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

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

                                   FORM 10-K

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

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                                       OR

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

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                         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              (I.R.S. Employer Identification No.)
        incorporation or organization)

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

         538 COMMONS DR., GOLDEN, CO                               80401
    (Former address of principal executive                       (Zip Code)
                   offices)
</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 9, 2001, 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.

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                                     PART I

ITEM 1. BUSINESS

GENERAL

     We are a wholly-owned subsidiary of Atlas Air Worldwide Holdings, Inc., a
Delaware corporation. 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, with a fleet of all Boeing
747 freighter aircraft that comply with Stage 3 FAA noise regulations. We
provide reliable airport-to-airport cargo transportation services throughout the
world to major international air carriers under fixed-rate U.S. dollar
denominated contracts which typically require that we supply aircraft, crew,
maintenance and insurance. Our customers currently include some of the world's
leading air carriers, including Alitalia, British Airways, China Airlines Ltd.,
China Southern Air and Korean Airlines. We provide efficient, cost effective
service to our customers primarily as a result of our productive work force, the
outsourcing of a significant part of our regular maintenance work on a
long-term, fixed-cost contractual basis and the advantageous cost economies
realized in the operation of our fleet, comprised solely of Boeing 747 aircraft
which are configured for service in long-haul cargo operations.

INDUSTRY BACKGROUND

     The world air cargo market is expected to more than triple over the next 20
years according to biennial reports prepared by Boeing. We believe this growth
will be generated, in part, by several factors, including:

     - global economic growth;

     - continued breakdown of international trade barriers;

     - expanded use of just-in-time inventory practices;

     - growth in export driven economies, particularly those of the countries in
       the Pacific Rim;

     - growth of e-commerce; and

     - increased movement of manufacturing to economies with low labor costs.

     We believe this growth in demand for air cargo services, combined with the
lower rate of growth in passenger airline cargo capacity and the continuing
pressure on the airline industry to reduce operating costs, will provide air
cargo companies such as Atlas Air with opportunities to expand their air cargo
outsourcing services. The primary business focus of most airlines is on the
transportation of passengers, not air cargo. Nevertheless, most passenger
airlines have air cargo customers that require quick and dependable air cargo
service between hubs serviced by these carriers. To the extent that airlines
have cargo capacity on their scheduled flights, which are generally scheduled
for the convenience of passengers rather than for the needs of air cargo
customers, air cargo service can be provided by them to meet such demand.
However, there is a growing trend in the passenger airline business toward
replacing existing widebody passenger aircraft and combination passenger/cargo
aircraft with smaller, more efficient twin-engine, passenger aircraft which have
limited cargo space. Airlines have therefore found that outsourcing to meet
their additional cargo transportation needs rather than allocating significant
resources and expanding their fleet of freighter aircraft to effectively service
their air cargo customers provides a cost-effective alternative for them to
maintain and expand that portion of their business.

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COMPETITIVE STRENGTHS

     We believe that our leading market position and our continued opportunities
for growth are directly attributable to the following competitive strengths:

Boeing 747 aircraft

     Our fleet currently includes 21 Boeing 747-200, 3 Boeing 747-300 and 12
Boeing 747-400 freighter aircraft in service. Our utilization of Boeing 747
aircraft provides significant marketing advantages because these aircraft,
relative to most other cargo aircraft that are commercially available, have
higher maximum payload and cubic capacities, and longer range. The uniformity of
our current Boeing 747-200 aircraft fleet allows for standardization in
maintenance and crew training, resulting in substantial cost savings in these
areas. The new 747-400 aircraft have greater operational capabilities than the
747-200 aircraft and will allow us to maintain our low cost structure despite
their higher acquisition cost. The new aircraft's lower maintenance requirements
will provide a higher level of operational reliability with lower maintenance
costs during the early years of operation, typically for at least five years. In
addition, our acquisition of 12 747-400 freighter aircraft, and the exercise of
our option to acquire four additional 747-400 aircraft in 2002, makes us one of
the largest operators of this aircraft type to date and will enable us to
capitalize on economies of scale from the standardization in maintenance and
crew training.

Long-term customer contracts

     Our ACMI Contracts, which accounted for approximately 97% of our total
operating revenues in 2000, typically require our customers to guarantee monthly
minimum aircraft utilization levels at fixed hourly rates and are typically in
force for periods of three to five years, subject in certain limited cases to
early termination provisions. These contracts typically require us to supply
aircraft, crew, maintenance and insurance, while our customers generally bear
all other operating expenses, including:

     - fuel and fuel servicing;

     - marketing costs associated with obtaining cargo;

     - airport cargo handling;

     - landing fees;

     - ground handling, aircraft push-back and de-icing services; and

     - specific cargo and mail insurance.

Our customers are also responsible under these contracts for utilizing the cargo
capacity of each of the contracted aircraft. Therefore, our ACMI Contracts
minimize the load factor risk, yield risk and fuel cost risk traditionally
associated with the air cargo business and provide a minimum annual revenue base
and more predictable profit margins. All of our revenues, and most of our costs,
under ACMI Contracts are in U.S. dollars, thus avoiding currency risks normally
associated with international business.

Low cost structure

     We have established ourself as a low cost, efficient and reliable provider
of air cargo transportation. This is primarily due to the outsourcing of many of
our required services, the advantageous economies of scale realized from the
operation of a standardized fleet of long-haul Boeing 747 aircraft, and our
productive work force. The uniformity of the 747 aircraft fleet allows for
standardization in maintenance and crew training, resulting in substantial cost
savings in these areas. In particular, we have advantageous, long-term contracts
on a fixed cost per flight hour basis with leading maintenance providers such as
GE, KLM Royal Dutch Airlines, Lufthansa Technik and MTU Maintenance Hanover for
a significant portion of our on-going aircraft and engine maintenance
requirements. As a result of these efficiencies, our high service standards and
increased airline industry pressure to reduce costs, our airline customers have
determined that outsourcing portions of their air

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cargo business to us can be significantly less costly and offer greater
operational flexibility than expanding their cargo operations by purchasing
additional aircraft and adding other resources such as personnel and systems.

GROWTH STRATEGY

     The key elements of our growth strategy are as follows:

Expand our fleet to meet customer demand

     Strong customer demand and the implementation of Stage 3 noise regulations
by the FAA have combined to create a shortage in the supply of aircraft suitable
for air cargo services. The noise regulations have forced many of our
competitors to downsize their fleets, reduce the capacity utilized on their
fleets and/or to ground a number of aircraft. We will continue to increase the
size of our fleet to meet our customers' growing demand for our services. As we
have done in the past, we anticipate expanding our current fleet by purchasing
or leasing used aircraft from air cargo and passenger airlines. In addition, we
will continue to consider the purchase of new aircraft and the exercise of
options to purchase new aircraft.

Increase business from our existing customer base and pursue new customers

     We have successfully increased our customer base from a single customer in
1992 to 12 full time, and several short-term and seasonal customers in 2001. The
growth in the number of customers is a result of our ability to provide
high-quality, cost-effective service which has gained acceptance within the
industry due to our successful market development efforts. The addition of the
747-400 aircraft provides us with the opportunity to increase our market share
by offering this product to our existing 747-200 customers who need a capacity
upgrade, and to new and existing customers who need the greater payload,
extended range and operational reliability of the 747-400, but for whom the
purchase of a limited number of 747-400 freighter aircraft would not be
cost-effective. In addition, the 747-400 aircraft gives us growth opportunities
with new customers who choose to utilize only new or relatively new aircraft or
are restricted by local regulations limiting the operation of older aircraft. In
addition to the increased demand for the 747-400 aircraft we believe that there
will be continued demand for our 747-200 aircraft from customers who do not need
the extended range of a 747-400 aircraft.

Continue international expansion

     We presently provide air cargo services to the high-growth Asian and
Pacific Rim markets from the United States and Europe, as well as from the
United States to South America. We intend to pursue expansion opportunities,
particularly in China, Hong Kong, South America and Eastern Europe. In addition,
we are seeking to enter new markets with significant growth potential,
particularly Japan and other areas in Australasia. Competition for access to
many of these markets is fierce, and access to a country usually requires
reciprocal access for carriers from that country. Because of the demand for
access to the U.S. market, we believe that our status as a U.S. certified
carrier, with the U.S. operating authorities, landing slots and expertise
necessary for U.S. access already established, positions us well to enter these
markets.

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 three to five years, subject in certain limited cases to
early termination provisions.

     At December 31, 2000, we had ACMI Contracts with 12 full-time customers.
China Airlines Ltd. and Korean Airlines accounted for approximately 22% and 18%,
respectively, and no other customer accounted for 10% or more, of our total
revenues for the year ended December 31, 2000. In addition, we have also
operated short-term, seasonal ACMI Contracts with UPS 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

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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. See
"-- Maintenance." 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 significant number of ACMI Contracts with our existing
customers, although there can be no assurance that in the future such contracts
will not be canceled in accordance with their terms.

     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. See "-- Governmental Regulation." 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.

OTHER FLIGHT OPERATIONS

     To the extent we have available excess aircraft capacity at any time, we
will seek to obtain ad hoc charter service contracts, which we believe are
generally readily available. In addition, in the past we have provided service
to UPS and Emery Air Freight, among others, pursuant to short-term, seasonal
ACMI Contracts during periods of excess aircraft capacity.

SALES AND MARKETING

     From our principal office in Purchase, NY, and from our offices in Golden,
CO and Miami, FL, we service our air cargo customers and solicit ACMI Contract
business. See "-- Facilities." Our efforts to obtain new ACMI Contract business
focus principally on international airlines with established air cargo
customers, high operating costs and hub and spoke systems which gather cargo at
a particular location and which have the need for long-distance capacity to move
such cargo to another distribution point. On occasion, we may utilize
independent cargo brokers to obtain new ACMI Contracts. We market our services
by guaranteeing our customers a reliable, low-cost dedicated aircraft with the
capacity to ensure the efficient linkage of such customers' distribution points
without the customers having to purchase and maintain additional aircraft,
schedule additional flights and add other resources.

MAINTENANCE

     Due to the average age of our Boeing 747-200 fleet, it is likely that the
aircraft will require greater maintenance than newer aircraft such as the
747-400 aircraft. See "-- Aircraft." Aircraft maintenance includes, among other
things, routine daily maintenance, maintenance every 750 flight hours (an "A
Check"), significant maintenance work every 18 months (a "C Check") and major
maintenance events every five years or 25,000 flight hours, whichever comes
later if the aircraft is over the age of 18 years, or every six years or 25,000
flight hours, whichever comes later for aircraft with an age of 18 years or
less, with a maximum interval in either case of nine years (a "D Check"). We
attempt to schedule major maintenance on our aircraft in the first quarter of
the calendar year, when the demand for air cargo capacity has historically been
lower, taking advantage of cancellations of flights by our customers that
generally occur most frequently during this period.

     Pursuant to a maintenance contract with KLM, as amended, in effect until
June 2002, a significant part of the regular maintenance (principally C Checks)
for our 747-200 freighter aircraft is undertaken by KLM, primarily at its
maintenance base located at Schiphol International Airport in Amsterdam, The
Netherlands. KLM supplies engineering and diagnostic testing for each aircraft
and its components in compliance with the FAA and other applicable regulations.
The maintenance contract provides that KLM, subject to certain terms and
conditions, will perform repairs and maintenance of our aircraft on the same
basis and order of priority as repairs to its own fleet. Such service is
provided to us at a cost, for which a large part is a fixed rate per flight
hour, subject to a 3.5% annual escalation factor for the first five years. Under
the terms of the maintenance contract, in

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the event that we wish to maintain more than 12 of our aircraft under such
contract, the terms of the contract are subject to adjustment by KLM. More than
12 of our aircraft are currently subject to the maintenance contract. In
December 1999, we completed negotiations with KLM to terminate the engine
portion of this maintenance agreement. Concurrently, 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 the
KLM agreement.

     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. The
agreement commenced in the third quarter of 1996 with the acceptance of engines
associated with aircraft acquired in the third and fourth quarter of 1996.
Effective in the year 2000, we have an option to add not less than 40 engines to
the program.

     During the initial 36 month operating period, the 747-400 aircraft's
airframe will be covered under manufacturer's warranties. As a result, we do not
expect to incur significant maintenance expense in connection with the 747-400
airframe during the warranty period. In addition, the 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 five years. We will incur expenses associated with routine daily
maintenance of both the airframe and the engines. In July 1998, we entered into
an agreement with Lufthansa Technik pursuant to which Lufthansa Technik will
provide all required maintenance for our initial order of ten 747-400 aircraft,
plus any additional 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. We may terminate the
agreement in June 2003. In connection with the GE engine purchase agreement, we
have also entered into two agreements with GE to provide ongoing maintenance on
the 747-400 aircraft engines at a fixed cost per flight hour, subject to an
annual escalation adjustment.

     We believe that fixed cost contracts provide the most efficient means of
ensuring the continued service of our aircraft fleet and the most reliable way
by which to predict our maintenance costs. Certain other low-level routine
maintenance is performed on a time and material basis.

GOVERNMENTAL REGULATION

     Under the Aviation Act, the DOT and the FAA exercise regulatory authority
over us. The DOT's jurisdiction extends primarily to economic issues related to
the air transportation industry, including, among other things:

     - air carrier certification and fitness;

     - insurance;

     - certain leasing arrangements;

     - the authorization of proposed schedule and charter operations;

     - tariffs;

     - consumer protection;

     - unfair methods of competition;

     - unjust discrimination; and

     - deceptive practices.

The FAA's regulatory authority relates primarily to air safety, including
aircraft certification and operations, crew and maintenance personnel
licensing/training and maintenance standards.

     To provide air cargo transportation services under long-term contracts with
major international airlines, we rely primarily on our worldwide authorities.
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.
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     In order to engage in the air transportation business, we are required to
maintain a CPCN from the DOT. Prior to issuing a CPCN, the DOT examines a
company's managerial competence, financial resources and plans and compliance
disposition in order to determine whether a carrier is fit, willing and able to
engage in the transportation services it has proposed to undertake. The DOT also
examines whether a carrier conforms with the Aviation Act requirement that the
transportation services proposed are consistent with the public convenience and
necessity. Among other things, a company holding a CPCN must qualify as a United
States citizen, which requires that it be organized under the laws of the United
States or a State, Territory or Possession thereof; that its Chief Executive
Officer and at least two-thirds of its Board of Directors and other managing
officers be United States citizens; that not more than 25% of its voting stock
be owned or controlled, directly or indirectly, by foreign nationals; and that
it not otherwise be subject to foreign control. The DOT may impose conditions or
restrictions on such a CPCN.

     The DOT has issued us a CPCN to engage in interstate and overseas air
transportation of property and mail, and a CPCN to engage in foreign air
transportation of property and mail between the United States and Taiwan. Both
CPCNs are subject to standard terms, conditions and limitations. By virtue of
holding those CPCNs, we possess worldwide charter authority and scheduled
all-cargo rights to more than 150 countries. We also hold limited-term DOT
exemption authority to engage in scheduled air transportation of property and
mail between certain points in the United States, on the one hand, and Hong
Kong, Colombia and The Netherlands, on the other hand.

     International air services are generally governed by a network of bilateral
civil air transport agreements in which rights are exchanged between
governments, which then select and designate air carriers authorized to exercise
such rights. These bilateral agreements may:

     - be open skies agreements which contain no restrictions or limitations, or
       they may specify the city-pair markets that may be served;

     - restrict the number of carriers that may be designated;

     - provide for prior approval by one or both governments of the prices the
       carriers may charge;

     - limit frequencies or the amount of capacity to be offered in the market;
       and

     - in various other ways, impose limitations on the operations of air
       carriers.

To obtain authority under a restrictive bilateral agreement, it is often
necessary to compete against other carriers in a DOT proceeding. At the
conclusion of the proceeding, the DOT awards all route authorizations. The
provisions of bilateral agreements pertaining to charter services vary
considerably from country to country. Some agreements limit the number of
charter flights that carriers of each country may operate. 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 air 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 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 recent ruling by an aviation agency of the British
government concluded that one of our two long-term wet-leases of 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.

     We have obtained an operating certificate issued by the FAA pursuant to
Part 121 of the Federal Aviation Regulations. The FAA has jurisdiction over the
regulation of flight operations generally, including:

     - the licensing of pilots and maintenance personnel;

     - the establishment of minimum standards for training and retraining;

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     - maintenance of technical standards for flight, communications and ground
       equipment;

     - security programs; and

     - other matters affecting air safety.

In addition, the FAA mandates certain recordkeeping procedures. We must obtain
and maintain FAA certificates of airworthiness for all of our aircraft. Our
aircraft, flight personnel and flight and emergency procedures are subject to
periodic inspections and tests by the FAA. All air carriers operating to, from
or within the United States are subject to the strict scrutiny of the FAA to
ensure proper compliance with FAA regulations. We are considered to be a
high-growth carrier by the FAA and, therefore, we receive heightened attention
by the FAA and DOT.

     The DOT and the FAA have authority under the Aviation Safety and Noise
Abatement Act of 1979, as amended and recodified, and under the Airport Noise
and Capacity Act of 1990, to monitor and regulate aircraft engine noise. All of
our existing fleet of aircraft comply with Stage 3 Standards -- the highest
standard issued by the FAA.

     Under the FAA's 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. In November 1994, Boeing issued Nacelle Strut Modification
Service Bulletins which have been converted into Directives by the FAA. All of
our Boeing 747-200 aircraft have been brought into compliance with such
Directives. 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 aircraft will range
between $2 million and $3 million. Fourteen aircraft in our fleet have already
undergone the major portion of such modifications. The remaining eight aircraft
in service will require modification prior to the year 2009. 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 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.

     We are also subject to the regulations of the Environmental Protection
Agency regarding air quality in the United States. The aircraft that we operate
meet the fuel venting requirements and smoke emissions standards established by
the Environmental Protection Agency.

COMPETITION

     The market for air cargo services is highly competitive. A number of
airlines, including Lufthansa, currently provide services for themselves and for
others similar to our services, 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, compete with us on a limited, indirect basis, generally
outside of the ACMI 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 in part 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 747-400 aircraft compared to
those currently obtained with existing Boeing 747-200 aircraft. We believe that
such higher rates have been and will continue to be obtainable as a result of
the unique operating benefits associated with the 747-400 aircraft. These
operational benefits include a longer range, greater payload capability and
increased fuel efficiency relative to the Boeing 747-200 aircraft.

