <C>
Accounts payable -- trade...................................  $ 13,895   $ 11,609
Accrued salaries and wages..................................     8,490     14,098
Accrued maintenance.........................................    14,878     35,899
Accrued interest............................................    22,706     25,030
Accrued expenses and other..................................    52,832     48,651
                                                              --------   --------
                                                              $112,801   $135,287
                                                              ========   ========
</Table>

10.  SAVINGS AND RETIREMENT PLAN

     The Company implemented a 401(k) Retirement Plan (the "Plan") in June 1994,
under which eligible employees may contribute up to 15% of their total pay. The
Plan covers substantially all employees. Effective May 1, 1996, the Plan was
amended to provide for Company contributions equal to 50% of the first 10% of
contributions made by employees, for which the Company incurred an expense of
$2,594,000, $2,881,000 and $2,262,000 for the years ended December 31, 2001,
2000 and 1999, respectively.

                                       F-21
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

11.  BUSINESS SEGMENTS

     The Company operates in one business segment, which is to provide the
common carriage of freight over various worldwide routes. The assets of the
Company, principally flight equipment, support its entire worldwide
transportation system and are not readily identifiable by geographic area.
Property and equipment, other than flight equipment, located in foreign
locations is not significant. Foreign sales accounted for 92%, 99% and 99% of
total revenues for the years ended December 31, 2001, 2000 and 1999,
respectively. All foreign sales were U.S. dollar denominated.

12.  STOCKHOLDERS' EQUITY

  RECAPITALIZATION OF ATLAS AIR, INC.

     In February 2001, the Company announced the formation of a holding company,
Atlas Air Worldwide Holdings, Inc. Atlas Air, Inc. has become a wholly owned
subsidiary of the new entity. The holding company restructuring was accomplished
through a merger under Section 251(g) of the Delaware General Corporation Law
pursuant to which all stockholders of Atlas Air, Inc. at the effective time of
the merger became stockholders of the new holding company. The new holding
company trades under the same NYSE symbol "CGO," with the same CUSIP numbers
Atlas Air traded under previously. The charter and by-laws of the new holding
company are substantially the same as the charter and by-laws of Atlas Air and
the directors of the holding company are the same as the current directors of
Atlas Air. Pursuant to the recapitalization, there has been a change in the
shareholders' equity of Atlas Air, Inc. The authorized shares of Atlas Air, Inc.
were reduced from 50,000,000 to 1,000, and the issued shares were reduced from
38,227,757 to 100. All of the issued shares of Atlas Air, Inc. are now held by
Atlas Air Worldwide Holdings, Inc. All options issued by Atlas Air that were
outstanding at the date of the recapitalization were transferred to AAWH.

  COMMON STOCK

     In January 1999, the Company announced a 3-for-2 stock split in the form of
a stock dividend to stockholders of record at the close of business on January
25, 1999 (the "Stock Split"). The new shares were delivered on February 8, 1999.
The share data and earnings per share data for all periods presented in these
consolidated financial statements have been restated to reflect the Stock Split.

     In June 2000, the Company completed an offering of 3,465,000 shares of
common stock for net proceeds of $103 million. Approximately $86 million and $10
million of the proceeds were used for the retirement of debt during the second
and third quarters, respectively.

  OTHER COMPREHENSIVE INCOME

     Accumulated other comprehensive income for the twelve months ended December
31, 2001 was $0.5 million (net of tax). Other comprehensive income consisted of
net unrealized gains on securities of $0.8 million for the twelve months ended
December 31, 2001.