FUEL

     Although fuel costs are typically the largest operating expense for
airlines, we have limited exposure to the fluctuation of fuel costs and
disruptions in supply as a result of our ACMI Contracts, which require the
customers to provide fuel for the aircraft. However, an increase in fuel costs
could reduce our cost advantages because of

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our older Boeing 747-200 aircraft fleet, which are not as fuel-efficient as
newer cargo aircraft such as the 747-400 aircraft. In addition, to the extent we
operate scheduled cargo or ad hoc charter services, or position our aircraft, we
are responsible for fuel and other costs that are normally borne by the
customers under the ACMI Contracts. In 2000, approximately 2% of our block hours
represented scheduled cargo, ad hoc charter services or positioning our aircraft
for our own account. We may, at times, have excess capacity in which case we may
deploy such aircraft in scheduled cargo or ad hoc charter services.

EMPLOYEES

     As of December 31, 2000, we had 1,569 employees, 880 of whom were air crew
members. We have hired and expect to hire additional pilots in 2001 associated
with the delivery of additional aircraft, including the 747-400 aircraft. We
maintain a comprehensive training program for our pilots in compliance with FAA
requirements in which each pilot regularly attends recurrent training programs.

     We believe that our employees' participation in the growth and
profitability of our business is essential to maintain our productivity and low
cost structure, and we have therefore established programs for that purpose such
as a profit sharing plan, a stock purchase plan, and a matching contribution of
the employees' contribution to a retirement plan (Internal Revenue Code of 1986,
as amended, Section 401(k) plan). Such programs are designed to allow employees
to share financially in our success and to augment base salary levels and
retirement income. We consider our relations with our employees to be good.

     In April 1999, we received notification from the NMB that our crew members
voted for representation by ALPA. We expect our labor costs to decline initially
since our profit sharing plan excludes from the category of eligible employees,
those employees who have been certified by the NMB for representation. In
response to ALPA's claims that such an exclusion violates the Railway Labor Act,
on May 6, 1999, we filed an action in the United States District Court for the
District of Columbia seeking a declaratory judgment confirming, inter alia, the
enforceability of the profit sharing plan's exclusion. On May 10, 1999, ALPA
filed a counterclaim in that action, alleging that the exclusion of its members
from the profit sharing plan violates the Railway Labor Act, and seeking
restoration of profit sharing pay. In October 1999, the District Court entered a
summary judgment in our favor, ruling that we did not violate the Railway Labor
Act when we eliminated crew members' participation in the profit sharing plan
following ALPA's certification as the crew members' collective bargaining agent.
In addition, the District Court dismissed all other claims in the case. On
November 21, 2000, the United States Court of Appeals for the District of
Columbia Circuit issued a decision reversing the earlier decision of the
District Court. Our petition for a rehearing was denied on February 5, 2001. We
continue to believe that the exclusion of our pilots from the corporate
profit-sharing plan was lawful and we are considering whether to petition the
United States Supreme Court for review in addition to pursuing all other
available legal remedies.

INSURANCE

     We may incur potential losses which could result in the event of an
aircraft accident. Any such accident could involve not only repair or
replacement of a damaged aircraft and its consequent temporary or permanent loss
from service, but also potential claims involving injury to persons or property.
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. While we carry this insurance, any extended interruption of our
operations due to the loss of an aircraft could have a material adverse effect
on our financial position and results of operations. 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. 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. We believe that we
have good relations with our insurance providers.

                                        9
<PAGE>   10

ITEM 2. PROPERTIES

AIRCRAFT

     Our fleet currently includes 21 Boeing 747-200, 3 Boeing 747-300 and 12
Boeing 747-400 freighter aircraft in service. We acquired the 747-400 aircraft
in 1998, 1999 and 2000 pursuant to the Boeing Purchase Agreement, which provided
for our purchase of ten new 747-400 freighter aircraft powered by engines
acquired from GE, with options to purchase up to ten additional 747-400
aircraft. In February 1999, we exercised options under this agreement for two
additional aircraft. In October 2000, we exercised options under this agreement
for four additional 747-400s to be delivered in 2002. We placed five 747-400
aircraft into service in 1998, four 747-400 aircraft into service in 1999 and
three 747-400 aircraft into service in 2000.

     Our utilization of Boeing 747 aircraft provides significant marketing
advantages because these aircraft, relative to most other cargo aircraft that
are commercially available, have higher maximum payload and cubic capacities,
and longer range. The uniformity of our current Boeing 747-200 aircraft fleet
allows for standardization in maintenance and crew training, resulting in
substantial cost savings in these areas. The new 747-400 aircraft have greater
operational capabilities than the 747-200 aircraft and will allow us to maintain
our low cost structure despite their higher acquisition cost. The new aircraft's
lower maintenance requirements will provide a higher level of operational
reliability with lower maintenance costs during the early years of operation,
typically for at least five years. In addition, the acquisition of 12 747-400
freighter aircraft, and the exercise of our option to acquire four additional
747-400 aircraft in 2002, makes us one of the largest operators of this aircraft
type to date and will enable us to capitalize on economies of scale from the
standardization in maintenance and crew training.

     The following table describes, as of January 31, 2001, our existing fleet
and the 747-400 aircraft subject to the Boeing Purchase Agreement.

                                 FLEET PROFILE

<TABLE>
<CAPTION>
                                        NUMBER      AIRCRAFT                    YEAR OF     AVERAGE AGE
                                      OF AIRCRAFT     TYPE     OWNED/LEASED   MANUFACTURE   (IN YEARS)
                                      -----------   --------   ------------   -----------   -----------
<S>                                   <C>           <C>        <C>            <C>           <C>
Existing fleet:.....................      16        747-200    Owned(1   )     1974-1985(2)    21.1
                                           5        747-200     Leased(3 )     1977-1986(4)    20.0
                                           2        747-300     Owned               1985       15.0
                                           1        747-300     Leased(5 )          1990       10.0
                                           2        747-400     Owned          1998-1999        1.5
                                          10        747-400     Leased(6 )     1998-2000        1.1
747-400 aircraft on order(7):.......       4        747-400                         2002
</TABLE>

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

(1) All aircraft are powered by GE engines. See "-- Maintenance."

(2) The years of manufacture for these 16 aircraft are as follows: four aircraft
    in 1979, two aircraft each in 1976, 1980, and 1981, and one aircraft each in
    1974, 1975, 1977, 1978, 1984, and 1985.

(3) These aircraft are leased from third parties under three leases expiring in
    2007 and one lease each expiring in 2009 and 2010.

(4) The years of manufacture for these 5 aircraft are as follows: one aircraft
    each in 1977, 1978, 1979, 1980, and 1986.

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

(6) 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.

(7) We purchased 12 new Boeing 747-400 freighter aircraft and have exercised
    options for four additional aircraft. The first five aircraft were delivered
    in 1998, four were delivered in 1999 and three were delivered in 2000. See
    "-- 747-400 Aircraft Acquisition." These aircraft are be powered by GE
    engines. The financing

                                        10
<PAGE>   11

    for the 12 aircraft has been secured through the 1998 EETCs, 1999 EETCs,
    2000 EETCs (as defined) and lease equity.

     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 ACMI
Contract. 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 intend to have new ACMI Contracts in
place upon delivery of aircraft, including the 747-400 aircraft, there can be no
assurance that such arrangements will have been made.

     From time to time, we engage in discussions with third parties regarding
possible acquisitions of aircraft that could expand our operations. We are in
discussions with third parties for the possible acquisition of additional
aircraft for delivery in 2001 and beyond.

747-400 AIRCRAFT ACQUISITION

     In June 1997, we entered into the Boeing Purchase Agreement to purchase 10
new 747-400 freighter aircraft with options for 10 additional aircraft, all to
be powered by GE engines. In February 1999, we exercised options for two
additional aircraft which were delivered in 2000 and in October 2000 we
exercised options for four additional aircraft for delivery in 2002. As a result
of our being a large purchaser of 747-400 freighter aircraft to date, we were
able to negotiate from Boeing and GE a significant discount off the aggregate
list price for the 16 747-400 freighter aircraft, four installed engines per
aircraft and additional spare engines. In addition, we obtained certain
ancillary products and services at advantageous prices.

FACILITIES

     Our principal offices are located in a 120,000 square foot facility at 2000
Westchester Avenue, Purchase, New York under a twelve year lease. These offices
include 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, we occupy
offices in a 6,500 square foot office building that we own in Golden, Colorado,
and we lease 2,000 square feet of warehouse space at JFK for the storage of
aircraft parts, which lease expires April 15, 2002.

     Due to increased operations at Miami International Airport, we entered into
a month-to-month office lease and a month-to-month warehouse lease with Dade
County, Florida in March 1997. The leased warehouse space is used to store
aviation equipment and aircraft components used to maintain aircraft operated by
us. In the third quarter of 1998, we entered into a sublease and ramp use
agreement with American Airlines, Inc. for 145,000 square feet of hangar, office
and parking space at MIA in support of our increased operations. The lease is
for a period in excess of four years and commenced July 1, 1998. We are
currently planning to build a wide body maintenance facility at MIA. The
facility, which will be financed through industrial development bonds, is
scheduled to open in 2001.

ITEM 3. LEGAL PROCEEDINGS

     In April 1999, we received notification from the NMB that our crew members
voted for representation by ALPA. Our profit sharing plan excludes from the
category of eligible employees, those employees who have been certified by the
NMB for representation. In response to ALPA's claims that such an exclusion
violates the Railway Labor Act, on May 6, 1999, we filed an action in the United
States District Court for the District of Columbia seeking a declaratory
judgment confirming, inter alia, the enforceability of the profit sharing plan's
exclusion. On May 10, 1999, ALPA filed a counterclaim in that action, alleging
that the exclusion of its members from the profit sharing plan violates the
Railway Labor Act, and seeking restoration of profit sharing pay. In October
1999, the District Court entered a summary judgment in our favor, ruling that we
did not violate the Railway Labor Act when we eliminated crew members'
participation in the profit sharing plan following ALPA's certification as the
crew members' collective bargaining agent. In addition, the District Court
dismissed all other

                                        11
<PAGE>   12

claims in the case. On November 21, 2000, the United States Court of Appeals for
the District of Columbia Circuit issued a decision reversing the earlier
decision of the District Court. Our petition for a rehearing was denied on
February 5, 2001. We continue to believe that the exclusion of our pilots from
the corporate profit sharing plan was lawful and we are considering whether to
petition the United States Supreme Court for review in addition to pursuing all
other available legal remedies.

     On May 24, 2000, ALPA filed suit against us in the Southern District of
Florida seeking to enjoin, as a violation of the Railway Labor Act, our
establishment of a 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.

     In March 2000, we received an order from the Government of India ("India")
seeking approximately $1.1 million in taxes (plus interest of approximately $1.1
million and possible penalties) for the tax year 1996 to 1997. India also
requested additional information for subsequent tax years. Subsequent to the
initial order, the government of India eliminated the interest charge and
reduced the $1.1 million tax assessment. We believe that we are exempt from
Indian taxes under a United States/India treaty and intend to contest the
assessment vigorously.

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

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

     No matters were submitted to a vote of the Company's security holders
during the fourth quarter of 2000.

                                        12
<PAGE>   13

                                    PART II

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

     In November 1997, the Company's common stock commenced trading on the New
York Stock Exchange ("NYSE") under the symbol "CGO." Prior to that, the
Company's common stock traded on the Nasdaq National Market ("Nasdaq/NM") under
the trading symbol "ATLS." The approximate number of shareholders of record at
January 31, 2001 was 354.

     In January, 1999, the Company declared a 3-for-2 stock split for
shareholders of record as of January 25, 1999 which was effected on February 8,
1999 (the "Stock Split"). The following table sets forth for the periods
indicated the high and low bid quotations, as quoted by the NYSE and Nasdaq/NM.
Such quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not necessarily represent actual transactions. These
amounts are approximate as a result of their restatement to reflect the Stock
Split.

<TABLE>
<CAPTION>
                                                        2000                1999
                                                  ----------------    ----------------
                                                   HIGH      LOW       HIGH      LOW
                                                  ------    ------    ------    ------
<S>                                               <C>       <C>       <C>       <C>
QUARTER ENDED
  March 31......................................  $30.06    $22.81    $34.94    $26.50
  June 30.......................................   36.63     25.63     34.00     24.75
  September 30..................................   45.69     35.75     36.00     18.88
  December 31...................................   42.94     29.00     28.25     19.06
</TABLE>

     The Company has not declared any cash dividends and does not plan to do so
in the foreseeable future. The indentures governing the Company's unsecured
10 3/4% Senior Notes Due 2005, 9 3/8% Senior Notes Due 2006 and 9 1/4% Senior
Notes Due 2008 (each as defined) in certain circumstances may restrict the
Company from paying dividends or making other distributions on its common stock.
See Note 3 to the consolidated financial statements of the Company.

                                        13
<PAGE>   14

ITEM 6. SELECTED FINANCIAL DATA

     The selected financial data presented below have been derived from the
consolidated financial statements of the Company. This information should be
read in conjunction with the consolidated financial statements and related
notes, and Management's Discussion and Analysis of Financial Condition and
Results of Operations included elsewhere in this report.

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                          -------------------------------------------------------------
                                            2000        1999          1998          1997         1996
                                          --------   -----------   -----------   -----------   --------
                                                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>        <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Operating revenues......................  $790,468    $637,081      $422,238      $401,041     $315,659
Operating income........................   232,704     187,489       135,849        56,002       88,063
Income before extraordinary items and
  cumulative effect of a change in
  accounting principle..................    85,259      61,279        46,217         6,689       37,838
Net income..............................    85,259      53,270        46,217        23,429       37,838
Basic EPS:
  Income before extraordinary items and
     cumulative effect of a change in
     accounting principle per common
     share..............................  $   2.33    $   1.79      $   1.37      $    .20     $   1.17
  Net income per common share...........  $   2.33    $   1.56      $   1.37      $    .70     $   1.17
  Weighted average common shares
     outstanding during the period(1)...    36,555      34,245        33,675        33,675       32,254
Diluted EPS:
  Income before extraordinary items and
     cumulative effect of a change in
     accounting principle per common
     share..............................  $   2.31    $   1.77      $   1.37      $    .20     $   1.16
  Net income per common share...........  $   2.31    $   1.54      $   1.37      $    .69     $   1.16
  Weighted average common shares
     outstanding during the period(1)...    36,947      34,500        33,841        33,803       32,523
</TABLE>

<TABLE>
<CAPTION>
                                                          AT DECEMBER 31,
                                    ------------------------------------------------------------
                                       2000         1999         1998         1997        1996
                                    ----------   ----------   ----------   ----------   --------
                                                           (IN THOUSANDS)
<S>                                 <C>          <C>          <C>          <C>          <C>
BALANCE SHEET DATA:
Cash and short-term investments...  $  558,992   $  473,160   $  471,814   $  152,969   $124,663
Working capital...................     483,265      330,281      294,511       80,363     98,675
Total assets......................   2,174,057    2,142,370    1,988,869    1,297,415    773,707
Long-term debt, net of current
  portion.........................   1,037,789    1,253,084    1,166,460      736,026    462,868
Other liabilities.................     286,120      228,075      235,308      163,167         --
Stockholders' equity..............     552,206      357,700      283,890      238,829    215,785
</TABLE>

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

(1) As adjusted to reflect the 3-for-2 stock split for shareholders of record as
    of January 25, 1999.

<TABLE>
<CAPTION>
                                                            YEARS ENDED DECEMBER 31,
                                              ----------------------------------------------------
                                                2000       1999       1998       1997       1996
                                              --------   --------   --------   --------   --------
                                                                 (IN THOUSANDS)
<S>                                           <C>        <C>        <C>        <C>        <C>
OTHER FINANCIAL & OPERATING DATA:
EBITDAR(2)..................................  $405,844   $317,041   $209,547   $157,691   $140,919
Ratio of EBITDAR to interest expense(2).....      3.28       2.92       2.80       2.98       3.96
Ratio of earnings to fixed charges(3).......      1.82       1.53       1.34       1.30       2.11
Ratio of long-term debt to stockholders'
  equity....................................      1.88       3.50       4.11       3.08       2.15
Total aircraft (at end of period)...........        37         31         27         17         17
</TABLE>

                                        14
<PAGE>   15

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

(2) EBITDAR represents income (loss) before income taxes, depreciation and
    amortization, aircraft and engine rentals, and total other income (expense),
    as adjusted to exclude the "Write-off of capital investment and other" in
    the second quarter of 1997. EBITDAR is not a recognized measure of
    performance under GAAP and should not be considered in isolation or as an
    alternative to, or more meaningful than, operating income or operating cash
    flows prepared in accordance with GAAP as an indicator of our operating
    performance or liquidity. We believe that EBITDAR may provide additional
    information about our ability to meet our future requirements for debt
    service, capital expenditures and working capital.

(3) In calculating the ratio of earnings to fixed charges, earnings consists of
    income (loss) prior to income tax benefit (expense), as adjusted to exclude
    the "Write-off of capital investment and other" in the second quarter of
    1997 and fixed charges (excluding capitalized interest for the period).
    Fixed charges consist of interest expense (including amounts capitalized),
    amortization of debt issuance costs and one-third of rental payments on
    operating leases (such one-third portion having been deemed by us to
    represent the interest portion of such payments).

REVENUE STATISTICS

<TABLE>
<CAPTION>
             Total Revenue    Operating Income     Pretax Income
<S>          <C>              <C>                  <C>
2000            790,468           232,704             137,527
1999            637,081           187,489              98,835
1998            422,238           135,849              73,551
1997            401,041            83,102              37,633
1996            315,659            88,063              59,588
</TABLE>

     Operating Income and Pretax Income for 1997 have been adjusted to exclude
the "Write-off of capital investment and other" in the second quarter of 1997.

                                        15
<PAGE>   16

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

RESULTS OF OPERATIONS

     The cargo operations of our airline customers are 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 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 6 of
our December 31, 2000 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.

     The tables below set forth selected financial and operating data for the
four quarters of the years ended December 31, 2000, 1999 and 1998 (dollars in
thousands).