13.  STOCK-BASED COMPENSATION PLANS

  EMPLOYEE STOCK PURCHASE PLAN

     In 1995, the Company established an Employee Stock Purchase Plan (the
"Stock Purchase Plan"). Employees eligible to participate in the Stock Purchase
Plan are those who have completed at least one year of employment with the
Company, but excluding employees whose customary employment is not more than
five months in any calendar year or 20 hours or less per week. The Stock
Purchase Plan is administered by the Compensation Committee of the Board of
Directors of the Company which determines the terms and conditions under which
shares are offered and corresponding options granted under the Stock Purchase
Plan

                                       F-22
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for any Purchase Period, as defined in the Stock Purchase Plan. Employees may
contribute up to 15% of their gross base compensation subject to certain
limitations. The price per share at which the common stock is purchased pursuant
to the Stock Purchase Plan is the lesser of 85% of the fair market value of the
common stock on the first or last day of the applicable Purchase Period. The
maximum number of shares of common stock which may be issued on the exercise of
options purchased under the Stock Purchase Plan is 1,500,000 shares. Starting in
2001, the Employee Stock Purchase Plan is now administered by Atlas Air
Worldwide Holdings, Inc.

  1995 STOCK OPTION PLAN

     In 1995, the Company adopted the 1995 Stock Option Plan (the "1995 Plan"),
whereby employees may be granted options, incentive stock options, share
appreciation rights, and restricted shares. The portion of the 1995 Plan
applicable to employees is administered by the Compensation Committee of the
Board of Directors of the Company which also establishes the terms of the
awards. The 1995 Plan also provides for certain automatic grants of nonqualified
stock options to non-employee directors which become exercisable on the date of
grant and expire on the tenth anniversary of the date of grant. Originally, an
aggregate of 2,700,000 shares were reserved for issuance in connection with
awards and director's options under the 1995 Plan. Following shareholder
approval, an additional 450,000 shares were reserved in 1997, an additional
750,000 shares were reserved in 1998 and an additional 2,800,000 shares were
reserved in 2000. Starting in 2001, the 1995 Stock Option Plan is now
administered by Atlas Air Worldwide Holdings, Inc.

  DIRECTOR STOCK PLAN

     In August 1996, the Company established the Director Stock Plan (the
"Director Plan"), which provides the Company's non-employee directors the option
to receive all or a portion of their quarterly remuneration in common stock
instead of cash. The Director Plan was amended in February 1998 such that the
first 25% of their quarterly remuneration must be received in the form of the
Company's common stock. The number of shares received is determined by dividing
the average price on the date of the first Board meeting of that quarter into
the amount of compensation earned for the quarter which the non-employee
director chooses not to receive in cash. The effective date of the Director Plan
was January 1, 1997. Starting in 2001, the Director Stock Plan is now
administered by Atlas Air Worldwide Holdings, Inc.

  STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123

     SFAS No. 123, "Accounting for Stock-Based Compensation," defines a fair
value based method of accounting for employee stock options or similar equity
instruments. However, SFAS No. 123 allows the continued measurement of
compensation cost for such plans using the intrinsic value based method
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," provided that pro forma disclosures are made of
net income or loss and net income or loss per share, assuming the fair value
based method of SFAS No. 123 had been applied. The Company has elected to
account for its stock-based compensation plans under APB Opinion No. 25;
accordingly, for purposes of the pro forma disclosures presented below, the
Company has computed the fair value of all options granted during 2000 and 1999
(no fair value has been computed for 2001, because, due to the recapitalization
of Atlas Air, Inc.,

                                       F-23
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company options are no longer issued -- see Footnote 12) , using the
Black-Scholes pricing model and the following weighted average assumptions:

<Table>
<Caption>
ASSUMPTIONS -- 1995 PLAN                                       2000      1999
------------------------                                      -------   -------
<S>                                                           <C>       <C>
Risk-free interest rates....................................     6.16%     5.84%
Expected dividend yields....................................       --        --
Expected lives..............................................  5 years   5 years
Expected volatility.........................................    58.11%    56.80%
</Table>

     If the Company had accounted for its stock-based compensation plans in
accordance with SFAS No. 123, the Company's pro forma net income and pro forma
net income per common share would have been reported as follows:

<Table>
<Caption>
                                                               2000      1999
                                                              -------   -------
<S>                                                           <C>       <C>
Net income (in thousands):
  As Reported...............................................  $85,259   $53,270
  Pro Forma.................................................  $80,263    49,804
Net income per common share (basic EPS):
  As Reported...............................................     2.33      1.56
  Pro Forma.................................................     2.20      1.45
Net income per common share (diluted EPS):
  As Reported...............................................     2.31      1.54
  Pro Forma.................................................     2.17      1.44
</Table>

     A summary of stock option activity for the years ended December 31, 2000
and 1999 is presented in the table below:

<Table>
<Caption>
                                                2000                          1999
                                     ---------------------------   ---------------------------
                                                     WEIGHTED                      WEIGHTED
                                                     AVERAGE                       AVERAGE
                                       SHARES     EXERCISE PRICE     SHARES     EXERCISE PRICE
                                     ----------   --------------   ----------   --------------
<S>                                  <C>          <C>              <C>          <C>
Outstanding at beginning of year...   2,023,131       $22.45        2,392,122       $22.07
Granted............................     920,250        33.68          480,000        26.98
Exercised..........................    (281,811)       12.80         (661,487)       23.70
Forfeited..........................    (198,438)       25.03         (187,504)       24.73
                                     ----------                    ----------
Outstanding at end of year.........   2,463,132        27.55        2,023,131        22.45
                                     ==========                    ==========
Exercisable at end of year.........     996,192        24.03          540,131        16.04
Weighted average fair value of
  options granted..................  $    18.91                    $    15.01
</Table>

     There were no options outstanding at December 31, 2001 due to the
recapitalization of Atlas Air, Inc. -- (see Footnote 12).

14.  PROFIT SHARING PLAN

     Employees who have been employed by Atlas Air or its subsidiaries for at
least twelve months as full-time employees are eligible to participate in the
Profit Sharing Plan, which was adopted in 1994 by Atlas Air. The Profit Sharing
Plan provides for payments to eligible employees in semiannual distributions
based on the Company's pretax profits. Through 2001, the Company was obligated
to make an annual profit sharing contribution of ten percent of the Company's
pretax profits, which is defined as net income before taxes, but

                                       F-24
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

excluding (i) any income or loss related to charges or credits for unusual or
infrequently occurring items or related to intangible assets, and (ii)
extraordinary items. Annual profit sharing contributions may be in the form of
cash or common stock of the Company. For the years 2001, 2000 and 1999,
beginning with an employee's thirteenth month of employment, an employee was
entitled to receive a guaranteed profit sharing payment of at least 10% of
salary. The expense for the Profit Sharing Plan for the years ended December 31,
2001, 2000 and 1999 was $27,567,000, $5,290,000 and $4,488,000, respectively.
The 2001 profit sharing amount includes $22,815,000 resulting from the profit
sharing settlement which restored profit sharing payments to flight crew members
retroactive to April 1999. Beginning in 2002, the Profit Sharing Plan was
revised to include, among other things, that profit sharing would no longer have
a guaranteed component, but will be based upon the actual profits of Atlas Air.

15.  EFFECT OF THE EVENTS ON SEPTEMBER 11, 2001

     Immediately following the terrorist attacks on September 11, the Federal
Aviation Administration (FAA) closed the U.S. airspace. The Company resumed
operations on September 14, after the FAA order was rescinded. During the period
in which the flight operations were suspended, the Company experienced contract
revenue losses and incurred incremental expenses associated with crew and
aircraft repositioning and added security measures.

     In January 2002, Atlas Air filed an amended claim for $29.0 million under
the Air Transportation Safety and Stabilization Act, which provides direct
compensation to the U.S. airlines for direct and incremental losses that
resulted from the terrorist attacks for the September 11, 2001 through December
31, 2001 period. During the fourth quarter of 2001, Atlas Air recognized $24.7
million as a reduction to the operating expenses for the fourth quarter,
representing 85% of the total claim. In October 2001, the Federal government
paid Atlas Air $10.1 million as an initial payment of our claim under the
Federal Air Transportation Safety and Stabilization Act, and in February 2002,
Atlas Air received an additional $11.4 million. Payment of the balance of the
claim is dependent upon finalization of the DOT rules and guidelines related to
the audit of the claims that have been filed by the airlines. Since payment of
claims under this Act are subject to a DOT audit, there can be no assurances
that the balance will be paid by the DOT or that upon the audit of the claim the
DOT will not seek to recover amounts already paid to Atlas Air.