<TABLE>
<CAPTION>
                                                                   2000
                                          ------------------------------------------------------
                                                         4TH        3RD        2ND        1ST
                                          CUMULATIVE   QUARTER    QUARTER    QUARTER    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 operated...............       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
                                          ------------------------------------------------------
                                                         4TH        3RD        2ND        1ST
                                          CUMULATIVE   QUARTER    QUARTER    QUARTER    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 (1)..........................     53,270      23,670     14,093     13,270      2,237
Block hours.............................    109,608      34,166     27,650     23,861     23,931
Average aircraft operated...............       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 income is after extraordinary item and cumulative effect of a change in
    accounting principle for the 1999 Cumulative and 1st Quarter 1999 columns.

                                        16
<PAGE>   17

<TABLE>
<CAPTION>
                                                                    1998
                                            ----------------------------------------------------
                                                           4TH        3RD        2ND       1ST
                                            CUMULATIVE   QUARTER    QUARTER    QUARTER   QUARTER
                                            ----------   --------   --------   -------   -------
<S>                                         <C>          <C>        <C>        <C>       <C>
Total operating revenues..................   $422,238    $145,465   $109,189   $87,950   $79,634
Operating expenses........................    286,389      98,393     73,473    56,432    58,091
Operating income..........................    135,849      47,072     35,716    31,518    21,543
Other income (expense)....................    (62,298)    (18,227)   (15,478)  (15,479)  (13,114)
Net income................................     46,217      18,057     12,745    10,105     5,310
Block hours...............................     76,276      25,134     18,926    16,828    15,388
Average aircraft operated.................       19.6        23.7       19.9      17.7      17.0
Operating margin..........................       32.2%       32.4%      32.7%     35.8%     27.1%
Pre-tax operating margin..................       17.4%       19.8%      18.5%     18.2%     10.6%
</TABLE>

  2000 Compared to 1999

     Operating Revenues and Results of Operations.  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. Our
operating results improved by approximately 24% from a $187.5 million operating
profit for 1999 to an operating profit of $232.7 million for 2000. Results of
operations 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-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 $53.3 million for 1999 increased to a net income of $85.3 million for
2000, or approximately 60%.

     Operating levels increased during 2000 with the delivery of three
additional new 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 flight crew
salaries and benefits; other flight-related expenses; maintenance; aircraft and
engine rentals; fuel costs for non-ACMI contract services; ground handling;
depreciation and amortization; and other expenses.

     Flight crew salaries and benefits include all such expenses for our pilot
work force. Flight crew salaries increased to $61.6 million in 2000 compared to
$48.1 million in 1999, or approximately 28%, principally reflecting the increase
in the size of our fleet year over year. In 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, flight crew salaries and benefits increased
by approximately 5% to $460 per block hour for 2000 from $439 per block hour for
1999. This increase in the block hour rate was primarily due to salary
adjustments based on seniority.

                                        17
<PAGE>   18

     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.

     Other flight-related expenses increased to $61.2 million in 2000 compared
to $52.5 million in 1999, or approximately 17%. On a block hour basis, other
flight-related expenses decreased approximately 5% to $456 per block hour for
2000 compared to $479 per block hour for 1999. The increase in expense was due
to the increase in the size of our fleet year over year offset by the effect of
cost saving initiatives. The decrease on a per block hour basis is primarily due
to improvements in crew travel and crew basing strategies compared to the 1999
impact of added training and travel costs associated with the introduction of
the new 747-400 freighter aircraft into our 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. In addition, in January 1995
we contracted with KLM for a significant part of our regular maintenance
operations and support on a fixed cost per flight hour basis. 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 engines which were previously serviced under the
KLM agreement, plus additional engines. Effective October 1996, certain
additional aircraft engines were accepted into the GE engine maintenance
program, also on a fixed cost per flight hour basis, pursuant to a ten-year
maintenance agreement. During 1998, we entered into separate long-term contracts
with Lufthansa Technik for the airframe maintenance and with GE for the engine
maintenance of the 747-400 freighter aircraft, effective with the introduction
of the 747-400 freighter aircraft into our fleet in the second half of 1998.

     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.

     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 airline customers
generally bear all other operating expenses. As a result, we seldom incur fuel
and ground handling expenses except when we operate on our own behalf either in
scheduled services, for ad hoc charters or for ferry flights. Fuel expenses for
our non-ACMI Contract services include both the direct costs of aircraft fuel as
well as the cost of delivering fuel into the aircraft. Ground handling expenses
for non-ACMI Contract service include the costs associated with servicing our
aircraft at the various airports to which we operate.

     Fuel and ground handling costs increased to $25.9 million for 2000 compared
to $19.5 million for 1999, or approximately 32%. This was primarily due to
increased charter activity and higher fuel prices year over year. On a per block
hour basis, fuel and ground handling costs increased by 8% to $193 per block
hour in 2000 from $178 per block hour in 1999 reflecting the increase in fuel
prices.

     Depreciation and amortization expense includes depreciation on aircraft,
spare parts and ground equipment, and the amortization of capitalized major
aircraft maintenance and engine overhauls. 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.

     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

                                        18
<PAGE>   19

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 salaries, wages, benefits, travel and meal
expenses for non-crew members and other miscellaneous operating costs.

     Other operating expenses increased to $87.8 million in 2000 from $68.7
million in 1999, or approximately 28%. On a block hour basis, these expenses
increased to $655 per block hour in 2000 from $627 per block hour in 1999, or
approximately 4%. The increase in cost from the prior year was due primarily to
addition of ground personnel, the relocation of our headquarters to Purchase,
New York, and other costs associated with the expansion of our fleet and
operations.

     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.

  1999 Compared to 1998

     Operating Revenues and Results of Operations.  Total operating revenues for
the year ended December 31, 1999 increased to $637.1 million compared to $422.2
million for 1998, an increase of approximately 51%. The average number of
aircraft in our fleet during 1999 was 29.0 compared to 19.6 during 1998. Total
block hours for 1999 were 109,608 compared to 76,276 for 1998, an increase of
approximately 44%, reflecting an increase in the average number of aircraft in
our fleet during 1999. Revenue per block hour increased by approximately 5% to
$5,812 for 1999 compared to $5,536 for 1998, substantially 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. Our
operating results improved by approximately 38% from a $135.8 million operating
profit for 1998 to an operating profit of $187.5 million for 1999. Results of
operations were favorably impacted by the increase in 747-400 freighter aircraft
in our 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 $61.3 million in 1999, compared to $46.2
million in 1998, an increase of approximately 33%. In the first quarter of 1999,
we recorded an approximate $6.6 million extraordinary loss, net of applicable
tax benefit of approximately $3.9 million, from the extinguishment of the $100
million 12 1/4% Equipment Notes due 2002 and a one-time charge of approximately
$1.4 million, net of applicable tax benefit of approximately $0.9 million,
associated with the write-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 $46.2 million for 1998 increased to a net income of
$53.3 million for 1999, or approximately 15%.

     Operating levels increased during the second and third quarter of 1999 with
the delivery of four additional new 747-400 freighter aircraft. Block hours
increased from 23,931 in the first quarter of 1999 to 34,166 in the fourth
quarter of 1999, reflecting the growth in the average fleet size from 27.0
aircraft to 30.3 aircraft for the two periods. Total operating revenue increased
from $137.8 million in the first quarter to $198.8 million in the fourth
quarter, representing slightly higher block hour rates for the fourth quarter
compared to those of the first quarter of 1999, primarily due to the seasonality
of the business of our customers. We earned $61.5 million operating income and
$23.7 million net income in the fourth quarter of 1999, compared to $36.7
million operating income and $10.2 million net income in the first quarter of
1999, excluding the extraordinary item and cumulative effect of a change in
accounting principle discussed above.

                                        19
<PAGE>   20

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

     Flight crew salaries and benefits include all such expenses for our pilot
work force. Flight crew salaries increased to $48.1 million in 1999 compared to
$35.5 million in 1998, or approximately 35%, principally reflecting the increase
in the size of our fleet year over year, partially offset by the termination of
profit sharing costs for our flight crew. In 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, flight crew salaries and benefits decreased
by approximately 6% to $439 per block hour for 1999 from $466 per block hour for
1998. This decrease in the block hour rate was primarily due to the efficiencies
in operations achieved subsequent to the introduction of the 747-400 freighter
aircraft into our fleet in the second half of 1998 and the cessation of profit
sharing costs discussed above.

     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.

     Other flight-related expenses increased to $52.5 million in 1999 compared
to $34.7 million in 1998, or approximately 51%. On a block hour basis, other
flight-related expenses increased approximately 5% to $479 per block hour for
1999 compared to $455 per block hour for 1998. This increase was primarily due
to the impact of added training and travel costs associated with the
introduction of the five new 747-400 freighter aircraft into our fleet in the
second half of 1998, the four additional new 747-400 freighter aircraft
delivered in 1999 and preparation for the remaining three aircraft delivered in
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. In addition, in January 1995
we contracted with KLM for a significant part of our regular maintenance
operations and support on a fixed cost per flight hour basis. 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 engines which were previously serviced under the
KLM agreement, plus additional engines. Effective October 1996, certain
additional aircraft engines were accepted into the GE engine maintenance
program, also on a fixed cost per flight hour basis, pursuant to a ten-year
maintenance agreement. During 1998, we entered into separate long-term contracts
with Lufthansa Technik for the airframe maintenance and with GE for the engine
maintenance of the 747-400 freighter aircraft, effective with the introduction
of the 747-400 freighter aircraft into our fleet in the second half of 1998.

     Maintenance expense increased to $131.2 million in 1999 from $96.6 million
in 1998, or approximately 36%, primarily due to the increased size of our fleet.
On a block hour basis, maintenance expense decreased year over year by
approximately 6%.

     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 $51.2 million in 1999 compared to $14.6
million in 1998, or an increase of approximately 250%, primarily due to the six
leased 747-400 aircraft acquired in the second half of 1998 and continuing
through the third quarter of 1999.

     Because of the nature of our ACMI Contracts, our airline customers bear all
other operating expenses. As a result, we do not incur fuel and ground handling
expenses except when we operate on our own behalf either in scheduled services,
for ad hoc charters or for ferry flights. Fuel expenses for our non-ACMI
Contract services include both the direct costs of aircraft fuel as well as the
cost of delivering fuel into the aircraft. Ground handling expenses for non-ACMI
Contract service include the costs associated with servicing our aircraft at the
various airports to which we operate.

                                        20
<PAGE>   21

     Fuel and ground handling costs increased to $19.5 million for 1999 compared
to $8.7 million for 1998, or approximately 124%. This was primarily due to
increased charter activity and slightly higher fuel prices year over year.

     Depreciation and amortization expense includes depreciation on aircraft,
spare parts and ground equipment, and the amortization of capitalized major
aircraft maintenance and engine overhauls. 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.

     Depreciation and amortization expense increased to $78.4 million in 1999
from $59.1 million in 1998, or approximately 33%. This increase primarily
reflected an increase of approximately 26% in owned aircraft from the fourth
quarter of 1998 through the third quarter of 1999 and the higher ownership costs
of the 747-400 compared to the 747-200.

     Other operating expenses include salaries, wages, benefits, travel and meal
expenses for non-crew members and other miscellaneous operating costs.

     Other operating expenses increased to $68.7 million in 1999 from $37.1
million in 1998, or approximately 85%. On a block hour basis, these expenses
increased to $627 per block hour in 1999 from $486 per block hour in 1998, or
approximately 29%. The increase in cost from the prior year was due primarily to
addition of ground personnel and other costs associated with the expansion of
our fleet and operations.

     Other Income (Expense).  Other income (expense) consists of interest income
and interest expense. Interest income for 1999 was $20.0 million compared to
$12.6 million for 1998, 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 $108.7 million for 1999 from $74.9
million for 1998, or approximately 45%. This increase reflects the financing
costs associated with the purchase of five additional aircraft in the second
half of 1998; the purchase of three additional aircraft in 1999; and the
issuance of $175 million of 9 1/4% Senior Notes due 2008 in April 1998 and $150
million of 9 3/8% Senior Notes due 2006 in November 1998, of which a portion was
used to extinguish the $100 million of 12 1/4% Equipment Notes due 2002 in
January 1999.

     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
1999 and 37.2% during 1998. Due to significant capital costs, which are
depreciated at an accelerated rate for tax purposes, a significant portion of
our tax provision in these periods is deferred.

LIQUIDITY AND CAPITAL RESOURCES

     Our balance sheet reflected cash and cash equivalents and short-term
investments of $559.0 million and $473.2 million at December 31, 2000 and 1999,
respectively. At December 31, 2000 we had working capital of $483.3 million
compared to $330.3 million at 1999. The increase in our working capital is
largely a result of cash flows provided by operating activities during the year
ended December 31, 2000.

     Cash provided by operations for the year ended December 31, 2000 was $165.0
million, compared to $190.4 million and $102.7 million for 1999 and 1998,
respectively. Cash provided by operations for the year ended December 31, 2000
was primarily attributable to our net income for the year adjusted for non-cash
charges, and increases in our deferred tax liability, accrued expenses, and
income taxes payable. Operating cash flows for the year ended December 31, 1999
were due 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, 1998 was attributable to
our net income for the year adjusted for non-cash charges, and increases in our
deferred tax liability, accrued expenses, and income taxes payable.

     Cash used in investing activities for the year ended December 31, 2000 was
$413.4 million, compared to $453.9 million and $367.5 million for 1999 and 1998,
respectively. 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 $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

                                        21
<PAGE>   22

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 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 investing activities for
the year ended December 31, 1998 consisted of purchases of property and
equipment of $456.9 million and was offset by maturities of short-term
investments, net of purchases, of $89.4 million. Property and equipment
purchases in 1998 consisted primarily of costs associated with the new Boeing
747-400s, five of which were delivered in 1998, purchases of spare airframe and
engine parts associated with the new aircraft in our fleet, purchases of spare
engines for the 747-400s, and other capital improvements associated with the
continued growth of the Company.

     Cash provided by financing activities for the year ended December 31, 2000
was $410.5 million, compared to $145.5 million and $673.0 million for 1999 and
1998, respectively. 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. Cash provided by financing activities for the year
ended December 31, 1998 consisted of proceeds from the exercise of common stock
options of $1.6 million, and proceeds from debt issuance and lease financing,
net of principal payments and debt issuance and deferred lease costs of $674.6
million, offset by purchases of treasury stock, net of proceeds from the
issuance of treasury stock under our employee stock purchase plan of $3.1
million. In 1998, we received funding under the 1998 EETCs associated with the
delivery of five new Boeing 747-400s.

     We believe that cash on hand and the cash flow generated from our
operations will be sufficient to meet our normal 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. However, there can be no assurance that
sufficient financing will be available for all aircraft and other capital
expenditures not covered by firm financing commitments.

     In June 1997, we entered into a purchase agreement with the Boeing Company
(the "Boeing Purchase Agreement") to purchase 10 new 747-400 freighter aircraft
to be powered by engines acquired from the General Electric Company ("GE"), with
options to purchase up to 10 additional 747-400 aircraft. In February 1999, we
exercised options for two additional 747-400 freighter aircraft which were
delivered in the second quarter of 2000. We have arranged leveraged lease
financing for ten 747-400 freighter aircraft and secured debt financing for two
747-400 freighter aircraft which were delivered in 1998, 1999 and 2000. The
Boeing Purchase Agreement

                                        22
<PAGE>   23

requires us to pay pre-delivery deposits in order to secure delivery of the
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 we accrue
and pay interest quarterly at a 6-month LIBOR, plus 2.0%.

     In February 1998, we completed an offering of $538.9 million of Enhanced
Equipment Trust Certificates (the "1998 EETCs"). The 1998 EETCs are not direct
obligations of, or guaranteed by, us and therefore are not included in our
consolidated financial statements until such time that we draw upon the proceeds
to take delivery and ownership of an aircraft. We entered into leveraged lease
transactions with respect to four of the five 747-400 aircraft delivered in
1998. We took ownership of one such aircraft and issued the corresponding
equipment notes in the aggregate amount of $107.9 million with a weighted
average interest rate of 7.6%. As of December 31, 2000, we had $101.5 million
outstanding under the 1998 EETCs.

     In April 1999, we completed an offering of $543.6 million of Enhanced
Equipment Trust Certificates (the "1999 EETCs"). The 1999 EETCs are not direct
obligations of, or guaranteed by, us and therefore are not included in our
consolidated financial statements until such time that we draw 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 a portion of the
proceeds was used in the second and third quarters of 1999 to finance, through
secured debt financings, the debt portion of the acquisition cost of three new
747-400 freighter aircraft from Boeing. In the third quarter of 1999, a portion
of the proceeds was used to finance, through a leveraged lease, an additional
new 747-400 freighter aircraft which was delivered to us by Boeing. The
remaining proceeds from the 1999 EETCs, except for $90,000, were used in the
first quarter of 2000 to finance, through secured debt financing, the debt
portion of the acquisition cost of one new 747-400 freighter aircraft from
Boeing. The $90,000 was subsequently returned to the holders of the 1999 EETCs.
In connection with this secured debt financing, we 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% at inception. We
subsequently entered into leveraged sale-leaseback transactions for three of the
747-400s financed with proceeds from the 1999 EETCs in September 1999, May 2000
and December 2000. The net book value and related debt of each aircraft were
removed from the balance sheet.

     In January 2000, we completed an offering of $217.3 million Enhanced
Equipment Trust Certificates (the "2000 EETCs"). The 2000 EETCs are not direct
obligations of, or guaranteed by, us and therefore are not included in its
consolidated financial statements until such time that we draw upon the proceeds
to take delivery and ownership of an aircraft. The cash proceeds from the 2000
EETCs transaction were deposited with an escrow agent and in the second quarter
of 2000, the cash proceeds from the 2000 EETCs transaction were used to finance,
through secured debt financing, the debt portion of the acquisition cost of two
new 747-400 freighter aircraft, pursuant to the Boeing Purchase Agreement. In
connection with these secured debt financings, we executed equipment notes in
the aggregate amount of $217.3 million, with a weighted average interest rate of
9.0%. We subsequently entered into leveraged sale-leaseback transactions for the
two 747-400s in September 2000 and December 2000. The net book value and related
debt of each aircraft were removed from the balance sheet.

     In April 2000, we formed a wholly-owned subsidiary, Atlas Freighter Leasing
III, Inc. 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 747-400 spare engines owned by us. As a result of this
refinancing, we will experience lower interest rates and extended 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 1.62% and plus
2.00%, respectively. The interest rates on borrowings outstanding under the AFL
III Term Loan Facility were 8.42% and 8.79%, respectively, at December 31, 2000.
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.

                                        23
<PAGE>   24

     In April 2000, we amended our Aircraft Credit Facility to provide for a
$175 million revolving credit facility with a three-year revolving period and a
subsequent two-year term loan period, commencing at the time an aircraft has
been financed by revolving proceeds for three years. With respect to the
aircraft currently financed under the Aircraft Credit Facility, the term loan
period will be from March 31, 2003 to March 30, 2005 in the event that permanent
financing has not been obtained for such flight equipment financed under the
facility. At the time of each borrowing, we must select either a Base Rate Loan
(prime rate, plus 0.625%) or a Eurodollar Rate Loan (Eurodollar rate, plus
1.625%). As of December 31, 2000, we had approximately $97.8 million outstanding
under the Aircraft Credit Facility. We selected the Eurodollar Rate Loan
commencing in May 2000, for which the resulting interest rate is 8.64% as of
December 31, 2000.

     In May 2000, we refinanced one of our 747-200 freighter aircraft with a
group of European banks for a term of five years, at a LIBOR rate, plus 1.50%,
with a resulting interest rate of 8.1% as of December 31, 2000. This aircraft
was previously financed under the Aircraft Credit Facility.

     In May 2000 we completed the sale of one of our business jets, previously
used by executives of the Company for business travel throughout the world.
Proceeds from the sale were used to retire the remaining debt on the aircraft.

     In May 2000, we entered into a purchase contract to acquire two Boeing
747-300 combi aircraft from VARIG, S.A. (the "VARIG Aircraft"), and a long-term
lease agreement for a third Boeing 747-300. Each aircraft was converted from
combi to full freighter configuration by Boeing prior to their placement into
service. The leased aircraft was placed into service in October, and the
remaining two were placed into service in December 2000, and January 2001. These
aircraft are considered operationally equivalent to the Boeing 747-200 aircraft
in our fleet.

     In June 2000 we completed an offering of 3,465,000 shares of common stock
for net proceeds of $104 million. Approximately $86 million and $10 million of
the proceeds were used for the retirement of debt during the second and third
quarters, respectively.

     We entered into sale-leaseback transactions for four of our 747-200
freighter aircraft in September, October, November and December. The net book
values and related debt for each of these aircraft were removed from the balance
sheet.

     In September 2000, we terminated our agreement with Mr. Chowdry, the
Company's former Chairman of the Board of Directors, President and CEO, which
had provided for a sharing of the acquisition and financing costs of the Boeing
Business Jet ("BBJ") used to transport our executives on business trips
throughout the world. The effect of the termination agreement was to release Mr.
Chowdry from his obligations to share in the acquisition and financing costs of
the BBJ in return for Mr. Chowdry's releasing us of our obligation to share with
Mr. Chowdry the net proceeds, if any resulting from the disposition of the BBJ.

     In October 2000, we exercised options under the Boeing Purchase Agreement
for four additional 747-400's to be delivered in 2002.

     Due to the contractual nature of our business, management does not consider
our operations to be highly working capital-intensive in nature. Because most of
the non-ACMI costs normally associated with operations are borne by and directly
paid for by our customers, we do not incur significant costs in advance of the
receipt of corresponding revenues. Moreover, ACMI costs, which are our
responsibility, are generally incurred on a regular, periodic basis on either a
flight hour or calendar month basis. These costs are largely matched by revenue
receipts, as our contracts require regular payments from our customers based
upon current flight activity, generally every two to four weeks. As a result, we
have not had a requirement for a working capital facility.

     Under the Federal Aviation Administration's (the "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. In November
1994, Boeing issued Nacelle Strut Modification Service Bulletins which have been
converted into Directives by the FAA. All of our Boeing 747-200 aircraft have
been brought into compliance with such Directives. As part of the FAA's overall
Aging Aircraft program, it has issued Directives requiring certain additional
aircraft modifications to be

                                        24
<PAGE>   25

accomplished. We estimate that the modification costs per 747-200 aircraft will
range between $2 million and $3 million. Fourteen aircraft in our 747-200 fleet
have already undergone the major portion of such modifications. The remaining
seven 747-200 aircraft will require modification prior to the year 2009. 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.

     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 Department of Transportation ("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 recent ruling by an aviation agency of the British
government concluded that one of our long-term wet-leases of 747-400 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.

     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
additional aircraft for the remainder of 2001 and beyond.

RECENT DEVELOPMENTS

     In January 2001, we completed the sale of one non-standard 747-200 aircraft
to a third party. Proceeds from the sale were used to retire the remaining debt
on the aircraft.

     On January 24, 2001, a private jet piloted by Michael A. Chowdry, our
Chairman of the Board of Directors, President, and CEO, crashed, resulting in
his death and the death of a passenger. Brian Rowe, a member of our Board of
Directors, succeeded Mr. Chowdry as Chairman. Linda Chowdry filled the vacancy
on the Board created by the death of her husband. Richard H. Shuyler, who was
formerly Executive Vice President, and was the acting CEO, has been named Chief
Executive Officer, and James T. Matheny, who was Executive Vice President of
Operations, has been named President and Chief Operating Officer. Together, the
four will operate as an executive committee that will oversee the management and
ongoing strategy of the Company.

     In February 2001, we announced the election of Stephen A. Greene to our
Board of Directors. Mr. Greene is a senior partner with Cahill Gordon & Reindel,
a New York based law firm which has represented the Company since it was founded
in 1992.

     In February 2001, we 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.

     In February 2001, we announced the filing of a shelf registration statement
with the U.S. Securities and Exchange Commission for up to $600 million in debt
securities and pass through certificates. We expect to use the proceeds from the
shelf offering for general corporate purposes, including debt repayment, capital
spending, buying back common stock, and acquisitions.

                                        25
<PAGE>   26

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes 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. We have evaluated the impact of SFAS 133, as
amended, on our future earnings and financial position, and have determined that
the fair value of our interest rate swap, which does not qualify for hedge
accounting under SFAS 133, was a loss of approximately $2.5 million as of
January 1, 2001. This amount will be reflected as a cumulative effect of a
change in accounting principle for the first quarter 2001.

     In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the SEC's views on the application of GAAP
to revenue recognition. In June 2000, the SEC released SAB No. 101B that delays
the implementation date of SAB 101 until no later than the fourth fiscal quarter
of fiscal years beginning after December 15, 1999. We have reviewed SAB No. 101
and believe that we are in compliance with the SEC's interpretation of revenue
recognition.

     In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." This Interpretation
clarifies (a) the definition of employee for purposes of applying APB Opinion
No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
adoption of this Interpretation has not had a material impact on our financial
position or operating results.

RISK FACTORS

     Investors and prospective investors should consider the following risk
factors in conjunction with other information provided in this Form 10-K:

  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 2000, China Airlines Ltd. and Korean Airlines accounted for
approximately 22% and 18%, respectively, 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
significant 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 2001 to 2004. See "Business -- ACMI Contracts." The failure
to renew any of our ACMI Contracts, or the renewal of any of 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.

                                        26
<PAGE>   27

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

     A number of airlines, including Lufthansa Cargo AG, 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, 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 747-400
aircraft compared to those currently obtained in connection with existing
747-200 aircraft.

  EMPLOYEE LITIGATION -- If the adverse ruling in the appeal filed by the union
  now representing our pilots is upheld, it will increase our cost of doing
  business.

     In April 1999, we received notification from the National Mediation Board
(the "NMB") that our crew members voted for representation by the Air Line
Pilots Association ("ALPA"). Our profit sharing plan excludes from the category
of eligible employees, those employees who have been certified by the NMB for
representation. In response to ALPA's claims that such an exclusion violates the
Railway Labor Act, on May 6, 1999, we filed an action in the United States
District Court for the District of Columbia (the "District Court") seeking a
declaratory judgment confirming, inter alia, the enforceability of the profit
sharing plan's exclusion. On May 10, 1999, ALPA filed a counterclaim in that
action, alleging that the exclusion of its members from the profit sharing plan
violates the Railway Labor Act, and seeking restoration of profit sharing pay.
In October 1999, the District Court entered a summary judgment in our favor
ruling that we did not violate the Railway Labor Act when we eliminated crew
members' participation in the profit sharing plan following ALPA's certification
as the crew members' collective bargaining agent. In addition, the District
Court dismissed all other claims in the case. ALPA subsequently filed an appeal
of the District Court's decision.

     On November 21, 2000, the United States Court of Appeals for the District
of Columbia Circuit issued a decision reversing the earlier decision of the
District Court. Our petition for a rehearing was denied in February 2001.

     We continue to believe that the exclusion of our pilots from the corporate
profit sharing plan was lawful and we are considering whether to petition the
United States Supreme Court for review in addition to pursuing all other
available legal remedies.

  OPERATIONS DEPENDENT UPON LIMITED FLEET -- In the event one or more of our
  aircraft were to be lost or out of service for an extended period of time, we
  may have difficulty fulfilling our obligations under one or more of our ACMI
  Contracts.

     Each of our aircraft is typically dedicated to the service of one or more
ACMI Contracts. Although we utilize spare aircraft, in the event one or more of
our aircraft were to be lost or out of service for an extended period of time,
we may have difficulty fulfilling our obligations under one or more of our ACMI
Contracts. While we believe that our insurance coverage is sufficient to cover
the replacement cost of an aircraft, there can be no assurance that suitable
replacement aircraft could be located or that, if located, we could contract for
the services of such an aircraft without undertaking substantial costs. While we
carry aircraft hull physical damage and third party liability insurance, any
extended interruption of our operations due to the loss of an aircraft could
have a material adverse effect on our results of operation.

                                        27
<PAGE>   28

  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
  aircraft could be substantial.

     Our fleet currently includes 21 Boeing 747-200 aircraft in service, all of
which were manufactured between 1974 and 1986. Manufacturer Service Bulletins
and the Federal Aviation Administration Airworthiness Directives issued under
its "Aging Aircraft" program cause Boeing 747-200 aircraft operators to be
subject to extensive aircraft examinations and require Boeing 747-200 aircraft
to undergo structural inspections and modifications to address problems of
corrosion and structural fatigue at specified times. For instance, in November
1994, Boeing issued Nacelle Strut Modification Service Bulletins which have been
converted into Directives by the FAA. All of our Boeing 747-200 aircraft have
been brought into compliance with such Directives. Other Directives have been
issued that require inspections and minor modifications to Boeing 747-200
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 have not yet finalized long-term ACMI Contracts for aircraft scheduled
to be delivered in 2002. 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 as well as the aircraft
currently in service in our fleet which may be returned to us in 2001 pursuant
to the terms of the ACMI Contracts, could have a material adverse effect on our
results of operation. See "Business -- Aircraft."

  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 have obtained the necessary
authority to conduct flight operations, including a Certificate of Public
Convenience and Necessity (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 are considered to
be a high-growth carrier by the FAA and, therefore, receive 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." Moreover, in some instances, ACMI
Contracts are subject to prior and/or periodic approvals of foreign governments,
whose decisions can be affected by ongoing negotiations and relations with the
United States. For example, a recent ruling by an aviation agency of the British
government concluded that one of our two long term wet-leases of a 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. The adoption or enforcement of similar
rules by other countries could adversely affect our business. Failure to obtain
FAA, DOT and/or foreign approvals could have a material adverse effect on our
results of operation. In addition, 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.

                                        28
<PAGE>   29

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

     As of January 31, 2001 Linda Chowdry, a member of our Board of Directors
and widow of Michael A. Chowdry, our founder, beneficially owned approximately
47.1% of the 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 Atlas and their loss may harm our operations.

     We believe that our success in acquiring ACMI Contracts 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.

  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.

  ABILITY TO SERVICE DEBT -- We have substantial indebtedness and may not be
  able to service our debt. This indebtedness could harm our competitive
  position.

     We are highly leveraged. As of December 31, 2000, our total long term debt
outstanding, net of current portion, was approximately $1.0 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;

     - a substantial portion of our cash flow from operations will be required
       for the payment of principal and interest on our indebtedness, 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, that our business will continue to generate
sufficient cash flow from operations in the future to service our debt. If
unable to do so, we may be required to refinance all or a portion of our
existing debt, 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.

                                        29
<PAGE>   30

  RESTRICTIONS IMPOSED BY TERMS OF OUR INDEBTEDNESS -- If we do not comply with
  the restrictive covenants contained in our debt instruments it may result in
  an event of default.

     Certain of our debt instruments, limit our ability to undertake certain
transactions. These debt instruments 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.

     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 assure you that we will meet such tests. A breach of any of these
covenants could result in a default under certain debt instruments. In an event
of default under the various debt instruments, the lenders could elect to
declare all amounts outstanding, together with accrued interest, to be
immediately due and payable. If we are unable to repay those amounts, such
lenders could proceed against the collateral granted to them to secure that
indebtedness. If our lenders accelerate the payment of indebtedness, our assets
may not be sufficient to repay in full such indebtedness and our other
indebtedness.

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 21E of
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. 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," 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;
                                        30
<PAGE>   31

     - the continued productivity of our workforce;

     - 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:             2001      2002      2003      2004       2005     THEREAFTER    TOTAL      VALUE
------------------------           --------   -------   -------   -------   --------   ----------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                <C>        <C>       <C>       <C>       <C>        <C>          <C>        <C>
Assets
  Cash equivalents
    Fixed rate...................  $262,648   $    --   $    --   $    --   $     --    $     --    $262,648   $262,642
    Avg. interest rate...........       6.5%       --%       --%       --%        --%         --%        6.5%
  Short-term investments
    Fixed rate...................  $ 65,269   $    --   $    --   $    --   $     --    $     --    $ 65,269   $ 65,334
    Avg. interest rate...........       6.4%       --%       --%       --%        --%         --%        6.4%
  Long-term investments
      Fixed rate.................  $ 39,643   $ 9,463   $    --   $    --   $     --    $ 41,127    $ 90,233   $ 90,202
      Avg. interest rate.........       6.3%      6.7%       --%       --%        --%        6.0%        6.2%
Long-term debt
  Fixed rate.....................  $ 23,316   $22,340   $22,586   $18,948   $156,725    $464,371    $707,286   $713,940
  Avg. interest rate.............       7.9%      8.0%      8.0%      7.9%      10.4%        8.6%        9.0%
  Floating rate..................  $ 32,702   $44,942   $57,250   $63,473   $143,591    $ 43,563    $385,521   $385,521
  Avg. interest rate.............       8.4%      8.5%      8.5%      8.5%       8.6%        8.8%        8.6%
Swap (notional amount)...........  $ 25,654   $25,654   $25,654   $63,170   $     --    $     --    $140,132   $ (2,522)
  Avg. interest rate
    Floating rate payee..........       6.7%      6.7%      6.7%      6.7%        --%         --%        6.7%
    Fixed rate payer.............       6.5%      6.5%      6.5%      6.5%        --%         --%        6.5%
</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.

                                        31
<PAGE>   32

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION.

     Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Omitted under the reduced disclosure format pursuant to General Instruction
I(2)(c) of Form 10-K.

                                        32
<PAGE>   33

                                    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 Balance Sheets.................................  F-3
Consolidated Statements of Operations.......................  F-4
Consolidated Statements of Stockholders' Equity.............  F-5
Consolidated Statements of Cash Flows.......................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

     (a)(2) FINANCIAL STATEMENT SCHEDULES

     None required.

     (a)(3) LIST OF EXHIBITS.

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
              +3.2       -- Restated Certificate of Incorporation of the Company.
             @@3.3       -- Amended and Restated By-Laws of the Company.
           ++++4.3       -- Form of 8.707% Atlas Air Pass Through Certificates Series
                            2000-1A (included in Exhibit 4.7)
           ++++4.4       -- Form of 9.057% Atlas Air Pass Through Certificates Series
                            2000-1B (included in Exhibit 4.8)
           ++++4.5       -- Form of 9.702% Atlas Air Pass Through Certificates Series
                            2000-1C (included in Exhibit 4.9)
           ++++4.6       -- Pass Through Trust Agreement, dated as of January 28,
                            2000, between Wilmington Trust Company, as Trustee and
                            Atlas Air, Inc.
           ++++4.7       -- Trust Supplement No. 2000-1A, dated January 28, 2000,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            January 28, 2000
           ++++4.8       -- Trust Supplement No. 2000-1B, dated January 28, 2000,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            January 28, 2000
           ++++4.9       -- Trust Supplement No. 2000-1C, dated January 28, 2000,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            January 28, 2000
           ++++4.10      -- Revolving Credit Agreement (2000-1A), dated as of January
                            28, 2000, between Wilmington Trust Company, not in its
                            individual capacity but solely as Subordination Agent, as
                            Borrower, and Westdeutshe Landesbank Gironzentrale, as
                            Liquidity Provider
           ++++4.11      -- Revolving Credit Agreement (2000-1B), dated as of January
                            28, 2000, between Wilmington Trust Company, not in its
                            individual capacity but solely as Subordination Agent, as
                            Borrower, and Morgan Stanley Capital Services Inc., as
                            Liquidity Provider
           ++++4.12      -- Revolving Credit Agreement (2000-1C), dated as of January
                            28, 2000, between Wilmington Trust Company, not in its
                            individual capacity but solely as Subordination Agent, as
                            Borrower, and Morgan Stanley Capital Services Inc., as
                            Liquidity Provider
</TABLE>