16.  RESTRUCTURING CHARGE

     During the second quarter of 2001, the Company announced measures designed
to respond to the current global economic environment and the corresponding
decline in air cargo demand. Accordingly, during the second quarter the Company
announced it would furlough 105 crewmembers and reduce its ground-staff
workforce by 200 employees. Under the restructuring plan finalized by the
Company in the second quarter of 2001, the affected employees received severance
and termination benefits.

     In accordance with Emerging Issues Task Force (EITF) No. 94-03, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)" and Staff
Accounting Bulletin (SAB) No. 100, "Restructuring and Impairment Charges",
during the second quarter the Company recognized a liability for cost of
termination benefits to be provided to involuntarily terminated employees and
also recorded other liabilities associated with the restructuring. This
restructuring charge of $3.9 million is included in the 2001 income statement
under the caption "Restructuring and impairment". This liability has been
reduced by $3.3 million representing primarily employee severance payments made
since June 2001 and the liability of $0.6 million is shown under the caption
"Accounts payable and other" on the consolidated balance sheet as of December
31, 2001. The total number of employees terminated through December 31, 2001
under the restructuring plan were 192.

                                       F-25
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

17.  AIRCRAFT HELD FOR SALE

     Due to the current and forecast global economic environment and the
corresponding decline in air cargo demand, the Company restructured its
operating business plan and decided to take six aircraft out of service and make
them available for sale. These aircraft have been isolated from the rest of the
fleet and the Company is marketing the aircraft. Subsequent to September 11, the
Company experienced an increase in demand for charter services, both commercial
and military. To respond to this demand, the Company utilized four of the six
aircraft. However, the Company retains the flexibility to take the aircraft back
out of service should a buyer be found or charter demand soften. The Company
accounts for its aircraft in accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of".
Accordingly, the aggregate carrying amount of the aircraft of $246.2 million was
reduced to the expected net realizable value of $147.2 million, resulting in an
impairment charge of $99.0 million. This charge was recorded in two quarters,
prior to and post September 11, 2001. In the second quarter of 2001, the
impairment charge was $54.1 million and during the fourth quarter 2001, an
additional impairment charge of $44.9 million was recorded related to these six
aircraft. The net realizable values of these aircraft were based on a market
assessment of the value of the aircraft. The impairment charges are included in
the 2001 income statement under the caption "Restructuring and impairment".

18.  SFAS 121 IMPAIRMENTS AND OTHER EXIT COSTS

     In conjunction with the closure of some of the Company's locations and
employee layoffs, the Company recorded an impairment charge of approximately
$0.7 million related to computer hardware and software and leasehold
improvements at the closed locations. The charge represents the entire carrying
value of these assets, as the Company believes that these assets have no resale
value.

     The changed business environment resulted in a review of the Company's
strategy related to the construction of its maintenance hangar at Miami
International Airport. The Company recorded an impairment charge of $12.5
million in the second quarter to write off $8.6 million of costs currently
capitalized and accrue for $3.9 million of costs related to site restoration and
lease termination costs to discontinue the project. During the fourth quarter
2001, the reserve balance was reduced by $0.3 million due to site restoration
work, the balance of the reserve of $3.6 million is shown under the caption
"Accounts payable and accrued expenses" on the consolidated balance sheet as of
December 31, 2001. The total impairment charge of $13.2 million is included in
the 2001 income statement under the caption "Restructuring and impairment".