                                        33
<PAGE>   34

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           ++++4.13      -- Escrow and Paying Agent Agreement (Class A) dated as of
                            January 28, 2000 among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, Deutsche Bank Securities Inc. and Salomon
                            Smith Barney Inc., as Placement Agents, Wilmington Trust
                            Company, as Trustee, and Wilmington Trust Company as
                            Paying Agent
           ++++4.14      -- Escrow and Paying Agent Agreement (Class B) dated as of
                            January 28, 2000 among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, Deutsche Bank Securities Inc. and Salomon
                            Smith Barney Inc., as Placement Agents, Wilmington Trust
                            Company, as Trustee, and Wilmington Trust Company as
                            Paying Agent
           ++++4.15      -- Escrow and Paying Agent Agreement (Class C) dated as of
                            January 28, 2000 among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, Deutsche Bank Securities Inc. and Salomon
                            Smith Barney Inc., as Placement Agents, Wilmington Trust
                            Company, as Trustee, and Wilmington Trust Company as
                            Paying Agent
           ++++4.16      -- Deposit Agreement (Class A), dated as of January 28,
                            2000, between First Security Bank, National Association
                            as Escrow Agent, and Westdeutsche Landesbank
                            Gironzentrale, as Depositary
           ++++4.17      -- Deposit Agreement (Class B), dated as of January 28,
                            2000, between First Security Bank, National Association
                            as Escrow Agent, and Westdeutsche Landesbank
                            Gironzentrale, as Depositary
           ++++4.18      -- Deposit Agreement (Class C), dated as of January 28,
                            2000, between First Security Bank, National Association
                            as Escrow Agent, and Westdeutsche Landesbank
                            Gironzentrale, as Depositary
           ++++4.19      -- Registration Rights Agreement dated January 28, 2000
                            among Atlas Air, Inc., Wilmington Trust Company, as
                            Trustee, and Morgan Stanley & Co. Incorporated, Deutsche
                            Bank Securities Inc. and Salomon Smith Barney Inc., as
                            Placement Agents
           ++++4.20      -- Intercreditor Agreement, dated as of January 28, 2000,
                            among Wilmington Trust Company, as Trustee, Westdeutsche
                            Landesbank Gironzentrale, as Class A Liquidity Provider,
                            Morgan Stanley Capital Services, Inc., as Class B
                            Liquidity Provider and Class C Liquidity Provider, and
                            Wilmington Trust Company, as Subordination Agent and
                            Trustee
           ++++4.21      -- Note Purchase Agreement, dated as of January 28, 2000,
                            among Atlas Air, Inc., Wilmington Trust Company, as
                            Trustee, Wilmington Trust Company, as Subordination
                            Agent, First Security Bank, National Association, as
                            Escrow Agent, and Wilmington Trust Company, as Paying
                            Agent
           ++++4.22      -- Form of Leased Aircraft Participation Agreement
                            (Participation Agreement among Atlas Air, Inc., Lessee,
                            First Security Bank, National Association, Owner Trustee,
                            and Wilmington Trust Company, Mortgagee and Loan
                            Participant) (Exhibit A-1 to Note Purchase Agreement)
           ++++4.23      -- Form of Lease (Lease Agreement between First Security
                            Bank, National Association, Lessor, and Atlas Air, Inc.,
                            Lessee) (Exhibit A-2 to Note Purchase Agreement)
           ++++4.24      -- Form of Leased Aircraft Indenture (Trust Indenture and
                            Mortgage between First Security Bank, National
                            Association, Owner Trustee, and Wilmington Trust Company,
                            Mortgagee) (Exhibit A-3 to Note Purchase Agreement)
           ++++4.25      -- Form of Leased Aircraft Trust Agreement (Exhibit A-5 to
                            Note Purchase Agreement)
</TABLE>

                                        34
<PAGE>   35

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
           ++++4.26      -- Form of Owned Aircraft Participation Agreement
                            (Participation Agreement between Atlas Air, Inc., Owner,
                            and Wilmington Trust Company, as Mortgagee, Subordination
                            Agent and Trustee) (Exhibit C-1 to Note Purchase
                            Agreement)
           ++++4.27      -- Form of Owned Aircraft Indenture (Trust Indenture and
                            Mortgage between Atlas Air, Inc., Owner, and Wilmington
                            Trust Company, as Mortgagee) (Exhibit C-2 to Note
                            Purchase Agreement)
             +10.14      -- Boeing 747 Maintenance Agreement dated January 1, 1995,
                            between the Company and KLM Royal Dutch Airlines, as
                            amended.
             #10.15      -- Atlas Air, Inc. 1995 Long Term Incentive and Stock Award
                            Plan (including Amendments One through Seven
             #10.16      -- Atlas Air, Inc. Employee Stock Purchase Plan (including
                            First Amendment)
             +10.17      -- Atlas Air, Inc. Profit Sharing Plan.
             +10.18      -- Atlas Air, Inc. Retirement Plan.
            ++10.19      -- Employment Agreement between the Company and Michael A.
                            Chowdry.
            ++10.20      -- Employment Agreement between the Company and Richard H.
                            Shuyler.
            ++10.23      -- Employment Agreement between the Company and James T.
                            Matheny.
             +10.26      -- Maintenance Agreement between the Company and Hong Kong
                            Aircraft Engineering Company Limited dated April 12,
                            1995, for the performance of certain maintenance events.
           ***10.53      -- Secured Loan Agreement by and between the Company and
                            Finova Capital Corporation dated April 11, 1996.
      ***/****10.55      -- Engine Maintenance Agreement between the Company and
                            General Electric Company dated June 6, 1996.
            **10.56      -- Employment Agreement dated as of May 1, 1997 between the
                            Company and Stanley G. Wraight.
         +++++10.58      -- Fourth Amended and Restated Credit Agreement among the
                            Company, the Lenders listed therein, Goldman Sachs Credit
                            Partners L.P. (as Syndication Agent) and Bankers Trust
                            Company (as Administrative Agent) dated April 25, 2000
            **10.72      -- Form of Indenture, dated August 13, 1997, between the
                            Company and State Street Bank and Trust Company, as
                            Trustee, relating to the 10 3/4% Senior Notes (with form
                            of Note attached as exhibit thereto)
       **/****10.86      -- Purchase Agreement Number 2021 between The Boeing Company
                            and the Company dated June 6, 1997.
            **10.87      -- Aircraft General Terms Agreement between The Boeing
                            Company and the Company dated June 6, 1997.
            ++10.90      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1A-0.
            ++10.91      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1A-S.
            ++10.92      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1B-0.
</TABLE>

                                        35
<PAGE>   36

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
            ++10.93      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1B-S.
            ++10.94      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1C-0.
            ++10.95      -- Pass Through Trust Agreement, dated as of February 9,
                            1998, between the Company and Wilmington Trust Company,
                            as Trustee, relating to the Atlas Air Pass Through Trust
                            1998-1C-S.
            ++10.96      -- Deposit Agreement (Class A), dated as of February 9,
                            1998, between First Security Bank, National Association,
                            as Escrow Agent, and ABN AMRO Bank N.V., acting through
                            its Chicago Branch, as Depositary.
            ++10.97      -- Deposit Agreement (Class B), dated as of February 9,
                            1998, between First Security Bank, National Association,
                            as Escrow Agent, and ABN AMRO Bank N.V., acting through
                            its Chicago Branch, as Depositary.
            ++10.98      -- Deposit Agreement (Class C), dated as of February 9,
                            1998, between First Security Bank, National Association,
                            as Escrow Agent, and ABN AMRO Bank N.V., acting through
                            its Chicago Branch, as Depositary.
            ++10.99      -- Indemnity Agreement, dated as of February 9, 1998,
                            between ABN AMRO Bank N.V., acting through its Chicago
                            Branch, as Depositary, and the Company.
            ++10.100     -- Escrow and Paying Agent Agreement (Class A), dated as of
                            February 9, 1998, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, Donaldson,
                            Lufkin & Jenrette Securities Corporation and Goldman,
                            Sachs & Co., as Placement Agents, Wilmington Trust
                            Company, not in its individual capacity, but solely as
                            Pass Through Trustee, and Wilmington Trust Company, as
                            Paying Agent.
            ++10.101     -- Escrow and Paying Agent Agreement (Class B), dated as of
                            February 9, 1998, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, Donaldson,
                            Lufkin & Jenrette Securities Corporation and Goldman,
                            Sachs & Co., as Placement Agents, Wilmington Trust
                            Company, not in its individual capacity, but solely as
                            Pass Through Trustee, and Wilmington Trust Company, as
                            Paying Agent.
            ++10.102     -- Escrow and Paying Agent Agreement (Class C), dated as of
                            February 9, 1998, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, Donaldson,
                            Lufkin & Jenrette Securities Corporation and Goldman,
                            Sachs & Co., as Placement Agents, Wilmington Trust
                            Company, not in its individual capacity, but solely as
                            Pass Through Trustee, and Wilmington Trust Company, as
                            Paying Agent.
            ++10.103     -- Revolving Credit Agreement (1998-1A), dated as of
                            February 9, 1998, between Wilmington Trust Company, not
                            in its individual capacity but solely as Subordination
                            Agent, as Borrower, and ABN AMRO Bank N.V., acting
                            through its Chicago Branch as Liquidity Provider.
            ++10.104     -- Revolving Credit Agreement (1998-1B), dated as of
                            February 9, 1998, between Wilmington Trust Company, not
                            in its individual capacity but solely as Subordination
                            Agent, as Borrower, and Morgan Stanley Capital Services,
                            Inc., as Liquidity Provider.
            ++10.105     -- Revolving Credit Agreement (1998-1C), dated as of
                            February 9, 1998, between Wilmington Trust Company, not
                            in its individual capacity but solely as Subordination
                            Agent, as Borrower, and Morgan Stanley Capital Services,
                            Inc., as Liquidity Provider.
</TABLE>

                                        36
<PAGE>   37

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
            ++10.106     -- Guarantee, dated as of February 9, 1998, from Morgan
                            Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
                            Pass Through Trust 1998-B relating to Class B Liquidity
                            Facility.
            ++10.107     -- Guarantee, dated as of February 9, 1998, from Morgan
                            Stanley, Dean Witter, Discover & Co. to Atlas Air, Inc.
                            Pass Through Trust 1998-C relating to Class C Liquidity
                            Facility.
            ++10.108     -- Intercreditor Agreement, dated as of February 9, 1998,
                            among Wilmington Trust Company, not in its individual
                            capacity but solely as Trustee, ABN AMRO Bank N.V.,
                            acting through its Chicago Branch, as Class A Liquidity
                            Provider, Morgan Stanley Capital Services, Inc., as Class
                            B Liquidity Provider and Class C Liquidity Provider, and
                            Wilmington Trust Company.
            ++10.109     -- Note Purchase Agreement, dated as of February 9, 1998,
                            among the Company, Wilmington Trust Company and First
                            Security Bank, National Association.
         *****10.111     -- Form of Indenture, dated April 9, 1998, between the
                            Company and State Street Bank and Trust company, as
                            Trustee, relating to the 9 1/4% Senior Notes (with form
                            of Note attached as exhibit thereto).
    ****/*****10.114     -- Engine Maintenance Agreement between the Company and GE
                            Engine Services, Inc.
    ****/*****10.115     -- Engine Maintenance Agreement between the Company and GE
                            Engine Services, Inc.
    ****/*****10.116     -- General Terms Agreement between the Company and General
                            Electric Company dated June 6, 1997.
        ******10.117     -- Form of Indenture, dated November 18, 1998, between the
                            Company and State Street Bank and Trust Company, as
                            Trustee, relating to the 9 3/8% Senior Notes (with form
                            of Note attached as exhibit thereto).
           +++10.118     -- Employment Agreement dated June 22, 1998, between the
                            Company and Thomas G. Scott.
            ##10.120     -- Revolving Credit Agreement (1999-1A-1), dated as of April
                            13, 1999, between Wilmington Trust Company, as
                            Subordination Agent, and ABN AMRO Bank N.V., Chicago
                            Branch, as Liquidity Provider
            ##10.121     -- Revolving Credit Agreement (1999-1A-2), dated as of April
                            13, 1999, between Wilmington Trust Company, as
                            Subordination Agent, and ABN AMRO Bank N.V., Chicago
                            Branch, as Liquidity Provider
            ##10.122     -- Revolving Credit Agreement (1999-1B), dated as of April
                            13, 1999, between Wilmington Trust Company, as
                            Subordination Agent, and Morgan Stanley Capital Services,
                            Inc., as Liquidity Provider
            ##10.123     -- Revolving Credit Agreement (1999-1C), dated as of April
                            13, 1999, between Wilmington Trust Company, as
                            Subordination Agent, and Morgan Stanley Capital Services,
                            Inc., as Liquidity Provider
            ##10.124     -- Guarantee, dated April 13, 1999, by Morgan Stanley Dean
                            Witter & Co. relating to Revolving Credit Agreement
                            (1999-1B)
            ##10.125     -- Guarantee, dated April 13, 1999, by Morgan Stanley Dean
                            Witter & Co. relating to Revolving Credit Agreement
                            (1999-1C)
            ##10.126     -- Pass Through Trust Agreement, dated as of April 1, 1999,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc.
            ##10.127     -- Trust Supplement No. 1999-1A-1, dated April 13, 1999,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            April 1, 1999
</TABLE>

                                        37
<PAGE>   38

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
            ##10.128     -- Trust Supplement No. 1999-1A-2, dated April 13, 1999,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            April 1, 1999
            ##10.129     -- Trust Supplement No. 1999-1B, dated April 13, 1999,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            April 1, 1999
            ##10.130     -- Trust Supplement No. 1999-1C, dated April 13, 1999,
                            between Wilmington Trust Company, as Trustee, and Atlas
                            Air, Inc. to Pass Through Trust Agreement, dated as of
                            April 1, 1999
            ##10.131     -- Intercreditor agreement, dated as of April 13, 1999,
                            among Wilmington Trust Company, as Trustee, ABN AMRO Bank
                            N.V. Chicago Branch, as Class A-1 Liquidity Provider and
                            Class A-2 Liquidity Provider, Morgan Stanley Capital
                            Services, Inc., as Class B Liquidity Provider and Class C
                            Liquidity Provider, and Wilmington Trust Company, as
                            Subordination Agent and Trustee
            ##10.132     -- Deposit Agreement (Class A-1), dated as of April 13,
                            1999, between First Security Bank, National Association,
                            as Escrow Agent, and Credit Suisse4 First Boston, New
                            York Branch, as Depositary
            ##10.133     -- Deposit Agreement (Class A-2), dated as of April 13,
                            1999, between First Security Bank, National Association,
                            as Escrow Agent, and Credit Suisse4 First Boston, New
                            York Branch, as Depositary
            ##10.134     -- Deposit Agreement (Class B), dated as of April 13, 1999,
                            between First Security Bank, National Association, as
                            Escrow Agent, and Credit Suisse4 First Boston, New York
                            Branch, as Depositary
            ##10.135     -- Deposit Agreement (Class C), dated as of April 13, 1999,
                            between First Security Bank, National Association, as
                            Escrow Agent, and Credit Suisse4 First Boston, New York
                            Branch, as Depositary
            ##10.136     -- Escrow and Paying Agent Agreement (Class A-1), dated as
                            of April 13, 1999, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, ING Baring
                            Furman Selz LLC and CIBC Oppenheimer Corp., as
                            Underwriters, Wilmington Trust Company, as Trustee, and
                            Wilmington Trust Company, as Paying Agent
            ##10.137     -- Escrow and Paying Agent Agreement (Class A-2), dated as
                            of April 13, 1999, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, ING Baring
                            Furman Selz LLC and CIBC Oppenheimer Corp., as
                            Underwriters, Wilmington Trust Company, as Trustee, and
                            Wilmington Trust Company, as Paying Agent
            ##10.138     -- Escrow and Paying Agent Agreement (Class B), dated as of
                            April 13, 1999, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, ING Baring
                            Furman Selz LLC and CIBC Oppenheimer Corp., as
                            Underwriters, Wilmington Trust Company, as Trustee, and
                            Wilmington Trust Company, as Paying Agent
            ##10.139     -- Escrow and Paying Agent Agreement (Class C), dated as of
                            April 13, 1999, among First Security Bank, National
                            Association, as Escrow Agent, Morgan Stanley & Co.
                            Incorporated, BT Alex. Brown Incorporated, ING Baring
                            Furman Selz LLC and CIBC Oppenheimer Corp., as
                            Underwriters, Wilmington Trust Company, as Trustee, and
                            Wilmington Trust Company, as Paying Agent
</TABLE>

                                        38
<PAGE>   39

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
            ##10.140     -- Note Purchase Agreement, dated as of April 13, 1999,
                            among Atlas Air, Inc., Wilmington Trust Company, as
                            Trustee, Wilmington Trust Company, as Subordination
                            Agent, First Security Bank, National Association, as
                            Escrow Agent, and Wilmington Trust Company, as Paying
                            Agent
            ##10.141     -- Form of Leased Aircraft Participation Agreement
                            (Participation Agreement among Atlas Air, Inc., Lessee,
                            First Security Bank, National Association, Owner Trustee,
                            and Wilmington Trust Company, Mortgagee and Loan
                            Participant) (Exhibit A-! to Note Purchase Agreement)
            ##10.142     -- Form of Lease (Lease Agreement between First Security
                            Bank, National Association, Lessor, and Atlas Air, Inc.,
                            Lessee) (Exhibit A-2 to Note Purchase Agreement)
            ##10.143     -- Form of Leased Aircraft Indenture (Trust Indenture and
                            Mortgage between First Security Bank, National
                            Association, Owner Trustee, and Wilmington Trust Company,
                            Mortgagee) (Exhibit A-3 to Note Purchase Agreement)
            ##10.144     -- Form of Leased Aircraft Trust Agreement (Exhibit A-5 to
                            Note Purchase Agreement)
            ##10.145     -- Form of Owned Aircraft Participation Agreement
                            (Participation Agreement between Atlas Air, Inc., Owner,
                            and Wilmington Trust Company, as Mortgagee, Subordination
                            Agent and Trustee) (Exhibit C-1 to Note Purchase
                            Agreement)
            ##10.146     -- Form of Owned Aircraft Indenture (Trust Indenture and
                            Mortgage between Atlas Air, Inc., Owner, and Wilmington
                            Trust Company, as Mortgagee) (Exhibit C-2 to Note
                            Purchase Agreement)
            ##10.147     -- 7.20% Atlas Air Pass Through Certificate 1999-1A-1,
                            Certificate No. A-1-1
            ##10.148     -- 7.20% Atlas Air Pass Through Certificate 1999-1A-1,
                            Certificate No. A-1-2
            ##10.149     -- 6.88% Atlas Air Pass Through Certificate 1999-1A-2,
                            Certificate No. A-2-1
            ##10.150     -- 7.63% Atlas Air Pass Through Certificate 1999-1B-1,
                            Certificate No. B-1
            ##10.151     -- 8.77% Atlas Air Pass Through Certificate 1999-1C-1,
                            Certificate No. C-1
             @10.152     -- Agreement of Lease between Texaco, Inc., Landlord, and
                            the Company, Tenant, 2000 Westchester Avenue, White
                            Plains, New York 10650 dated November 9, 1999
             @10.153     -- Atlas Air, Inc. Annual Incentive Compensation Plan
             @10.154     -- Atlas Air, Inc. Long-Term Incentive Plan
             @10.155     -- Amendments to the Atlas Air, Inc. 1995 Long-Term
                            Incentive and Stock Award Plan. (The Atlas Air, Inc. 1995
                            Long-Term Incentive and Stock Award Plan is filed as
                            Exhibit 10.15, which is incorporated by reference in this
                            Report)
         +++++10.156     -- Loan Agreement dated as of January 1, 1999 between the
                            Company and Michael A. Chowdry
         +++++10.157     -- Credit Agreement among Atlas Freighter Leasing III, Inc.,
                            the Lenders listed therein, and Bankers Trust Company, as
                            administrative agent, dated as of April 25, 2000
         +++++10.158     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N527MC
         +++++10.159     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N516MC
         +++++10.160     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N508MC
</TABLE>

                                        39
<PAGE>   40

<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         +++++10.161     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N507MC
         +++++10.162     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N509MC
         +++++10.163     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to B747-200 aircraft, U.S.
                            Registration No. N517MC
         +++++10.181     -- Lease Agreement dated as of April 25, 2000 between Atlas
                            Freighter Leasing III, Inc., as lessor, and the Company,
                            as lessee, relating to nine General Electric CF6-50E2
                            Engines, Manufacturer's Serial Nos. 530168, 517530,
                            517790, 517602, 530255, 517547, 517538, 517539, and
                            455167
         +++++10.182     -- Spare Engine Chattel Mortgage dated as of April 25, 2000
                            between Atlas Freighter Leasing III, Inc. and Bankers
                            Trust Company, as agent, relating to the CF6-80C2 Spare
                            Engine Pool
         +++++10.183     -- Spare Engine Chattel Mortgage dated as of April 25, 2000
                            between Atlas Freighter Leasing III, Inc. and Bankers
                            Trust Company, as agent, relating to the CF6-50E2 Spare
                            Engine Pool
           +++24         -- Powers of Attorney (set forth on the signature page of
                            the Report).
</TABLE>

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

 +++++ Incorporated by reference to the exhibits to the Company's Current Report
       on Form 8-K dated May 25, 2000

  ++++ Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-4 (No. 333-36268)

   +++ Previously filed.

    ++ Incorporated by reference to the exhibits to the Company's Annual Report
       for 1997 on Form 10-K.

     + Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-1 (No. 33-90304).

    ## Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-3 (No. 333-71833).

     # Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-8 (No. 333-49002)

     @ Incorporated by reference to the exhibits to the Company's Annual Report
       for 1999 on Form 10-K

    @@ Incorporated by reference to the Company's Registration Statement on
       Form S-3 (No. 333-56208).

    ++ Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-1 (No. 33-97892).

  ++++ Incorporated by reference to the exhibits to the Company's
       Registration Statement on Form S-4 (No. 333-51819).

     * Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-1 (No. 333-2810).

    ** Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-4 (No. 333-36305).

   *** Incorporated by reference to the exhibits to the Company's Annual Report
       for 1996 on Form 10-K.

  **** Portions of this document, for which the Company has been granted
       confidential treatment, have been redacted and filed separately with the
       Securities and Exchange Commission.

                                        40
<PAGE>   41

 ***** Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-4 (No. 333-56391).

****** Incorporated by reference to the exhibits to the Company's Registration
       Statement on Form S-4 (No. 333-72211)

     (b) REPORTS ON FORM 8-K

     Report on Form 8-K dated November 29, 2000 regarding U.S. Court of Appeals
for the District of Columbia Circuit decision in a lawsuit pending between the
Air Line Pilots Association (ALPA) and Atlas Air, Inc.

                                        41
<PAGE>   42

                                   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 12th day of
March, 2001.

                                            ATLAS AIR, INC.

                                            By:     /s/ STUART G. WEINROTH
                                              ----------------------------------

                                                      Stuart G. Weinroth
                                               Acting Chief Financial Officer,
                                              Vice President Financial Planning
                                                         & Controller,
                                                 Principal Accounting 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
Stuart G. Weinroth and Richard H. Shuyler, and each of them singly, such
person's true and lawful attorneys, each with full power of substitution so 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>                                                    <S>                              <C>

               /s/ RICHARD H. SHUYLER                  Chief Executive Officer,         March 12, 2001
-----------------------------------------------------    Treasurer and Director
                 Richard H. Shuyler

                /s/ JAMES T. MATHENY                   President, Chief Operating       March 12, 2001
-----------------------------------------------------    Officer, and Director
                  James T. Matheny

                   /s/ BRIAN ROWE                      Chairman of the Board of         March 12, 2001
-----------------------------------------------------    Directors
                     Brian Rowe

                  /s/ BERL BERNHARD                    Director                         March 12, 2001
-----------------------------------------------------
                    Berl Bernhard

                  /s/ LINDA CHOWDRY                    Director                         March 12, 2001
-----------------------------------------------------
                    Linda Chowdry

              /s/ LAWRENCE W. CLARKSON                 Director                         March 12, 2001
-----------------------------------------------------
                Lawrence W. Clarkson

                /s/ STEPHEN A. GREENE                  Director                         March 12, 2001
-----------------------------------------------------
                  Stephen A. Greene

                  /s/ DAVID K.P. LI                    Director                         March 12, 2001
-----------------------------------------------------
                    David K.P. Li

               /s/ DAVID T. MCLAUGHLIN                 Director                         March 12, 2001
-----------------------------------------------------
                 David T. McLaughlin
</TABLE>

                                        42
<PAGE>   43

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Public Accountants....................  F-2
Consolidated Balance Sheets as of December 31, 2000 and
  December 31, 1999.........................................  F-3
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................  F-4
Consolidated Statements of Stockholders' Equity for the
  years ended December 31, 2000, 1999 and 1998..............  F-5
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   44

                    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, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2000.
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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.

                                            ARTHUR ANDERSEN LLP

Denver, Colorado,
  January 26, 2001.

                                       F-2
<PAGE>   45

                        ATLAS AIR, INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                               -----------------------
                                                                  2000         1999
                                                               ----------   ----------
<S>                                                            <C>          <C>
                                        ASSETS
Current assets:
  Cash and cash equivalents.................................   $  493,723   $  331,605
  Short-term investments....................................       65,269      141,555
  Accounts receivable and other, net........................      145,937       92,979
                                                               ----------   ----------
          Total current assets..............................      704,929      566,139
Property and equipment:
  Flight equipment..........................................    1,537,047    1,732,543
  Other.....................................................       43,815       19,172
                                                               ----------   ----------
                                                                1,580,862    1,751,715
  Less accumulated depreciation.............................     (245,976)    (208,465)
                                                               ----------   ----------
          Net property and equipment........................    1,334,886    1,543,250
Other assets:
  Debt issuance costs, net of accumulated amortization of
     $16,255 and $14,281....................................       24,540       27,201
  Deposits and other........................................      109,702        5,780
                                                               ----------   ----------
                                                                  134,242       32,981
                                                               ----------   ----------
          Total assets......................................   $2,174,057   $2,142,370
                                                               ==========   ==========

                         LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
  Current portion of long-term debt and capital lease
     obligation.............................................   $   55,018   $   95,929
  Accounts payable and accrued expenses.....................      135,287      139,929
  Income tax payable........................................       31,359           --
                                                               ----------   ----------
          Total current liabilities.........................      221,664      235,858
Long-term debt and capital lease obligation, net of current
  portion...................................................    1,037,789    1,253,084
Other liabilities...........................................      286,120      228,075
Deferred income tax liability...............................       76,278       67,653
Commitments and contingencies (Note 6)
Stockholders' equity:
  Preferred Stock, $1 par value; 10,000,000 shares
     authorized; no shares issued...........................           --           --
  Common Stock, $0.01 par value; 50,000,000 shares
     authorized; 38,227,757 and 34,480,946 shares issued....          382          345
  Additional paid-in capital................................      305,871      198,002
  Retained earnings.........................................      247,763      162,194
  Deferred Compensation -- Restricted Stock.................         (286)        (404)
  Treasury Stock, at cost; 60,824 and 115,906 shares,
     respectively...........................................       (1,524)      (2,437)
                                                               ----------   ----------
          Total stockholders' equity........................      552,206      357,700
                                                               ----------   ----------
          Total liabilities and stockholders' equity........   $2,174,057   $2,142,370
                                                               ==========   ==========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-3
<PAGE>   46

                        ATLAS AIR, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                              -------------------------------
                                                                2000        1999       1998
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
Revenues:
  Contract services.........................................  $ 766,851   $618,866   $400,981
  Charters, scheduled services and other....................     23,617     18,215     21,257
                                                              ---------   --------   --------
          Total operating revenues..........................    790,468    637,081    422,238
Operating expenses:
  Flight crew salaries and benefits.........................     61,639     48,064     35,549
  Other flight-related expenses.............................     61,181     52,521     34,712
  Maintenance...............................................    148,124    131,189     96,636
  Aircraft and engine rentals...............................     79,134     51,173     14,616
  Fuel and ground handling..................................     25,890     19,545      8,714
  Depreciation and amortization.............................     94,006     78,379     59,082
  Other.....................................................     87,790     68,721     37,080
                                                              ---------   --------   --------
          Total operating expenses..........................    557,764    449,592    286,389
Operating income............................................    232,704    187,489    135,849
Other income (expense):
  Interest income...........................................     28,610     20,006     12,603
  Interest expense..........................................   (123,787)  (108,660)   (74,901)
                                                              ---------   --------   --------
                                                                (95,177)   (88,654)   (62,298)
                                                              ---------   --------   --------
Income before income taxes..................................    137,527     98,835     73,551
Provision for income taxes..................................    (52,268)   (37,556)   (27,334)
                                                              ---------   --------   --------
Income before extraordinary item and cumulative effect of a
  change in accounting principle............................     85,259     61,279     46,217
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)        --
                                                              ---------   --------   --------
          Net income........................................  $  85,259   $ 53,270   $ 46,217
                                                              =========   ========   ========
Basic earnings per share (Note 12):
  Income before extraordinary item and cumulative effect of
     a change in accounting principle.......................  $    2.33   $   1.79   $   1.37
  Extraordinary item........................................         --      (0.19)        --
  Cumulative effect of a change in accounting principle.....         --      (0.04)        --
                                                              ---------   --------   --------
  Net income................................................  $    2.33   $   1.56   $   1.37
                                                              =========   ========   ========
  Weighted average common shares............................     36,555     34,245     33,675
                                                              =========   ========   ========
Diluted earnings per share (Note 12):
  Income before extraordinary item and cumulative effect of
     a change in accounting principle.......................  $    2.31   $   1.77   $   1.37
  Extraordinary item........................................         --      (0.19)        --
  Cumulative effect of a change in accounting principle.....         --      (0.04)        --
                                                              ---------   --------   --------
  Net income................................................  $    2.31   $   1.54   $   1.37
                                                              =========   ========   ========
  Weighted average common shares............................     36,947     34,500     33,841
                                                              =========   ========   ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-4
<PAGE>   47

                        ATLAS AIR, INC. AND SUBSIDIARIES

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

<TABLE>
<CAPTION>
                                     COMMON STOCK     ADDITIONAL                         DEFERRED       TOTAL
                                    ---------------    PAID-IN     RETAINED   TREASURY   COMPEN-    STOCKHOLDERS'
                                    SHARES   AMOUNT    CAPITAL     EARNINGS    STOCK      SATION       EQUITY
                                    ------   ------   ----------   --------   --------   --------   -------------
<S>                                 <C>      <C>      <C>          <C>        <C>        <C>        <C>
Balance, December 31, 1997........  33,675    $337     $176,141    $ 62,803   $  (452)    $  --       $238,829
  Exercise of stock options,
     including income tax benefits
     of $431......................     145       1        1,990          --        --        --          1,991
  Purchase of Treasury Stock......      --      --           --          --    (4,027)       --         (4,027)
  Issuance of Treasury Stock......      --      --           --        (128)    1,008        --            880
  Net income......................      --      --           --      46,217        --        --         46,217
                                    ------    ----     --------    --------   -------     -----       --------
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
                                    ======    ====     ========    ========   =======     =====       ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-5
<PAGE>   48

                        ATLAS AIR, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                             ---------------------------------
                                                               2000        1999        1998
                                                             ---------   ---------   ---------
<S>                                                          <C>         <C>         <C>
OPERATING ACTIVITIES:
Net income.................................................  $  85,259   $  53,270   $  46,217
Adjustments to reconcile net income to net cash provided by
  operating activities:
  Depreciation and amortization............................     94,006      78,379      59,230
  Amortization of debt issuance costs and lease financing
     gains and losses......................................     (2,424)      1,514       4,465
  Net gain on disposition of property and equipment........     (1,594)     (3,586)         --
  Extraordinary loss (gain)................................         --      10,465          --
  Write-off of start-up costs..............................         --       2,266          --
  Deferred tax provision...................................      9,028      32,199       9,020
  Changes in operating assets and liabilities:
     Accounts receivable and other.........................    (47,858)     (6,745)    (30,532)
     Deposits and other....................................    (15,673)       (377)     (1,574)
     Accounts payable and accrued expenses.................     12,907      31,020       8,033
     Income tax payable....................................     31,359      (8,034)      7,880
                                                             ---------   ---------   ---------
          Net cash provided by operating activities........    165,010     190,371     102,739
INVESTING ACTIVITIES:
Purchase of property and equipment.........................   (415,268)   (370,521)   (456,926)
Proceeds from sale of property and equipment...............     13,808      36,000          --
Purchase of investments....................................   (138,286)   (139,368)   (150,516)
Maturity of investments....................................    126,340      20,000     239,964
                                                             ---------   ---------   ---------
          Net cash used in investing activities............   (413,406)   (453,889)   (367,478)
FINANCING ACTIVITIES:
Issuance of Common Stock...................................    107,089      15,658       1,560
Purchase of Treasury Stock.................................         --        (776)     (4,025)
Issuance of Treasury Stock.................................      1,236       1,034         878
Net proceeds from debt issuance and lease financing........    540,814     470,860     775,933
Principal payments on notes payable........................   (226,026)   (339,955)    (89,895)
Debt issuance costs and deferred lease costs...............    (12,599)     (1,325)    (11,419)
                                                             ---------   ---------   ---------
          Net cash provided by financing activities........    410,514     145,496     673,032
                                                             ---------   ---------   ---------
          Net increase (decrease) in cash and cash
            equivalents....................................    162,118    (118,022)    408,293
Cash and cash equivalents at beginning of period...........    331,605     449,627      41,334
                                                             ---------   ---------   ---------
Cash and cash equivalents at end of period.................  $ 493,723   $ 331,605   $ 449,627
                                                             =========   =========   =========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.

                                       F-6
<PAGE>   49

                        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.

  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.

  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 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. Management believes that there have been no
events or changes in circumstances which would require review of such
recoverability.

  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 $7,641,000, $21,036,000 and
$34,825,000 for the years ended December 31, 2000, 1999 and 1998, respectively.

                                       F-7
<PAGE>   50
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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 $5,154,000, $5,231,000 and $5,383,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.

  Cash Equivalents

     All highly liquid investments with an original maturity of three months or
less are considered to be cash equivalents, except certain investments in debt
securities which are classified as short-term investments.

  Investments

     Investments in debt securities, other than money market funds and certain
commercial paper, with a current maturity of less than one year, are considered
to be short-term investments. Investments in debt securities with a current
maturity of one year or greater are classified as deposits and other in the
accompanying balance sheet (see Note 2).

  Earnings per Share

     Basic EPS is computed by dividing income available to common stockholders
by the weighted average number of common shares outstanding during the period.
Diluted EPS is computed similar to basic EPS except that the weighted average
number of common shares outstanding during the period is adjusted for the
incremental shares attributed to outstanding options to purchase common stock.
Options to acquire 249,250, 561,000 and 609,750 shares in 2000, 1999 and 1998,
respectively, after taking into account the Stock Split (see Note 12), were not
included in the computation of diluted EPS because the option price was greater
than the average market price of the Company's common stock.

  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).

  Significant Customers and Concentration of Credit Risk

     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.
For the year ended December 31, 1998, China Airlines Ltd. and Lineas Aereas
Suramericanas, S.A. ("LAS") accounted for
                                       F-8
<PAGE>   51
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately 33% and 10% of the Company's total revenues, respectively.
Accounts receivable from these principal customers were $38,454,000 and
$14,152,000 in the aggregate at December 31, 2000 and 1999, 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 $141,155,000,
$115,521,000 and $100,362,000 for the years ended December 31, 2000, 1999 and
1998, respectively.

     The Company made federal and state income tax payments of approximately
$12,494,000, $12,620,000 and $10,374,000 in the years ended December 31, 2000,
1999 and 1998, respectively.

  Recent Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes 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. The Company has evaluated the impact of SFAS 133,
as amended, on the Company's future earnings and financial position, and has
determined that the fair value of its interest rate swap, which does not qualify
for hedge accounting under SFAS 133, was a loss of approximately $2.5 million as
of January 1, 2001. This amount will be reflected as a cumulative effect of a
change in accounting principle for the first quarter 2001.

     In December 1999, the Securities and Exchange Commission (the "SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes the SEC's views on the application of GAAP
to revenue recognition. In June 2000, the SEC released SAB No. 101B that delays
the implementation date of SAB 101 until no later than the fourth fiscal quarter
of fiscal years beginning after December 15, 1999. The Company has reviewed SAB
No. 101 and believes that it is in compliance with the SEC's interpretation of
revenue recognition.

     In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions involving Stock Compensation." This Interpretation
clarifies (a) the definition of employee for purposes of applying APB Opinion
No. 25, (b) the criteria for determining whether a plan qualifies as a
noncompensatory plan, (c) the accounting consequence of various modifications to
the terms of a previously fixed stock option or award, and (d) the accounting
for an exchange of stock compensation awards in a business combination. The
adoption of this Interpretation has not had a material impact on the Company's
financial position or operating results.