19.  SUPPLEMENTAL QUARTERLY FINANCIAL DATA -- ($ IN THOUSANDS, EXCEPT EPS)
(UNAUDITED)
<Table>
<Caption>
                                                                                             INCOME BEFORE
                                                           INCOME BEFORE                EXTRAORDINARY ITEM AND
                                                         EXTRAORDINARY ITEM             CUMULATIVE EFFECT OF A
                                               INCOME      AND CUMULATIVE                CHANGE IN ACCOUNTING
                                               BEFORE    EFFECT OF A CHANGE                    PRINCIPLE          NET INCOME
                                  OPERATING    INCOME      IN ACCOUNTING        NET     -----------------------   ---------
                       REVENUE     INCOME      TAXES         PRINCIPLE        INCOME    BASIC EPS   DILUTED EPS   BASIC EPS
                       --------   ---------   --------   ------------------   -------   ---------   -----------   ---------
                                                                                           (1)          (1)          (1)
<S>                    <C>        <C>         <C>        <C>                  <C>       <C>         <C>           <C>
2001
First Quarter........  $180,312   $ 15,365    $ (1,576)       $      7        $(1,582)      --           --           --
Second Quarter.......   149,035    (71,912)    (87,627)        (49,022)       (49,022)      --           --           --
Third Quarter........   150,713      9,336      (9,859)         (4,211)        (4,211)      --           --           --
Fourth Quarter.......   207,249      9,183      (8,981)        (13,658)       (13,658)      --           --           --

<Caption>

                       NET INCOME
                       -----------
                       DILUTED EPS
                       -----------
                           (1)
<S>                    <C>
2001
First Quarter........       --
Second Quarter.......       --
Third Quarter........       --
Fourth Quarter.......       --
</Table>

                                       F-26
<PAGE>
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<Table>
<Caption>
                                                                                             INCOME BEFORE
                                                           INCOME BEFORE                EXTRAORDINARY ITEM AND
                                                         EXTRAORDINARY ITEM             CUMULATIVE EFFECT OF A
                                               INCOME      AND CUMULATIVE                CHANGE IN ACCOUNTING
                                               BEFORE    EFFECT OF A CHANGE                    PRINCIPLE          NET INCOME
                                  OPERATING    INCOME      IN ACCOUNTING        NET     -----------------------   ---------
                       REVENUE     INCOME      TAXES         PRINCIPLE        INCOME    BASIC EPS   DILUTED EPS   BASIC EPS
                       --------   ---------   --------   ------------------   -------   ---------   -----------   ---------
                                                                                           (1)          (1)          (1)
<S>                    <C>        <C>         <C>        <C>                  <C>       <C>         <C>           <C>
2000
First Quarter........  $166,412   $ 43,176    $ 19,397        $ 12,019        $12,019     $.35         $.35         $.35
Second Quarter.......   191,783     58,400      30,666          19,013         19,013      .53          .53          .53
Third Quarter........   208,611     61,970      37,213          23,072         23,072      .61          .60          .61
Fourth Quarter.......   223,662     69,158      50,251          31,155         31,155      .82          .81          .82

<Caption>

                     NET INCOME
                       -----------
                       DILUTED EPS
                       -----------
                           (1)
<S>                    <C>
2000
First Quarter........     $.35
Second Quarter.......      .53
Third Quarter........      .60
Fourth Quarter.......      .81
</Table>

---------------

(1) No earnings per share data is provided for 2001 due to the recapitalization
    of Atlas Air, Inc. (see Footnote 12).

20. SUBSEQUENT EVENTS

     In April 1999, we received notification from the National Mediation Board
(NMB) that our Atlas Air crew members voted for representation by ALPA. On
January 25, 2002 Atlas Air reached a tentative collective bargaining agreement
on an initial contract with its crew members who are represented by ALPA. The
tentative agreement which was subject to ratification by the crew members was
not subsequently ratified. As a result, Atlas Air and ALPA have reconvened in an
effort to reach a revised tentative agreement under the direction of a mediator
appointed by the NMB.

                                       F-27