2. INVESTMENTS

     The Company invests excess cash in part in various held-to-maturity
securities, as defined in SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," which requires investments in debt securities to be
classified as held-to-maturity and measured at amortized cost only if the
reporting enterprise has the positive intent and ability to hold those
securities to maturity. The following table sets forth the aggregate fair
                                       F-9
<PAGE>   52
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

value, gross unrealized holding gains, gross unrealized holding losses, and
amortized/accreted cost basis by major security type as of December 31, 2000 and
1999 (in thousands):

<TABLE>
<CAPTION>
                                 AGGREGATE    GROSS UNREALIZED   GROSS UNREALIZED   (AMORTIZATION)
         SECURITY TYPE           FAIR VALUE    HOLDING GAINS      HOLDING LOSSES      ACCRETION
         -------------           ----------   ----------------   ----------------   --------------
<S>                              <C>          <C>                <C>                <C>
DECEMBER 31, 2000:
Included in cash and cash
  equivalents:
  Corporate Bonds..............   $ 22,184          $25                $ --              $  4
  Commercial Paper.............    111,683           --                  31               291
  Taxable Auction Securities...      7,500           --                  --                --
  Municipal Bonds..............      8,850           --                  --                --
  Market Auction Preferreds....    111,325           --                  --                --
                                  --------          ---                ----              ----
          Totals...............   $261,542          $25                $ 31              $295
                                  ========          ===                ====              ====
Included in short-term
  investments:
  U.S. Government Agencies.....   $  6,999          $--                $  1              $ --
  Commercial Paper.............     16,693            1                  --                60
  Corporate Notes..............     15,117           63                  --                (6)
  Corporate Bonds..............      7,100           --                   1                (1)
  Market Auction Preferreds....     16,500           --                  --                --
  Euro Bonds...................      2,233            3                  --                --
                                  --------          ---                ----              ----
          Totals...............   $ 64,642          $67                $  2              $ 53
                                  ========          ===                ====              ====
Included in deposits and other:
  U.S. Government Agencies.....   $  6,002          $ 2                $ --              $  1
  Corporate Notes..............     10,207            8                  --                 2
  Guaranteed Investment
     Contracts.................     41,100           --                  --                --
  Corporate Bonds..............     17,254           --                  71                (8)
  Euro Bonds...................     14,316           30                  --                12
                                  --------          ---                ----              ----
          Totals...............   $ 88,879          $40                $ 71              $  7
                                  ========          ===                ====              ====
DECEMBER 31, 1999:
Included in cash and cash
  equivalents:
  CDs and equivalents..........   $ 20,002          $ 1                $ --              $ --
  Commercial Paper.............     57,296            2                  --                62
  Corporate Bonds..............     42,998           --                  11                51
  Market Auction Preferreds....     98,900           --                   3                --
  Other........................      1,751           --                   3                --
                                  --------          ---                ----              ----
          Totals...............   $220,947          $ 3                $ 17              $113
                                  ========          ===                ====              ====
</TABLE>

                                       F-10
<PAGE>   53
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                 AGGREGATE    GROSS UNREALIZED   GROSS UNREALIZED   (AMORTIZATION)
         SECURITY TYPE           FAIR VALUE    HOLDING GAINS      HOLDING LOSSES      ACCRETION
         -------------           ----------   ----------------   ----------------   --------------
<S>                              <C>          <C>                <C>                <C>
Included in short-term
  investments:
  Corporate Bonds..............   $ 29,041          $--                $199              $(15)
  Corporate Notes..............     40,306           --                 255               (20)
  Euro Dollar Bonds............     15,034           --                  92                (8)
  Market Auction Preferreds....     17,000           --                  --                --
  U.S. Government Agencies.....     31,953           --                  36                 1
  Other........................      5,362           --                  21                22
                                  --------          ---                ----              ----
          Totals...............   $138,696          $--                $603              $(20)
                                  ========          ===                ====              ====
</TABLE>

In addition, accrued interest on cash and cash equivalents, short-term and
long-term investments at December 31, 2000 was approximately $1.1 million, $0.6
million and $1.3 million, respectively. Accrued interest on cash and cash
equivalents and short-term investments at December 31, 1999 was approximately
$1.4 million and $2.3 million, respectively. Interest earned on these
investments and related maturities are reinvested in similar securities.
Securities included in short-term investments have maturity dates of less than
one year.

3. LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         1999
                                                              ----------   ----------
<S>                                                           <C>          <C>
AFL Term Loan Facility......................................  $       --   $  146,050
AFL II Term Loan Facility...................................          --      146,050
AFL III Term Loan Facility..................................     264,353           --
Aircraft Credit Facility....................................      97,852      135,904
10 3/4% Senior Notes due 2005...............................     137,475      150,000
9 1/4% Senior Notes due 2008................................     152,837      174,794
9 3/8% Senior Notes due 2006................................     147,000      150,000
1998 EETCs..................................................     101,536      107,889
1999 EETCs..................................................     102,613      216,624
Other.......................................................      89,141      121,702
                                                              ----------   ----------
                                                               1,092,807    1,349,013
Current maturities..........................................     (55,018)     (95,929)
                                                              ----------   ----------
Long-term debt, net.........................................  $1,037,789   $1,253,084
                                                              ==========   ==========
</TABLE>

     Covenants with respect to the Company's debt instruments require that
certain financial ratios be maintained, such as a consolidated fixed charge
ratio, a maximum leverage ratio and a minimum interest coverage ratio.

  Aircraft Credit Facility

     In May 1996, the Company 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, the Company amended its Aircraft Credit
Facility 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

                                       F-11
<PAGE>   54
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

March 31, 2003 to March 30, 2005 in the event that permanent financing has not
been obtained for such flight equipment financed under the facility. At the time
of each borrowing, the Company must select either a Base Rate Loan (prime rate,
plus .625%) or a Eurodollar Rate Loan (Eurodollar rate plus 1.625%). The Company
selected the Eurodollar Rate Loan for substantially all borrowings in 1999 and
2000. The weighted average interest rate on borrowings outstanding under the
Aircraft Credit Facility was 8.64% at December 31, 2000. Each borrowing is
secured by a first priority security interest in the collateral flight equipment
of that borrowing. Certain tests must be met before each purchase of aircraft
and related drawdown on the facility. To date, the Company has met these tests.
If in the future, the Company cannot meet all the tests because of the difficult
sequencing of aircraft acquisition, aircraft conversion and customer contracts,
it believes that other financing sources would be available or that it would
acquire aircraft using its internal cash or seek a waiver of any necessary
conditions. As of December 31, 2000, the Company had approximately $97.9 million
outstanding under the Aircraft Credit Facility.

     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 the Company include, among other restrictions: limitations on
indebtedness, liens, investments, contingent obligations, restricted junior
payments, capital expenditures, and leases. The Company is in compliance with
all such covenants as of December 31, 2000.

  AFL Term Loan Facility

     In May 1997, the Company formed a wholly-owned subsidiary, Atlas Freighter
Leasing, Inc., for the purpose of entering into a $185 million term loan
facility (the "AFL Term Loan Facility") to refinance six Boeing 747-200 aircraft
previously financed through bank debt. Concurrent with entering into the AFL
Term Loan Facility, the proceeds of the AFL Term Loan Facility were used to
repay all existing principal and interest due under the bank debt. In April
2000, the Company refinanced all of the aircraft and spare engines financed
under the AFL Term Loan Facility into a new $300 million loan facility (see AFL
III Term Loan Facility).

  AFL II Term Loan Facility

     In September 1997, the Company formed another wholly-owned subsidiary,
Atlas Freighter Leasing II, Inc. for the purpose of entering into a $185 million
term loan facility (the "AFL II Term Loan Facility") to refinance four of the
aircraft previously financed under the Aircraft Credit Facility, plus nine spare
engines, in order to provide the Company with greater financial flexibility in
anticipation of the financing requirements for the future acquisition of
additional aircraft. In April 2000, the Company refinanced all of the aircraft
and spare engines financed under the AFL II Term Loan Facility into a new $300
million loan facility (see AFL III Term Loan Facility).

  AFL III Term Loan Facility

     In April 2000, the Company formed another wholly-owned subsidiary, Atlas
Freighter Leasing III, Inc. 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 747-400 spare engines owned by the
Company. As a result of this refinancing, the Company 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 1.62% and plus 2.00%,
respectively, at December 31, 2000. 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

                                       F-12
<PAGE>   55
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of $37.3 million. In September 2000, the Company entered into a sale-leaseback
transaction with respect to 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 nine 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. The Company obtained a waiver from the issuer of the
AFL III Term Loan Facility on the capital expenditures restriction for the
fourth quarter of 2000. The Company is in compliance with all other covenants as
of December 31, 2000.

  10 3/4% Senior Notes due 2005

     In August 1997, the Company 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.

     Interest on the 10 3/4% Senior Notes began to accrue from their date of
original issuance and is payable semi-annually in arrears on February 1 and
August 1 of each year. The 10 3/4% Senior Notes are redeemable, in whole or in
part, at the Company's option, at any time, on or after August 1, 2001,
initially at 105.375% of their principal amount, plus accrued interest,
declining ratably to 100% of their principal amount, plus accrued interest, on
or after August 1, 2003. In June 2000, the Company 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, which reduced the amount
outstanding to $137.5 million.

     The 10 3/4% Senior Notes are general unsecured obligations of the Company
which rank pari passu in right of payment to any of the Company's existing and
future unsecured senior indebtedness. The 10 3/4% Senior Notes are effectively
subordinated, however, to all of the Company's secured indebtedness and to all
indebtedness of its subsidiaries.

     Covenants with respect to the 10 3/4% Senior Notes contain certain
limitations on the Company 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. The Company is in compliance with all such
covenants as of December 31, 2000.

  9 1/4% Senior Notes due 2008

     In April 1998, the Company 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.

     Interest on the 9 1/4% Senior Notes is payable semi-annually on April 15
and October 15 of each year, commencing October 15, 1998. The 9 1/4% Senior
Notes are redeemable at the Company's option, in whole or in part, at any time
on or after April 15, 2003, initially at 104.625% of their principal amount,
plus accrued interest, declining ratably to 100% of their principal amount, plus
accrued interest, on or after April 15, 2006. In addition, at any time prior to
April 15, 2001, the Company has the option to redeem up to 35% of the aggregate
principal amount of the 9 1/4% Senior Notes originally issued with the net cash
proceeds of one or more public equity offerings at 109.25% of their principal
amount, plus accrued interest; provided that after any such redemption at least
65% of the aggregate principal amount of 9 1/4% Senior Notes remains
outstanding. In June 2000, the
                                       F-13
<PAGE>   56
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Company completed a common stock offering for net cash proceeds of $104 million,
a portion of which was used to repurchase $22.0 million of the 9 1/4% Senior
Notes, which reduced the amount outstanding to $153.0 million.

     The 9 1/4% Senior Notes represent unsubordinated indebtedness of the
Company, and rank pari passu in right of payment with all of its existing and
future unsubordinated indebtedness and senior in right of payment to all of its
subordinated indebtedness. The 9 1/4% Senior Notes are effectively subordinated,
however, to all of the Company's secured indebtedness and all existing and
future liabilities of its subsidiaries.

     Covenants with respect to the 9 1/4% Senior Notes contain certain
limitations on the Company's 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. The Company is in compliance with all such
covenants as of December 31, 2000.

  9 3/8% Senior Notes due 2006

     In November 1998, the Company 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.

     Interest on the 9 3/8% Senior Notes is payable semi-annually on May 15 and
November 15 of each year, commencing May 15, 1999. The 9 3/8% Senior Notes are
redeemable at the Company's option, in whole or in part, at any time on or after
November 15, 2002, initially at 104.688% of their principal amount, plus accrued
interest, declining ratably to 100% of their principal amount, plus accrued
interest, on or after November 15, 2005. In addition, at any time prior to
November 15, 2001, the Company has the option to redeem up to 35% of the
aggregate principal amount of the 9 3/8% Senior Notes originally issued with the
net cash proceeds of one or more public equity offerings at 109.375% of their
principal amount, plus accrued interest; provided that after any such redemption
at least 65% of the aggregate principal amount of the 9 3/8% Senior Notes
originally issued remains outstanding. In June 2000, the Company completed a
common stock offering for net cash proceeds of $104 million, a portion of which
was used to repurchase $3.0 million of the 9 3/8% Senior Notes, which reduced
the amount outstanding to $147.0 million.

     The 9 3/8% Senior Notes represent unsubordinated indebtedness of the
Company, and rank pari passu in right of payment with all of its existing and
future unsubordinated indebtedness and senior in right of payment to all of its
subordinated indebtedness. The 9 3/8% Senior Notes are effectively subordinated,
however, to all of the Company's secured indebtedness and all existing and
future liabilities of its subsidiaries.

     Covenants with respect to the 9 3/8% Senior Notes contain certain
limitations on the Company's 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. The Company is in compliance with all such
covenants as of December 31, 2000.

  1998 EETCs

     In February 1998, the Company 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, the Company 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
                                       F-14
<PAGE>   57
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the transaction were used to finance (through four leveraged leases and one
secured debt financing) the first five new 747-400 freighter aircraft from
Boeing delivered to the Company during the period July 1998 through December
1998. In connection with the secured debt financing, the Company 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, 2000,
the Company had $101.5 million outstanding under the 1998 EETCs.

     In November and December 1997, the Company 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, the Company 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, the Company 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 secured debt financings, the debt portion of the
acquisition cost of four new 747-400 freighter aircraft from Boeing. In
connection with these secured debt financings, the Company 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,
the Company 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.

  2000 EETCs

     In January 2000, the Company completed an offering of $217.3 million
Enhanced Equipment Trust Certificates (the "2000 EETCs"). The 2000 EETCs are not
direct obligations of, or guaranteed by, the Company 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. In the second
quarter of 2000, the cash proceeds from the 2000 EETCs transaction were used to
finance, through secured debt financing, the debt portion of the acquisition
cost of two new 747-400 freighter aircraft, pursuant to the Boeing Purchase
Agreement. In connection with these secured debt financings, the Company
executed equipment notes in the aggregate amount of $217.3 million, with a
weighted average interest rate of 9.0%. Subsequently, the Company entered into
sale-leaseback transactions with respect to these aircraft, which fully repaid
the outstanding amount of the equipment notes.

  Other

     Other debt primarily consists of separate financings of three of the
Company's 747-200 freighter aircraft and a capital lease on a flight simulator
(see Note 6). The weighted average interest rate for all other debt at December
31, 2000 was 8.0%, with terms ranging from one to eight years.

  Hedges

     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, 2000, the notional amount was $140.1 million, the fixed interest
rate was 6.47% and the 3-month LIBOR rate was 6.75%. While it is not the
intention of the Company to terminate the interest

                                       F-15
<PAGE>   58
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

rate swap, it is estimated that the Company would have had to pay approximately
$2.5 million, based on published trading prices, to settle the interest rate
swap at December 31, 2000.

  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, 2000, 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, 2000, 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......................................   $141,599
9 1/4% Senior Notes.......................................    149,780
9 3/8% Senior Notes.......................................    144,060
1998 EETCs................................................    106,386
1999 EETCs................................................    106,290
</TABLE>

  Five Year Debt Maturities

     At December 31, 2000 principal repayments on long-term debt for the next
five years were as follows (in thousands):

<TABLE>
<S>                                                         <C>
2001......................................................  $ 55,018
2002......................................................    67,282
2003......................................................    79,836
2004......................................................    82,421
2005......................................................   300,316
Thereafter................................................   507,934
</TABLE>

4. DEFERRED AIRCRAFT OBLIGATIONS

     In June 1997, the Company entered into the Boeing Purchase Agreement (see
Note 6) to purchase 10 new 747-400 freighter aircraft, with options to purchase
up to 10 additional 747-400 aircraft. The Boeing Purchase Agreement requires the
Company to pay pre-delivery deposits in order to secure delivery of the 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, 2000, was $69.9 million of Deferred
Aircraft Obligations at a combined interest rate of 8.76%. The Company settled
its Deferred Aircraft Obligations upon delivery of each of the first twelve
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 747-400s to be delivered in 2002. Financing for the twelve aircraft
was secured through the 1998 EETCs, 1999 EETCs and the 2000 EETCs. The Company
will settle the balance of its Deferred Aircraft Obligations upon delivery of
the four aircraft.

5. INCOME TAXES

     The Company has generated approximately $53,364,000 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,
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.

                                       F-16
<PAGE>   59
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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,
                                                          ---------------------------
                                                           2000      1999      1998
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Current:
  Federal...............................................  $41,496   $ 4,370   $18,012
  State and local.......................................    1,744       987       733
Deferred:
  Federal...............................................    8,253    31,363     8,113
  State and local.......................................      775       836       476
                                                          -------   -------   -------
     Provision for income taxes.........................  $52,268   $37,556   $27,334
                                                          =======   =======   =======
</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,
                                                              -----------------------
                                                              2000     1999     1998
                                                              -----    -----    -----
<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...............................   2.00     2.00     1.16
                                                              -----    -----    -----
  Effective tax provision rate..............................  38.00%   38.00%   37.16%
                                                              =====    =====    =====
</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,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax liabilities:
  Tax depreciation in excess of book depreciation...........  $250,231   $200,888
Deferred tax assets:
  Tax benefit of net operating loss carryforwards...........        --     55,636
  Alternative minimum tax credits...........................    53,364     29,712
  Deferred lease financing gains and losses.................   118,479     41,292
  Other.....................................................     2,110      6,595
                                                              --------   --------
          Total deferred tax assets.........................   173,953    133,235
                                                              --------   --------
          Net deferred tax liability........................  $ 76,278   $ 67,653
                                                              ========   ========
</TABLE>

                                       F-17
<PAGE>   60
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

6. COMMITMENTS AND CONTINGENCIES

  Aircraft

     Minimum annual rental commitments under capital leases and noncancelable
aircraft operating leases with initial or remaining terms of more than one year:

<TABLE>
<CAPTION>
                                                              CAPITAL   OPERATING
YEARS ENDING DECEMBER 31,                                     LEASES      LEASES
-------------------------                                     -------   ----------
                                                                 (IN THOUSANDS)
<S>                                                           <C>       <C>
2001........................................................  $ 1,423   $  175,308
2002........................................................    1,423      170,677
2003........................................................    1,423      151,911
2004........................................................    1,423      149,564
2005........................................................    1,304      146,205
Thereafter..................................................       --
                                                              -------   ----------
Total minimum lease payments................................    6,996   $2,407,366
Less amounts representing interest..........................   (1,277)
                                                              -------
Present value of future minimum capital lease payments......    5,719
Less current obligations under capital lease................     (981)
                                                              -------
Long-term obligations under capital lease...................  $ 4,738
                                                              =======
</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, $0.2 million, and $5.7 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, 2000.

     Aircraft and engine rentals, including short-term rentals, were
$79,134,000, $51,173,000 and $14,616,000 for the years ended December 31, 2000,
1999 and 1998, respectively.

  Boeing Purchase Agreement

     In June 1997, the Company entered into the Boeing Purchase Agreement to
purchase 10 new 747-400 freighter aircraft with options for 10 additional
aircraft, all to be powered by GE engines. In February 1999, the Company
exercised options for two additional aircraft which were delivered in 2000 and
in October 2000 the Company exercised options for four additional aircraft for
delivery in 2002. As a result of the Company being a large purchaser of 747-400
freighter aircraft, it was able to negotiate from Boeing and GE a significant
discount off the aggregate list price for the 16 747-400 freighter aircraft,
four installed engines per aircraft and additional spare engines. In addition,
the Company obtained certain ancillary products and services at advantageous
prices. Due to production problems at Boeing, some of the 1998 delivery
positions of the 747-400 aircraft were delayed. The Company was compensated for
these delays. In addition, Boeing has agreed to compensate the Company for
future delays, if any, in deliveries of the 747-400 aircraft pursuant to the
Boeing Purchase Agreement. Any delays in future deliveries of the 747-400
aircraft could adversely impact the Company's ability to initiate service with
existing and prospective customers in a timely fashion.

     The Boeing Purchase Agreement requires that the Company pay pre-delivery
deposits to Boeing prior to the delivery date of each 747-400 freighter aircraft
in order to secure delivery of the 747-400 freighter aircraft and to defray a
portion of the manufacturing costs. Based on the current expected firm aircraft
delivery schedule, the Company expects the maximum total amount of pre-delivery
deposits at any time outstanding will be

                                       F-18
<PAGE>   61
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

approximately $162.4 million for the four aircraft to be delivered in 2002. Upon
each delivery, Boeing refunds the Company the pre-delivery deposits associated
with the delivered 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 4) for which the Company accrues and
pays interest quarterly at 6-month LIBOR, plus 2.0%. As of December 31, 2000,
there was $69.9 million of deferred aircraft obligations included in other
liabilities, and the combined interest rate was approximately 8.76%.

  Maintenance Agreements

     Pursuant to a maintenance contract with KLM (the "Maintenance Contract"),
as amended, in effect until June 2002, a significant part of the regular
maintenance (principally C Checks) for the Company's 747-200 freighter aircraft
is undertaken by KLM, primarily at its maintenance base located at Schiphol
International Airport in Amsterdam, The Netherlands. KLM supplies engineering
and diagnostic testing for each aircraft and its components in compliance with
the FAA and other applicable regulations. The Maintenance Contract provides that
KLM, subject to certain terms and conditions, will perform repairs and
maintenance of the Company's aircraft on the same basis and order of priority as
repairs to its own fleet. Such service is provided to the Company at a cost, for
which a large part is a fixed rate per flight hour, subject to a 3.5% annual
escalation factor for the first five years. Under the terms of the Maintenance
Contract, in the event that the Company wishes to maintain more than 12 of its
aircraft under such contract, the terms of the contract are subject to
adjustment by KLM. More than 12 of the Company's aircraft are currently subject
to the Maintenance Contract. In December 1999, the Company 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
the KLM agreement.

     In June 1996, the Company 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. The agreement commenced in the third quarter of 1996 with the
acceptance of engines associated with aircraft acquired in the third and fourth
quarter of 1996. Effective in the year 2000, the Company has an option to add
not less than 40 engines to the program. The Company has not added engines
pursuant to this option as of December 31, 2000.

     During the initial 36 month operating period, the 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 747-400 airframe during the warranty period. In addition, the 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 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 will provide all required maintenance for its twelve
747-400 aircraft, plus any additional 747-400 aircraft that the Company
purchases pursuant to its option in the Boeing Purchase Contract, 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 the GE engine purchase agreement, the Company has also entered into two
agreements with GE to provide ongoing maintenance on the 747-400 aircraft
engines at a fixed cost per flight hour, subject to an annual escalation
adjustment.

  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 relocation and severance benefits.

                                       F-19
<PAGE>   62
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  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. In November
1994, Boeing issued Nacelle Strut Modification Service Bulletins which have been
converted into Directives by the FAA. All of the Company's Boeing 747-200
aircraft have been brought into compliance with such Directives. 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 747-200 aircraft will range between $2 million and $3
million. Fourteen aircraft in the Company's 747-200 fleet have already undergone
the major portion of such modifications. The remaining seven 747-200 aircraft
will require modification prior to the year 2009. 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
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

     In April 1999, the Company received notification from the National
Mediation Board ("NMB") that the Atlas crew members voted for representation by
the Air Line Pilots Association ("ALPA"). The Company's profit sharing plan (the
"Profit Sharing Plan") excludes from the category of eligible employees, those
employees who have been certified by the NMB for representation. In response to
ALPA's claims that such an exclusion violates the Railway Labor Act, on May 6,
1999, the Company filed an action in the United States District Court for the
District of Columbia (the "District Court") seeking a declaratory judgment
confirming, inter alia, the enforceability of the Profit Sharing Plan's
exclusion. On May 10, 1999, ALPA filed a counterclaim in that action, alleging
that the exclusion of its members from the Profit Sharing Plan violates the
Railway Labor Act, and seeking restoration of profit sharing pay. In October
1999, the District Court entered a summary judgment in favor of the Company,
ruling that the Company did not violate the Railway Labor Act when it eliminated
crew members' participation in the Profit Sharing Plan following ALPA's
certification as the crew members' collective bargaining agent. In addition, the
District Court dismissed all other claims in the case. ALPA subsequently filed
an appeal of the District Court's decision.

     On November 21, 2000, the United States Court of Appeals for the District
of Columbia Circuit issued a decision reversing the earlier decision of the
District Court. The Company's petition for a rehearing was denied on February 5,
2001. The Company continues to believe that the exclusion of its pilots from the
corporate profit sharing plan was lawful and is considering whether to petition
the Supreme Court for review in addition to pursuing all other available legal
remedies.

     In March 2000, the Company received an order from the Government of India
("India") seeking approximately $1.1 million in taxes (plus interest of
approximately $1.1 million and possible penalties) for the tax year 1996 to
1997. Subsequent to the initial order, the government of India eliminated the
interest charge and reduced the $1.1 million tax assessment. India also
requested additional information for subsequent tax years. The Company believes
that it is exempt from Indian taxes under a United States/India treaty and
intends to contest the assessment vigorously.

     On May 24, 2000, ALPA filed suit against the Company in the Southern
District of Florida seeking to enjoin, as a violation of the Railway Labor Act,
its establishment of a subsidiary in the United Kingdom to conduct overseas
operations out of London Stansted Airport. The Company believes the suit is
without merit and intends to vigorously defend the action.

                                       F-20
<PAGE>   63
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

7. 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, 2000, the outstanding balance of officer demand loans,
including accrued interest, was approximately $685,000.

     In September 2000, the Company terminated an agreement with Mr. Chowdry,
the Company's former Chairman of the Board of Directors, President and CEO,
which had provided for a sharing of the acquisition and financing costs of the
Boeing Business Jet ("BBJ") used to transport Company executives on business
trips throughout the world. The effect of the termination agreement was to
release Mr. Chowdry from his obligations to share in the acquisition and
financing costs of the BBJ in return for Mr. Chowdry's releasing the Company of
its obligation to share with Mr. Chowdry the net proceeds, if any, resulting
from the disposition of the BBJ (see note 15).

8. ACCOUNTS RECEIVABLE AND OTHER

     The components of accounts receivable and other are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              ------------------
                                                                2000      1999
                                                              --------   -------
<S>                                                           <C>        <C>
Accounts receivable -- trade................................  $117,002   $88,514
Insurance and vendor claims.................................    12,541     1,463
Spare parts inventory.......................................    11,431     5,954
Employee receivables........................................       685       856
Prepaids and other..........................................    13,449     5,728
Less: Allowance for doubtful accounts.......................    (9,171)   (9,536)
                                                              --------   -------
                                                              $145,937   $92,979
                                                              ========   =======
</TABLE>

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

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

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                              -------------------
                                                                2000       1999
                                                              --------   --------
<S>                                                           <C>        <C>
Accounts payable -- trade...................................  $ 11,609   $  3,669
Accrued salaries and wages..................................    14,098      9,453
Accrued maintenance.........................................    35,899     36,917
Accrued interest............................................    25,030     34,757
Loss reserves...............................................       400      1,519
Deferred charges............................................    22,047     19,562
Accrued expenses............................................    19,811     25,971
Other.......................................................     6,393      8,081
                                                              --------   --------
                                                              $135,287   $139,929
                                                              ========   ========
</TABLE>

                                       F-21
<PAGE>   64
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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
$2,881,000, $2,262,000 and $1,636,000 for the years ended December 31, 2000,
1999 and 1998, respectively.

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 99%, 99% and 96% of total revenues for the
years ended December 31, 2000, 1999 and 1998, respectively. All foreign sales
were U.S. dollar denominated.

12. STOCKHOLDERS' EQUITY

  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 $104 million. Approximately $86 million and $10
million of the proceeds were used for the retirement of debt during the second
and third quarters, respectively.

  Preferred Stock

     The Board of Directors is authorized under the restated certificate of
incorporation to issue up to 10,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions thereof,
including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, redemption prices, liquidation preferences and the number
of shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The issuance of preferred stock may
have the effect of delaying, deferring or preventing a change in control of the
Company without further action by the stockholders. The issuance of preferred
stock with voting and conversion rights may adversely affect the voting power of
the holders of common stock, including the loss of voting control to others. At
present, the Company has no plans to issue any shares of preferred stock.

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 for any
                                       F-22
<PAGE>   65
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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. As of December 31,
2000, 206,238 shares were issued at a weighted average cost of $18.20 to 198
employees who have participated in the Stock Purchase Plan.

  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. In February 2000 the Board of Directors granted a total of
24,050 restricted shares, to officers of the Company as a portion of the 1999
annual officer bonus. These restricted shares are subject to forfeiture upon
termination of employment with the Company prior to their vesting date of
December 31, 2001. Upon grant of the restricted shares, the Company recorded
deferred compensation of $0.6 million, which is being amortized to operations
over the vesting period.

  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. As of December 31, 2000, 21,405 shares were issued to five
directors who have participated in the Director Plan.

  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

                                       F-23
<PAGE>   66
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

below, the Company has computed the fair value of all options granted during
2000, 1999 and 1998, using the Black-Scholes pricing model and the following
weighted average assumptions:

<TABLE>
<CAPTION>
ASSUMPTIONS -- 1995 PLAN                                     2000      1999      1998
------------------------                                    -------   -------   -------
<S>                                                         <C>       <C>       <C>
Risk-free interest rates..................................  6.16%     5.84%     5.54%
Expected dividend yields..................................  --        --        --
Expected lives............................................  5 years   5 years   5 years
Expected volatility.......................................  58.11%    56.80%    59.79%
</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      1998
                                                           -------   -------   -------
<S>                                          <C>           <C>       <C>       <C>
Net income (in thousands):.................  As Reported   $85,259   $53,270   $46,217
                                             Pro Forma     $80,263    49,804    43,136
Net income per common share (basic EPS):...  As Reported      2.33      1.56      1.37
                                             Pro Forma        2.20      1.45      1.28
Net income per common share (diluted
  EPS):....................................  As Reported      2.31      1.54      1.37
                                             Pro Forma        2.17      1.44      1.27
</TABLE>

     A summary of stock option activity for the years ended December 31, 2000,
1999 and 1998 is presented in the table below:

<TABLE>
<CAPTION>
                                       2000                          1999                          1998
                            ---------------------------   ---------------------------   ---------------------------
                                            WEIGHTED                      WEIGHTED                      WEIGHTED
                                            AVERAGE                       AVERAGE                       AVERAGE
                              SHARES     EXERCISE PRICE     SHARES     EXERCISE PRICE     SHARES     EXERCISE PRICE
                            ----------   --------------   ----------   --------------   ----------   --------------
<S>                         <C>          <C>              <C>          <C>              <C>          <C>
Outstanding at beginning
  of year.................   2,023,131       $22.45        2,392,122       $22.07        1,168,662       $19.62
Granted...................     920,250        33.68          480,000        26.98        1,368,000        22.97
Exercised.................    (281,811)       12.80         (661,487)       23.70         (144,540)       10.81
Forfeited.................    (198,438)       25.03         (187,504)       24.73               --           --
                            ----------                    ----------                    ----------
Outstanding at end of
  year....................   2,463,132        27.55        2,023,131        22.45        2,392,122        22.07
                            ==========                    ==========                    ==========
Exercisable at end of
  year....................     996,192        24.03          540,131        16.04          943,122        20.55
Weighted average fair
  value of options
  granted.................  $    18.91                    $    15.01                    $    13.03
</TABLE>

     The following table summarizes information with regard to the options
outstanding at December 31, 2000:

<TABLE>
<CAPTION>
                                          OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
                                  ------------------------------------   ----------------------
                                                 WEIGHTED
                                                  AVERAGE     WEIGHTED                 WEIGHTED
                                                 REMAINING    AVERAGE                  AVERAGE
            RANGE OF                NUMBER      CONTRACTUAL   EXERCISE     NUMBER      EXERCISE
        EXERCISE PRICES           OUTSTANDING      LIFE        PRICE     EXERCISABLE    PRICE
        ---------------           -----------   -----------   --------   -----------   --------
<S>                               <C>           <C>           <C>        <C>           <C>
$10.67 -- 16.00.................       4,500     5.5 years     $12.45        4,500      $12.45
 16.31 -- 24.44.................   1,033,920     6.8 years      22.50      703,170       21.97
 24.78 -- 33.83.................     819,212     8.7 years      27.30      215,772       26.80
 34.00 -- 37.58.................     399,000    12.0 years      34.79       57,750       34.09
 38.44 -- 45.22.................     206,500     9.6 years      40.12       15,000       45.22
                                   ---------                               -------
                                   2,463,132     8.1 years      27.47      996,192       24.03
                                   =========                               =======
</TABLE>

                                       F-24
<PAGE>   67
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

14. PROFIT SHARING PLAN

     Employees who have been employed by the Company for at least twelve months
as full-time employees are eligible to participate in the Company's Profit
Sharing Plan, which was adopted in 1994. The Profit Sharing Plan provides for
payments to eligible employees in semiannual distributions based on the
Company's pretax profits. The Company is 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 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. The
Profit Sharing Plan excludes from the category of eligible employees, those
employees who have been certified by the NMB for representation. In April 1999,
the Company received notification from the NMB that its crew members voted for
representation by ALPA. Subsequently, the Company eliminated crew members'
participation in the Profit Sharing Plan based on ALPA's certification as the
crew members' collective bargaining agent. For the years 2000, 1999 and 1998,
beginning with an employee's thirteenth month of employment, an employee is
entitled to receive a guaranteed profit sharing payment of 10% of salary, except
for captains, who received a guarantee of 20% prior to their ineligibility to
participate in the Profit Sharing Plan. The expense for the Profit Sharing Plan
for the years ended December 31, 2000, 1999 and 1998 was $5,290,000, $4,488,000
and $8,061,000, respectively.

15. SUBSEQUENT EVENTS

     In January 2001, the Company completed the sale of one non-standard 747-200
aircraft to a third party. Proceeds from the sale were used to retire the
remaining debt on the aircraft.

     On January 24, 2001 a private jet piloted by Michael A. Chowdry, the
Company's Chairman of the Board of Directors, President, and CEO, crashed
resulting in his death and the death of a passenger. Brian Rowe, a member of its
Board of Directors, succeeded Mr. Chowdry as Chairman. Linda Chowdry filled the
vacancy on the Board created by the death of her husband. Richard H. Shuyler,
who was formerly Executive Vice President, and was the acting CEO, has been
named Chief Executive Officer, and James T. Matheny, who was Executive Vice
President of Operations, has been named President and Chief Operating Officer.
Together, the four will operate as an executive committee that will oversee the
management and ongoing strategy of the Company.

     In February 2001, the Company announced the election of Stephen A. Greene
to its Board of Directors. Mr. Greene is a senior partner with Cahill Gordon &
Reindel, a New York based law firm which has represented the Company since it
was founded in 1992.

     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.

     In February 2001, the Company announced the filing of a shelf registration
statement with the U.S. Securities and Exchange Commission for up to $600
million in debt securities and pass through certificates. The Company expects to
use the proceeds from the shelf offering for general corporate purposes,
including debt repayment, capital spending, buying back common stock, and
acquisitions.

                                       F-25
<PAGE>   68
                        ATLAS AIR, INC. AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                              INCOME BEFORE
                                                              EXTRAORDINARY                  INCOME BEFORE
                                                                ITEM AND                  EXTRAORDINARY ITEM
                                                               CUMULATIVE                AND CUMULATIVE EFFECT
                                                               EFFECT OF A                  OF A CHANGE IN
                                                  INCOME        CHANGE IN                ACCOUNTING PRINCIPLE     NET INCOME
                                   OPERATING      BEFORE       ACCOUNTING       NET     -----------------------   ----------
                        REVENUE     INCOME     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
1999
 First Quarter........  $137,839    $36,707      $16,393         $10,246      $ 2,237     $.30         $.30         $.07
 Second Quarter.......   138,568     41,107       21,232          13,270       13,270      .39          .38          .39
 Third Quarter........   161,896     48,169       22,549          14,093       14,093      .41          .41          .41
 Fourth Quarter.......   198,778     61,506       38,661          23,670       23,670      .69          .69          .69

<CAPTION>

                        NET INCOME
                        -----------
                        DILUTED EPS
                        -----------
                            (1)
<S>                     <C>
2000
 First Quarter........     $.35
 Second Quarter.......      .53
 Third Quarter........      .60
 Fourth Quarter.......      .81
1999
 First Quarter........     $.07
 Second Quarter.......      .38
 Third Quarter........      .41
 Fourth Quarter.......      .69
</TABLE>

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

(1) As restated to reflect the Stock Split.

                                       F-26